Speech of Dr Michael Frenzel, Executive board chairman Annual General Meeting on 7 May 2008 in Hanover

I. Business trend 2007

A year ago I announced to you at this point that 2007 would be a better year than 2006. We fulfilled that promise. Both Group divisions, tourism and shipping, achieved a significant year-on-year increase in their performance in the completed financial year. I would like to thank all employees for their commitment with which they have contributed to the positive performance of our Company.

Our success is reflected in particular in Group earnings for 2007, which rose substantially to 616 million €, up 37% year-on-year. Thanks to this leap in earnings we are able again to propose to you payment of a dividend of 25 cents per share.

The positive business trend continued in the first quarter of 2008. The crisis in the international banking sector and the shock waves in the financial markets have not had any lasting effects on TUI to date. Our operative business has developed well, the price of the TUI share, which already outperformed the DAX in 2007, again significantly outperformed the DAX in recent months.

In recent weeks the long-term performance of the TUI share has been subject to intense debates. A particular point made was that the share value has stagnated since 1994 while the DAX has doubled. However, it is also correct to say that our share price significantly outperformed the DAX trend until 11 September 2001, this terrible turning point not just for the tourism sector. Back then, the market honoured the realignment of our Group.

We recorded dramatic and disproportionate losses in the crisis years 2002 and 2003 due to the erosion of our tourism business in the aftermath of 11 September, and we showed a considerably more negative trend than other companies given the sector we were operating in. Since 12 March 2003, the bottom of the international bear equity market, our share price has more than doubled, rising by almost 130%, according to an external analysis by FAZ. We are thus positioned in the mid-range in terms of the positive price development of all DAX-listed companies.

I considered this comment to be important in order to also present the reasons for this trend, alongside the pure figures, and to underline the relative nature of the respective periods reviewed. Of course, I share your view that an overall better performance would have been desirable, though it would have been difficult to achieve within our industry environment. For us, looking ahead is more important than struggling with our past. We feel clearly obliged to continue to consolidate the positive development of our share price by means of a further sustainable improvement in our earnings.

Ladies and Gentlemen,
Let me now turn to my detailed review of 2007, before subsequently outlining the business trend in the first quarter of 2008. Of course, my presentation will focus on the future strategic development of our Group, Both in 2007 and in the first months of 2008 we took a number of decisive decisions for the future development of TUI.

Let me start with 2007. In tourism, profits rose significantly year-on-year despite difficult market conditions in the first half of the year. Adjusted for special one-off effects, operating earnings in tourism grew by 13.7% to 449 million €. This reflects the earnings enhancement programmes implemented in previous years. In combination with our growth strategy in the hotel sector, these programmes helped us outperform 2006 figures. Since these figures do not include any earnings portions for First Choice due to the specific period under review, this earnings growth impressively confirms the profitability of our operations contributed to the merger. After several lean years, TUI tourism has returned to a sound profit level.

In 2007, the centrepiece of the strategic development of tourism was the formation of TUI Travel PLC by means of the merger between the Group’s tourism division and the UK-based First Choice Holidays PLC. We transferred all distribution and tour operator activities of the source markets, the associated airlines and incoming agencies to TUI Travel PLC, while First Choice contributed their entire business to the joint venture. TUI AG obtained a share of 51% in the new company, with the First Choice shareholders holding a corresponding interest of 49%. The new company TUI Travel has been listed in London and was immediately admitted to FTSE 100, the main index of the London Stock Exchange.

The TUI and First Choice project teams implementing the merger last year have done an excellent job in the post-merger integration. I would like to thank the employees involved in these efforts for their professional work.

TUI Travel, the new company, operates in 180 countries worldwide and serves more than 30 million customers. It is by far the world’s leading tourism company, both in terms of turnover and earnings. With TUI Travel we have created the structural prerequisites in order to position our package tour business even more efficiently and further expand our high-margin specialist business in a highly competitive environment. We thus combine size with the high margins arising on specialisation.

