Business Development in the Divisions

Following the sale of Container Shipping, completed in 2009, the TUI Group’s Continuing Operations are Tourism and Central Operations. The Tourism Division comprises TUI Travel, TUI Hotels & Resorts and Cruises. Under ‘All other segments’, Central Operations embraces in particular the corporate centre functions of TUI AG and the interim holdings as well as the Group’s real estate companies. Other activities allocated to Central Operations are inter-segmental consolidation effects.

Discontinued Operations comprised the Magic Life Group and for the first quarter of 2009 only, the Container Shipping activities, which have meanwhile been sold.

The 43.33% stake in Container Shipping taken in the framework of the sale was measured at equity in the consolidated financial statements as of the second quarter of 2009. Proportional at equity earnings are carried under Central Operations and are not included in operating earnings.

Turnover and earnings in Tourism

Tourism – Key figures

Turnover and earnings   
In the short financial year 2009, turnover by the Tourism Division declined by 14% year-on-year to €13.1bn. This was due to the decrease in TUI Travel’s business volume and the weakening of sterling on an annual average.

Turnover was netted with the cost of sales. The latter accounted for €11.7bn, down 15% year-on-year. In the short financial year 2009, gross profit, i.e. the ­difference between turnover and the cost of sales, totalled €1.3bn (previous year: €1.4bn), down 1%.

Administrative expenses   
Administrative expenses comprised expenses not directly caused by the realisation of turnover, e.g. expenses for general management functions. At €1.1bn, this item was on previous year´s level.

Other income and other expenses
Other income and other expenses primarily comprised profits or losses from the sale of fixed assets items. At €16m, this item was significantly up year-on-year. This increase was above all attributable to the rise in expenses in connection with the strategic realignment of TUI Travel’s airline operations in 2008.

Equity result   
The result from affiliated companies and joint ventures measured at equity comprised the proportionate share of profit for the year of the associated companies and joint ventures. At €38m, it declined by 12% year-on-year in the short financial year 2009. The profit contributions mainly resulted from the affiliated companies, companies and joint ventures in the Accommodation & Destinations Sector in
TUI Travel, TUI Hotels & Resorts and the joint venture TUI Cruises.

Earnings in Tourism   
In the short financial year 2009, operating earnings in Tourism grew by 5% to €696m on the first nine months of 2008. TUI Travel contributed €571m to these earnings, with TUI Hotels & Resorts accounting for €123m and Cruises €1m. Reported earnings by the Tourism Division rose by 55% overall to €274m as against the comparative period in 2008.

TUI Travel

TUI Travel – Key figures                   

Turnover and earnings

In the short financial year 2009, turnover by TUI Travel declined by 14% due to changes in foreign exchange rates and capacity.

Underlying earnings by TUI Travel climbed 10% to €571m year-on-year in the short financial year 2009 compared with the same period for 2008. This growth in operating earnings mainly resulted from higher synergies. Moreover, occupancy rates and margins in the Mainstream business were slightly higher although demand was impacted by the economic environment. On the other hand, earnings decreased due to the decline in the average value of sterling in 2009.

The sustainable synergies target from the formation of TUI Travel was upgraded in 2009 by £25m to £200m sterling per annum by financial year 2010/11. This amount includes £160m sterling for the Mainstream activities in the UK, £7m sterling for central functions and £33m sterling for the remaining operative areas.

In the short financial year 2009, earnings by TUI Travel had to be adjusted for the following special one-off effects:

• gains on disposal of €5m
• restructuring costs of €58m, in particular on restructuring tour operator activities in France and Great Britain
• purchase price allocation of €48m, and
• one-off effects of €320m, in particular integration costs incurred for tour operator and incoming activities, one-off charges from the fair value measurement of ­aircraft in France and realignment of flight operations in Germany.

Reported earnings by TUI Travel rose by €117m to €150m in the short financial year 2009.

Mainstream

The Mainstream Sector is the largest sector within TUI Travel, selling flight, accommodation and other tourism services in the three regions Central Europe, Northern Region and Western Europe.

Customer numbers TUI Travel Mainstream                   

Central Europe    
In the Central Europe Division (Germany, Austria, Switzerland, Poland and airline TUIfly), customer volumes decreased by 14% in the short financial year 2009 as against the comparative period in 2008. This decline was mainly attributable to cuts in charter and seat-only capacity. Turnover by the Central Europe Sector fell due to a contraction in demand caused by the economic environment.

