TUI AG: Annual Financial Report

DJ TUI AG: Annual Financial Report - Part 2

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TUI AG (TUI)
TUI AG: Annual Financial Report - Part 2

13-Dec-2018 / 08:00 CET/CEST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.

Financial Highlights

EUR million 2018 2017 Var. % Var. % at
constant
currency

Turnover 19,523.9 18,535.0 + 5.3 + 6.3

Underlying EBITA1
Hotels & Resorts 425.7 356.5 + 19.4 + 38.7
Cruises 324.0 255.6 + 26.8 + 27.0
Destination Experiences 44.7 35.1 + 27.4 + 33.6
Holiday Experiences 794.4 647.2 + 22.7 + 33.8
Northern Region 254.1 345.8 - 26.5 - 27.4
Central Region 89.1 71.5 + 24.6 + 25.0
Western Region 109.3 109.2 + 0.1 + 0.1
Markets & Airlines 452.5 526.5 - 14.1 - 14.6
All other segments - 99.9 - 71.6 - 39.5 - 31.4
TUI Group 1,147.0 1,102.1 + 4.1 + 10.9
Discontinued operations - - 1.2 n. a. -
Total 1,147.0 1,100.9 + 4.2 + 11.0

EBITA2, 4 1,060.2 1,026.5 + 3.3 + 10.4
Underlying EBITDA4 1,563.9 1,541.7 + 1.4
EBITDA4 1,498.5 1,490.9 + 0.5
EBITDAR4 2,219.9 2,240.9 - 0.9

Net profit for the 780.2 910.9 - 14.3
period
Earnings per share4EUR 1.18 1.36 - 13.2
Equity ratio (30 Sept.) 27.8 24.9 + 2.9
3 %
Net capex and 827.0 1,071.9 - 22.8
investments (30 Sept.)
Net cash (30 Sept.)4 123.6 583.0 - 78.8
Employees (30 Sept.) 69,546 66,577 + 4.5

Differences may occur due to rounding

This Annual Report of the TUI Group was prepared for the financial year (FY) from 1 October 2017 to 30 September 2018. The
terms for previous years were renamed accordingly.

In FY 2018 we have adjusted our segmental reporting to reflect the growing strategic importance of the services delivered
in our destinations. Destination Experiences is now reported separately in the segmental structure, and within Holiday
Experiences together with Hotels & Resorts and Cruises. The further businesses of former Other Tourism and All other segments
have been combined into All other segments. There are no changes to the total numbers. The prior year's reference figures
were restated accordingly.

1 In order to explain and evaluate the operating performance by the segments, EBITA adjusted for one-off effects (underlying
EBITA) is presented. Underlying EBITA has been adjusted for gains/losses on disposal of investments, restructuring costs
according to IAS 37, ancillary acquisition costs and conditional purchase price payments under purchase price allocations and
other expenses for and income from one-off items.

2 EBITA comprises earnings before interest, taxes and goodwill impairments. EBITA includes amortisation of other intangible
assets. It does not include the result from the measurement of interest hedges, and in the prior year did not include results
from container shipping operations.

3 Equity divided by balance sheet total in %, variance is given in percentage points.

4 Continuing operations

»We are on track because we have undergone a transformation. This year,
in particular, has shown that the realignment we launched in 2014 to focus on the hotel, cruise and destination business has
now become TUI's special strength. Only five years ago, a similar summer would have left its mark on TUI, too. We have now
become an integrated hotel and cruise group. We develop,
we invest and we operate. And we
are increasingly becoming a digital and platform organisation.«

Friedrich Joussen, CEO of TUI AG

LETTER TO OUR
SHAREHOLDERS

Dear shareholders,

2018 was another growth year for TUI. We delivered on our promises in a challenging market environment. Our operating result
again delivered double-digit growth for the fourth time in a row - it grew by nearly eleven per cent at constant currency in
the completed financial year.

