Why TUI is turning to cruise ships

Photo credit: TUI Group

The hotel-related numbers from TUI Group's first fiscal quarter were positive. Total revenue per room was up 2.6 percent from the same quarter year-over-year, and occupancy was up 2.5 percent. The company had made some big deals to expand its hotel presence, forming a joint venture with Croatia’s Sunce Group to develop properties on the island of Brač, and acquiring Stella Polaris Creta, a subsidiary of the Greek Karatzis firm and owner of land on the southern coast of Ierapetra in Crete, to open a the country's third Robinson Club.

But the first-quarter numbers also revealed a different expansion plan that blurs the line between hospitality on land and sea. TUI Group announced that it had ordered a new 2,900-capacity cruise ship, in addition to Mein Schiff 1, which is set to join the group in May. Following the merger with TUI Travel, the company has sold its non-core businesses, with the gains reinvested in hotels and cruises as the combined group looks to be an owner, not just operator.

With TUI bringing its cruise and hotels businesses together, the message that cruise ships are floating hotels has never been clearer.  

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Floating Hotels

“We have decided, based on a very strong market development and on strong demand, to order another ship within TUI Cruises, which is supposed to [be] delivered in 2023," Friedrich Joussen, TUI CEO, told analysts. "We are absolutely positive based on the development of demand in the German-speaking markets that this ship will be a success as we have seen it with all the other ships and occupancy and development of average daily rates proves that we are here on a pretty stable track.” 

The acquisition cost of the brand’s seventh ship will be around €650 million. With the ship not due for delivery until 2023, Joussen said that the general growth in cruise demand would benefit the company’s older ships while supply was restricted.  

“If you could buy more ships, then we could put more ships in service," The CEO added. "We would do so. Last year, we increased capacity dramatically and still increased yields. That is a very beautiful environment.” 

Cruising Metrics 

The company’s cruise division, including TUI Cruises and Marella Cruises, reported 30 percent increases in passenger days, as well as increases of average daily rates. Average occupancy was 98.9 percent, compared to 99.5 percent, in the prior year for TUI Cruises; 101 percent versus 101.2 percent for Marella and 75.5 percent, up from 71.3 percent, for Hapag-Lloyd Cruises. In the cruise segment, underlying EBITA in constant currency grew 34.5 percent to €37.8 million.  

Just as TUI was announcing its cruise growth, MSC Cruises reported a 32-percent increase in sales year-on-year, driven by growth in the eastern Mediterranean, with plans to add more ships as investment builds on both land and sea in the region. The best-selling product was the eastern Mediterranean, which the company said was making a return to popularity this year, closely followed by western Mediterranean itineraries, including the brand new MSC Seaview. 

“There is no doubt that the new ships are driving sales, and as a result we are seeing an increase in both volumes and rates,” Antonio Paradiso, MD of MSC Cruises for the UK & Ireland, said. 

Cruise demand has continued to build. According to the Cruise Lines International Association, the Mediterranean accounted for 15.8 percent of cruise line deployment in 2017. The organization said that 80 percent of CLIA-certified agents were expecting an increase in cruise bookings this year. To meet ongoing demand, more ships are scheduled to set sail in 2018. Cruise lines associated with CLIA were scheduled to debut 27 new ocean ships, river vessels and specialty ships this coming year. 

“It is without question that the cruise industry continues on a growth trajectory, gaining in consumer interest and creating a positive impact on the global economy,” Cindy D’Aoust, president & CEO, CLIA, said.  

TUI isn't the only hotel-related company expanding onto the seas. Last year, Ritz-Carlton launched its own luxury cruises, joining Belmond. With TUI reporting on ever-rising rates in Spain and competition growing to buy the country’s NH Hotels (and the price expected to reflect the interest), those who seek a Mediterranean presence may wish to think less about a GM and more about a first mate.  

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.