uk integration and strategy - tui group · uk integration and strategy ... integration update –...

UK Integration and Strategy

Dermot BlastlandManaging Director UK, Ireland & Canada

Nick LongmanIntegration Director

Agenda

� Introduction

� Integration and synergy update

� Delivering growth

TUI Travel PLC | UK Integration and Strategy |

Introduction – Overall ApproachDeliver synergies and grow the business

� Merging two strong businesses requires a measured approach

� We have a track record of achieving this

� Build team – balance from both teams

� Deliver synergies – increased to £125m

� Deliver growth – focus on strategic imperatives� Product and content

� Business model

� Customer

� Sustainability


Introduction – BrandsComplementary customer profile

Acorn Customer Segmentation

First Choice over indexed vs. ThomsonThomson over indexed vs. First Choice

FC & Thomson almost the same

� Thomson, also strong in this area, has a further franchise in time rich, wealthy, older empty nester customers.

� First Choice has a relative strength with a younger more family orientated population.

� Both brands have an opportunity to move upmarket into higher market segments with relevant differentiated product and personal service propositions.

Maintain both brands positioned at different market segments


Introduction – BrandsInnovation, differentiation and service

� Families� Younger� Earlies� South

Complementary

First Choice� Famous for Families

Thomson� Famous for Service

& Adults


First Choice Thomson� Couples� Older� Lates� Midlands & North

Introduction – UK & Ireland FinancialsMargin growth potential

(27)Scheduled operations

79UK Mainstream

2.0%

106Leisure operations

5.8%

+0.7%Elimination of scheduled losses of £27m

+3.1%Delivery of synergies of £125m

FY07£m

Pro-forma EBITA Synergies

andelimination

ofscheduled

lossesbring the margin to 5.8% over

3 years


Agenda

� Introduction




UK Synergy Upgrade Synergies increased to £125m

� Marketing and New Media, Brochures, Destination Management, Hotel & Agency contracting

TourOperations

� Best practice, FX Contract, Retail size and shape, Virtual Call Centres (VCC)

Distribution

� Move to one selling system, Property and Overheads, Headcount

Restructuring & IT

� Network Planning, Fuel, Catering & Ground Handling, Engineering

Airline


Of the original £100m UK Mainstream = £85m Of the revised £150m UK Mainstream = £125m

� Airline £35m

� Restructuring & IT £35m� Distribution £10m� Tour Operations £5m

� Airline £48m

� Restructuring & IT £50m� Distribution £14m� Tour Operations £13m

Integration Update – AirlineSynergies increased from £35m to £48m

- Q3 20081Engine overhauls, spare engine coverage, spares� Engineering

- AchievedRate and efficiency � Fuel- AchievedVarious cost initiatives� Other

- Achieved (Effective W’08)Efficiency in crewing & rostering� Flight Operations

- Q1 20081Re-tendering all major contracts� Catering and Ground HandlingDetailed Planning (S’09) underway - Q2 20081 (Effective S’09)� Network Planning


Airline Synergies - £48m

� Network Planning £26m

� Catering & Ground Handling £6m

� Engineering £6m

� Other £4m

� Flight Operations £3m

� Fuel £3m

1 Calendar basis

� Headcount £38.5m

� Property & Overheads £5m

� Elimination of two selling systems £4m

� Contract Renegotiations £2.5m

Integration UpdateSynergies increased from £35m to £50m


Restructuring & IT Synergies - £50m

Q2 20091-� Property savings realised by move from Crawley &

Manchester

On-going & substantially complete by Q4 20081

-� Headcount on track:� Airline to Luton - May 2008� Tour Operations to Luton - December 2008

Q1 20081-� Contract negotiations- telephony, support, hosting, etc.

Q1 20081-� S’09 launched from April 2008 on one system

1 Calendar basis

Integration Update – DistributionSynergies – Increased from £10m to £14m

Achieved-� Strengthened 3rd party deals – Tour Operators and other suppliers

Achieved-� Rolled out new practices across estate since October 2007

Achieved-� Agreed new deal with American Express effective from May 2008

- Q4 20081� Introduce VCC to 160 First Choice Shops

£4.8m� Foreign Exchange (Best practice & New supplier)

£1.2m� Virtual Call Centre (VCC)

£1.0m� 3rd Party Suppliers

£7.0m� Retail Size & Shape


Distribution Synergies - £14m

1 Calendar basis

Integration Update – DistributionRetail portfolio – Manage for distribution and profit

452208TOTAL

102Number of towns with 5 shops




UnitsTownsDuplicate Shops Circa 40% of shop leases expire in the next 5 years

1,091386585

4949-Franchises

16040-Hypermarkets

882297585Shops/Instores/Pods

ShopEquivalent

FirstChoiceThomson

Retail Estate

-50

50

150

250

350

450

550

650

750

850

950

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY23

FY24

FY25

FY26

FY27

Shop

s (No

)

