The tourism division comprises TUI Travel PLC, TUI Hotels & Resorts and Cruises. In the first full operative year for TUI Travel, the focus was on implementing the sets of measures defined in 2007 for integrating the TUI Group’s retail, tour operating and airline activities and for merging its incoming agencies with the operations of First Choice. In 2008 integration progressed successfully and faster than expected. The targeted synergy potential was exeeded. As the project advanced, the target for sustainable synergies was upgraded by 25m to 175m British pounds sterling per annum.

Thanks to its restrictive capacity policy, TUI Travel significantly improved its operative performance in terms of occupancy and the margins achieved in the Mainstream business. Taking account of the operative improvements and the first-time consolidation of First Choice for a full financial year, as well as opposite effects from the decline of the average British pound sterling exchange rate in the year under review, underlying earnings by TUI Travel rose by €148m to €453m in 2008.

TUI Hotels & Resorts saw its hotel business in North America and the Caribbean impacted by the weakening average US dollar exchange rate in 2008 so that its performance declined by €4m year-on-year. Earnings by the cruises sector comprised start-up costs for the establishment of TUI Cruises of €7m. Hapag-Lloyd Kreuzfahrten continued to report a positive development in 2008.

Turnover and earnings in tourism

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In the financial year under review, turnover by the tourism division climbed 18% year-on-year to €18.6bn. The first-time consolidation of First Choice for a full financial year created a substantial increase in turnover. Adjusted for this one-off effect, turnover decreased slightly. This decline was mainly due to a reduction in tour operating capacity and in particular due to the weakening of the British pound sterling exchange rate on an annual average.

Turnover was netted with the cost of sales. The latter accounted for €17.2bn, down 18% year-on-year. In 2008, gross profit, i.e. the difference between turn­over and the cost of sales, totalled €1.5m (previous year: €1.2m), up 21%.

Administrative expenses comprised expenses not directly caused by the realisation of turnover, e.g. expenses for general management functions. The year-on-year increase in expenses in 2008 mainly resulted from the first-time consolidation of First Choice for a full financial year and the restructuring and integration expenses for TUI Travel, most of which were carried under this item.

Other income and other expenses primarily comprised profits or losses from the sale of fixed assets items. Totalling €-71m this item was noticeably down year-on-year which was mainly due to expenses incurred in connection with the strategic realignment of TUI Travel’s airline operations.

The result from affiliated companies and joint ventures valued at equity reflects the proportionate profit for the year of the associated companies and joint ventures. At €23m, it declined by 24% year-on-year in 2008. The profit contributions mainly resulted from the affiliated companies and joint ventures in TUI Hotels & Resorts and Online Destination Services in TUI Travel.

In 2008, operating earnings in tourism grew by 30% year-on-year to €602m. TUI Travel contributed €453m to these earnings, with TUI Hotels Resorts accounting for €142m and Cruises €7m. The scheduled expenses for the merger between First Choice and TUI’s tourism division as well as expenses incurred in connection with the strategic realignment of the airline activities of TUI Travel caused a one-off substantial difference between operating and reported earnings in 2008. Due to these advance costs, which are to create a sustainable and significant increase in profitability in subsequent years, reported earnings by the tourism division declined by 55% overall to €99m.

TUI Travel

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Turnover and earnings

Turnover by TUI Travel grew by €2.8bn to €18.0bn in 2008, primarily due to the first-time consolidation of First Choice operations for a full financial year. Underlying turnover adjusted for this effect decreased slightly due to lower capacity and changes in foreign exchange rates.

Underlying earnings by TUI Travel climbed 49% to €453m year-on-year in 2008. The reasons for this growth in operating earnings included cost synergies and higher load factors and occupancy rates as well as stronger margins in the Mainstream business. In the Specialist and Activity sectors, earnings rose due to organic growth and the acquisitions made in the last two years.

A further positive effect was attributable to the first-time consolidation of First Choice for a full financial year-on-year. On the other hand, earnings decreased due to the decline in the average value of the British pound sterling in 2008.

In the framework of the defined integration process, TUI Travel achieved, inter alia, the following milestones in 2008:

• integrating and relocating all central functions into Crawley and all tour operating and airline functions into Luton.
• integrating the charter airlines in the UK under one common airline operating certificate.
• integrating controlled distribution and introducing one reservation system for the Mainstream and Specialist tour operators in the UK.
• integrating the former TUI and First Choice activities outside the UK, e.g. in France or in the Online Destination Services sector.