The sets of measures to be implemented in order to merge the activities of the two companies in the markets and achieve lasting increases in earnings have been defined, and initial success has already been realised. Besides cost reduction aspects, e.g. in connection with the restructuring of distribution, the reorganisation of tour operators and airlines in the UK and the harmonisation of IT systems, TUI Travel’s strong potential primarily consists in our ability to offer the strengths of the former First Choice in Specialist and Active Holidays on a much larger distribution platform. Of course, the synergies, which we were able to upgrade from 100 million GBP to 150 million GBP per annum after only several months, will also substantially improve our future profitability. We are progressing well with the realisation of the synergies, which will be completed by 2010. The merger provides us with a new platform for successful growth in a changing market. We are proud to be able to say that TUI Travel PLC is fit for the future.

TUI Hotels & Resorts, Europe’s largest holiday hotelier, remains a core sector of TUI AG, and we will continue to expand our Group-owned hotel capacity in existing and prospective growth destinations. Our hotel division again showed a very gratifying development last year and achieved an even stronger increase in earnings compared with our tour operator business. Our operating earnings rose by 19% to 146 million euro. For the next few years, we expect to be able to achieve further steady growth in these earnings. Even today, TUI Hotels & Resorts is already a gratifyingly profitable pillar.

Ladies and Gentlemen,
We have taken tourism to a new level, which promises excellent perspectives for the future.

This also applies to shipping:

In 2007, our container shipping operations achieved an operative turnaround and reported a substantial year-on-year increase in performance. Despite a rise in bunker costs and the weakness of the US dollar exchange rate, we achieved strong earnings growth thanks to Hapag-Lloyd’s excellent productivity. At 197 million €, underlying earnings by Hapag-Lloyd were around 90 million € or about 121% up year-on-year. We recorded this leap in earnings although average freight rates in 2007 still fell short of 2006 levels. Hapag-Lloyd’s earnings swing notably benefited from the synergies realised in the wake of the acquisition of the CP Ships container line in 2005. With the successful completion of the integration of CP Ships, Hapag-Lloyd has moved to a top position in the world container shipping league and is thus excellently positioned.

Central operations also improved considerably year-on-year. On a like-for-like basis, underlying earnings rose by 36 million € to around minus 30 million €. This was attributable to the drastic cost reduction programmes at headquarters and positive profit contributions from the measurement of derivative financial hedges. Ladies and Gentlemen, we have reduced our headcount within the holding from 420 to 120 and thus have a lean structure with substantial clout. This cut in staffing levels was implemented in a responsible manner in close agreement with the staff council.

So much for some initial information on a number of key indicators. Following my presentation, Mr Feuerhake will provide you with details concerning the financial statements for 2007.
Before turning to our Group’s strategic development, let me make some comments on the business trend in the current year.

II. Current trading, Q1

The positive trend of the 2007 financial year continues. Next week we will present our interim report on the first quarter, and I would like to already share with you the following key indicators.

In terms of turnover, we achieved substantial growth of 24.3% to 5.1 billion euro in the first quarter of 2008. The turnover growth was driven by all tourism segments, with a substantial portion of the rise in turnover attributable to the consolidation of the former First Choice. Shipping also increased its turnover, mainly due to the rise in freight rate levels and slight volume growth.

The Group’s operating earnings rose significantly in the first quarter. The loss, typical of the seasonal swing characterising the business cycle in tourism, declined by 21% to -196 million €. Earnings by tourism thus improved by around 1% despite the first-time inclusion of the negative profit contribution by the former First Choice activities of -83 million €, typical of the seasonal swing in the tourism business. Adjusted for this negative profit contribution by First Choice, the “old” TUI tourism division improved by around 37%, a visible manifestation of the clear improvement in earnings by TUI’s “old” tourism division. Shipping reported a substantial increase in its operating earnings despite notable strains due to the increase in energy price levels and the weakening of the US dollar exchange rate. Higher freight rates and slight volume growth resulted in earnings growth of 57 million € year-on-year.

Thus, we have every reason to be satisfied with the first quarter. I would like to assure you, also on behalf of my colleagues on the Executive Board, that we will do everything in our power to ensure that this positive trend will continue.

