• TUI adds more hotels to vertically integrate

TUI, the biggest tour operator in Europe, is planning to buck the divestment trend by increasing its owned-hotel capacity over the next two to three years.

By the end of 2008, the German giant wants to add 25,000 new hotel beds capable of delivering an extra Eu30m to Eu40m of earnings.

The company is backing the vertically integrated model which it claims generates better returns than negotiating room deals, an approach favoured by most other rivals including nearest German competitor Thomas Cook.

Last year, the hotel division of TUI generated sales of about Eu222m from 3.4 million customers. The company reports the profit figures in combination with destination services, a division that generates just slightly more turnover than hotels. The combined operating profits were Eu169m.

In a move that will further ratchet up the profitability of direct ownership, TUI has slashed commission to travel agents and even prevented some from selling its holidays and flights at all.

Already, 75% of bookings at the UK wing of TUI, Thomson, are made via its own website, call centres or its high street travel agency chain (formerly called Lunn Poly). The distribution move and the decision to ramp up its owned hotel stock, means that TUI is increasingly determined to compete head-on with resort hoteliers.

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