TUI AG Macroeconomic, industry and market framework Macroeconomic development Development of World Output Var. in % 2020 * 2019 World - 4.4 + 2.8 Eurozone - 8.3 + 1.3 Germany - 6.0 + 0.6 France - 9.8 + 1.5 UK - 9.8 + 1.5 US - 4.3 + 2.2 Russia - 4.1 + 1.3 Japan - 5.3 + 0.7 China + 1.9 + 6.1 India - 10.3 + 4.2 * Projection Source: International Monetary Fund (IMF), World Economic Outlook, October 2020 In calendar year 2020, the global economy is in a deep recession due to the COVID-19-pandemic. The International Monetary Fund (IMF, World Economic Outlook, October 2020) projects global economic output to contract by 4.4 %. As a result of unprecedented financial assistance and fiscal policy support, the experts expect the advanced economies to cope with the impacts of the pandemic better than initially feared. In this case, the economic downturn in the first half of 2020 should be partially offset in the second half of 2020. Key exchange rates and commodity prices TUI Group companies operate on a worldwide scale. This presents financial risks for TUI Group arising from changes in exchange rates and commodity prices. The essential financial transaction risks from operations concern euros and US dollars. They mainly result from foreign exchange items in the individual Group companies, for instance jet fuel and bunker oil or ship handling, or from sourcing transactions by hotels. The parity of sterling against the euro affects the translation of results generated in the UK market in TUI's consolidated financial statements. Following the UK vote for Brexit, the currency fluctuations continued, impacting the translation of results from our UK business. Changes in commodity prices above all affect TUI Group when procuring fuels such as aircraft fuel and bunker oil. In Tourism, most risks relating to changes in exchange rates and price risks from fuel sourcing are hedged by derivatives. Information on hedging strategies and risk management as well as financial transactions and the scope of such transactions at the balance sheet date is provided in the sections Financial Position and Risk Report in the Management Report and the section Financial Instruments in the Notes to the consolidated financial statements. Financial Position see page 68, Risk Report see page 33, and Financial Instruments see Notes page 214. Industry overview TUI Group is a global tourism provider. The development of the international tourism market has an impact on all business areas of the Group. The key indicators to measure the size of the tourism sector include the number of international tourist arrivals. According to the United Nations World Tourism Organization (UNWTO), the number of international tourist arrivals totalled around 1.5 bn in 2019, up by around 4 % year-on-year. This growth was driven by a number of factors: the relatively stable global economy, a growing middle class in the emerging economies, technological progress and low travel costs as well as easing of visa requirements. Europe remained the largest and most mature tourism market in the world, accounting for around 51 % of international tourist arrivals in both 2018 and 2019. In terms of this indicator, Southern Europe and European countries bordering the Mediterranean were among the world's largest tourism destinations. Asia-Pacific is the second largest tourism market, with a market share of nearly 25 % in 2019 and year-on-year growth of around 5 %, followed by the Americas with 15 % of international tourist arrivals and year-on-year growth of 2 %. (UNWTO World Tourism Barometer, January 2020) The COVID-19-pandemic has had a particularly serious impact on the travel and tourism sector. Travel restrictions were imposed in numerous markets across the globe; aircraft were grounded and hotels closed. For the first half of calendar year 2020, UNWTO reports a decline in international tourist arrivals of 65 % versus the prior year. In June 2020 for example, international arrivals dropped by 93 % (UNWTO, World Tourism Barometer, August / September 2020). Change of international tourist arrivals vs. prior year in % Var. in % 2020* 2019 * World - 65.3 + 3.5 Europe - 66.5 + 3.9 Asia and the Pacific - 72.2 + 3.6 Americas - 55.2 + 1.6 Afrika - 57.1 + 5.4 Middle East - 56.9 + 2.1 Source: UNWTO World Tourism Barometer, August / September 2020 * Period January till June Travel intermediary market A travel intermediary operates between a provider of tourism services, such as an airline or a hotel, and final customers, typically delivering distribution or related services. The global market for leisure travel intermediary sales encompassed in 2019 a value of ca. &euro 720 bn, on a constant 2020 price and fixed foreign exchange rate basis. While the intermediary leisure market is expected to sustain a serious adverse effect in 2020, the current forecast