Of course, some questions emerge in the light of the current crisis in the financial market:

To what extent does for instance the crisis in the property and finance sector in the US and the sustained surge in the price of crude oil affect world trade in 2008 and thus indirectly also the business of Hapag-Lloyd as one of the world’s leading container shipping companies? And: Will consumers in European markets, above all the UK, change their holiday habits?

The market and economic research institutes expect economic growth to slow down slightly, although worldwide expansion continues to show a strong pace and a fundamentally upward trend. In the Eurozone, the appreciation of the single currency has a further dampening effect. And yet, the economy will continue to grow here, too, with experts expecting the growth rates to remain below the long-term trend.

Helpful as these studies may be, a glance at our current booking numbers in tourism, which continue to be strong, is even more helpful. We are performing well all across Europe and expect a good year with an increase in prices. In Germany, for instance, we are currently selling a particularly large number of tours at the high-margin brochure price. A glance at the first advance bookings for the 2009 winter season in the UK and Scandinavia currently shows a continuation of this trend. All in all, this trend shows that consumers are unaffected by any negative news when it comes to holidays and travel. Holidays constitute a basic need for people. If at all, holidays will be about the last issue for consumers when reducing spendings.

For the 2008 financial year, we thus expect substantial earnings growth for all tourism activities. Due to the capacity adjustments already initiated in TUI Travel – above all for the German and British markets – the growth in turnover is expected to primarily result from the inclusion of the First Choice activities in consolidation for a full year. In our view, earnings by TUI Travel will be driven by:

the expected synergies
margin improvements in the Mainstream business
and growth in the Specialist and Activity Holiday Sectors as well as the Online Destination Services Sector.

For TUI Hotels & Resorts we are also expecting turnover and earnings growth for the current year. This is to be achieved, among others, by means of further growth in bed nights, in particular in the eastern Mediterranean, and an increase in average revenues per bed.

We expect a similarly positive trend for our cruise business, allocated to tourism as of the 2008 financial year. Below the bottom line, this means that we expect a significant increase in earnings for the current financial year for our Group’s tourism division, despite the intensification of competition and the risk of increases in commodity prices.

Let me now turn to shipping: In the first quarter of 2008, Hapag-Lloyd achieved a significant increase in freight rate levels. We expect this trend to continue. On the other hand, transport volumes rose only slightly year-on-year and do not yet match expectations, a trend attributable in particular to a slowdown in Trans-Atlantic transports. The routes to North America are feeling the effect of the aftermath of the sub-prime crisis. On the other hand, exports from the US are boosted by the favourable US dollar exchange rate.

Hapag-Lloyd is ideally positioned. Thanks to the realisation of the full synergy potential of around 220 million euro in 2008, we expect a clear increase in earnings levels year-on-year despite a slight slowdown in the economic environment.

Overall, the Group’s profitability is expected to be boosted both by the expected increase in earnings by tourism and the ongoing recovery of shipping. We present this statement despite the slowdown in economic prospects in some key markets. Today, TUI is placed on an even sounder footing than in recent years.

III. Strategy and future

Ladies and Gentlemen,
Let me now comment on our Group’s strategic development. After all, our business model has been the focus of public debate over recent months.

Please allow me to start with a brief review in order to put developments properly into perspective.

When we purchased all shares in Hapag-Lloyd AG in 1997, Hapag-Lloyd’s tourism operations were the focus of our interest: the 30% interest in the German tour operator Touristik Union International, the airline Hapag-Lloyd Flug and the travel shops. The acquisition of Hapag-Lloyd was our first step into the tourism sector, and our goal was to build the world’s leading tourism company by means of the acquisition of the remaining 70% in Touristik Union and further acquisitions in Germany and abroad.

We have achieved that goal. As early as in 2001, we generated turnover of around 12.8 billion € and earnings of 547 million € in tourism. Below the bottom line, we generated a return of 4%. This positive trend came to an abrupt halt with the terrorist attacks of 11 September 2001. The subsequent years with the war in Iraq, terrorist attacks and natural disasters curbed consumers’ zest for travel and caused severe negative effects on profitability in the tourism sector worldwide.

