Interview with TUI chief executive

TUI Travel unveiled its annual report today. Inside is an interview with chief executive Peter Long, with questions carefully chosen by his PR executives. Obviously most of it is a big pat on the back, but here's what he had to say…

So Peter, how did you manage to perform so well?

I am very pleased with our performance this year. We have achieved another year of record profits. This is despite us being affected by the events of the ‘Arab Spring,’ which we estimate probably cost us something in the region of £70m but which we were able to mitigate in all our markets except France, which has a huge reliance on North African destinations, particularly Egypt and Tunisia.
We had a strong performance in most of our source markets and the flexibility in our business model meant that when the ‘Arab Spring’ hit us, we were able to quickly move capacity away from those affected destinations and secure additional beds, particularly in the Western Mediterranean.
The breadth of businesses that we have across the Group means that we are able to satisfy most leisure travel requirements through either our ‘product driven’ or ‘price driven’ propositions.
Within product driven you will find our modern mainstream, differentiated and exclusive product, as well as our specialist and activity products. Price driven includes mainstream commodity packages and our online accommodation providers.
We have a clear strategy and road map for achieving our strategic goals and with a strong, committed management team we operate from a position of strength.

You’ve identified ‘modern mainstream’ as central to your strategy for 2012. What do you mean by modern mainstream and how are you going to approach it?

Modern mainstream is about building on the journey of offering this unique and exclusive product – we need to give customers the reason why they should book with us and I think that exclusive offering is very important. The other important factor with modern mainstream is to give the customer the opportunity to book their holiday through any channel that they wish and the importance of online today, whether it’s researching the holiday, whether it’s booking the holiday, or whether it’s a combination of using research plus going to one of our travel agents, modern mainstream encompasses those two key aspects – the uniqueness of holiday experience and the choice of channels with which our customers can book their holidays.
What we mean by differentiated and exclusive product is a holiday that you can only get from us. We either define the concept and own it, like Sensatori, Blue Villages, Sensimar or Holiday Villages, or we are the exclusive tour operator in a particular hotel in a particular source market. We are increasing the share of differentiated and exclusive holidays and moving away from product that you can get from anyone and which we consider to be commodity.
Having a direct relationship with the customer is very important for us and we believe that this will increasingly be through online channels.

How important to TUI Travel is the online side of your business?

We regard it as a vital part of our business and not just a channel to market. We will be driving online growth across all our businesses whatever leisure travel experiences they satisfy. In the Nordics, our businesses are already online driven and our online accommodation wholesalers and online travel agents have been delivering an average CAGR of 25% and 33% respectively.

One thing you have done this year is generate an extremely strong cash flow which has been the envy of many of your competitors. How did you manage to do that?

We have turned our operating profits into cash and that’s ultimately what we have to do and we’ve demonstrated our ability to be able to grow the business successfully through these initiatives and particularly around modern mainstream, also around the other range of products that we have within our specialist businesses, whether that’s our yacht fleet where we’re number one in the world with over 1,200 yachts, whether it’s all our boats on the inland waterways across Europe – a very broad choice of leisure travel experiences which is quite a unique portfolio when one compares with the rest of our competitors in the market.
We were able to reduce net debt and end the year in a positive position. Continued improvement in cash flow is a key target for us in order to fund the dividend and future growth.

On top of your cash flow and your profits you’ve also announced a business improvement programme so obviously you’re not being complacent about your success?

That’s absolutely right. At the beginning of the financial year we said that we expected to deliver a further £89m through our turnaround programmes across our Mainstream businesses and an additional £40m of cost savings and efficiencies across the Group over a three-year period. This year we have delivered £63m of this total.
We have, since then, identified further turnaround opportunities and cost efficiencies across the Group and have combined them under a new business improvement programme and, as a result, we have increased our target to £107m which we expect to deliver over the next three years.

You announced earlier in the year that from next summer the First Choice programme would be an all inclusive brand. Why did you make this decision?

A not inconsiderable number of our customers like the certainty of knowing what the overall cost of their holiday is going to be before they go away, particularly in the current economic environment. Our First Choice brand was already 65% all inclusive and by making it an all inclusive brand
we have a clear differentiator.

So what is your response to those who might argue that all inclusive holidays are harmful to local communities?

We try to fulfil our customers’ holiday needs in the most responsible way that we can and we are mindful that all inclusive holidays evoke strong opinions. In our view the key issue is whether a hotel is being operated responsibly in relation to the environment and the local community, whatever its board basis. The evidence we have to date shows that our all inclusive properties employ more local people on higher benefits. We promote the use of local produce and encourage our customers to buy local goods and to take excursions to the surrounding area. In a number of destinations all inclusive properties are bringing improved economic benefit to that particular region. We are involved with several research projects into all inclusive which will guide our efforts to ensure our holidays benefit communities as well as our customers.

You have appointed Johan Lundgren as Deputy Chief Executive with responsibility for the Mainstream Sector – a Sector that you’ve decided is critical to your plans in the future – this must indicate that Mainstream is incredibly important to you?

Yes. Four years on from our merger much has been achieved including integrating two very big businesses in the UK – Thomson and First Choice.
We are now at the next stage of our development and for us to achieve what we want with modern mainstream we need to be best in class, not in pockets of Mainstream but across all the Mainstream businesses.
Johan is a first rate tour operator and leader. He successfully led our Nordics businesses and more recently took overall responsibility for TUI UK & Ireland which has achieved an excellent performance. What Johan will do with his experience and his enthusiasm is to take the business to the next stage to ensure that our business model is robust not just for the next two to three years but to the end of this decade and into the next decade so by the time we’re at 2025 we can say we’ve changed our business and we’ve adapted our business to satisfy the customers’ needs of today and that requires us to continue on a journey of change and innovation.

So is Johan’s promotion an indication that perhaps you are thinking of retiring?

Far from it, I’m as excited and committed to TUI Travel and the next stage of our journey as I’ve ever been. What it does reflect, however, is the importance of Johan’s role. It also shows how seriously we take management succession and capability in the Group. I am delighted to say that following Johan’s appointment we have promoted from within, which is testament to the strength and capability of our management team.

Next year will see the introduction of the EU Emissions Trading Scheme or ETS, how do you feel about having yet another tax being imposed upon your Group?

We advocate legislative frameworks that reward and incentivise businesses like ours that strive to continuously improve environmental efficiency and invest in lower-carbon technology. What we need, however, is a level playing field so I am very concerned that this could become a situation where it is only European airlines facing ETS.
Also, in a number of our source markets and particularly the UK, we already pay significant passenger duty taxes and EU ETS should not be about double taxation.