Market overview

As one of the world’s leading leisure travel companies, TUI Travel is truly global, operating in over 180 countries from 31 source markets.

The leisure travel market

In 2010, international tourism saw a strong recovery driven primarily by better global economic conditions and compared to 2009 total international arrivals grew by 7% (UNWTO).

TUI Travel’s ten core source markets, including the UK, Sweden, Germany, France, Belgium, the Netherlands, Austria, Poland, Switzerland and Canada, make up £388bn of global travel spend (Euromonitor), with our three largest markets of Germany, France and the UK totalling 65% of this spend.

TUI Travel’s core markets account for £388bn of global travel spend

With approximately a one third share of the European mainstream holiday market, TUI Travel occupies a strong position. We have number one or two brand positions across all our core markets and, as the traditional mainstream markets mature, we continue to differentiate ourselves by offering a greater choice of unique products and destinations as well as looking to new markets for growth.

Independent travel, which includes self-packaged holidays, specialist holidays, accommodation only and online travel agencies, continues to be the fastest-growing area of leisure travel. TUI Travel has market leading positions in a number of specialist segments within independent travel and we plan to continue to expand this portfolio of fast-growing businesses.

The online travel market is a key area of focus. According to PhoCusWright, the global online travel market is estimated to be worth £181bn. Europe and the USA led the way in online sales in 2011, generating approximately 75% of global online revenues and growing 10% and 8% respectively year on year. The Asia-Pacific (APAC) region, however, continues to grow at a much faster rate of 17% year on year. With the significant proportion of future growth estimated to come through online channels, we remain focused in our efforts to provide our customers with easy-to-access information combined with easy-to-use booking engines. TUI Travel’s mainstream businesses have seen a consistent year on year increase in online bookings. In the past year, the Nordic business took 61% of its bookings online and in the UK online sales made up 39% of total bookings.

TUI Travel’s accommodation wholesaler businesses (Hotelbeds, Bedsonline and Hotelopia) continue to experience strong growth and have established leading positions in this market. In the accommodation only online travel agency (OTA) segment, LateRooms.com now commands 25% market share in the UK and is among the top OTA players within Europe. The APAC region, with high annual growth forecasts in the accommodation OTA segment, is of increasing importance to TUI Travel. To strengthen our position in this market, we continue to invest in the AsiaRooms brand.

The economic environment

The global economic environment experienced two distinct phases in 2011. A recovery in early 2011 curtailed the fears of a double-dip recession. This has, however, been followed by a period of slow growth and economies across Europe now face the prospect of a pronounced slowdown.

The IMF projects real GDP growth worldwide at 4.0% for 2011 and 2012 – 0.5% lower than their previous projection in April 2011. The GDP growth of our two largest source markets, Germany and UK, is also expected to slow to 2.7% and 1.1% respectively. While unemployment has continued to rise in the UK and currently stands at 8.3%, unemployment in Germany rose unexpectedly for the first time in over two years in October 2011 and now stands at 7%. The economic outlook for 2012 remains uncertain with continued uncertainty in North Africa, the ongoing Eurozone crisis and volatility in fuel and currency prices.

The political climate

Travel and tourism are heavily regulated industries. As a global organisation, TUI Travel has a public affairs team that works with governments and regulators across key source markets to address issues affecting our industry and customers.

The issue of air passenger rights has assumed particular importance, the European institutions having focused heavily on this issue during the year. Our public affairs team has engaged regularly with politicians and officials both in Brussels and in key source markets in order to ensure that regulation properly balances the needs and interests of customers and industry.

The question of aviation taxation has also figured prominently in a number of jurisdictions and we have, together with trade associations and other industry partners, sought to press our case for a more equitable taxation regime that properly rewards and incentivises efficient use of aircraft.

Financial protection of air passengers continues to be an issue, particularly in the UK, and we have continued to lobby stakeholders to ensure a fair and affordable system of protection. Good progress has been made in this area, with the UK Government announcing plans for a series of key reforms.

Finally, our work to influence the European Commission to extend the scope of the European Package Travel Directive in order to reflect the changes in the industry since the inception of that regulation, has continued and we see clear signals that the European Commission is now persuaded of the need for reform.

Outlook, future trends and factors

While the global recession and uncertain economic environment have had an effect on consumer travel spending habits, demand for leisure travel remains strong. The mainstream holiday market, our traditional stronghold, has seen a resurgence in a tough economic environment. We have continued to modify our product offering in line with consumer preferences to include more differentiated and exclusive products as well as flexibility of duration. Our all-inclusive holidays have proved particularly popular as consumers seek more financial certainty of their total holiday spend. In the UK, we announced that from Summer 2012, the First Choice brand in the UK would be completely all-inclusive – a reflection of growing consumer demand.

Independent travel, which has experienced consistently strong growth over the years, remains a key focus area for TUI Travel. As the demand for independent travel continues to increase, we seek to expand our already significant positions within this segment of the market.

In 2011, an increasing number of consumers turned to online channels to research and book their holiday. We expect this trend to continue into 2012 and beyond where our mainstream businesses expect to see an even greater share of online bookings. We, therefore, remain focused on improving our online presence, increasing our participation in social media and moving towards an online-driven company culture.

We believe the BRIC (Brazil, Russia, India & China) economies, with high-growth forecasts, will be the key driver of long-term travel growth. TUI Travel already has a presence in Russia and Ukraine which we plan to increase from the existing platform and we continue to determine our participation strategy in Brazil, India and China.

We remain cautious about 2012, given the continued economic uncertainty in Europe, a slow recovery of demand to North African destinations and increased volatility in fuel prices and currency exchange rates. There is, however, every reason to believe that the demand for leisure travel will continue to experience robust growth in the long term. TUI Travel has already proved resilient in a challenging market environment and, with a long heritage in leisure travel and a diverse range of experiences on offer, the Company is well placed.