First Choice ThomsonTUI Travel PLC | UK Integration and Strategy |

� Must manage for profit and distribution

� In-house bookings earlier and higher margin

� Ancillary sales of FX, Insurance, Car hire, etc. on in-house sales

� Synergy plan assumes up to 100 units close(63 Yr 1, 37 Yr 2)

Integration Update – Tour OperationsSynergies increased from £5m to £13m

- Q3 20081Consolidation to in-house agents, Elimination of non-differentiated / exclusive, best rates

-� Hotel & Agency Contracting

- Achieved

- Q1 20081

- Q1 20081

Joint overseas management structure from S’08-� Destination Management

Rationalisation of titles, Rate benefits, Production costs

-� Brochures

- Single agency, combined media buying, Direct mailing, Search engine optimisation

� Marketing & New Media

£1m� Destination Management

£2m� Brochures

£3m� Marketing & New Media

£7m� Hotel & Agency Contracting


Tour Operating Synergies - £13m

1 Calendar basis

Integration Update – SystemsImperative to consolidate systems as soon as possible

Thomson Reservation System (TRACS) selected:� Best fit and optimal cost performance� Quickest implementation

� April ’08 for Summer ’09 launch� Quickest harmonisation of associated systems and synergy release� Does not distract from core integration work

Yield Management� First Choice enjoyed industry leading position – superior margins� Thomson invested heavily in new system-operational from last year� One team can yield manage Summer’09 joint programme from April ’08

Management Information (MI)� First Choice industry leading MI

� Intra-day margins every 15 minutes� Extensive analysis of product profitability by any measure – retail, airline, tour ops� Fundamental to driving margin� Consolidated and automated trading MI within 30 days post Day 1 - top quartile

performanceTUI Travel PLC | UK Integration and Strategy |

UK Synergy UpgradeConfident of delivering synergies

125115105

70

4021

0

25

50

75

100

125

150

Target Exit Ratepa

Target Exit Ratepa

Target Exit Ratepa

£m

2008/92007/8 2009/10

� FY08 exit run rate is 32% oftotal synergies and by FY’09 run rate is 84%.

� Approximately 60% of Yr 1synergies already landed,circa 85% will land by May 2008.

� Approximately 80% of totalsynergies will be landed byMay 2009.

� Mainstream restructuringcosts expected to increase to£150m.


Agenda

� Introduction




Value driver

� Differentiated content� Remix of haul type� Long haul expansion – 787

Strategic Imperatives

Product

Business Model � Fleet type� Capacity� Distribution Margin

growth

Customer

� Our Customers� Our Shareholders� Supporting travel and destination

Sustainability

Delivering Growth

� New destinations� Quality� Customer touch points� Booking options

� Communication� Feedback� Flexibility


Product – Differentiated ContentMore differentiated product and exclusive offerings

First Choice Holiday Village

� 3 new properties 2008 :Cyprus, Algarve, Mexico

� Potential new complex in Rhodes 2009

� Reviewing sites in Greece 2009/10

Sensatori Resort

� Crete opening S’08

� Mexico under assessment 2009

� Reviewing sites in Greece 2009/10

� New HIT Entertainment branding 2008

� Potential introduction to Long haul in 2009 in core chains

Kids Academy

� Growth in 2009 of both programmes in under represented destinations

Premier & Chic & Unique

� 3 new hotels under consideration for 2009 in Spain, Canaries & Italy

Thomson Gold

Platinum & Beach Club

� Aiming for growth of around 10 new properties including Long haul for 2009


Product – Differentiated ContentIncrease in differentiated product to 67% by 2011

Differentiated products includes:

� Sensatori

� Holiday Villages

� Long haul 767s with extra legroom/787s

� Gold & Platinum

� Kids Academies

� Cruise

� Premier

� Beach Clubs

� Chic & Unique

40% 40% 44% 49% 51% 55%

10% 10% 10%10% 12% 12%

50% 50% 46% 41% 37% 33%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY05/06 FY06/07 FY07/08 FY08/09 FY09/10 FY10/11

% IT

pax

Diff IT pax Excl IT pax Non Diff / Excl IT pax

Differentiated Product Growth Strategy (Including LH)

% of Inclusive Tour (IT) Pax


Differentiated ContentDifferentiated products book early

Differentiated products deliver higher marginsConstant focus on increasing range on differentiated product to:

