Speech of Dr Michael Frenzel, Executive board chairman Annual General Meeting on 10 May 2006 in Hanover

– Check against delivery –

Dear Shareholders,
Ladies and Gentlemen,

Welcome to the TUI AG Annual General Meeting. We are delighted that so many of you could come to Hanover once again this year.

2005 has been a very eventful year for TUI. We have achieved very much, but have not yet arrived at our desired destination. Allow me to begin with an overview of the milestones of the past year:

The main event of 2005 was the acquisition of CP Ships. By purchasing this company, we extended our highly profitable shipping activities and established two strong pillars for the Group. I will come back to this in detail later on. Parallel to this purchase, we were able to optimise our equity position and our financial structure on a sustainable basis:

following the successfully placed capital increase of Euro 1 billion, we were able to increase our equity ratio to 28.5 per cent. I would like to thank those who subscribed to the new shares for their confidence in us. In particular, I would like to emphasise at this point that our Spanish shareholders – the RIU Group, Caja de Ahorros del Mediterraneo and Mr. Matutes’ Fiesta Group – who together represent approximately 13 per cent of TUI’s equity, and whose interest in TUI is primarily related to tourism, contributed to the capital increase in line with their equity holdings and expressly endorse the strategic development of TUI into a "two-pillar Group".

This, together with the three bonds in the amount of Euro 1.3 billion that were placed successfully following the capital increase, has rendered the Group more "weatherproof". We are now fully financed in the long term and less susceptible to future changes in interest rates. A positive result of this is the credit rating that was assigned to us for the first time during the past year. With this rating, we offer our investors a reliable basis for their investment decisions.

In addition to the sale of the rail logistics business, the year’s milestones included the sale of our TQ3 business travel interests, concluded in the first quarter of 2006. This was necessary in the light of the continuing consolidation of this market. TQ3 was not a core business and on our own we were too small – and this in turn led to a real risk of our profitability in this sector being eroded. As can be seen from the quarterly results that were published yesterday, we received a highly attractive price that will have a very positive impact on our overall result for 2006.

Ladies and Gentlemen, you can see that there were many positive developments over the past year. All of this would not have been possible without the committed efforts of our staff, whom I would like to thank – also on your behalf.

That completes the overview – let us now turn to the expansion of the shipping division.

What were our reasons for taking such an important step for the Group?

With this acquisition, we are developing a second division – shipping – that is every bit as strong as the existing tourism division. In recent years, our container shipping business has proved itself to be both profitable and capable of high growth.

In spite of the temporarily difficult market situation in 2002, the company was still able to generate good results.

Over the past few years, we have been able to improve productivity in the container shipping business on a continual basis. Today, there is no doubt that Hapag-Lloyd is one of the most productive and profitable players in the sector.

Since acquiring Hapag-Lloyd in 1997, we have almost doubled our fleet through investments in new ships. With the purchase of CP Ships, Hapag-Lloyd has now moved to the top of the global table.

However, this was not driven by a desire for size, but rather by the expectation that we would be able to significantly improve our profitability in the shipping division.

CP Ships is an excellent company with a well-structured, modern fleet which is complemented perfectly by Hapag-Lloyd.

Owing to its historical business development, CP Ships still has considerable productivity potential that is as yet untapped.

Through the integration of the CP business in Hapag-Lloyd, we will increase the productivity of CP to match the level of Hapag-Lloyd. The integration is progressing at a faster rate than expected. According to current figures, we now expect positive synergy effects of Euro 220 million rather than Euro 180 million as originally estimated. In addition, we are certain that we can accelerate the integration process substantially, and that the key measures will be completed by the end of this year.

If we are able to predict the positive synergy effects with confidence, this is because these effects relate only to controllable cost and efficiency improvement measures. Half of these synergies are attributable to personnel costs and the other half to savings in material costs. Through the integration in the international Hapag-Lloyd network, we were able to reduce the workforce at CP Ships by approximately 2,000. These job reductions were spread widely across the continents. In Hamburg, where we are adapting the Hapag-Lloyd headquarters to cope with the increased volumes, we will create 100 new positions. Incidentally, it is characteristic of the job situation in the UK that we were not able to fill the majority of new positions with staff from the UK to whom these had been offered.

Ladies and Gentlemen, over the next few years, we will see the shipping division develop into a second strong pillar for our Group – I am wholly convinced of this.

The profitability of the CP Ships business, the expected synergy effects and further organic growth will lead to a significant growth in earnings in 2007 and the following years. Based on the level of earnings in 2005, we expect the new Hapag-Lloyd to be able to double its result by 2008.