Thanks to active capacity management, TUI Deutschland slightly increased its load factors and average margins in the short financial year compared with the same period in 2008, despite the considerable declines in volume. By contrast, average prices generated per tour decreased slightly because sourcing benefits were passed on to customers. With more foreign tour operators entering the Swiss market, the travel market in Switzerland was characterised by overcapacity. In the short financial year 2009, TUI Suisse was therefore affected by increasing price competition and lower margins. In Austria, TUI Austria benefited from synergies from the integration of TUI activities with First Choice. Following significant growth in 2008, TUI Poland recorded a decline in demand in the short financial year 2009. This was mainly driven by the weaker exchange rate for the Polish zloty against the euro.

The target for sustainable synergies from the integration of TUI and First Choice activities in the Central Europe Sector continued to stand at £4m sterling.

Northern Region   
In the Northern Region Division (UK, Ireland, Canada, Nordic countries and airlines Thomsonfly, TUIfly Nordic and First Choice Airways), customer volumes fell by 18%, in line with capacity reductions, in the short financial year 2009. In the UK, a strong lates business caused better margins and a year-on-year rise in load factors in the summer months. The Nordic TUI tour operators, in contrast, saw their business affected by a deterioration in consumer climate in Sweden and Denmark, in particular in the first half of the year. In the summer of 2009, however, bookings improved significantly. Business in the Canadian travel market, characterised by overcapacity, remained unsatisfactory.

In 2009, integration of activities in the UK market progressed as scheduled. The expected synergies were accordingly delivered. Additional potential was identified in the course of this project so that the target for sustainable annual synergies was upgraded by £20m to £160m sterling.

Western Europe   
The Western Europe Division (France, the Netherlands, Belgium and airlines Corsairfly, Arkefly and Jetairfly) recorded a decrease in customer volumes by 10% in the short financial year 2009. TUI tour operators in France suffered from weaker demand caused by the economic environment and the adverse effects of the political unrest in Guadeloupe and Madagascar. TUI tour operators in the Netherlands also reported declines in volume. TUI operations in Belgium benefited from stable demand and an enhanced cost base for the Group-owned airline and posted a positive performance in the short financial year.

The target for sustainable synergies from the integration of TUI and First Choice activities in the Western Europe Division totals £5m sterling.

Specialist & Emerging Markets

The Specialist & Emerging Markets Sector, comprising specialist tour operators in Europe, North America and growth markets such as Russia, recorded 667 thousand customers (excl. Emerging Markets) in the short financial year 2009, down 14% year-on-year.

Specialist tour operators in Continental Europe reported gains in business development. The premium segment in the UK remained positive. Due to the integration of former TUI entities and First Choice, the benefits for long-haul tours were particularly strong. The target for sustainable synergies from the integration of specialist tour operators in the UK totals £7m sterling.

TUI Travel’s business in North America was impacted by lower demand for expedition cruises on year-on-year capacity cuts.

Activity

The Activity Sector is comprised of travel companies operating in the Marine, Adventure and Ski, Student and Sport segments. It recorded a positive development of business in the short financial year. This growth mainly resulted from the profit contributions of the tour operators acquired in 2008 and 2009. Earnings also im­­proved due to the integration of the TUI and First Choice ski business as well as cost savings.

The sustainable synergy target arising from the merger of operations in the Activity Sector totals £8m sterling.

Accommodation & Destinations (A&D)

The online services and incoming agencies previously pooled in the Online Destination Services Sector have been clustered under Accommodation & Destinations (A&D) since the second quarter of 2009.

The Online Services matched the sound development of 2008.

Earnings by incoming agencies fell year-on-year due to lower customer volumes and weaker excursion business in particular in Spain.

The sustainable synergy target from the merger of A&D activities is £9m sterling.

TUI Hotels & Resorts

TUI Hotels & Resorts is made up from the Group’s hotel companies. Its portfolio comprises hotel companies in which majority interests are held, joint ventures with local partners, companies in which financial interests are held and hotels operated under management agreements. At the end of September 2009, the Sector operated a total of 243 hotels with a capacity of around 154,000 beds, mostly in the four- and five-star categories. The number of bednights in TUI Hotels & Resorts hotels, by contrast, declined by 4% to 15.6m. The individual hotel groups and regions reported varying business trends.

Turnover and earnings

TUI Hotels & Resorts – Key figures   

Consolidated turnover by TUI Hotels & Resorts was €0.3bn, down 5% on the comparative period in 2008. Due to a decline in demand driven, among other things, by the economic environment, sales of bednights fell year-on-year. Hotel occupancy declined in the short financial year on 5% more capacity. Average revenues per bednight, by contrast, grew year-on-year.