� Drive superior product margins

� Book early

� Remove pressure in lates market, driving yields up generally

10050%Non -Differentiated

20050%Differentiated / Exclusive

Tour Ops Margin Index

per IT pax

Mix %FY07IT Pax

65%35%Total programme - 2011 target

53%25%Total programme - current 07

48%17%Non-Differentiated

67%41%Differentiated

By MarchBy Christmas% of IT Programme sold


Booking curve of product range

Product – Remix of Haul TypeLong haul delivers better margins and books earlier

35

47

18

25

50

25

0

10

20

30

40

50

60

Short Haul Mid Haul Long Haul

% o

f 200

7/8

Prog

ram

mes

UK & Ireland 2011 View (IT Pax Revenue basis)

2007/8 volumes – 65% Thomson : 35% First Choice

� Short haul Thomson volumes driven by Winter programme

� Still looking to grow long haul and remix short haul and mid haul

� By December 2007 long haul was 36% sold compared to short and mid haul which had sold 20% of capacity

� Annual long haul volumes exceed 600,000 pax making us bigger than Kuoniand Virgin combined

400Long

250Mid100Short

Margin index per IT pax


Long Haul ExpansionSignificant investment in the 787 � 787 planned deliveries

�2009 = 2, 2010 = 3, 2011 = 7, 2012 = 6, 2013 = 5� Initial deliveries to UK – Group asset allocated where best return on capital� New potential destinations – Malaysia, Thailand, Vietnam, Bali, S. Africa, Argentina, Rockies Ski, Hawaii, � Cost of operation consistent with 767� Superior in-flight experience on 767 & 787

Malaysia

Thailand

Vietnam

Bali

S. Africa

Argentina

Rockies Ski

Mexico

Barbados

Sri Lanka

Dom Rep

Maldives

Costa Rica

Kenya

Cuba

Brazil

The Bahamas

Jamaica

Goa Kerala

Florida

Aruba Margarita Antigua

� Current Long haul Destinations

� New proposed Long haul Destinations

Hawaii


Business Model – Fleet TypeMove to standard Boeing fleet of 737, 757, 767/787

Move to a standard Boeing fleet of 737, 757, 767/787 to deliver efficiencies around engineering costs, pilot levels, dedicated standby, sub charters / recoveries &

effective programme planning

�1314258/283/328 seats767-300 / 787

�3035233/235 seats757-200

�33218 seatsA321

�137189 seats737-800

�67180 seatsA320

290 seats

148 seats

131 seats

82

3

11

2

S2007

76TOTAL

�0767-200

�11737-300

�0737-500

FutureS2008Aircraft

Increase

Reduce

Increase


Business Model – CapacityIntegrated capacity planning

� Tour operator led capacity decision making

� Joint planning for S’09

� Lease profile provides flexibility for short and mid haul

UK Aircraft Lease Agreement Run-off – Short & Mid-Haul(Excludes owned aircraft)

Ownership structure and lease terms allow for flexible fleet planning

59 5648

42 3933

010203040506070

S'07 S'08 S'09 S'10 S'11 S'12

* Includes 26 new 737-800’s


Business Model - DistributionTarget controlled distribution of 80-85% - Currently 76%

Controlled distribution reduces costs:

15-20%

80-85%

TargetMix

Maintainsupport13%24%3rd Party

Re-mix to drive margin10%76%Controlled

Strategicdirection

CommissionCost %

Mix %FY07

36

11

2924

20

27

14

39

3131

5

33

0

10

20

30

40

50

Own Retail VCC / CallCentre

Web 3rd Party

% o

f Sal

esThomson

First Choice

Total UK & Ireland (ITPax)

Constant focus on increasing distribution efficiency:

� Drive to lower cost channels

� VCC to utilise shop downtime

� Web stronger on commodity (e.g. airfares)

� Optimal mix to allow flexibility with Tour Operator


Customer – FlexibilityEnhanced customer choice

TUI Travel PLC | UK Integration and Strategy | GreeceCyprusCanariesBalearicsMainland SpainTunisiaEgyptBulgariaTurkeyPortugal & MadeiraAustriaItaly

GATWICK

MANCHESTER

Key Gateways Multiple Duration Destinations

For S’09 we can offer 35 Short and Mid haul destinations with flexible durations of 3/4/7/10/11/14 nights from Manchester and Gatwick from our core fleet

SustainabilityIntegrated within our business

Our Customers:� 59% say …. Holidays with low impact on

environment would govern their holiday purchase.

� 77% say …. Holidays with fair deal to local people would govern their holiday purchase.

TUI Travel UK – Our response� Investment in Boeing 787 Dreamliner and 737/800

� Hotel environmental ratings featured in the brochure

� Carbon offset projects with climate care


Summary

Integration progressing well - synergies uplifted by circa 50% in total

Exit unprofitable lines of business

Innovation, product development and a focus on the customer at the heart of future growth

Massive opportunity to grow margin and profitability of the business

Translating market leading positions into market leading margins


Experienced and capable management team in place

uk integration and strategy - tui group · uk integration and strategy ... integration update –...

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