Report of the Supervisory Board

In the following, the Supervisory Board reports on its activities in the 2007 financial year, in particular the plenary discussions, the work done by the committees, compliance with the Corporate Governance Code, the audit of the financial statements of TUI AG and the Group as well as changes in the membership of the boards of the Company.

Cooperation between the Supervisory Board and the Executive Board

In the 2007 financial year, the Supervisory Board performed its duties in accordance with the law and the Articles of Association. It monitored the work of the Executive Board and regularly advised the Board on the management of the Company.

In written and verbal reports, the Executive Board provided regular, timely and comprehensive information to the Supervisory Board, encompassing all relevant information on the planning, the development of business and the position of the Group, including the risk situation, risk management and compliance. Deviations in the development of business from the approved plans were presented, explained and discussed. The Executive Board discussed the strategic focus of the Group and all key transactions of relevance to the Company – in particular the further development of the Group – with the Supervisory Board. The Supervisory Board was involved in all decisions of fundamental relevance to the Company.

Transactions requiring the approval of the Supervisory Board and decisions of fundamental importance were discussed in depth with the Executive Board at Supervisory Board committee meetings prior to a decision being taken. The Supervisory Board was fully informed about specific and particularly urgent plans and projects arising between the regular meetings and, where necessary, submitted its approval in writing. The chairman of the Supervisory Board was regularly informed about current business developments and key transactions in the Company in between Supervisory Board meetings.

Supervisory Board and committees

The Supervisory Board has set up three committees to support its work: the Presiding Committee, the Audit Committee and the Nomination Committee. The Presiding Committee prepares the resolutions and issues to be dealt with by the Supervisory Board. It also fixes the terms and conditions, including the remuneration of the contracts of employment for Executive Board members.

In the 2007 financial year, four regular Supervisory Board meetings were held. The Presiding Committee met four times; the Audit Committee also held four meetings. The Nomination Committee did not meet.

Prior to regular Supervisory Board meetings, the shareholder represen­tatives in the Supervisory Board met three times, and the employees’ representatives eight times in separate meetings. No Supervisory Board member attended fewer than half of the Supervisory Board meetings in the completed financial year.

Work of the Presiding Committee

At the meeting on 17 March 2007, convened to adopt the annual financial statements, deliberations mainly focused on the preparation of the items on the agenda for the forthcoming Supervisory Board meeting. The meet­ings of 11 July 2007 and 9 October 2007 mainly dealt with issues relating to the Executive Board. At the latter meeting, discussions also related to the updated declaration on the German Corporate Governance Code and corporate governance issues concerning the investment in TUI Travel PLC. At the meeting of 8 November 2007, issues relating to the Executive Board were discussed and the forthcoming Supervisory Board meeting was prepared.

Work of the Audit Committee

At its meeting on 17 March 2007, the Audit Committee focused its deliberations on the annual financial statements of TUI AG and the consolidated financial statements for 2006. The committee also discussed its recommen­dation to the Supervisory Board on the election of the auditors for the 2007 financial year.

At its meeting on 10 May 2007, the Audit Committee dealt with the interim financial statements as per 31 March 2007, the report on the Group’s risk situation, policies for the employees of TUI AG and the status of the integration of CP Ships.

One of the key items discussed at the meeting of 8 August 2007 were the interim financial statements for the first half of 2007. In addition, the Audit Committee discussed the main areas to be audited in the annual audit for the 2007 financial year and the establishment of TUI Travel PLC. Moreover, the Audit Committee resolved to invite new tenders for the audit of the financial statements of TUI AG and the Group as per 31 December 2008.

The meeting of 7 November 2007 mainly focused on the interim financial statements as per 30 September 2007. The agenda also covered other issues including the internal control system, in particular Group Internal Auditing activities in the 2007 financial year, the audit plan for 2008 and the report on the organisation of compliance. Discussions also related to the effects of the corporate tax reform on the Group.

Auditor representatives attended all four meetings of the Audit Committee and presented reports on their activities.

Deliberations in the Supervisory Board

The Executive Board’s reports and the discussions at Supervisory Board meetings regularly focused on the development of turnover, earnings and employment of the Group and the individual divisions as well as the financial situation and structural development of the Group.

The central issue in the meeting on 18 March 2007, was the debate concerning the acquisition of the First Choice Group and its merger with the tourism entities of the TUI Group. Other major subjects were the reports and deliberations on the annual financial statements as per 31 December 2006, the comparison between budgeted and actual figures for 2006 and the HR and social situation in 2006. The discussions on the annual financial statements were also attend­ed by representatives of the auditors who were available to answer questions. Other items on the agenda for that meeting were the resolution concerning the issue of employee shares and the extension of the authorisation to acquire own shares as well as various amendments to the Articles of Association. The Supervisory Board also dealt with shareholding issues.

The meeting of 16 May 2007 mainly served to prepare for the forthcoming Annual General Meeting and the issuance of a convertible bond.

Deliberations at the meeting of 11 July 2007 focused on matters relating to the Executive Board. In addition, the Executive Board reported on the status of the merger between the tourism division and First Choice Holidays PLC to form TUI Travel PLC. The Supervisory Board also dealt with shareholding issues.

