TUI Travel set itself tight timescales to harmonise benefits for staff following a merger, despite the tough economic climate, says Nicola Sullivan
Times are tough for the UK travel industry. Last year, it appeared as though the holiday was over for many travel firms and airlines, which were faced with issues such as rocketing fuel prices and the onset of a global recession. On top of this, the British pound plummeted in value against many currencies, including the euro and US dollar, which may have deterred some consumers from travelling abroad.
Unsurprisingly, this resulted in casualties for the industry. September last year saw the collapse of XL Leisure Group, which has since been followed by several other airlines, such as Zoom, crash-landing into insolvency.
Survivors must stay on their toes and TUI Travel, which was created in September 2007 from the merger of First Choice Holidays and the tourism division of German company TUI, is no exception, despite appearing to be performing well financially. In TUI Travel’s 2008 annual report for the period ending September 2008 and covering its first year as a fully merged company, it reported a 53% increase in underlying operating profit for the year, rising to £398.0m, from £260.5m in 2007. Its UK and Ireland division delivered a £76.5m improvement in underlying profits in the same period, posting results of £132.9m in 2008, up from £56.4m in 2007.
However, the same report also revealed that the UK and Ireland division reduced its loss-making scheduled flying capacity by 22% in its winter 2007/08 programme and by 43% in its summer 2008 programme. It also reduced total charter capacity by 5% in winter 2007/08 and by 7% in summer 2008. As a result, total customers decreased by 8% from 2007 to 2008, of which there was a 26% reduction in scheduled flying customers and a 4% reduction in charter customers.
In a bid to encourage consumers to go ahead and book their annual holiday despite the failing economy, the firm launched its latest marketing campaign at the end of last year, focusing on its primary brands First Choice and Thomson Holidays. To help allay fears about the economic climate and job stability, it offered redundancy cover on package holidays and flights booked between 16 and 31 January, that refunds customers where they have lost their job and can no longer afford the holiday.
Maintaining a clear distinction between the First Choice and Thomson brands will also help the firm to tackle the challenges ahead. Tim Taylor, head of reward and recognition at TUI UK, which includes First Choice and Thomson Holidays, says: “First Choice is more targeted at the family market, which from the research we have done has told us that is where the brand already fits,” he explains. “The Thomson brand is more focused on the slightly older consumer but, of course, they go across all products as well.”
He adds the merger has placed the firm in a good position going forward. “We [moved] into peak booking season from January so how the impact of the economic environment will impact on trading is something we need to understand,” he says. “However, within the industry, consolidation has already taken place with our merger and also the merger between Thomas Cook with My Travel [in June 2007]. [Since then] a lot of capacity has come out of the business and some of the possibly weaker incumbents have left as well. In terms of the overall economic environment, it remains a challenge for us but the industry and sector we are in has changed dramatically in the last two years.”
Consolidating perks While TUI Travel is keen to keep its main brands distinct from each other, it is taking a very different approach to its employees and benefits. Post-merger, Taylor and his team have carried out extensive work in the UK to consolidate perks for its 19,000 employees that work at TUI UK and Thomson Airways. Last year, its reward team concentrated on the first phase of the benefits integration, and harmonisation of the terms and conditions for all employees was completed in October last year. This also involved harmonising arrangements on benefits including pensions, fleet, childcare vouchers, travel discounts and annual leave conditions.
Working with consultancy firm Reward Matters, the merged organisation agreed to adopt First Choice Holidays’ trust-based defined contribution (DC) pension with grade-related employer contributions. Previously, TUI operated a DC scheme under which members’ contributions were matched one-and-a-half times by the employer, up to a maximum of 8%. This has now been closed to new members. Both companies also operated defined benefit pension schemes for pilots, which will remain open.
The company has also consolidated its fleet arrangements. Staff who need to drive on business receive a company car, while senior staff are given cash allowances. Previously, drivers at TUI were given an allowance while First Choice Holidays drivers could choose between a car and an allowance.
In addition, new annual leave entitlements similar to those offered by First Choice will be rolled out to all staff in April 2009, giving all head office employees, regardless of grade, 25 days’ annual leave, increasing to 28 days after five years’ service. Former TUI head office staff were given 20 days, rising to 25 days after five years’ service. “[Consolidation] was a challenge in terms of the time frame,” says Taylor. “At the start of the first year of the new business we wanted to have substantially completed the harmonisation process. The thinking behind it was it would then give us a platform to build on with regard to employees.
“When we were making decisions in terms of what the package should be, we benchmarked externally not just against our competitors, but also against what a FTSE-100 company should be offering.”
A key way in which the company retains staff, while engaging them in the firm’s brands, is through the concessions that it offers to staff on its own holidays, says Taylor. A new policy will take effect in April for the majority of staff, offering employees discounted package holidays and flights, the amount of which increases with service.
