◼ BUSINESS Bloomberg Businessweek August 12, 201916
THE BOTTOM LINE TUI has added cruises and spiffier hotels in
exotic places to control more revenue from travelers, but it faces
stiff competition from online booking platforms and airlines.● China’s status seekers are becoming the
largest buyers of the aging U.S. luxury brandsWhere Cadillac and
Lincoln Are Still Cool
2000 to comply with antitrust rules. While TUI
still needs to prove the package-tour business can
thrive longer term, says Richard Clarke, an analyst
at Sanford C. Bernstein, the strategy shift has steered
the company in the right direction. “TUI has evolved
enormously,” he says. “It’s also suffering, but it has
managed to adapt.”
Key to TUI’s resilience has been going upmarket
and adding exotic destinations while getting closer to
customers and controlling more of the revenue they
generate. Whereas Cook serves mostly as a book-
ing service, paying for blocks of rooms at a discount
and reselling them to clients, TUI owns or manages
380 hotels with a total of more than 240,000 beds,
up 60% in the past decade. And with Hapag-Lloyd,
it picked up a handful of ocean liners, not tradition-
ally a big business in Germany. “We asked ourselves:
Should we sell the cruise business or try and turn
it around ourselves?” says Sebastian Ebel, the TUI
executive responsible for hotels and cruises. “We
went with the turnaround.” Today, TUI has 17 ves-
sels, from 150-passenger craft for Amazon or Arctic
excursions to 2,900-bed behemoths with sumptuous
suites, swimming pools, and multiple restaurants.
In its home market, TUI sensed an opportu-
nity. Cruises weren’t popular in Germany, but the
country’s prosperity, generous vacation policy, and
aging population suggested they could become a big
business there. In the past decade the number of
Germans taking cruises has more than doubled, to
2.2 million a year. The business helps even out cash
flow, because unlike hotels, ships can move south to
keep earning in the winter months, and passengers
often pay earlier than summer holidaymakers do.
TUI further reduced seasonality by adding
hotels in year-round destinations such as the
Caribbean and started filling them with nearby
North Americans brought in via expanded ties with
U.S. travel agencies. The shift hasn’t been cheap: A
resort big enough for package tourists can approach
$100 million, and a large cruise ship costs many
times that. TUI’s annual capital expenditure has dou-
bled, to $800 million, in the past five years.
Myriad dangers remain as travelers flock to
online reservation sites. Booking Holdings, owner
of Booking.com and Priceline, has a market value
of $77 billion—more than 10 times TUI’s. Vacationers
want more personalized experiences, such as those
offered by Airbnb, which has 6 million-plus listings.
And airlines are teaming up with hotels and rental
car companies to offer many components of package
tours. With tens of millions of passengers a year, “it’s
now our job to get them to book their entire holi-
day with EasyJet,” Johan Lundgren, the carrier’s CEO
and a veteran of TUI, told analysts in May.Yet TUI insists its strategy is sound. Two-thirds of
profit now comes from cruises and hotel ownership,
twice the level of five years ago. The company is
planning a big push in Asia to attract Chinese and
Indians to beach destinations. It has nine hotels from
the Maldives to Thailand and aims to more than dou-
ble that in the next few years. And it plans to step up
sales of extras such as snorkeling trips, four-wheel-
drive outings, or guided city tours, a business it esti-
mates is worth $150 billion a year. “We have a great
chance of success,” CEO Joussen says. “We want to
know every customer so well that we can offer them
individual experiences.” �Richard WeissThe streets of Beijing are teeming with German
luxury cars, but Cindy Zhang wanted something
different—something that reminded her of the mus-
cular vehicles she sees on American TV shows like
the spy thriller Homeland. So she bought a boldly
styled Cadillac XT5 SUV in a color dubbed red pas-
sion. “The vehicle looks pretty solid and makes me
feel safer,” says Zhang, 29, a primary school teacher.
“I don’t know whether those scenes with American
cars in the shows helped me with the choice, but it
felt natural and right.”
The well-wheeled in China are increasingly
embracing American luxury brands—the bigger,
the better—with Cadillac crossovers and Lincoln
SUVs flying off dealer lots. The country has already
become General Motors Co.’s largest market for
Cadillac, overtaking the U.S. in 2017, and Ford Motor
Co. says it will soon be the top market for its Lincoln
brand, which arrived there only three years ago.
The rapid growth of their luxury sales in China
is welcome news for Detroit automakers, which
have recently seen sales of their mainstream mod-
els plunge there. While total China sales for both
Ford and GM slid in the second quarter, demand
for their premium brands climbed. Lincoln’s rose
7% in the April-June period from a year earlier, and