And, Ladies and Gentlemen, I would like to add that CP Ships was neither bought at too high a price nor acquired at the wrong time. The acquisition date was predetermined, we were in competition and yet did not pay any unreasonable strategic premiums, but rather focused on the expected profitability of the company without taking into account most of the synergies at that stage.

For the container shipping business, 2006 is a transition year in which the integration process will be largely completed. Some Euro 80 million of approximately Euro 100 million in integration costs will be incurred this year. The impact of the synergy effects will be seen in 2007 and 2008 and there will be a clear increase in earnings in the shipping market, which itself will continue to grow.

To recap:

through the expansion of the shipping business, we have focused Group activities on two strong pillars, tourism and shipping.

This is not a change in strategy, but is rather the systematic continuation of our growth course with Hapag-Lloyd. Since September 2001, our core business – tourism – has become increasingly volatile. There has been no year in which natural disasters or political unrest have not left their mark on our business. With the expansion of the shipping business, we are reducing the fluctuation of our results and creating a more balanced earnings structure. In short, two pillars are steadier than one.

Our strategy, which is based on this structure, is very clear: the primary objective is to continue to increase the profitability of the Group substantially. This means increasing our earnings in absolute terms, it means creating a balanced earnings structure for tourism and shipping and it means significantly increasing our free cash flow from the larger shipping business.

At this point, I would like to say a few frank words on the share price performance. For all of us – not only for you as our shareholders, but also for my colleagues and myself on the Executive Board – last year’s share price performance was somewhat less than satisfactory. We were not able to match the positive development of the Dax. To a certain extent, this is due to technical reasons, such as the dilutive effect from the capital increase, which in itself was an advisable move nonetheless. However, it was also because there was a temporary downturn in shipping at the end of 2005, as we anticipated, meaning that we were unable to achieve the even higher earnings in the tourism division expected by the market. We are confident – and I will return to this point later on in my outlook on 2006 – that we will be able to demonstrate the increasing profitability of our tourism business in 2006. We also believe that, in 2007 and the following years, the expected positive impact on earnings in the shipping division will be increasingly significant. Profitability in both sectors is high, meaning that there is also clear growth potential for the price of TUI shares. We would kindly ask you to stay with us on this course.

Our plans also provide for an attractive dividend payment in the future. Furthermore, as well as improving share performance, we wish to continue offering an attractive dividend yield.

And how about tourism?

2005 was a mixed year, with both positive and negative developments. Although sales growth in our tourism core business reached 5.8 per cent , earnings growth failed to match our expectations, increasing by a mere 2 per cent to Euro 360 million EBTA. The principal reason for this was an unfavourable and unforeseen development in France. While all other markets continued to develop positively, we fell substantially short of our earnings targets in France.

After incurring a high one-off expenditure in the first half of 2005 in connection with the fleet renewal of our French airline – Corsair – the sociopolitical unrest in France towards the end of the year had a very negative effect on the generally highly profitable Christmas business. Customers of Corsair which organises flights to former French colonies overseas live in the affected suburbs and did not travel. We reacted to the situation and have currently reduced our capacity considerably; an in-depth restructuring programme is in place to restore our French business to profitability in 2006.

We were also successful in the other major markets. Earnings in the Central Europe source market sector increased by over 33 per cent to Euro 83 million, while in the Northern Europe sector, earnings increased by as much as 40 per cent to Euro 109 million. In the Destinations sector, earnings grew by 18 per cent to approximately Euro 169 million. Without the unexpectedly high loss in the French source market, our tourism earnings increased by 17 per cent, which clearly illustrates that the negative developments in France are largely responsible for our failure to attain our higher earnings target.

All in all, the future looks very promising for our tourism business. Our integrated business model is proving its worth, as can be seen from the high share of earnings attributable to our hotel business.

We are the clear market leader in Europe and will continue to build on this position.

We are also rather proud of the fact that, in 2005, TUI was once again identified as the brand trusted most by customers. This is both an incentive to live up to this high standard and an obligation to do so.

The European markets are experiencing further growth and this is generally expected to continue.

However the market is changing – the trend towards modular booking in particular is reshaping our business. This market change is being driven by the internet. The European online travel market has grown by an average of 50 per cent in recent years and currently accounts for some 15 per cent of the overall market.

We are at the forefront of this development. Last year, our online turnover grew at the same rate as the market and currently accounts for 15 per cent of our turnover as well. If we add to this our other direct turnover, in particular turnover from call centre activities, direct sales already make up some 20 per cent of our turnover, a trend that is set to continue dynamically.
In the UK, we are market leader in online sales with a share of 12 per cent.