For example, a head office employee who has worked for the company for 10 years could potentially receive a discount of £1,750. “[The discount] is a core advantage of working in the travel industry,” says Taylor. “We are constantly reminding people that on top of their salary and other benefits, they are getting this sum of money to buy a holiday. It is a strong retention tool. If people were to move to another company outside the sector they would find it is a real loss for them.”
Communicating the benefits changes to staff was a challenge but was key to the project’s success. The first step was to put together information on what benefits existed in both companies. Employee forum groups were kept apprised of the proposed changes. Benefits statements were then sent out to employees to highlight the perks they received pre- and post-merger.
Dione Mathias, reward manager at TUI UK, explains: “Our offering as it stands is very good. It is just that all of the flux and change people have been through [means] they lost sight of it a little bit. We monitored which employees had picked up their information and where people were, and addressed individual circumstances.”
Going forward, communicating benefits remains a priority. The firm has developed an internal communications policy that it wants to be common across the business. It has also created an employee brand, which will act as the springboard for promoting benefits. This features rainbow colours alongside the strapline ‘Be special’ and ties in with the firm’s vision for customer service.
“We are retaining the two [trading] brands so we needed a common way of engaging with our employees that did not require us to use one brand or one set of [previous company colours],” says Mathias. “It has really been picked up by people. It is a strong thing we can drive through all internal communications to ensure we are consistent.”
TUI Travel at a glance
International travel group TUI Travel, was founded in 2007 as a result of the merger between First Choice and the tourism division of TUI. In the UK, it operates two subsidiary companies: TUI UK and Thomson Airways. Together, these employ 19,000 staff based in the UK and abroad.
The firm’s two biggest trading names and brands in the UK are First Choice and Thomson.
TUI Travel’s financial results for 2008, its first year as a merged company, show underlying operating profit was up 53% to £398m compared with £260.5m in 2007. In its main sectors underlying operating profit was up 91% to £277.4m, up from £145m in 2007, which was primarily due to strong turnarounds in the UK, Germany and France. Underlying operating margin was up 2.9% and underlying profit before tax improved by 43% to £319.7m, from £222.8m in 2007.
Its UK and Ireland division, meanwhile, saw a £76.5m improvement in the same period, posting results of £132.9m in 2008, up from £56.4m in 2007.
Tim Taylor, head of reward and recognition at TUI UK, joined First Choice Holidays in 2002 as HR manager.
When the firm merged with German firm TUI in 2007, he was appointed head of HR integration before taking on his current role in July 2008. He is responsible for staff across TUI UK and Thomson Airways, which make up TUI Travel’s UK and Ireland division.
Prior to joining First Choice, Taylor held the position of head of HR at Lidl, before which he served in HR roles at Tempo.
During his time with First Choice and TUI UK, Taylor is most proud of his work to harmonise benefits after the merger. “When you look at the harmonisation activity, that was a massive tick of the box,” he says.
“It was a complicated piece of work done over a short time and it was potentially very emotive. It needed to be done right and I think we can look back on that and see it as our key achievement.” Dione Mathias, reward manager at TUI UK, joined TUI five years ago as an HR adviser, during which time she supported its overseas workforce. Prior to this, Mathias was employed by JD Wetherspoon as a personnel co-ordinator before becoming personnel manager. One of Mathias’ key achievements at TUI UK was conducting a pay review for employees after the merger. “We were operating on three separate systems with an organisation [where] our systems hadn’t kept up with the organisational structures and movements,” she says. “We worked closely with HR business partners, development directors and all the systems.
“There were some hiccups, but it was a successful pay review. This was the first real test that showed we could work as one company.”
Trust-based defined contribution pension for new staff with grade-related employer contributions ranging between 3% and 10%. Legacy DC and defined benefit schemes for pre-merger members.
Private medical insurance
Offered to overseas representatives and management employees.
Provided to head office management staff and above.
Free eye tests and contribution towards glasses for all employees.
Company car or cash for car option
Employees who need to drive on business receive a company car, while senior staff get cash allowances.
Work/life balance or family friendly policies
Flexible working offered on an ad-hoc basis.
•All head office employees, regardless of grade, get 25 days’ annual leave, increasing to 28 after five years’ service. • Holiday concessions, which increase with length of service.
• Subsidised canteen.
• Buy-as-you-earn employee share scheme.
• Social club.
• Discounted gym membership for head office staff.
• Bonus and incentive scheme.
• Season ticket loans.
• Employee counselling for some overseas and retail staff.
Wayne Buckley, head of business improvement at TUI Travel’s UK and Ireland division, joined First Choice in 2004 initially as an operational research manager.
In his current role, Buckley is responsible for the progress of business improvement across the company’s mainstream businesses, looking for opportunities to increase the efficiency of the firm’s operations, reduce costs or increase profitability.
Buckley’s favourite perk is the company’s travel concessions scheme, which provides employees with an individual holiday discount. “Depending on what I book, what I am left to pay myself can be as little as 30% of the current selling price,” he says. “Now I am able to make the majority of bookings online at home, my partner can have a say in where we go as well.”