Cruises: TUI’s strategy focuses on continuing boom and fleet expansion

Cruises are in vogue and attract an increasing number of curious holidaymakers. At around two million passengers per year, Germany is Europe’s fastest growing cruise market (source: CLIA). However, other European countries are also expected to deliver further growth in passenger numbers – in particular as Europe is still lagging far behind the US in terms of annual cruise passenger numbers, which stood at 6.7 million in 2016 as against more than eleven million in the US. The clear cornerstones of the overall strategy pursued by TUI Group and its three cruise subsidiaries TUI Cruises, Hapag-Lloyd Cruises and Thomson Cruises are modernisation and growth.

Cruises are a megatrend, already playing an immensely important role for TUI Group overall. They are one of the Group’s biggest growth drivers. On a full year basis, the Cruises and Hotels & Resorts segments already contribute 50 per cent of the Group’s operating result. In future, the Cruises segment is expected to play an even more important role as there are several trends indicating that cruise tourism will continue to boom. The benefits of cruising – the comfort of a fine hotel on the high seas, visits to six cities in seven days, leisure and sports programmes – are discovered by an increasing number of people, the target group is continually growing. Cruises also attract a growing number of young people, including Millennials and Generation X. At the same time, cruises are becoming more affordable and thus also attractive for families. They are also of the most popular and comfortable types of holiday for an increasing number of elderly people. Due to demographic change, this group also shows continuous growth.

Commercial advantages

Due to its growing popularity and the steady expansion of the fleets, the Cruises segment has delivered a substantial increase in turnover and earnings. Its profit contribution is considerably less seasonal and has a positive impact on the Group’s cash flow. The Cruises segment is therefore a key element in TUI Group’s growth roadmap.

Expansion of the fleet

The average cost of a TUI Cruises cruise ship is around half a billion euros. Financing of a ship is usually based on a combination of 20% own equity and 80% debt financing. A TUI Cruises ship generates around 50 million euros per year – as a joint venture partner, TUI receives around half of that amount. This means that a cruise ship delivers a very good return on equity. TUI already operates a fleet of 16 ships sailing the seven seas, including the world’s best cruise ships, Europa and Europa 2. In order to take even greater advantage from the sustained boom in the cruises sector, TUI gradually expands and modernises its fleet. However, there is a natural limit to this growth, for instance for TUI Cruises’ ships. Currently, there are only four shipyards around the globe that are able to build ships of this size – TUI Cruises has ordered its ships from the shipyard in Turku, while Hapag-Lloyd Cruises uses shipyards in Romania and Norway – and yet, at least one new TUI ship sets sails every year. The Group currently even launches several new cruise ships: Thomson Cruises’ TUI Discovery 2 – already reporting high booking numbers – was recently named in Malaga. This will be followed by the naming ceremony for Mein Schiff 6 in Kiel on 1 June. Two further ships will join the Mein Schiff fleet by 2019, and two new luxury expedition ships have already been ordered for Hapag-Lloyd Cruises. TUI now benefits from having obtained options from shipyard operators early on to secure the expansion of its fleet.