The robust results delivered in 2018 are particularly gratifying given that we were operating under exceptional circumstances
last year. In the UK, the exchange rate and purchasing power of sterling were adversely affected by Brexit. Air traffic in
Europe faced particular challenges. And in our European home markets, we experienced a record summer - with a summer heatwave
lasting right into the autumn. This brought its weight to bear on results in our sector in the course of the financial year.

I would like to extend a special word of thanks to our customers who chose to travel with TUI and its brands, and to you, our
shareholders, for your loyalty to TUI. Let me also thank all the employees who looked after our guests and again created
unforgettable moments during their holidays in 2018. The Executive Board and the Supervisory Board will be proposing another
increase in the dividend to 0.72 euros for the completed year to the Annual General Meeting.

We are on track because we have undergone a transformation. This year, in particular, has shown that the realignment we
launched in 2014 to focus on the hotel, cruise and destination business has now become TUI's special strength. Only five years
ago, a similar summer would have left its mark on TUI, too, as the Group's focus and earnings structure were too one-sided and
above all excessively geared to our classical tour operation business. We have now become an integrated hotel and cruise
group. We develop, we invest and we operate. And we are increasingly becoming a digital and platform organisation.

Today's success is important. However, what do we need to do to stay on track and keep growing? We used 2018 to define our
position. Are we fit for further growth? How are we going to further enhance the quality, efficiency and strength of today's
businesses? And where do our strong global TUI brand and the increasing digitalisation of our businesses create new growth
areas for the Group? Let me comment on some of the decisions we took:

Our classical tour operation business is characterised by strong competition, seasonality and low margins in European source
markets. That is why we must identify synergies and enhance our efficiency. Since the summer, we have clustered the Group's
worldwide tour operators and airlines into Markets & Airlines, managed by an Executive Board member. We have to learn more
from one another, rapidly transfer successful models from one market to another and harmonise non-customer-facing activities.
This transformation has begun and will enhance the efficiency and competitiveness of our classical tour operation business.
Where markets have already achieved the required level of maturity, TUI is already fully digital. TUI Nordic in Scandinavia is
an example of that. We will not ignore the social and cultural particularities of our markets and customers, but we will be at
the forefront of this transformation in other countries, too.

Today, 70 per cent of our operating result is delivered by holiday experiences developed and designed by us: hotels, cruise
ships, excursions and activities in the holiday regions. This is where customers experience the strength of the TUI brand.
These holiday moments make holidays with TUI so special and personal. We are growing and investing in this segment so as to
strengthen it. Despite the large variety of holiday experiences offered by TUI Group, we want them to display a distinctive
signature. This includes our Group's own hotel brands such as TUI Blue, Riu, Robinson, TUI Magic Life, hotel concepts such as
TUI Sensimar, TUISensatori and TUI Family Life, global hotel purchasing with our partners, the cruise lines and destination
activities.

This is where we are seeking further growth. We know our customers very well, we know when they travel where, and what
services they appreciate, be it holiday destinations, hotel rooms, cruise suites, excursions or activities. If we put this
knowledge to smart use, we can create great value added for our customers - and for us, as we will be able to generate
additional turnover and earnings. We have paved the way for that growth through our comprehensive digitalisation strategy and
our investments in IT as well as new technologies, which are increasingly paying off. Here, too, our transformation as a
digital company has progressed and opened up new growth areas.

The destination activities market, in particular, is delivering extremely strong growth, promising highly attractive returns
and still typically features many small, local providers. With more than 27 million customers - thereof around 21 million
guests from our European source markets, a highly professional international team on the ground, a strong digital
infrastructure and networked customer systems, we are well placed to take a leading international position in this market for
tours and excursions and to deliver very profitable growth. Usually, several months pass after a holiday booking before our
customers depart for their trip. That period offers us great potential to submit personalised offerings for activities in the
destination to our customers - from the 'Select your room' option via special excursions through to reservations for
restaurants, sporting programmes and wellness facilities.