As a result, our tourism division recorded a sharp decline in its earnings power; by 2003, earnings by our tourism division dropped to a totally unsatisfactory level of 200 million €.

We were faster than all of our competitors in responding to this trend with an unparalleled cost reduction and earnings enhancement programme, reducing structural costs in tourism by almost 500 million € from 2002 to 2007. At the same time, we increased our earnings by more than 300 million € by means of sets of measures adopted in order to expand our web-based sales as well as new products and continued growth in our hotel segment. However, these positive earnings effects of more than 800 million € were contrasted with a dramatic increase in fuel costs. From 2002 to 2007, the cost of aircraft fuel for our aircraft rose by more than 550 million € per annum. In assessing the earnings generated by tourism in 2007 of almost 450 million €, we have to outline that even today the market does not yet permit us to fully pass the aircraft fuel price increases on to customers.

Against the backdrop of this development, we were certainly aware as early as in 2006 that a further increase in earnings by tourism was only possible by means of market consolidation. When in early 2007 the opportunity of a merger with First Choice emerged, we responded quickly and realised the formation of TUI Travel PLC within a few months. With TUI Travel we have entered a new dimension which opened up cost synergies worth 150 million GBP but above all also new strategic growth opportunities in the high-margin Specialist and Active Holidays segments.

Ladies and Gentlemen,
Our process in tourism faced difficult road-conditions. However, we have not been persuaded to drop our goal of not just creating the world’s largest but also the world’s most profitable tourism company. We have overcome the slump in earnings in 2002 and 2003 and today are the world’s unchallenged number 1. We are well positioned and are charting a clear growth course. Further earnings potential has been identified, and we will leverage it. Our market embraces growth potential which has by no means been fully exploited yet. In particular the new markets in Russia, India, China and other emerging markets are growing strongly. We will take advantage of our strong brands and products and will expand in these countries.

Let me now comment on shipping:

When we acquired Hapag-Lloyd in 1997, the company had a slot capacity of around 85,000 TEU and 22 ships in container shipping. On a worldwide scale, Hapag-Lloyd was a small company ranking number 18 in a market driven by economies of scale.

Although we were primarily interested in tourism, the high returns on capital in shipping were very convincing, and we increased the slot capacity by a factor of six to around 510,000 TEU in the more than ten years since the takeover. Today, 140 container ships are operated in the seven seas for Hapag-Lloyd. The acquisition of CP Ships has considerably contributed to this result. In particular in the post-2001 period, earnings by container shipping have helped us stabilise our Group earnings.

Today, Hapag-Lloyd is the world’s fifth largest container line in terms of slot capacity. In productivity terms, Hapag-Lloyd is right at the top of the tables. In the last earnings cycle from 2002 to 2006, Hapag-Lloyd generated average earnings of around 250 million €. For the future, we expect a further significant leap in earnings. Thanks to our investment policy, we have developed Hapag-Lloyd from a niche provider to a global player and thus substantially increased its value over recent years. This value enhancement was substantially boosted by the acquisition and seamless integration of CP Ships, in particular.

When we decided to purchase CP Ships back then, we were aware that this would fuel the strategic discussion about the positioning of TUI AG. Since then we have pointed out in numerous investor discussions that the acquisition enhanced our value and therefore made sense, irrespective of whether shipping was going to remain within the Group in the long run. This was impressively proven by the positive operating development of 2007. At the same time, the demands raised in the financial market for a separation of shipping were increasingly getting voiced. When in 2004 we gave up our first attempt to separate part of our shipping operations for value-related reasons – we were planning an IPO back then – we initially fully focused on the integration of CP Ships. With the completion of this transaction, new strategic options emerged. Following intense discussions with our investors, we therefore decided this spring to focus the Group’s future development on its core business, tourism, and start preparing the separation of shipping from our Group. Our Supervisory Board therefore decided at its March meeting that the separation be effected and mandated the Executive Board to investigate further growth options for an expansion of our tourism business. It is also and precisely because shipping is now ideally positioned after years of integration and has returned to its previous profitability that we can now divest shipping and focus on tourism, our core business.

