Tui v Jet2: How Tui plans to regain its market share - and what it means for agents
Gary NoakesTui’s new chief executive’s to-do list must have his main UK rival high on it; it’s only five months since taking the top job and Sebastian Ebel has this week seen the upstart Jet2holidays become number one in his most important market.
Decades of dominance by Tui (and under its previous guise, Thomson) have ended – albeit in Ebel’s eyes, temporarily – with Tui now licensed for 500,000 fewer seats than its Yorkshire rival’s 5.86 million.
Speaking during the release of Tui’s Q1 results this morning (14 February), Ebel was honest enough to admit his brand hadn’t taken enough advantage of the demise of Thomas Cook – unlike Jet2, which has piled on the bucket and spade packages and made hay.
In his understated way, Ebel confessed: “We do see that as a challenge.”
Back in the day, a small remark like that would set the alarm bells ringing in the industry. The way to regain share in the old days was to add more flights, piling them high and selling them cheap. Operators undercut their competitors, generating lurid consumer press headlines that screamed “Holiday Price War”.
Usually, the only winner was the consumer, as tour operators went for volume instead of profitability, leading to a vicious circle of low margins, lack of investment and, inevitably, some spectacular collapses.
So, should we be worried about the top two duffing each other up this summer? On the face of it, Tui has a fair bit of room for manoeuvre. It has just said summer 2023 prices are a whopping 25% above 2019, so there is space there for some deep discounting to grab back market share.
Moreover, Tui doesn’t seem too worried about inflation, stating that its cost increases “will be less than 5%”.
Ebel, though, seems to be level-headedly looking at a different tactic. Where once flights and hotel rooms were bought far ahead and had to be sold or else dumped in the lates market, Tui’s increasing use of third-party airlines, including easyJet, gives it more flexibility, allowing it to bundle flights with hotel rooms bought dynamically. It’s a no brainer that allows you to grow without risk.
There is a lot of room for Tui in this segment. Across all its markets, Tui estimates the total industry share taken by dynamic packaging at about 20%. Tui puts its own share at just 1%, so this is where it is looking to target.
Ebel today detailed how in Germany, dynamic packaging now comprises 25% of Tui sales, with links to airlines like Lufthansa now enabled with New Distribution Capability (NDC) technology. He promised the UK would have a similar technology platform by the end of 2023.
So, the good news is that there is unlikely to be an old-style price war where no-one emerges with their bottom line – or their dignity – intact. The bad news for independent agents is that the bulk of Tui’s dynamic package sales will almost certainly go direct, using its new technology and app platform.
But then if you are an independent agent, are you bothered? Probably not, because you’d already put your faith in Jet2, hadn’t you?
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Gary Noakes
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