In Germany too, our websites have a market share of roughly 18 per cent. Ladies and Gentlemen, you can see from these figures that, rather than being taken unawares by the future, we are one of the main forces that are actively shaping it.

Ladies and Gentlemen,
we are now involved in all stages of value creation, from sales to hotels. This means that we can safeguard the quality of our products as well as improving our margins considerably. The degree to which we use in-house resources rather than outsourcing varies widely from country to country and is adjusted every year as part of our plans. Flexibility and competitiveness are the key factors determining the degree of integration.

Our tourism strategy is clearly defined:

we are confident that, in spite of the changing markets, we can increase our market leadership as a globally active, internet-based travel company.

We are strengthening the new distribution channels, modularising more of our products and also expanding into new source markets and product fields. This is not an end in itself, but rather aims to return our sustainable profitability to the high level we had achieved before the terrorist attacks of 2001.

Last year, I presented you with an earnings target of approximately Euro 700 million for the tourism business in 2008 and outlined the individual measures for reaching this target. This is still very much our target.

The most important measures are those concerned with optimising costs and efficiency. At present, we have identified an improvement potential of Euro 210 million, which we plan to implement gradually by 2008. Of this figure, Euro 180 million comes from cost savings and approximately Euro 30 million from improved efficiency.

In 2005, we took extensive measures to optimise business processes in England in 2005, which involved reducing the workforce by 2,000 people. This year, the main focus will be on improving efficiency in the German market. The programme for Germany finalised last year is being implemented according to schedule and is progressing well. As part of a project entitled "Pelican", our efforts are directed towards making the organisation even more lean and efficient. Business processes will change radically.

Our performance optimisation will also focus on our German airlines. In Hapag-Lloyd Flug and HLX we have two airlines that can hold their own against European competition thanks to their close ties with tour operators. HLX has developed extremely well and is set to record a very positive result in 2006. However, in the flight operations sector we must also adapt our cost situation to the increased competition. The ongoing programme for reducing personnel and material expenditure aims to cut costs at Hapag-Lloyd by over Euro 30 million on a sustainable basis.

Comparable programmes are also being implemented in other markets, such as France, which I mentioned earlier.

With these cost reduction and efficiency improvement measures, we will bring about cost savings of Euro 210 million in 2008, which will improve our profitability considerably.

In addition to increasing profitability in the source markets, we see further potential in the Hotel and Destinations sectors. Through additional investments in new hotels and incoming agencies, we can further increase the share of earnings attributable to this part of our value creation in the tourism sector.

With the introduction of over 25 thousand new beds by 2008, we are increasing the profitability of the hotel sector continually and strengthening our network of agencies in the destinations, which will generate additional earnings of up to Euro 40 million.

Lastly, we will also profit from the fact that the investments in innovative products that we have begun to make in recent years are now bearing fruit. Our low-cost airlines in Germany and the UK are also growing in profitability and will make a steadily increasing contribution to earnings in 2008.

The further growth of our internet business also makes a contribution to increased profitability. By 2008, we expect our new products and services to yield increased earnings of up to Euro 120 million in total.

Overall, we feel that we may well be able to grow profitably over the next few years while reaching our goal of doubling earnings in the tourism division by 2008.

Needless to say – Ladies and Gentlemen – we cannot rule out the risks associated with business development: economic fluctuations, terrorist attacks, political tension or regional epidemics can have a negative impact on earnings. We learnt this the hard way in France in 2005. Our business cannot be taken for granted but must prove itself anew everyday. Nonetheless, travelling and holidays remain a basic human requirement and – as readily confirmed by all international studies – tourism is a growth industry. Our challenge is to grow profitably with efficient business models – I have attempted to illustrate this for you in outlining our potential for increasing profitability.

It is quite clear from my comments that our core business model of an integrated travel company is here to stay. However, this is not written in stone, but rather is simply a model for earning more money through increased added value – in other words, with a greater degree of in-house production. We will continue with this insofar as it proves effective, which requires that our cost structures remain competitive.

The sluggish earnings experienced by internet portals in the USA demonstrate the limitations of pure sales models that do not have any in-house capacity of their own. Only players who have constant control of all the stages of the tourism value-added process, who determine the quality of products and who offer exclusive products in addition to high-volume products and services – only these players will be successful in the long term and will create the level of value expected by the capital markets. Our English tour operator Thomson demonstrated impressively that it is possible to bring together old and new worlds successfully. Thanks to its own strong products, Thomson is well ahead of new economy providers in the UK and is set to increase its lead even further.

When I spoke earlier about the acquisition of CP Ships, I mentioned the medium-term development of the shipping business.