• restructuring costs of €285m, in particular expenses for the integration of TUI and First Choice and expenses incurred in connection with the strategic realignment of the airline activities of TUI Travel,
• effects from purchase price allocations of €58m, and
• one-off effects of €147m, in particular hedges and foreign exchange losses in aviation, impairments of assets in aviation and in TUI Northern Europe as well as integration costs arising from bringing together the British TUI Travel activities.

Mainstream

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

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Central Europe
In source market Central Europe (Germany, Austria, Switzerland, Poland and airline TUIfly.com) customer volumes decreased by 5% in the 2008 financial year. This decline was mainly attributable to a cut in flight capacity following the reduction of the TUIfly fleet by eight aircraft in the second quarter of 2008. The reduced flight capacity resulted in an improved load factor and stronger average margins.

Overall, earnings by the Central Europe sector thus rose despite higher aircraft fuel costs. Turnover by the Central Europe source market fell slightly due to the contraction of business volume in Germany.

German tour operators recorded a rise in demand for holiday tours in the course of the year. Due to the capacity cuts, this meant price-reduced offerings accounted for a lower proportion of turnover. As a result, both margins and load factors improved. TUI Suisse continued to benefit from its attractive pricing and recorded a positive performance in the Swiss market, traditionally characterised by high prices. In Austria, terminating the exclusive distribution of Magic Life caused a year-on-year decline in customer volumes in TUI Austria which, however, was more than offset by improved margins. TUI Poland reported a significant increase in customer volumes in 2008.

The target for sustainable synergies from integrating the activities of TUI and First Choice in the Central Europe sector remained at 4m British pounds sterling.

Northern Europe
In source market Northern Europe (UK, Ireland, Canada, Nordic countries and airlines Thomsonfly, TUIfly Nordic and First Choice Airways), customer volumes grew by 10% due to the first-time consolidation of First Choice’s Mainstream business for a full financial year in 2008. Turnover rose due to changes in consolidation. On a like-for-like basis, however, the capacity cuts and a weaker British pound sterling caused a decline in turnover.

In the financial year under review, there was less residual capacity to sell in the UK as a result of the flight capacity cuts, which led to an improved pricing environment. Earnings benefited additionally from the streamlining of controlled distribution already initiated in previous years. TUI Nordic also achieved a positive performance in 2008. Activities in Canada, however, again fell short of expectations. Earnings in this country were impacted by high fuel costs and fierce price competition.

The integration of activities in the UK market progressed faster than expected in 2008. The expected synergy potential was thus delivered. Additional potential was identified as the project progressed, so that the sustainable synergy target was upgraded by 15m to 140m British pounds sterling per annum.

Western Europe
The Western Europe sector (France, the Netherlands, Belgium and airlines Corsairfly, Arkefly and Jetairfly) recorded an increase in customer volumes of 22% in 2008 due to changes in consolidation.

While the French travel market showed an overall weaker performance in 2008, TUI activities in France achieved an overall satisfactory development due to the streamlining of the product range and cost savings achieved by Corsair. Business in the Netherlands also displayed a positive development, but earnings were im­­pacted by an increase in maintenance costs for the Group-owned airline. Belgium continued the successful performance of previous years and again posted good earnings.

The target of 4m British pounds sterling remains in place for sustainable synergies from the integration of TUI and First Choice activities in Western Europe.

Specialist & Emerging Markets

The Specialist & Emerging Markets sector consists of around 40 specialist tour operators in Europe, North America and growth markets such as Russia. The product portfolio offered by these specialist tour operators focuses on specific destinations (Destination), premium travel such as private jet expeditions (Premium) or particular customer segments such as student tours (Lifestages). The tour operators combined under Specialist & Emerging Markets reported customer volumes of 949,000.

In the year under review, the operating business of the British specialist tour operators was impacted by the integration and relocation of sites and changes in IT systems in the wake of the integration of Thomson and First Choice activities. Thomson’s former specialist business in the UK, for example, had to migrate to First Choice reservation systems. The restructuring is designed to generate a significant improvement in earnings in this sector in future years. Based on the potential identified in the course of these projects, the sustainable synergy target was upgraded by 2m to 5m British pounds sterling.

