New Tui chief executive Fritz Joussen outlined his vision for the group at an exclusive Travel Weekly dinner. Ian Taylor reports
Fritz Joussen took over as sole chief executive of Tui this month, ending a period of joint leadership with Peter Long that followed Tui Travel’s merger with German-based Tui at the end of 2014.
Joussen’s background in the mobile phone industry played a significant role in his taking the job and in shaping the vision he has set for the company.
He explained: “I started with the first private mobile company in Germany [Mannesmann].” When the firm was acquired by Vodafone in 2000, Joussen worked as strategy director, looking to answer the question ‘What happens if the internet comes to mobile?’
He subsequently ran Vodafone Germany from 2005 to 2012. When he left, he contemplated a job in private equity. But the board of Tui, then the controlling shareholder in Tui Travel, approached him and, in his words, said: “We have a trading business that is potentially disintermediated by the internet. We heard you’ve been thinking about this. Would you be interested in looking at it?”
Joussen said: “I had no idea about tourism [but] I looked at the material [on Tui].
“Tour operators were created more or less in the 1950s and 1960s when northern Europeans wanted to go to southern Europe and it was a big unknown for vacationers. In Spain you still had a dictatorship. The intermediary role was pivotal.
“[But] in 2012, you had the euro, the same legislation, the internet. Why do you need an intermediary?”
How to compete
Joussen came up with an answer. He said: “If you cannot compete on cost and choice you need to compete on differentiation. And when you look at our industry, the hotel is a main pillar of differentiation.”
He added: “Vertical integration is driving differentiation. Look at my old industry. Apple has 15% to 20% market share [of mobile]. Google with Android has 80%. But Apple earns a lot of money by vertical integration and Google does not earn much with Android, because it is not vertically integrated.”
Joussen concluded of Tui: “We have the vertical integration and we have the hotels, there must be an opportunity. That is what I said to the board, [and] they said ‘Why don’t you become CEO?’.”
In taking the role as head of Tui he also became chairman of Tui Travel, then 50%-owned by the German group. He said: “I discovered Tui was two different companies and not all vertically integrated.
“When you are an independent company, even when you own 50%, you need arm’s-length relationships because you need to be fair to all shareholders.
“The other thing I discovered was that this trading company [Tui Travel] had risk capacity – aircraft – [and] as soon as you have planes, your thinking is targeted around load factor. When you own planes, you had better fill them.
“In my world you either invest where differentiation happens or where essential facilities are. Commodities are outsourced. Are planes differentiating? No. People don’t care as long as they are punctual, reasonably priced and safe. Maybe people don’t even know which plane they are on. People go on budget flights to five-star hotels.”
He added: “If you don’t realise higher prices then you are not differentiated, [and] you cannot realise higher prices on planes when they aren’t bundled [in package holidays] – maybe on Dreamliners, there is always an exception.”
The biggest risk
Joussen said: “I just was asking questions.” But he came to a straightforward conclusion: “Vertical integration will only happen if we take over the full company [Tui Travel].
“It took two years. In the beginning it was a little difficult. Tui Travel, an enormously successful trading company, had told the market [it was] asset-light and ‘You don’t need hotels’. We wanted them to turn around and say ‘We need hotels and cruises.’ But in December 2014 we made it.” A key factor was that Tui Travel boss Peter Long agreed.
Joussen said: “Peter also saw that the internet is a very dangerous animal in a trading environment. We came to the conclusion we should be vertically integrated and think about our business from a content plus market-access perspective.
“The beauty of that perspective is that you decrease the gearing [borrowing] of the business [and] increase the cash generation. You are more content-centric, which is also beneficial because from a brand perspective it is the main driver of differentiation.”
He added: “The biggest risk of having an asset is that you cannot fill it. But when [as the combined Tui businesses] you have seven million customers in your own assets and 20 million in your tour operating businesses, there is enough [customers entering the] ‘funnel’ to limit the risk.”
Having engineered the merger, the challenge now is to complete the process of vertical integration.
“We think about the components that scale, the global platforms,” said Joussen. “One is brand. One is aviation platforms – buying, configuration, maintenance, ground handling, not crewing [and] not route planning because that is an integral part of tour operating. Also IT, investment in hotels, investment in cruises, hotel purchasing – these can be scaled globally.
“But competing locally within markets is the responsibility of local teams in the UK or Germany. That is how we work.
“I see us now at a great starting point. We had the best commercial year last year and the first quarter of this [financial] year [October to December] was not bad. But it’s a starting point. Our industry will change. We should not lose our trading mindset, but we will be more marketing-led and it will not only be brand marketing, but also customer demand-led.
“It will not happen tomorrow. The yield system of Tui UK is very sophisticated, but there is much to come.”
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