At €123m, underlying earnings fell by 7% year-on-year. This decrease reflected the impact of swine flu and lower customer volumes from major source markets, partly offset by cost savings.

Reported earnings by the Hotel Sector comprised no one-off effects.

TUI Hotels & Resorts                               

Riu

Riu, one of the leading Spanish hotel groups, operated 99 hotels in the period under review. Capacity increased by 7% on the comparative period in 2008 to 12.4m available hotel beds in the short financial year 2009. In May and June, seven hotels in Mexico were closed due to the fall in demand caused by swine flu. Despite these temporary closures and due to a strict cost management, earnings by the Riu Group remained stable. Average occupancy rates in Riu hotels declined by 8 percentage points to 81% year-on-year. Average revenues per bednight, by contrast, grew by 3%. This was mainly attributable to the rise in the US dollar exchange rate.

Canaries
Average occupancy of Riu hotels in the Canaries was down by 7 percentage points on the same period in 2008 to 84%. Besides the worldwide slowdown in economic activity, this decline in bookings was driven by tour operator capacity cuts. Bookings decreased in particular in the UK outbound market. This was due to the weakness of sterling.

Balearics    
At 82%, Riu hotels in the Balearics achieved occupancy rates which were only slightly down year-on-year by 2 percentage points. This relatively positive development was above all attributable to stable tour operator capacity on a lower proportion of British customers compared with other destinations in Spain.

Mainland Spain
In mainland Spain, average occupancy of Riu hotels fell by 5 percentage points to 78% on the comparative 2008 levels. This development was due to selective reductions in airline capacity by tour operators and the unfavourable sterling exchange rate from the UK source market’s point of view.

Long-haul destinations
For long-haul destinations (Mexico, Jamaica, Dominican Republic, Bahamas and USA), Riu hotels achieved average occupancy rates of 78%. This represents a decline of 11 percentage points on the comparable period in 2008. Business suffered from lower demand from the US driven by the weak economic environment and cancellations caused by swine flu.

Grupotel

The Grupotel chain operating 33 facilities on Majorca, Menorca and Ibiza had 13,104 beds in the period under review. Occupancy of Grupotel hotels declined by 5 percentage points year-on-year to 78%. Average revenues per bednight rose slightly year-on-year.

Robinson

In the short financial year 2009, the market and quality leader for club holidays in the premium segment operated a total of 23 club facilities with 12,366 beds in ten countries. Capacity rose substantially year-on-year since three new facilities were opened in Morocco, Portugal and Turkey. While facilities in Morocco, Portugal and Spain recorded lower occupancy rates, the clubs in Turkey, Switzerland, Austria, Greece and Italy matched the previous year’s occupancy rates. Overall, occupancy declined year-on-year. Average revenues per bed grew by 5%.

Magic Life (Discontinued Operation)

Magic Life, the all-inclusive club brand, operated 14 facilities with a total capacity of 12,238 beds in the period under review. Most of its facilities were in Turkey, Egypt and Tunisia. Capacity was reduced by 4% year-on-year since two facilities in Tunisia opened later. Due to lower demand from the Belgian and Russian source market, utilisation fell by 4 percentage points. Average revenues per bednight matched the comparable 2008 level.

Iberotel

In the short financial year 2009, Iberotel had 24 hotels with 13,821 hotel beds, located in Egypt, the United Arab Emirates and Germany. At 61%, occupancy of Iberotels fell by 6 percentage points year-on-year. Average revenues per bednight showed a positive development and were 7% up year-on-year.

Grecotel

Grecotel, the leading hotel company in Greece, operated 20 holiday complexes with a total of 10,127 beds in 2009. Capacity fell short of 2008 levels. This was due to the fact that some hotel facilities only opened later in the season due to customers’ booking behaviour. Occupancy fell by 2 percentage points to 85%. Average revenues per bednight increased slightly year-on-year.

Dorfhotel

The two Group-owned Dorfhotel complexes in Austria generated higher average revenues per bednight on slightly lower occupancy in 2009 as against the comparative period in 2008. Other Dorfhotel complexes operated under management contracts are located in Land Fleesensee, Sylt and Boltenhagen on the Baltic Sea. Since Dorfhotels primarily offer family rooms and apartments with a correspondingly higher number of beds, average revenues, which were slightly up year-on-year, were lower than those of other hotel brands mainly offering double bedrooms.

aQi

The first hotel under the lifestyle hotel brand aQi achieved an occupancy rate of 32% in the first year since the business in the summer season failed the expectations significantly. Average revenues per bednight for the hotel in the budget leisure segment developed satisfying.