Having identified the growth potential in this area, we made investments in the completed year by purchasing two companies. By
acquiring destination management from Hotelbeds Group, we doubled the footprint of Destination Experiences from 23 to 49
countries. We now have a team on the ground in almost every major destination in the world and are able to develop new
products and services for our customers. This summer, we purchased the Milan-based technology start-up Musement. The Italian

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DJ TUI AG: Annual Financial Report - Part 2 -2-

company has developed a platform that already pools a great portfolio of holiday experiences and offers its users customised
excursions. Integrating this approach into our business with 27 million has enormous potential. We expect this acquisition,
the further development of our digital platform and the expansion of our offering to contribute substantially to our future
growth.

Dear shareholders, we are transforming our traditional portfolio, strengthening today's successful and profitable business
lines and investing in digital platforms for our future growth. I hope that the year 2018 and the progress achieved in the
past few years have convinced you that TUI has been and will remain a good investment. TUI is the world's leading integrated
tourism group. Supported by a great team of 69,500 employees around the world, the Executive Board is committed to ensuring
that things stay that way. Tourism is and remains one of the world's biggest and most stably growing industries. There is no
reason and no indication to believe that demand for travel will decline - on the contrary. We have identified potential in
many new markets, in particular in the countries of South East Asia, where we are expanding our hotel portfolio and building
TUI's position.

I would be delighted to be able to welcome you personally to our Annual General Meeting in Hanover. Birgit Conix, the
successor to our long-standing CFO Horst Baier, will take part for the first time. Let me use this opportunity to extend my
sincerest thanks to Horst Baier once again. He was our CFO throughout FY 2018. Horst Baier played a key role in designing and
delivering our successful transformation over the past few years. He has always been a reliable advisor and partner to my
Executive Board colleagues and myself.

We are working to continue our successful performance in 2019. Thank you very much for your support and loyalty.

Best regards,

Friedrich Joussen

CEO of TUI AG

Guidance

Key Guidance Guidance
Figures achievement Guidance

Actual
Outlook FY Actual FY 2018 2018 FY 2019
20181 rebased
Turnover in
EUR bn
in excess of 19.5 + 6.3 %2 19.5 approximately

3 %2, 3 2 + 3 %2, 3
EBITA
(underlying)
in EUR m
At least 1,147 + 10.9 %2 1,187 at least

+ 10 % 2 4 + 10 %2
Adjustments
in EUR m
80 costs 87 costs 125 costs
Net capex
and
investments
in EUR bn
1.2 0.8 1.0 - 1.25
Leverage
ratio
3.00(X) - 2.7(X) 3.00(X) - 2.25(X)
2.25(X)

1 As published on 13 December 2017, unless otherwise stated

2 Variance year-on-year assuming constant foreign exchange rates are applied to the result
in the current and prior period and based on the current group structure

3 Excluding cost inflation relating to currency movements

4 The starting variable for the forecast is the rebased underlying EBITA. This rebased figure was determined by increasing the
underlying EBITA of FY 2018 by the negative effect from the revaluation of euro denominated loans in Turkey amounting to EUR
40 m, translated at actual rates for the FY 2018.

5 Including PDPs, excluding aircraft assets financed by debt or finance leases

REPORT OF THE
SUPERVISORY BOARD

Ladies and Gentlemen,

After we completed the post-merger integration of TUI AG and TUI Travel plc last year, we again demonstrated in the financial
year just completed that we - the Executive Board, the employees and the Supervisory Board - have together created the right
strategic positioning for our organisation. We have established an internationally operating, integrated tourism company with
a successful, sustainable business model.