Preparatory activities for the divestment process starting at the end of May / beginning of June have commenced. We have mandated investment banks supporting us and are preparing the technical marketing documents required.

We have used the last few weeks in order to intensely deal with potential separation scenarios ranging from a divestment, a merger with some other company all the way to a spin-off. Our goal is to choose the path that creates maximum value for all our shareholders and a sound structure securing the future both of Hapag-Lloyd AG and TUI AG.

We currently do not rule out any of the potential options although our clear preference is a divestment solution. This solution is fastest to implement and offers the opportunity to realise a strategic premium. A merger with another shipping company would at best be an interim solution. It would entail the risk of only being able to benefit from the shares in the new, joint company in a second, subsequent step. Moreover, this path is very time-consuming. The spin-off, too, is a long-winded option. Moreover, this variant requires the Group to be completely refinanced, a condition hardly perceived as possible at appropriate terms and conditions under current market conditions.

The public already discusses about potential buyers. I do not want to comment on this discussion but clearly point out that we have not taken a preliminary decision. Of course we understand the demands, in particular those raised by employees, concerning a so-called “German” or “Hamburg” solution. These claims arise from our employees’ concern about the preservation of their jobs and the site. However, what matters is not the nationality of the buyer but the question as to whether the buyer has the necessary know-how and the financial resources to ensure a successfully further development of Hapag-Lloyd. This is the only way to secure jobs and sites in the long run. We, the Executive Board, feel obliged to realise the actual market value of container shipping and to appropriately balance the interests of our shareholders, bondholders and stakeholders in the process. If we manage to combine optimum sales proceeds with a German solution, the better.

The fundamental decision to separate Hapag-Lloyd Containerlinie from the Group has been taken. We are working full steam to realise an optimal solution. It is too early at this point to anticipate the exact timeframe, but we have to reasonably assume that the process will certainly take several months. Our interest is to implement the separation of Hapag-Lloyd swiftly but with an optimum result.

Ladies and Gentlemen,
With the completion of the separation of container shipping from the Group, the Group’s structure will again fundamentally change. The “two-pillar group“ will give way to a group exclusively focusing on tourism. The “pure” tourism group comprises the Travel, Hotels & Resorts and Cruises sectors. Here, we are already occupying leading market positions.

Tourism remains a growth market that will show above-average growth rates in the next few years according to all forecasts. The growth momentum will differ in individual markets. In our core markets in Europe, our earnings opportunities primarily relate to the expansion of high-margin products in the Specialist and Active Holidays businesses and the realisation of cost synergies. Our position as leading online portal provider able to secure the quality of holiday tours through a global network of Group-owned hotels and agencies in the destinations gives us a key competitive edge vis-à-vis competitors operating tourism as a mere trading business.

According to the forecasts of highly renowned economic research institutes, foreign travel expenses will quadruple by 2020, both in Russia, China and India. At around 400%, the Chinese tourism market will record the strongest growth, followed by India and Russia at around 240% and 150%.

The growth trend in these markets will provide us with the opportunity to develop TUI into a genuinely global tourism company.

We currently serve 30 million customers per annum. In Russia alone, the number of people waiting to be able to set out into the world as tourists is even larger. The necessary purchasing power already exists. Our goal in Russia is to be the market leader with our strong brands and partners. The potential number of customers booking package tours in India and China will be many times higher in the next few years and decades. No other company in the world has better know-how than us to build structures and processes that will translate this potential into turnover and earnings.

As in the past, we will tackle these activities jointly with strong local partners helping us to tap regional markets with their specific characteristics in future.

But our European market, by far the largest market at currently more than 300 billion US dollars worth of travel spending, also continues to grow. We are already leading the market here and will further expand our position. To this end, we will flexibly adjust our business model to the changing market environment. In this context, we are currently negotiating a merger of our German “TUIfly” airline activities with Germanwings, a Lufthansa subsidiary. The German airline market is currently undergoing a consolidation phase.