Cruises

The Cruises Sector comprises Hapag-Lloyd Kreuzfahrten and the joint venture TUI Cruises.

Cruises ­– Key figures   

Turnover and earnings

Turnover by the Cruises Sector declined by 9% in the short financial year 2009 as against the comparative period in 2008. This performance was solely attributable to Hapag-Lloyd Kreuzfahrten since the TUI Cruises joint venture is only included at equity in TUI’s consolidated financial statements, so that no turnover is shown here. Hapag-Lloyd Kreuzfahrten did not match the sound earnings level achieved in 2008 due to lower bookings in 2009.

Earnings by the Cruises Sector for 2009 included proportional start-up costs of €-4m for TUI Cruises. No adjustments had to be made.

Hapag-Lloyd Kreuzfahrten

Hapag-Lloyd Kreuzfahrten saw its business affected by the tight economic situation which adversely impacted bookings. The later booking trend was increasingly echoed in the cruise business. At 76%, occupancy of its fleet, still comprising the four cruise ships Europe, Columbus, Hanseatic and Bremen, fell overall year-on-year (80%). At €427, average fleet daily rates were slightly above the previous year’s level. Total passenger days were 241,884.

TUI Cruises

The short financial year of TUI Cruises, the joint venture between TUI AG and Royal Caribbean Cruises in 2008, was characterised by the commissioning of the first vessel in May 2009. Demand for the cruises available for booking since September 2008 picked up in the course of the year. The recovery was flanked by a number of marketing and distribution measures like package offers or flex-price offers. Overall, Mein Schiff has achieved an occupancy rate of 83% since it was first commissioned, with 212,033 passenger days. The average daily rate per passenger was €174.

Central Operations

Central Operations comprise the corporate centre functions of TUI AG and the interim holdings as well as other operative areas, above all the Group’s real estate companies.

Central Operations ­– Key figures   

Underlying earnings by Central Operations amounted to €-39m in the short financial year 2009. The decline in earnings of €39m as against the first nine months of 2008 was mainly attributable to the reversal of provisions no longer required in the previous year.

The development of operative Container Shipping business

The 43.33% stake in Albert Ballin Joint Venture GmbH & Co. KG taken after the sale of Container Shipping has been measured at equity in TUI’s consolidated financial statements since the second quarter of 2009. Since the stake in Albert Ballin is a financial investment from TUI AG’s perspective, proportionate at equity earnings are not included in the TUI Group’s operative performance indicator EBITA.

For information purposes, the table below presents Container Shipping from Hapag-Lloyd AG’s perspective on a 100 per cent basis.

Container Shipping – Key figures

Turnover and earnings

Turnover from Container Shipping operations declined by 36% to around €3.3bn in the short financial year 2009. This development mainly resulted from the decline in transport volumes as well as a fall in freight rate levels.

Underlying earnings fell by €886m to €-675m in the period under review. In the short financial year, adjustments of €110m had to be carried for special effects. Earnings before adjustment for these special effects stood at €-565m, down €714m as against the first nine months in 2008. The development of earnings by Hapag-Lloyd was impacted by the rise in bunker prices in the course of the year. On the other hand, earnings benefited from the cost saving and restructuring measures adopted in early 2009 and successfully implemented in subsequent months.

Development of transport volumes and freight rates

Transport volumes and freight rates of Hapag-Lloyd

In the short financial year, transport volumes totalled 3.5m TEU, down 17% on the comparative period in 2008. Average freight rate levels stood at 1,220 USD/TEU, down 23% on the first nine months in 2008.

The fall in transport volumes and average freight rates was attributable to the global economic downswing triggered by the financial crisis. Worldwide transport volumes started to decline due to the contraction in consumption. As a result, competition for the remaining transport volumes tightened, causing pressure on freight rates. Transports in the Far East and Atlantic trade lanes, in particular, suffered from the adverse effects of the decline in demand for consumer goods. To a lesser extent, volumes also declined due to selective cargo management based on profitability criteria. Freight rates bottomed out in the summer of 2009 and were increased again in all trade lanes towards the end of the short financial year.  As a consequence the business development in the third quarter was above management’s expectations.