Despite various challenges we faced at both national and international levels, we increased our underlying EBITA by more than
10 % year-on-year at constant currency. This has also enabled us to clearly stand out from our main competitors, some of whom
had to lower their guidance in the completed financial year. We again successfully mastered a number of special challenges,
such as the insolvencies of Air Berlin and its subsidiary Niki, the prolonged, exceptional good weather in Europe this summer
which limited demand for travel, and also the weakening of the Turkish lira. This confirms that we took the right decision in
transforming TUI into an integrated tourism company with a broad value-chain.

We will not rest on our laurels but consistently pursue our transformation roadmap. After leveraging synergies from the merger
and the transformation of our business model, we will now focus on selective investments mainly in the Hotels and Cruises
segments and efficiency enhancement. We will also make a priority of continued digitalisation, which opens up new
opportunities for TUI at all levels. Especially with our broad customer portfolio, the potential of Artificial Intelligence
offer high chances for optimisation.

At our meetings, we regularly discussed the strategic development of our business model with the Executive Board. To implement
this, following comprehensive review and discussion, the Supervisory Board approved a number of key acquisition projects, in
particular the repurchase of incoming agencies from Hotelbeds Group, enabling us to expand our offering in the Destination
Experiences segment from 23 to 49 countries. This segment was further reshaped with the acquisition of Musement, transforming
the segment from offline to a fully digitalised business. We also approved investments in a new generation of TUI Cruises
ships and the construction of a further expedition liner for the fleet operated by Hapag-Lloyd Cruises.

Looking ahead to future challenges, another major priority of our deliberations in the Supervisory Board was Brexit.
Throughout the year, we paid detailed attention to the various scenarios and the resulting potential impacts on our business
model as well as measures to be derived.

As in this year, Corporate Governance will be another focus area next year. The UK Corporate Governance Code was recently
fundamentally revised. Meanwhile, the commission in charge of the German Code is also planning to carry out a major review
from the middle of next year.

Let me use this opportunity to thank Sir Michael Hodgkinson on behalf of the entire Supervisory Board for his outstanding
efforts and commitment as a member of the TUI AG Supervisory Board. Sir Michael Hodgkinson has rendered lasting services above
all to the merger of the two TUI companies and the subsequent integration management. The same applies to our former CFO Horst
Baier, who stepped down from the Executive Board towards the end of the financial year. He was instrumental in shaping our
organisation's successful course over a long period of time. We would like to thank both of them and wish them all the best
for their future.

After 14 years of active participation, Mrs Carmen Riu Güell will resign her mandate at the end of the Annual General Meeting
on 12 February 2019. She has made a very intensive contribution to the strategy discussion, particularly in the restructuring
of our hotel business, and has set important accents. It will then be proposed to the Annual General Meeting to elect Mr Joan
Trian Riu to replace her as member of the Supervisory Board. Mr Joan Trian Riu has extensive knowledge and experience in the
tourism business and finance.

Cooperation between the Executive Board and the Supervisory Board

In a stock corporation under German law, there is a mandatory strict separation of the Executive Board and the Supervisory
Board. While the management of the company is the exclusive task of the Executive Board, the Supervisory Board is in charge of
advising and overseeing the Executive Board. As the oversight body, the Supervisory Board provided on-going advice and
supervision for the Executive Board in managing the Company in FY 2018, as required by the law, the Articles of Association
and its own Terms of Reference.

Its actions were guided by the principles of good and responsible corporate governance. Our monitoring activities essentially
served to ensure that the management of business operations and the management of the Group were lawful, orderly, fit for
purpose and commercially robust. The individual advisory and oversight tasks of the Supervisory Board are set out in Terms of
Reference. Accordingly, the Supervisory Board is, for instance, closely involved in entrepreneurial planning processes and the
discussion of strategic projects and issues. Moreover, there is a defined list of specific Executive Board decisions requiring
the consent of the Supervisory Board, some of which call for detailed review in advance and require the analysis of complex
facts and circumstances from a supervisory and consultant perspective (own business judgement).