predicts a 1 % CAGR over the period of 2019 - 2024, on a constant 2020 price and fixed exchange rate basis (Euromonitor International Limited, Travel 2021 edition). Travel intermediaries include tour operators and online travel agencies (OTAs), whose business models vary substantially. Traditional tour operators offer their customers a package product (comprising e. g. flight, hotel and transfers), usually through a combination of offline (i. e. travel agencies) and online channels. In order to secure flight and hotel capacity in advance, a tour operator usually commits to a certain share of required capacity. Tour operators thus take the risk to fill the committed capacity; however, they can expect the supplier to offer them a favourable rate and the opportunity to secure acccommodation on an exclusive basis. Contrary to that approach, OTAs typically do not commit to taking contingents. Their offering to suppliers is a digital distribution platform with broad customer reach. Major OTAs but also dynamic packaging * are gaining relevance. * dynamic packaging of travel services such as flight, transfer, hotel and catering to a package tour Airline market Global airline sales totalled around &euro 670 bn in 2019 (at constant 2020 prices and at constant currency). The airline industry has been particularly hard hit by the COVID-19 crisis, as airlines around the world had to ground their aircraft and cancel flights due to global travel bans. IATA estimates that the global airline industry will be exposed to losses of around USD300 bn in 2020 alone (IATA, COVID-19 Updated Impact Assessment, April 2020). Recovery scenarios vary; however, the first positive signs emerged in Summer 2020. With key European destinations reopening for visitors, flight capacity slowly started to ramp up, although travel restrictions increased again in Autumn / Winter 2020 / 21 due to new travel warnings and lockdowns. However, the five-year outlook (2019 - 2024) shows a positive trend despite COVID-19: the global airline market is expected to grow by ca. 2 % (on constant 2020 price and fixed exchange rate basis). (Euromonitor International Limited, Travel 2021 edition). The airline market comprises three main groups of carriers: · Full-service carriers, which operate a hub-based network, aiming to offer customers global connectivity. · Low-cost carriers, which are structured so as to be cost-optimised and offer their customers a reduced flight product a low prices. From a network perspective, they focus on clear point-to-point connections, often built around more cost-effective secondary airports. · Charter airlines, which conclude contracts with travel agencies or tour operators to carry an agreed number of passengers throughout the year. Responsibility to fill the available seats with passengers lies with the tour operator. The European airline market is characterised by fierce competition and overcapacity, resulting in pressure on yields. Despite several insolvencies, the market has not seen a significant reduction in flight capacity. Instead, capacity has typically been absorbed by existing players. Hotel market Global hotel value sales reached ca. &euro 560 bn in 2019, on constant 2020 price and fixed exchange rate basis. COVID-19 exerted pressure on the hotel market similar to its effect on the airline industry, leading the value of global hotel sales to drop to approximately &euro 310 bn in 2020. Nevertheless, recovery signs are visible: after the sharp decline in 2020, global hotel sales are expected to show double-digit growth for the following three-year period (2021- 2024). For the overarching five-year time period of 2019 - 2024 and factoring in the initial drop as well as the strong rebound, global hotel value sales are expected to grow at a CAGR of 0.4 %, on constant 2020 price and fixed exchange rate basis. (Euromonitor International Limited, Travel 2021 edition). The hotel market comprises business and leisure hotels. Leisure hotels feature a number of characteristics distinguishing them from business hotels, including longer average lengths of stay, different locations, room features or service offerings. From a demand perspective, the leisure hotel market in Europe comprises several smaller sub-markets catering to customers' individual needs and preferences. The sub-markets comprise premium, comfort and budget hotels as well as family / apartment hotels and club or resort hotels. Hotel companies may offer a variety of hotels for different market segments, often defined by price segment, star rating, exclusivity or available facilities. In Europe, in particular, there are many small, often family-run hotels, which are less upscale and have fewer financial resources. Most family-owned hotels are not branded.
(MORE TO FOLLOW) Dow Jones Newswires
December 10, 2020 01:04 ET (06:04 GMT)
