The Anglo-German travel company TUI Group has today announced a move to permanently reduce its overhead cost base by 30%. According to CEO Fritz Joussen, "This will have an impact on potentially 8,000 roles globally that will either not be recruited or reduced." This would be in line with the Group's acceleration towards a digital transformation, which in the realigned global environment, "will require cuts: in investments, in costs, in our size and our presence around the world," and a call by the CEO to "be leaner than before, more efficient, faster and more digital."
In its half-year financial report, the company also stated that "COVID-19 is the greatest crisis the tourism industry and TUI has ever faced," but positively noted that the company witnessed an exceptional start to the financial year, with "January 2020 being the best ever bookings month in the company's history." In the first five months of the fiscal year, TUI noted a 6% turnover increase to €6 billion.
Vast changes were then witnessed in the final month of the second quarter when an unprecedented global travel suspension escalated into a pandemic. The Group's underlying Earnings Before Interest and Tax (EBIT) saw a strong change from being €62m up in the first five months from the previous year to the half-year underlying EBIT down €512m on the prior year. The Group said that the contributing factors to these figures were costs arising from the COVID-19 shutdown as well as costs from the Boeing 737 MAX grounding.
TUI Boeing 737 Max. Photo by Jero Vida | AeroNewsX
TUI has taken a few financial and operational measures as a result of travel suspension. These include the application and granting of German state aid, significant cost base reduction and the largest ever repatriation campaign by TUI. The German state aid in the form of a KfW bridging loan approved on the 27th of March 2020 consisted of €1.8 billion. This credit was integrated to TUI's pre-existing €1.75 billion Revolving Credit Facility. Under the terms of the loan, annual dividend payments have been suspended. As of May 10th, these lines of credit have enabled TUI to have financial resources and available credit facilities of around €2.1 billion.
Additionally, according to the Group, its largest cost base is accommodation, and it has invoked the force majeure clause on all its hotel contracts, resulting in a 70% reduction in its monthly cash cost base. Its aircraft leases are also being renegotiated, and the Group has reduced staff costs from April onwards in a bid to make the most of government job retention schemes.
With 35% of the 2020 summer programme still booked, TUI hopes to reinvent the holiday in 2020, with a 10-point catalogue for increased hygiene and protection measures at its hotels, new destinations, changed travel seasons, and more digitalisation,