TUI AG falls within the scope of the German Industrial Co-Determination Act (MitbestG). Its Supervisory Board is therefore
composed of an equal number of shareholder representatives and employee representatives. Employee representatives within the
meaning of the Act include a senior manager (section 5 (3) of the German Works Council Constitution Act) and three trade union
representatives. All Supervisory Board members have the same rights and obligations and they all have one vote in voting
processes. In the event of a tie, a second round of voting can take place according to the Terms of Reference for the
Supervisory Board, in which case I as Chairman of the Supervisory Board have the casting vote.

In written and verbal reports, the Executive Board provided us with regular, timely and comprehensive information at our
meetings and outside our meetings. The reports encompassed all relevant facts about strategic development, planning, business

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DJ TUI AG: Annual Financial Report - Part 2 -3-

performance and the position of the Group in the course of the year, the risk situation, risk management and compliance, but
also reports from the capital markets (e. g. from analysts), media reports and reports on current events (e. g. crises). The
Executive Board discussed with us all key transactions of relevance to the Company and the further development of the Group.
Any deviations in business performance from the approved plans were explained in detail. The Supervisory Board was involved in
all decisions of fundamental relevance to the Company in good time. We fully discussed and adopted all resolutions in
accordance with the law, the Articles of Association and our Terms of Reference. We regularly prepare for these decision based
on documents provided by the Executive Board to the Supervisory Board and its committees in advance. We were also swiftly
informed about any urgent topics arising in between the regular meetings. As Chairman of the Supervisory Board, I was also
regularly informed by the Executive Board about current business developments and key transactions in the Company between
Supervisory Board meetings.

Deliberations in the Supervisory Board and its Committees

Prior to Supervisory Board meetings, the shareholder representatives on the Supervisory Board and the employees'
representatives met in separate meetings, which were regularly also attended by Executive Board members.

Apart from the full Supervisory Board, a total of four committees were in place in the completed financial year: the Presiding
Committee, Audit Committee, Strategy Committee and Nomination Committee. The Mediation Committee formed pursuant to section 27
(3) of the Co-Determination Act did not have to meet. The Chairman of each committee provides regular and comprehensive
reports about the work performed by the committee at the ordinary Supervisory Board meetings.

In FY 2018, as in prior years, we again recorded a consistently high meeting attendance despite a large number of meetings.
Average attendance was 92.8 % (previous year 93.8 %) at plenary meetings and 85.3 % (previous year 97.6 %) at committee
meetings. The majority of Supervisory Board members attended significantly more than half the Supervisory Board meetings and
meetings of the committees on which they sat in FY 2018. Members unable to attend a meeting usually participated in the voting
through proxies. Preparation of all Supervisory Board members was greatly facilitated by the practice of distributing
documents in advance in the run-up to the meetings and largely dispensing with handouts at meetings.

Attendance at meetings of the Supervisory Board in FY 2018

Attendance at meetings of the Supervisory Board 2018
Name Supervisory Presiding Audit Nomination Strategy
Board Committee Committee Committee Committee
Prof. Klaus 9 (9)1 10 (10)1 7 (7) 2 (2)1 5 (5)
Mangold
(Chairman)1
Frank 9 (9)2 10 (10) 3 (5)
Jakobi
(Deputy
Chairman)2
Sir Michael 4 (4)2 5 (5) 2 (2)
Hodgkinson
(Deputy
Chairman)2
Andreas 9 (9) 6 (7)
Barczewski
Peter 8 (9) 8 (10)
Bremme
Prof. Edgar 8 (9) 7 (7)1
Ernst
Wolfgang 9 (9)
Flintermann
Angelika 9 (9) 4 (5)
Gifford
Valerie 8 (9) 3 (5)
Frances
Gooding
Dr Dierk 9 (9) 7 (7)
Hirschel
Janis Carol 9 (9) 7 (7)
Kong
Peter Long 8 (9)2 5 (10) 5 (5)1
(Deputy
Chairman)2
Coline 9 (9) 7 (7)
Lucille
McConville
Alexey A. 4 (9) 6 (10) 0 (2) 5 (5)
Mordashov
Michael 9 (9) 7 (7)
Pönipp
Carmen Riu 6 (9) 8 (10) 2 (2)
Güell
Carola 9 (9)
Schwirn
Anette 9 (9) 10 (10)
Strempel
Ortwin 8 (9) 10 (10) 7 (7)
Strubelt
Stefan 9 (9)
Weinhofer
Dr Dieter 5 (5)
Zetsche

