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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 | Page 2
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
TUI Travel PLC | UK Integration and Strategy | Page 3
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
TUI Travel PLC | UK Integration and Strategy | Page 4
Introduction – BrandsInnovation, differentiation and service
� Families� Younger� Earlies� South
Complementary
First Choice� Famous for Families
Thomson� Famous for Service
& Adults
TUI Travel PLC | UK Integration and Strategy | Page 5
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
TUI Travel PLC | UK Integration and Strategy | Page 6
Agenda
� Introduction
� Integration and synergy update
� Delivering growth
TUI Travel PLC | UK Integration and Strategy | Page 7
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
TUI Travel PLC | UK Integration and Strategy | Page 8
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
TUI Travel PLC | UK Integration and Strategy | Page 9
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
TUI Travel PLC | UK Integration and Strategy | Page 10
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
TUI Travel PLC | UK Integration and Strategy | Page 11
Distribution Synergies - £14m
1 Calendar basis
Integration Update – DistributionRetail portfolio – Manage for distribution and profit
452208TOTAL
102Number of towns with 5 shops
164Number of towns with 4 shops
6622Number of towns with 3 shops
360180Number of towns with 2 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 | Page 12
� 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
TUI Travel PLC | UK Integration and Strategy | Page 13
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 | Page 14
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.
TUI Travel PLC | UK Integration and Strategy | Page 15
Agenda
� Introduction
� Integration and synergy update
� Delivering growth
TUI Travel PLC | UK Integration and Strategy | Page 16
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
TUI Travel PLC | UK Integration and Strategy | Page 17
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
TUI Travel PLC | UK Integration and Strategy | Page 18
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
TUI Travel PLC | UK Integration and Strategy | Page 19
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
TUI Travel PLC | UK Integration and Strategy | Page 20
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
TUI Travel PLC | UK Integration and Strategy | Page 21
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
TUI Travel PLC | UK Integration and Strategy | Page 22
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
TUI Travel PLC | UK Integration and Strategy | Page 23
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
TUI Travel PLC | UK Integration and Strategy | Page 24
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
TUI Travel PLC | UK Integration and Strategy | Page 25
Customer – FlexibilityEnhanced customer choice
TUI Travel PLC | UK Integration and Strategy | Page 26GreeceCyprusCanariesBalearicsMainland 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
TUI Travel PLC | UK Integration and Strategy | Page 27
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
TUI Travel PLC | UK Integration and Strategy | Page 28
Experienced and capable management team in place