The leisure travel market

Historically, tourism has shown resilience in deteriorating economic situations, such as the recession in the early 1990s and short term shocks such as 9/11 and the SARS health scare. However, after a period of strong growth, tourism has not been immune to the current financial crisis. According to the United Nations World Tourism Organisation (UNWTO), the number of international tourist arrivals worldwide reached 500 million in the first seven months of 2009, down from 540 million in the same period of 2008. Economic conditions, combined with the uncertainties brought about by the H1N1 virus, are expected to continue to impact tourism demand in the short term though the rate of decline is anticipated to ease during the remainder of 2009 and international tourism is forecast to decrease by 5% for the full year 2009. The UNWTO expects moderate growth for 2010.

Over the past couple of years, we have seen consolidation of the major European players. The mergers of TUI Tourism and First Choice and Thomas Cook and My Travel have delivered consolidation, primarily in the UK market. There have also been several high profile collapses of airlines and tour operators globally. Businesses with weak financial models and poor capacity management have not survived. Those businesses that have market-leading brands, are financially secure and have flexible business models have proven more resilient. TUI Travel has continued to weather the challenging economic environment. The Group's financial performance has continued to meet the Board's and the market's expectations. Our business model allows us to closely align our supply to demand and we also have a high degree of flexibility which allows us to manage and adapt quickly to changing market conditions and customer needs.