Attendance 92.8 84.7 98.2 75.0 83.3
at meetings
in %
Attendance 85.3
at
Committee
meetings in
%

(In brackets: number of meetings held)
1 Chairman of Committee

2 Deputy Chairman of Committee

Key topics discussed by the Supervisory Board

The Supervisory Board held nine meetings. In addition, two resolutions were adopted by written circulation. The meetings
focused on the following issues:

1. At its meeting on 17 October 2017, the Supervisory Board considered current business performance. The discussions also
focused on Brexit. In this context, we talked in detail about any measures to be adopted by the Group in the event of a hard
Brexit. Our deliberations also focused on the efficiency programme at TUI fly, the situation of Air Berlin, the effects of the
EU Network and Information Security Directive and the approval of the diversity concept for the Supervisory Board and the
Executive Board. In the framework of Executive Board matters, we discussed the status of negotiations on the revised service
contracts reflecting the new remuneration structure effective from FY 2018. The Supervisory Board furthermore approved the
budget for FY 2018.

2. At its extraordinary meeting on 15 November 2017, the Supervisory Board addressed in detail the negotiations of the new
service contracts for the Executive Board members applicable from FY 2018. These extensive deliberations focused on key
conditions and the definition of performance indicators.

3. At its meeting on 12 December 2017, the Supervisory Board discussed in detail the annual financial statements of TUI Group
and TUI AG, each having received an unqualified audit opinion from the auditors, the Combined Management Report for TUI Group
and TUI AG, the Report by the Supervisory Board, the Corporate Governance Report and the Remuneration Report. The discussions
were also attended by representatives of the auditors. The Audit Committee had already considered these reports the previous
day. Following its own review, the Supervisory Board endorsed the findings of the auditors. We then approved the financial
statements prepared by the Executive Board and the Combined Management Report for TUI AG and the Group. The annual financial
statements for 2018 were thereby adopted. Moreover, the Supervisory Board approved the Report by the Supervisory Board, the
Corporate Governance Report and the Remuneration Report. It also adopted the invitation to the ordinary AGM 2018 and the
proposals for resolutions to be submitted to the AGM. Alongside the HR and Social Report, we received a number of other
reports, including on the results of the TUIgether 2017 employee survey and on the situation at Air Berlin and TUI fly. In the
framework of Executive Board matters, we adopted the core elements of the remuneration system for the service contracts for
the Executive Board members applicable from FY 2018, fixed the quota for female representation on the Executive Board and
confirmed the appointment of Frank Rosenberger, currently a deputy member, as an ordinary member of the Executive Board with
effect from 1 January 2018. The Supervisory Board also heard a status report on the expansion of capacity at TUI Cruises GmbH.

4. On 12 February 2018, the Supervisory Board mainly discussed TUI AG's interim statements and report for the quarter ending
31 December 2017 and prepared the 2018 Annual General Meeting. The Supervisory Board was also given a report on the sales
process for an investment and updates on the revision of the UKCorporate Governance Code and on business performance in source
market Germany. We adopted resolutions on transactions requiring the Supervisory Board's consent, approving the expansion of
capacity for TUI Cruises GmbH and the potential issue of a corporate bond for aircraft financing purposes.