The specialist business in North America showed uneven trends. While the TCS Expe­ditions and Starquest Expeditions brands managed within the Premium sector recorded strong demand in the exclusive private jet segment, organised study trips in the US suffered from the deteriorating economic environment and the higher cost of tours to the Eurozone caused by the weak US dollar.

Activity

The Activity sector comprises travel companies operating in the Marine, Adventure and Ski, Student & Sport segments. The Marine segment pools suppliers of charter yachts, while the Adventure segment includes expedition tours. The Ski, Student & Sport segment offers skiing tours but also organised trips to major sporting events.

In the Marine segment, the sailing activities of former First Choice were successfully integrated in the year under review. As a result, administrative costs were decreased and asset utilisation and yacht occupancy were improved so that a positive year-on-year performance was posted.

Adventure benefited from strong demand for the polar cruising business and expanded its strong market position in Australia by means of further acquisitions. Ski, Student & Sport also achieved a considerable improvement in earnings due to the acquisitions made in 2008.

The sustainable synergy target arising from the merger of operations in the Activity sector was upgraded by 2m to 7m British pounds sterling.

Online Destination Services ODS

The Online Destination Services sector consists of three divisions. The B2B business supplies online accommodation to large customers such as travel agencies and tour operators. Alongside this, regional incoming agencies deliver classical incoming services, e.g. transfers and services for holidaymakers, tour operators and the cruises sector. The B2C division supplies online accommodation to individual customers.

In 2008, online accommodation services achieved volume growth in both the B2B and B2C division and gained market shares in existing and new source markets. The incoming agencies combined in the Portfolio Incoming division also catered for a greater number of guests. Here, however, average prices fell slightly year-on-year due to tougher competition in Spain.

Based on the potential identified in the framework of projects, the sustainable synergy target resulting from the merger of ODS activities was upgraded by 6m to 8m British pounds sterling.

TUI Hotels & Resorts

TUI Hotels & Resorts comprises the Group’s hotel companies. Its portfolio consists of hotel companies in which majority interests are held, joint ventures with local partners, companies in which a financial stake is held and hotels operated under management agreements. At the end of 2008, the sector operated a total of 238 hotels with a capacity of around 149,000 beds, mostly in the four- and five-star category.

Turnover and earnings

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Consolidated turnover by TUI Hotels & Resorts amounted to €0.4bn, up 9% year-on-year. Both sales of bednights and average revenue per bednight rose year-on-year on 4% more capacity. On the other hand, hotel occupancy declined slightly due to the expansion of capacity.

At €142m, underlying earnings fell 3% year-on-year. The slight decline in operat­ing earnings year-on-year was mainly attributable to currency-induced effects in destinations in the US dollar currency area, primarily affecting the Riu Group with its activities in Mexico, Jamaica, the Dominican Republic, the Bahamas and the United States.

Reported earnings by the hotel sector comprised one-off effects of €14m, mainly relating to expenses incurred in the course of reorganising the Magic Life Group. Before adjustment for the one-off effects, earnings totalled €129m in 2008, up 18% year-on-year.

Business development TUI Hotels & Resorts

¹⁾ Group owned or leased hotel beds multiplied by opening days per year
²⁾ Occupied beds divided by capacity
³⁾ Arrangement revenue divided by occupied beds
⁴⁾ Figures refer to two owned hotels

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Riu

Riu, one of the leading Spanish hotel groups, continued its positive development in 2008. Riu operated 98 hotels with 76,271 beds. Due to portfolio changes, the bed-stock rose despite a slight decrease in the number of hotels. In the completed financial year, five new Riu hotels were opened. Capacity rose substantially by 2.1% year-on-year to 15.4m available hotel beds. Occupancy was maintained at the previous year’s level.

Slight declines in demand in some destinations were offset by favourable develop­ments in other destinations. Average revenue per bednight grew by 0.8%. Although the business development was impacted by negative foreign exchange effects in destinations in the US dollar currency area, Riu contributed substantially to the positive earnings position of the sector.

Grupotel

The Grupotel chain operating in Spain with its 33 facilities on Majorca, Menorca and Ibiza had 13,104 beds in the 2008 financial year. Occupancy of Grupotel hotels declined by 3.1 percentage points year-on-year on 2.3% more capacity. Average revenue per bednight increased by 4.5% so that the group’s profit contribution rose slightly.