In 2007, we will have harnessed over two-thirds of the synergy potential of Euro 220 million and these savings will help us to improve our earnings substantially. We feel that an earnings level of Euro 650 million for the shipping sector is realistic as of 2008 if freight rates continue to develop in a stable way. This means that the tourism and shipping divisions will make a roughly equal contribution to the Group’s earnings.

In addition to the effects from the integration of CP Ships that I have already addressed, our anticipated earnings in the shipping division are based on solid investment planning. Over the next few years, organic growth will be our main area of focus. Several weeks ago, another ship with a capacity of 8,750 TEU – the Chicago Express – was delivered to us. Ships of this size are currently the most modern units. In total, this year and next year we will have increased our fleet by 14 new ships: 5 from the 8,750 TEU class and 9 medium-sized units with a slot capacity of 4,250 TEU.

Accordingly, it can be said that we are achieving solid organic growth and will continue to do so.

The shipping division also includes the cruise business. Hapag-Lloyd Kreuzfahrten is primarily active in the premium and luxury segment, focusing mainly on themed and exhibition tours. We are particularly proud of our flagship – the MS EUROPA – which has been voted the world’s best cruise ship once again. This area of business is profitable and we will outperform the previous year again in 2006. However, until now we have never operated in the fast-growing volume market using our own ships. The exception in this regard is in the English market, where Thomson marketed four chartered cruise ships with approximately 5,300 beds with profitable results.

Cruises are growing in popularity and market research findings confirm that the TUI brand also has great appeal for customers in the German cruise market. Accordingly, we will realign the cruise business and look for openings in the volume segment, including the German market.

Ladies and Gentlemen,
As you can see, we are working on a variety of tasks, concepts and attractive new projects. The strategic guidelines – strengthening the tourism division and developing the shipping division – are being implemented resolutely. Our targets are based on a variety of individual plans – they are challenging but realistic. By reaching these earnings targets, our Group will achieve a medium-term return on capital employed of 15 per cent , thereby creating a high level of value. That completes our look at the medium-term development.

To conclude, I would like to take a look at the first quarter of the current year before presenting an outlook on 2006 as a whole. The report for the first quarter of 2006 was published yesterday.

All in all, the beginning of 2006 was as we had anticipated it. In the tourism sector, the operating result was satisfactory in view of the fact that this year the profitable Easter business falls into the second quarter. In the first quarter, there were one-off gains in the amount of Euro 144 million resulting from the sale of business travel interests. This is an excellent result which surpasses market expectations substantially as well as reflecting our successful operating activities of the last three years, in which we restructured this area completely.
In the shipping division, we expensed almost Euro 40 million provisions for the planned reduction of the workforce by 2,000. Leaving aside these one-off expenditures and the non-cash purchase price allocation, our operating result in the new unit is on a par with the previous year, thanks to the high profitability of CP Ships.

And now for my outlook on 2006:

In the tourism division, we expect there to be an invigorating level of bookings for the summer. However, booking behaviour in last year’s winter season indicated a proportionate increase in short-term bookings, so bookings for the early summer months of May and June can also be said to be good. This will continue in the following months. Our capacities have been geared towards this development, particularly in the case of air travel. Due to the absence of one-off expenses incurred in 2005, notably restructuring costs in the UK, to a significant decline in start-up losses incurred by Thomsonfly, the absence of one-off expenses relating to the fleet renewal in France and the positive effects of the cost and efficiency improvement measures, we expect a significant increase in earnings in the tourism division in 2006. Given that bookings for the summer are still at an early stage, we cannot yet put a figure on earnings for 2006.

In the shipping division, the anticipated fall in freight rates occurred at the beginning of the year. However, a turnabout is expected in rates and we assume that freight rates will rise again if freight volumes continue to increase. Accordingly, we were able to increase freight rates in the Far East for the first time in April – the next increase has been announced for July. Our volume growth of 13per cent was higher than expected, a development that enables us to enforce our price increases. However, owing to the one-off expense in the amount of Euro 80 million relating to the integration of CP Ships and to the incremental depreciation to be recognised for the first time on the CP Ships assets acquired – i.e. purchase price allocation – we will probably not be able to match the previous year’s performance in the shipping division.

Of course, the overall outlook on the results of 2006 is still affected by the uncertainties associated with business development. Today, we can safely say that 2006 will be a year in which we lay the foundations for a sweeping and sustainable improvement in earnings – including those of the Group as a whole – in 2007 and in the following years.

Ladies and Gentlemen,
TUI is well on course. Our strong pillars – tourism and shipping – stand for increasing earnings, stable dividends and sustainable growth. We will make every effort to ensure that this is also reflected in sustainably increasing share prices.

Thank you very much for your attention.