5. At its meeting on 13 February 2018, the Supervisory Board elected Peter Long as its new second Deputy Chairman, as Sir
Michael Hodgkinson had stepped down from the Supervisory Board that day upon the close of the 2018 AGM. We also elected new
members for the Supervisory Board committees.

6. At the extraordinary Supervisory Board meeting on 13 March 2018, held in the form of a conference call, we intensively
debated and approved the acquisition of Destination Management from Hotelbeds Group. We also appointed Birgit Conix as an
Executive Board member. From FY 2019, she will take over as CFO.

7. On 28 March 2018, we approved the application submitted by Sebastian Ebel to release him temporarily from his duties for a
sabbatical from 16 April 2018 up to and including 15 June 2018.

8. On 8 May 2018, we debated TUI AG's interim report for the second quarter ending on 31 March 2017 and the half-year
financial report. We also resolved to adjust the remuneration for Dr Elke Eller and fixed the targets for the
performance-related remuneration component for Birgit Conix. The Supervisory Board subsequently heard a report on the
development of senior executives in the light of succession planning for the Executive Board, including personnel development
for the top management level. We were then briefed about the approach to Brexit moving forward, the status of negotiations
around Corsair, the IT security structure, and the Security, Health & Safety organisation. We discussed on-going developments
regarding the issue of a corporate bond for aircraft financing purposes. We also adopted resolutions on transactions requiring
the Supervisory Board's consent, including the issue of employee shares, the expansion of capacity at Hapag-Lloyd Cruises
GmbH, and an alternative financing instrument for aircraft financing. We furthermore approved the Group Manual for equity
trading by persons with limited trading authorisation.

9. At its extraordinary meeting on 22 May 2018, which was held as a conference call, the Supervisory Board discussed approval

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DJ TUI AG: Annual Financial Report - Part 2 -4-

of a change in the business allocation plan for the Executive Board in order to align the Group's organisational structure
with its strategy.

10. On 28 August 2018 (by written circulation), the Supervisory Board approved the increase in the Company's capital stock for
the issue of employee shares under the oneShare employee share programme for FY 2018.

11. During a three-day strategy offsite meeting on 11 and 12 September 2018, we scrutinised the key trends in the tourism
market, the business opportunities in China and South East Asia, the focus for strategic development, prospects for market
consolidation and Brexit-related challenges. However, we also devoted detailed discussion to our future strategic orientation
in the online market resulting from the acquisition of an established online platform. At the meeting, the Supervisory Board
engaged deeply in very constructive and open dialogue about tackling the challenges of the future together with the members of
the Executive Board, including the managers in charge of the topics presented.

Following this deliberation of strategic topics, on 13 September 2018 the Supervisory Board comprehensively debated the
consolidated five-year plan and Executive Board matters. We were also given reports on information security and on progress
with the creation of a single purchasing platform. The meeting likewise focused on the status of negotiations on the disposal
of Corsair. We concluded by adopting a resolution on a transaction requiring our consent in connection with the acquisition of
Musement S.p.A.

Meetings of the Presiding Committee

The Presiding Committee takes the lead on various Executive Board issues (including succession planning, new appointments,
terms and conditions of service contracts, remuneration, proposals for the remuneration system). It also prepares the meetings
of the Supervisory Board. Alongside the members of the committee, Dr Dieter Zetsche has been a regular guest attending the
meetings of the Presiding Committee since his election as a member of TUI AG's Supervisory Board. In the period under review,
the Presiding Committee held ten meetings.

Members of the Presiding Committee

· Prof. Klaus Mangold · · Frank Jakobi
(Chairman)
· Peter Long
· Peter Bremme (from 13 February
2018)
· Carmen Riu Güell
· Alexey Mordashov
· Sir Michael Hodgkinson
(until 13 February 2018) · Anette Strempel

· Ortwin Strubelt

1. At its meeting on 17 October 2017, the Presiding Committee discussed Executive Board issues, including deliberations on
various topics related to Executive Board remuneration for the completed financial year and the current financial year as well
as the business allocation plan for the Executive Board. The committee also discussed the preliminary findings from the
TUIgether employee survey and follow-up measures.