Robinson

In 2008, the market and quality leader in the premium segment for club holidays operated a total of 22 club facilities with 11,804 beds in ten countries. Robinson thus increased its capacity by 16% to 2.6m beds. Average revenue per bednight grew by 4.3%. Occupancy of all facilities fell 4.3 percentage points year-on-year due to an increase of capacity by opening new clubs in Portugal and Morocco.

Magic Life

Magic Life, the all-inclusive club brand, operated 13 facilities with a total capacity of 11,596 beds in the period under review. Most of its facilities were in Turkey, Egypt and Tunisia. While capacity was increased by 7.6% to 3.1m available hotel beds, occupancy declined 4.6 percentage points year-on-year. Average revenue per bednight, in contrast, grew by 13.3%. The Magic Life Group managed to further stabilise its earnings situation in the course of the year but did not yet realise a positive profit contribution.

Iberotel

In the 2008 financial year, Iberotel had 20 hotels with 11,456 hotel beds, most of which were located in Egypt and Turkey. With around 2.7m hotel beds still available, occupancy rose by 5.2 percentage points year-on-year to 66.7% due to strong demand for Egypt. In terms of earnings, the group’s performance also improved with average revenue per bednight up 15.6% year-on-year.

Grecotel

Grecotel, the leading hotel company in Greece, operated 20 holiday complexes with a total of 10,127 beds in the year under review. Occupancy matched the previous year’s level at 83.2%. While capacity was down by 3.7% year-on-year to 0.7m beds, average revenue per bednight grew by 6.6%.

Dorfhotel

The two Dorfhotel complexes owned by the Group are located in Austria. While occupancy was in line with the previous year, average revenue per bednight rose year-on-year in 2008. Other Dorfhotel complexes operated under management agreements are located in Land Fleesensee and Sylt, with an additional resort available in Boltenhagen on the Baltic Sea since 2008.

Since Dorfhotels primarily offer family rooms and apartments with a correspond­ingly higher number of beds, average revenue, while up year-on-year, was lower than for other hotel brands which mainly offer double bedrooms.

aQi

In December 2008 the first hotel under the aQi brand was successfully opened in Schladming/Austria. This marked the first-time introduction into this market of a lifestyle hotel brand for the budget leisure segment. Occupancy and average rates were in line with expectations.

Cruises

The Cruises Sector consists of Hapag-Lloyd Kreuzfahrten and the activities currently being built up within TUI Cruises.

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Turnover and earnings

Turnover by the Cruises Sector grew by 9% year-on-year in 2008. This performance was due entirely to Hapag-Lloyd Kreuzfahrten, since the TUI Cruises joint venture did not generate any turnover in the financial year under review. Furthermore it was only consolidated at equity in TUI’s consolidated financial statements. Hapag-Lloyd Kreuzfahrten repeated the sound earnings level achieved in 2007 despite the adverse effects of a rise in operating costs induced by fuel prices in 2008. Earn­ings from the Cruises Sector took account of proportionate start-up costs for TUI Cruises worth €7m in 2008.

Hapag-Lloyd Kreuzfahrten again recorded a positive business development in 2008. The company benefited from sound demand for classical and expedition cruises and continued to expand its position in the German-speaking premium and luxury market. Its fleet in 2008 still comprised four cruise ships: the ‘Europe’, the ‘Columbus’, the ‘Hanseatic’ and the ‘Bremen’. Two of the vessels were owned while the other two were chartered. The average fleet age was thirteen years. Two of the ships, the ‘Bremen’ and the ‘Columbus’, spent a scheduled period in dock during the year under review for technical overhaul and improvements to inboard accommodation facilities.

In 2008, all ships of Hapag-Lloyd Kreuzfahrten except for the ‘Bremen’ increased their occupancy year-on-year. Average fleet utilisation was 80.2% (previous year: 78.6%), 1.6 percentage points up year-on-year. Average daily rates rose 5% to €422/day.

The joint venture TUI Cruises, formed by TUI AG and Royal Caribbean Cruises (RCL), published its first brochure in early September 2008. The maiden voyage of the first TUI Cruises ship that will be christened with the name ‘Mein Schiff‘ has been scheduled for May 2009. Earnings for 2008 mainly comprised start-up costs for staff, marketing and the establishment of IT systems.