Strategy

TUI Travel’s strategic goal is to create superior shareholder value by being the leading global leisure travel group, providing customers with the widest choice of differentiated and flexible travel experiences to meet their changing needs and maintaining our commitment to sustainable development.

Our four strategic imperatives of product and content, distribution and brands, people and operational effectiveness and growth and capital allocation underpin everything our businesses do. In addition, the Group is focused on three strategic growth initiatives: product, distribution and operational efficiency.

Strategic Growth Initiatives

Mainstream

We have redefined our mainstream business model from ‘traditional’ to ‘modern’ mainstream with a focus on differentiated and exclusive product, being online driven and cost efficient.

Product

Differentiation is one of the central pillars of our product strategy within our Mainstream Sector and we have a clear focus on increasing our differentiated and exclusive product offering across all source markets. By their nature, differentiated products are unique in the marketplace and difficult to replicate by competitors. They command a margin premium and attract greater customer loyalty leading to higher repeat booking rates. In addition, earlier booking trends for differentiated content enable us to manage our capacity and yield more effectively.

In the Mainstream Sector, the level of differentiated product has increased over the last year and currently represents 41% of total holidays. We have specific targets to increase the level of differentiation and continue to evolve product content. In the UK we have introduced the Thomson Couples concept; all 16 hotels in this concept are child free. In the Nordics two new Blue Villages were opened in Turkey and Mallorca and, in Germany, the Sensimar portfolio grew from five to ten hotels.

Distribution

Each of our source markets has its own distribution strategy which is tailored to meet different customer preferences and market dynamics. All markets, however, have a goal of increasing their levels of controlled distribution and reducing their costs of distribution through the efficient operation of retail shops and call centres and the effective use of online sales channels. Strong controlled distribution with a focus on online sales has the benefit of: (1) making it easier for us to understand customer needs and tailoring our products accordingly; (2) improving brand and product loyalty; and (3) enabling us to reduce our cost of distribution, thereby increasing margins. In the Mainstream Sector 65% of sales are now made through controlled channels (2010: 62%) and 30% of sales are made online (2010: 27%).

Operational Efficiency

One of the key areas of focus for the Mainstream business is to be as cost efficient as possible without making any compromises on customer experience. We are currently in the process of building new reservation systems in key source markets which will lower our production and back-office costs and at the same time improve customer experience. We are also taking a closer look at our airlines with the goal of making them as efficient as possible.

Independent

TUI Travel already has market-leading positions in independent travel including online accommodation, marine, adventure, education, language travel, ski, sport and specialist holidays. As the demand for independent travel grows, we aim to leverage TUI Travel’s strong position in the segment and further enhance our offering and reach.

Product

Increasing our hotel inventory and the range of accommodation will be the major growth driver for our online accommodation businesses in the Accommodation & Destinations Sector. Within the APAC region, we are looking to expand into new source markets with the AsiaRooms brand and have already translated the site into five languages (Traditional Chinese and Simplified Chinese, Thai, Malaysian and Indonesian). Sourcing the right hotels in the right destinations will be a key success factor.

Within our portfolio of Specialist & Activity businesses there continues to be strong demand for experiential holidays. We plan to consolidate our market-leading positions within the Specialist & Activity businesses and continue to look for innovative products and attractive markets for further growth. During the year in the Marine division, our inland waterways brand Le Boat launched the new 1500 series of boats, which introduces a new level of luxury to the inland waterways markets with a significantly enhanced customer experience.

Distribution

Efficient use of online distribution channels is at the forefront of our strategy within the accommodation OTA and accommodation wholesaler businesses. In 2011, Hotelbeds, the international accommodation wholesaler, covered over 100 source markets and more than 500 destinations. A robust IT infrastructure has been the backbone of Hotelbeds’ rapid expansion and has also enabled it to outperform the market consistently with 21% growth in total transaction value in 2011. Bedsonline, the accommodation wholesaler that sells directly to travel agencies, has been rapidly expanding its distribution channels and, since 2009, has entered into 11 new markets including the US, Brazil, Russia, Thailand and Singapore. Bedsonline now works with over 23,500 travel agencies and sold 4.6 million roomnights in 2011 compared to 3.8 million in 2010.

Within Specialist & Activity, we are focusing on increasing the share of direct distribution to reduce distribution costs and increase direct access to customers. We have also recently launched the online iExplore portal which aggregates products from 20 UK brands, showcasing 120 activities, 130 destinations and over 1500 products. Key features of the site include the ability to search, filter and compare activity products side by side, plus an ‘inspirator travel profiler’, which matches your travel personality to holiday experiences.

Operational Efficiency

There is an increased focus on operational efficiency within our Specialist & Activity businesses. An optimal cost structure for the Sector includes a reduction in the number of finance and reservation systems together with cost reductions gained by centralising certain back-office functions.

Emerging Markets

Our Emerging Markets strategy continues to focus on Russia & CIS, where we have successfully completed three acquisitions with our venture partner S-Group Capital Management and successfully launched the TUI brand into the market. We are now focusing on increasing our presence from this platform.

We also have a presence in Brazil, China and India through our accommodation wholesaler and destination services businesses. In China we are delighted that this year TUI Travel has been one of the three foreign companies to be granted an outbound operating licence, under a new pilot scheme introduced by the Chinese National Tourism Authority. This licence creates a new source market for us with extensive growth prospects. We will continue to determine our participation strategy in the emerging markets to create long-term sustainable growth for TUI Travel on a global scale.