At the meeting of 8 November 2007, deliberations focused on corporate governance issues. In this context, the Supervisory Board adopted the declaration of compliance with the German Corporate Governance Code, resolved necessary amendments to the terms of reference of the Supervisory Board and discussed the efficiency review report. As part of its regular reporting activities, the Executive Board informed the Supervisory Board about shareholding and financing issues. The Supervisory Board also dealt with the future business development of the new TUI Travel PLC in 2008.

Corporate Governance

At the meeting of 8 November 2007, the Executive Board and Supervisory Board discussed an update of the declaration of compliance with the German Corporate Governance Code and issued the joint declaration of compliance pursuant to section 161 of the German Stock Corporation Act. It was made permanently accessible to the public on TUI AG’s website. Accord­ingly, TUI AG complies with all recommendations of the German Corporate Governance Code in its currently applicable version dated 14 June 2007. In accordance with section 3.10 of the Code and also on behalf of the Supervisory Board, the Executive Board reports about corporate governance in the Corporate Governance Report.

At their meetings, both the Audit Committee and the Supervisory Board dealt with corporate governance issues within the Company, also in particu­lar several times with regard to the investment in TUI Travel PLC. They also examined the efficiency of their actions. This review was carried out on the basis of a questionnaire. The results of the efficiency review were discussed at the Supervisory Board meeting of 8 November 2007.

Audit of the annual financial statements of TUI AG and the Group

PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Hanover, were appointed as the auditors by the Annual General Meeting held on 16 May 2007 and were commissioned by the Supervisory Board. The audit covered the annual financial statements of TUI AG as at 31 December 2007, submitted by the Executive Board and prepared in accordance with the provisions of the German Commercial Code (HGB), as well as the joint management report of TUI AG and the Group and the consolidated financial statements for the 2007 financial year, prepared in accordance with the provisions of the International Accounting Standards Board (IASB) and complemented by the commercial law provisions additionally required pursuant to section 315a subsection 1. The auditors issued their unqualified audit certificate for the annual financial statements of TUI AG and the consolidated financial statements.

The annual financial statements, the management report and the auditors’ reports were submitted to all members of the Supervisory Board. They were discussed at the Audit Committee meeting of 14 March 2008 and the Supervisory Board meeting on 17 March 2008, at which representatives of the auditors were present and were available to answer questions. On the basis of its own audit of the annual financial statements of TUI AG and the Group, the joint management report as per 31 December 2007 and the results of the audit, the Supervisory Board approved the annual financial statements prepared by TUI AG, which were thereby adopted, the consolidated financial statements and the Group management report. The Supervisory Board also examined and approved the proposal for the appropriation of the profits for the 2007 financial year submitted by the Executive Board.

Supervisory Board and committee memberships

With effect from 15 August 2007, Ms Petra Oechtering resigned from her office on the Presiding Committee and Supervisory Board of TUI AG. As from that date she has been replaced by Mr Frank Jakobi, elected in person as her substitute on the Supervisory Board. With effect from 1 September 2007, the Supervisory Board elected Mr Roland Schneider as a member of the Presiding Committee. Mr Christian Kuhn resigned from the Supervisory Board of TUI AG as per 31 December 2007. By resolution of the district court of Hanover of 17 January 2008, Mr Hans-Dieter Rüster was appointed to the Supervisory Board. The Supervisory Board thanks the retired members for their commitment over many years.

Composition of the Executive Board and the Executive Committee
With effect from 3 September 2007, the Supervisory Board appointed Mr Peter Long (Tourism) as ordinary member of the Executive Board. In addition to his function as a Board member for TUI AG, Mr Peter Long is the Chief Executive of TUI Travel PLC.

Also effective 3 September 2007, Mr Christoph R. Mueller resigned from the Executive Board of TUI AG. He changed to the Board of TUI Travel PLC as Aviation Director. The Supervisory Board thanks Mr Mueller for his work as a Board member of TUI AG.

At its meeting on 8 November 2007, the Supervisory Board extended the contracts of CEO Dr Michael Frenzel (until 31 March 2012), CFO Rainer Feuerhake (until 31 March 2011) and HR director Dr Peter Engelen (until 31 August 2013).

At its meeting of 8 November 2007, the Supervisory Board also appointed Mr Horst Baier as Board member of TUI AG with effect from 9 November 2007. He is in charge of Controlling.

On 8 November 2007, Mr Peter Rothwell resigned from the Executive Board with immediate effect. He had been in charge of Tourism with Mr Peter Long. The Supervisory Board thanks Mr Rothwell for his work as a Board member of TUI AG.

The Executive Committee was dissolved in the wake of the reorganisation of the Group structure. Messrs Karl J. Pojer (TUI Hotels & Resorts) and Adolf Adrion (Shipping) will continue to be divisional directors and regularly participate in the Board meetings of the TUI AG in that function.

The Supervisory Board
Hanover, 17 March 2008


Dr. Jürgen Krumnow
Chairman