TUI TRAVEL GAINS FOOTHOLD IN RUSSIAN MARKET
By Pan Kwan Yuk

FT
April 15 2009 20:15

Tui Travel, Europe’s largest tour operator, is to expand its presence
in the rapidly growing Russian market through a joint venture with
Alexey Mordashov, the Russian steel billionaire.

The company said it had finalised a deal with S-Group Capital, an
investment company acting for Mr Mordashov, to set up a partnership
to develop its business in Russia and 10 former Soviet republics
including Armenia, Georgia and Ukraine.

The joint venture, which will be 51 per cent owned by S-Group and
49 per cent owned by Tui Travel, is planning to invest up to $40m
on acquisitions this year and has already agreed to acquire majority
stakes in assets owned by two tour operators in Russia and Ukraine.

The deal is an important step for Tui Travel, which along with rival
Thomas Cook, has been looking to gain a foothold in Russia.

Russian tourists have become an increasingly familiar sight across the
world over the past decade as an economic boom enriched the population.

The number of overseas holidays taken by Russians rose by 21 per cent
last year to just over 11.3m, according to figures from the Russian
tourism board.

Although the deepening economic recession is expected to lower this
number by 20 to 25 per cent this year, Peter Long, Tui Travel’s chief
executive, said he remained bullish about the region ‘s prospects.

"This is a long-term investment in a market which has significant
growth potential," he said.

"Russians and Ukrainians have a high propensity to travel. While
the Russian and Ukrainian leisure markets will slow in the current
economic environment we believe that this is an appropriate time to
build a market leading position in these markets."

The joint venture is also expected to spark questions over Mr
Mordashov’s interest in Tui, Tui Travel’s German parent company.

Mr Mordashov controls Russian steelmaker Severstal and holds a 15
per cent stake in Tui.

He has been locked in a long-running battle with John Fredriksen,
the Norwegian shipping magnate, for influence over the German travel
and shipping conglomerate.

Mr Fredriksen, who also has a 15 per cent stake in Tui, has been
agitating for the removal of Tui’s chairman and chief executive.

Mr Fredriksen is concerned that the mixture of Mr Mordashov’s large
shareholding and his close business ties with Tui mean the group
does not always act in all shareholders’ best interests when working
with him.

Tui denies this.