Directors' report

The Directors submit their report to the members of TUI Travel PLC (the Company) for the year ended 30 September 2009.

Principal activity

The principal activity of the TUI Travel PLC group of companies (the Group) is that of an international leisure travel business. It provides a broad and diverse range of leisure travel experiences to more than 30 million customers in 27 different source markets. For further information see TUI Travel overview.

Annual General Meeting

The Annual General Meeting (AGM) will be held on Tuesday 9 February 2010 at 10.30am at the offices of Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N 2DB. An explanation of the business to be transacted at the AGM has been circulated to shareholders and can be found on the website www.tuitravelplc.com

Business performance

The Business performance for the year ended 30 September 2009, prepared in accordance with the Companies Act 2006, forms part of the Directors’report.

Results and dividends

The Group loss before taxation for the year ended 30 September 2009 was £52m (2008: £267m). The Directors recommend a final dividend of 7.7p per ordinary share (2008: 6.9p), payable on 1 April 2010 to holders on the register at the close of business on 12 March 2010. When taken with the interim dividend of 3.0p per ordinary share paid on 1 October 2009 (2008: 2.8p), this gives a total dividend of 10.7p (2008: 9.7p) relating to the year ended 30 September 2009.

Corporate Governance report

The Corporate Governance report for the year ended 30 September 2009, prepared in accordance with rule 7.2 of the FSA’s Disclosure and Transparency Rules, forms part of the Directors’report.

Policy and practice on payment of suppliers

The operating units within the Group are responsible for agreeing the terms and conditions under which business transactions with their suppliers are conducted. Due to the nature of the Group’s operations, and in common with the industry as a whole, payments are often made in advance of the provision of goods and services. The Group does not follow any code or statement on payment practice but it is Group policy that payments to suppliers, whether in advance or after the provision of the goods or services, are made on the basis of the terms that have been agreed with them.

The Company had no trade creditors at 30 September 2009 (2008: £nil) and consequently creditor days have not been presented. Where the Company is the recipient of goods or services, payment of suppliers is conducted by one of the Group companies in accordance with the policy set out above.

Directors’ and Officers’ insurance

The Company has purchased, and maintained throughout the year, Directors’ and Officers’ Liability insurance and the level of cover is regularly reviewed.

Significant agreements –change of control

The Companies Act 2006 requires us to disclose any significant agreements that take effect, alter or terminate on a change of control of the Company.

Relationship Agreement with TUI AG

The Relationship Agreement between TUI AG and TUI Travel, dated 29 June 2007, includes the principle that TUI Travel will operate independently of TUI AG and records the understanding between TUI AG and TUI Travel regarding the relationship between them and the governance of TUI Travel. The Relationship Agreement will remain in force until either the shares in TUI Travel are no longer admitted to trading on the London Stock Exchange, or TUI AG has less than 10% of the rights to vote at general meetings. In addition, in the event that another party acquires control of TUI AG during the term of the Relationship Agreement, TUI AG will lose certain rights under the Relationship Agreement including its rights in respect of the composition of the Board.

The Relationship Agreement contains restrictions on the acquisition by TUI AG of additional shares in TUI Travel which result in the increase of its shareholding to more than 55% of the voting rights (save where TUI AG makes a general offer to acquire all TUI Travel shares in issue). TUI AG has anti-dilution rights in respect of further issues of shares in TUI Travel other than on a pre-emptive basis. TUI Travel has also agreed that certain matters will require the prior approval of 80% of the Directors present at the meeting of the Board at which such matter is considered, including material changes to the business of any Group company, acquisitions and disposals of a value which exceeds £10m, the entry into, variation or redemption prior to their due date of any borrowing facilities and the approval of the annual budget.

£770m bank revolving credit facility agreement

An agreement dated 29 June 2007 between a number of relationship banks and the Company relating to a £770m bank revolving credit facility currently provided to the Company, contains terms which give the lending banks the right to cancel all commitments to the Company and to declare all outstanding credits and accrued interest immediately due and payable if a change of control occurs. For the purpose of this agreement a change of control occurs if:

i   any person or group of persons acting in concert gains control of the Company; or

ii   TUI AG and any persons acting in concert with it acquires or acquire 75% or more of the voting shares in the Company.

£140m bank revolving credit facility agreement

An agreement dated 29 September 2009 between a number of relationship banks and the Company relating to a £140m bank revolving credit facility currently provided to the Company, contains terms which give the lending banks the right to cancel all commitments to the Company and to declare all outstanding credits and accrued interest immediately due and payable if a change of control occurs. For the purpose of this agreement a change of control occurs if:

i   any person or group of persons acting in concert gains control of the Company; or

ii   TUI AG and any persons acting in concert with it acquires or acquire 75% or more of the voting shares in the Company.

£40m bonding and letter of credit facility agreement

An agreement dated 29 September 2009 between a relationship bank and the Company relating to a £40m bonding and letter of credit facility currently provided to the Company, contains terms which give the lending bank the right to cancel all commitments to the Company and to declare all outstanding bonds or letters of credit together with accrued issuance fees immediately due and payable if a change of control occurs. For the purpose of this agreement a change of control occurs if:

i   any person or group of persons acting in concert gains control of the Company; or

ii   TUI AG and any persons acting in concert with it acquires or acquire 75% or more of the voting shares in the Company.

£350m 6.0% Convertible Bonds

Subsequent to the year end on 30 September 2009, the Company issued £350m of 6.0% Convertible Bonds. The settlement took place on 5 October 2009. The Convertible Bonds contain terms which give the bondholders the right to redeem the bonds at their principal amount, together with accrued and unpaid interest up to the date of redemption, if a change of control occurs. As more fully described in the terms and conditions, for the purpose of the Convertible Bonds a change of control occurs if:

i   following a takeover offer to acquire all or a majority of the shares in the Company, the offeror and/or its associates have or will have more than 50% of the voting rights in the Company; or

ii   the Free Float of the Company is less than 30% of the issued ordinary shares for at least five consecutive dealing days (where the Free Float is (a) all outstanding ordinary shares of the Company less those held by or on behalf of TUI AG, its associates and any persons acting in concert with it and (b) the ordinary shares underlying the outstanding Secured Exchangeable Bonds due 2013 issued by Nero Finance Limited on 16 January 2008).

No other agreements which take effect, alter or terminate upon a change of control of the Company following a takeover bid are considered to be significant in terms of their potential impact on the business of the Group as a whole.

Going concern

After making appropriate enquiries, the Directors have reasonable expectation that the Company and Group have adequate resources to continue operations for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

A further summary of funding and liquidity is included in Note 1 to the consolidated financial statements.

Contractual arrangements

The Group has contractual arrangements with numerous third parties in support of its business activities (see Suppliers). The disclosure in this report of information about any of those third parties is not considered necessary for an understanding of the development, performance or position of the Group’s businesses.

Auditors

The auditors, KPMG Audit Plc, are willing to continue in office. In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of KPMG Audit Plc as auditors of the Company is to be proposed at the forthcoming AGM.

Statement of Directors as to disclosure of information to Auditors

The Directors confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditors are unaware; and each Director has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

Other information

Other information relevant to the Directors’report can be found in the following sections of the Annual Report:

The Directors’report was approved by a duly authorised Committee of the Board of Directors on 30 November 2009 and signed on its behalf by Andrew John, the Company Secretary.

By order of the Board

Andrew John
Company Secretary
30 November 2009
Company Number: 6072876