Last week, Tui Group ended almost two years of speculation by confirming it is to sell off its Specialist division. Within hours, a new name was revealed for the business as it now looks for possible suitors. The chief executive and managing directors of new brand Travelopia spoke exclusively to Lucy Huxley.
Relief to finally have some clarity and excitement about the opportunity ahead were the two emotions that came across strongly during my interview with Will Waggott, chief executive of Travelopia, and his two managing directors Mathew Prior and Martin Froggatt.
Ever since the merger between Tui Travel and Tui AG two years ago, there has been uncertainty over the Specialist Group’s future as it became increasingly clear that it didn’t fit with the Tui Group strategy, Waggott explained.
“When we did the merger two years ago, the Specialist Group was called non-mainstream and we were managed for value. We made the decision to sell Hotelbeds a year ago which has now been sold successfully and there was an ongoing debate about what to do with the Specialist Group,” he said.
Scale versus niche
“From a Tui perspective, the strategy was pretty clear,” continued Waggott.
“It is about the Tui brand, vertical integration and scale. So we started looking at the specialist businesses in that context and we realised that they aren’t scale businesses, all bar one isn’t carrying over 250,000 passengers and there is little, if any, vertical integration. So the conclusion was that they really didn’t fit,” he said.
“Even in the Tui Travel days, the Specialist Group with about 50 brands, was a small part of a very big business. So with the merger, we’ve become an even smaller part of a massive organisation –and investors are not interested in this part.”
Waggott said it had made sense for Tui Group to sell off non-core aspects of the business and reinvest the proceeds in areas it wanted to focus on that would drive greater group benefits.
“We sold Hotelbeds for €1.3 billion and by selling the Specialist Group as well, Tui Group will have a large chunk of money to invest in building the main business under the Tui name globally, in technology and in cruise ships, and to further strengthen its balance sheet,” he said.
Change in Strategy
Asked why Tui Travel’s strategy of building a portfolio of high-margin niche businesses had been ditched by Tui Group to focus instead on becoming completely vertically integrated, Waggott replied: “Things changed post-merger. We went from being asset-light to having lots of assets, whether it is 400 plus hotels or several cruise ships. When you move into a position like that where you’re spending more money on assets, then those smaller businesses are always going to be second best.”
Waggott said the only exception within the Specialist Group was Crystal Ski because it was vertically integrated (80% of its flying comes from Thomson Airways) and, with carryings of 275,000 passengers, also has scale.
“We will miss Crystal, the guys running it and the excellent feedback it got from customers but at the end of the day, it’s the right thing to do to move it into Tui UK & Ireland,” said Waggott.
“If we didn’t delink it from the Specialist Group, we would risk the profitability of the Tui UK & Ireland mainstream business, and if we kept it, Tui would use those slots to set up its own ski programme and that would be the end of Crystal,” he said.
Prior added: “I’m really proud of what we’ve done at Crystal. It’s clearly the market-leading ski brand in the UK, so I’m sad to be losing it, but it’s the right thing to do.
“And our message to those staff working for Crystal is a really positive one as they are going to work for, arguably, the most successful part of Tui Group. UK & Ireland mainstream is doing incredibly well and Tui will invest in Crystal and grow it.”
But Waggott admitted that while Specialist Group staff were relieved to finally have clarity on and were excited about the future, there was some uncertainty still for some employees who currently work across ski and other specialist businesses.
Confirming that a consultation period had started for some staff, he said: “This is a good news story but it’s an unfortunate outcome that there is still uncertainty for some, for the weeks ahead.
“That said, we are hoping that there are no job losses. We will be splitting it down the middle and those that work mostly on ski will go with the ski business, and those that work mostly on the specialist businesses will stay with Travelopia. We will do everything we can to minimise – or ideally zero-ise -any redundancies,” he said.
On the subject of moving Crystal Ski from Surbiton to Luton, Waggott suggested that there are no immediate plans to relocate the business.
“Nick Longman has made it very clear that we don’t want to lose the expertise in Surbiton and it’s incredibly important to keep where possible all those highly-knowledgeable staff.”
Asked if they might have to vacate the current Specialist Group building and move elsewhere in Surbiton, Waggott replied: “That’s all still to be worked through but potentially, they could still have a floor within our building.”
Waggott confirmed that the next step for Travelopia, which employs 5,000 people around the world, was to unpick ski from the Specialist Group, which he described as “a big piece of work”. Although this focused on back office functions which might be shared, rather than anything customer-facing.
Confirming he expected the sale process and bidding to begin in earnest in the autumn, he said: “We have a lot to do preparing a plan for sale. We have to put together a three-five year plan to present to potential investors.”
Waggott said it was Travelopia’s intention to be sold as one unit. “It is absolutely not our preference to split it up because if there is any suggestion that you might break it up, that’s when you start losing the management team.
“Equally, private equity firms will not bother doing the research and putting the time in if they think the prize assets might disappear and they will bail out. So we are planning for one transaction,” he explained.
Waggott confirmed that Waggott, Froggatt and Prior would remain with Travelopia as part of the sale.
Private equity or trade sale?
Asked if it was likely to be a private equity investor that takes Travelopia on, Waggott said: “It could be a trade sale but I think it’s unlikely. However we will not stop any trade buyers putting in bids as that will drive the price up for Tui Group.”
Waggott would not comment on the value of the Specialist division.
Froggatt added that the winning bid would be from the backer that wanted to commit significant funds to grow the company.
“The opportunity to grow the brands within Travelopia over the next three to five years is fantastic but they will need investment.”
Waggott admitted that some of the brands needed more support than others.
“There are some that need a turnaround but there are none in the portfolio that we want to close or dump. We’ve closed a few over the last 18 months but we don’t see that happening going forward because the environment will be very different,” he explained.
Froggatt added: “When you’re a plc, it’s very difficult to invest for profit because you have to deliver a number every year. With new owners we will be able to have a longer-term view and invest upfront for a return maybe five to seven years down the line.”
Waggott said: “We have given the business a new name because it is our intention to sell it and it needs some sort of identity and home.
“We think it would be very weird selling a business that is called the Specialist Division of Tui Group, hence coming up with Travelopia, which we think is a pretty nice name for a collection of really incredible products offering amazing experiences,” said Waggott.
Froggatt added: “It gives us an identity to get behind and for the staff to get excited about. The name ‘Specialist Division’ is not very inspiring as a name and we wanted to come up with something that everyone could hang their hat on.”
Prior confirmed that Travelopia would never be a B2C brand and never marketed to consumers.
“It will stand for the home of niche specialist travel brands. It helps staff to have an umbrella company which reassures them that whatever brand they work for, they all have the same ideas and values,” he said.