TUI TO CUT 2,600 UK JOBS – STORY UPDATED

Thomson’s German parent TUI AG has confirmed plans to cut 3,600 jobs from its travel division in a “comprehensive cost cutting programme” to save 250 million euros by 2008.

The bulk of the job losses – 2,600 – will come from the UK, with 400 going from Germany.

The cuts over the next two years represent around a third of TUI UK’s 8,000 staff.

TUI said: “At 2,600 jobs, the UK will be most strongly affected by the job cuts since market changes are far more dramatic in the UK compared with Central Europe.”

The group added that discussions with employee groups will soon be initiated.

“The job reductions will largely be effected in a socially compatible manner,” a statement said.

Alongside the cuts, more than 3,300 new jobs will be created in certain segments by 2008, including “several hundred” in Germany, TUI said.

TUI will incur restructuring costs of 160 million euros.

The cuts come against a background of a “constantly changing market and persistently strong competitive pressure,” TUI admitted.

“Without further growth and an adjustment of our cost structures, we would risk our market position,” said CEO Michael Frenzel. “We therefore have to get fit for the future now.

“Improvements in our cost structure in combination with profitbale growth in new and existing business segments are the only way to ensure future strength.”

The company said that alongside the traditional package holiday market, a new modular travel market is developing with different distribution, cost and margin structures – and future growth would primaly come from this emerging sector.

“However, gross margins are considerably lower in this segment compared with package tours,” Frenzel said.

The cuts come after the TUI AG executive board approved an action plan to improve earnings in tourism which includes further growth in the airline, internet and hotel businesses. Tourism makes up about half the group’s revenue with the remainder coming from container shipping.

The cost cutting comes against the background of a deterioration in earnings in 2006, in particular in its shipping division, TUI AG said. Personnel costs will be reduced by around 100 million euros.

Frenzel said: “Our action plan clearly aims to signiciantly improve profitability in the tourism division. We will achieve this abjective by means of profitable growth and cost reductions while simultaneously reducing our capital tie-up.”

The tourism division cost cutting will go alongside a plan to reduce corporate centre costs by around one third from 112 million euros to 70-80 million euros in two years.

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Report by Phil Davies