A merger with Germanwings will strengthen the new company, in which both us and Lufthansa will each hold 40%, in particular in the low-cost segment, and we will be able to continue offering tailored products to our tourism customers. Our negotiations have already progressed substantially, and we hope to be able to conclude them in the next few weeks.

On the other hand, we have identified enormous opportunities concerning the expansion of our long-haul business. With an order volume of 23 “dreamliner” Boeing 787s, we have secured this aircraft for our European company at a very early point in time and will be able to offer an attractive long-haul product. We do not consider it unrealistic to assume that we will more than double our total business volume over the next ten years.

Our hotel business plays a key role for our Group’s future development. The TUI Hotels & Resorts sector comprised a total of 237 hotels with just under 144,000 beds in 2007. We are thus the world’s 11th largest hotel chain, and the Number One internationally in the holiday resort sector. We will consistently continue the expansion of our hotel sector as an essential element of our value-added chain. In the current year we will open 21 new hotels with 16,000 beds.

One of the milestones, for instance, was the opening of the Weiße Wiek resort in Boltenhagen on the Baltic Sea last Friday. A Dorfhotel and an Iberotel each were opened on a fantastic plot of land directly on the Baltic Sea. This is currently the largest tourism project in Mecklenburg – Western Pomerania. It is rounded off by a yacht harbour. For our Iberotel brand, extremely popular in the eastern Mediterranean, this will be the first complex in Germany. A second Iberotel facility will follow in Land Fleesensee, again in Mecklenburg - Western Pomerania, in 2009. Further highlights will be the completion of a five-star hotel of the RIU brand in Jamaica, or the expansion of ROBINSON to Morocco and Portugal.

For our Hotel sector, too, we are opening up new regions. Apart from our traditional markets all around the Mediterranean and the Caribbean, we will invest in new regions such as Asia, India or Russia. Our goal it to further consolidate our Number One position in the worldwide resort sector and to expand globally.

With the formation of TUI Cruises GmbH a few days ago, we paved the way for entry in the German volume market for premium cruises with our partner Royal Caribbean Cruises Ltd. The cruise market is growing in the double-digit range and offers sound growth opportunities. The TUI Cruises fleet will centre around “MS Galaxy“, a four-star-plus ship. It will start operation under a new name in 2009, following a comprehensive conversion programme, and complement our existing portfolio in the luxury and expedition segment with around 2,000 beds. In 2011 and 2012, two new builds with more than 2,500 beds will follow. In addition, we will continue to expand the excellent market position of Hapag-Lloyd Kreuzfahrten, which will be retained by the Group, in the luxury travel segment and thus considerably strengthen our high-yield cruise sector. The cruise sector will be one of the Group’s key growth sectors in the next few years.

Ladies and Gentlemen,
The realignment of your company from an industrial conglomerate to a modern services company has been completed. We will build upon the many growth opportunities we have identified in tourism and will continue to develop TUI AG, already the world’s largest tourism group.

Before concluding my presentation, let me briefly summarise my key points:

The Executive Board will swiftly implement the decision to separate container shipping from our Group.
We will pursue the path representing the interests of all our shareholders and will take care to ensure
- that TUI AG with its 60,000 employees in tourism will have a secure future and be able to benefit from the many growth opportunities offered in the tourism market,
- but that Hapag-Lloyd Containerschifffahrt will also be able to pursue its successful growth path with new ownership structures.

Today, I would ask you to express your vote of confidence and to vote accordingly so as to enable us to fulfil these tasks based on continuity in management in order to focus all our strength on the future of our Company.

Thank you very much for your confidence and attention. I am looking forward to the discussion with you, following the presentation by Mr Feuerhake.

Speech of Dr Michael Frenzel, Executive board chairman Annual General Meeting on 7 May 2008 in Hanover

Other Topics

I. Business trend 2007

II. Current trading, Q1

III. Strategy and future