2. At its extraordinary meeting on 3 November 2017, the Presiding Committee considered the status of the negotiations about
the new service contracts for the members of the Executive Board in connection with the revision of the remuneration system.
We adopted resolutions on variable annual pay for FY 2018 and discussed a review of the appropriateness of Executive Board
remuneration and pensions carried out by an external remuneration consultant. We also discussed the succession for the CFO.

3. At its extraordinary meeting on 27 November 2017, after further deliberation, the Presiding Committee recommended the
appointment of Dr Dieter Zetsche as a member of TUI AG's Supervisory Board and again discussed the succession for the CFO.

4. On 12 December 2017, the Presiding Committee discussed Executive Board matters. In that context, it again discussed the
status of negotiations on the new service contracts for the Executive Board members and the search for a successor to the CFO.
It also adopted resolutions to confirm the appointment of Frank Rosenberger as an ordinary Executive Board member and the
fixing of a female quota for Executive Board members.

5. On 12 February 2018, the Presiding Committee considered and confirmed the performance indicators for the annual bonus for
FY 2018 and addressed ongoing succession planning for the CFO. It furthermore discussed the future composition of the
Supervisory Board and its committees.

6. At its extraordinary meeting on 28 February 2018, the Committee auditioned candidates selected as potential successors to
the CFO. A specific recommendation for the Supervisory Board members was then adopted.

7. At the extraordinary meeting of the Presiding Committee held as a conference call on 23 March 2018, the Committee carefully
considered a resolution on a sabbatical for Sebastian Ebel.

8. On 7 May 2018, we discussed the report on senior executive development and Executive Board matters, which included in
particular the contractual conditions for Dr Elke Eller and for the CFO. We also discussed the current CFO's plan for stepping
down.

9. At the extraordinary Presiding Committee meeting on 16 May 2018, held as a conference call, the Presiding Committee dealt
in detail with changes in the business allocation plan for the Executive Board.

10. On 11 September 2018, the Presiding Committee discussed the termination agreement for the CFO and the appointment of his
successor.

Audit Committee

Members of the Audit Committee:

· Prof. Edgar Ernst · · Prof. Klaus
(Chairman) Mangold

· Andreas Barczewski · Coline McConville

· Dr Dierk Hirschel · Michael Pönipp

· Janis Kong · Ortwin Strubelt

The Audit Committee held seven ordinary meetings in the financial year under review. For the tasks and the advisory and
resolution-related issues discussed by the Audit Committee, we refer to the comprehensive report on page 22.

Nomination Committee

The Nomination Committee proposes suitable shareholder candidates to the Supervisory Board for its election proposals to the
Annual General Meeting or appointment by the district court.

Members of the Nomination Committee, which held two meetings:

· Prof. Klaus Mangold · · Peter Long
(Chairman) (from 13 February
2018)
· Carmen Riu Güell
· Alexey Mordashov
· Sir Michael Hodgkinson
(until 13 February 2018)

1. At its meeting on 17 October 2017, the Nomination Committee discussed the future composition of the Supervisory Board,
representation for the shareholders on the committees and the diversity concept for the Supervisory Board.

2. At its extraordinary meeting on 27 November 2017, the Nomination Committee adopted a resolution to recommend to the 2018
AGM that Dr Dietsche Zetsche be elected to TUI AG's Supervisory Board.

Strategy Committee

The Strategy Committee was established on 9 February 2016 by resolution of the Supervisory Board. Its task is to advise the
Executive Board in developing and implementing the corporate strategy. The Committee met six times in the financial year under
review. Apart from Committee members, the meetings of the Strategy Committee have been regularly attended by Dr Dieter Zetsche
since his election to TUI AG's Supervisory Board.

The members of the Strategy Committee, which met five times, are:

· Peter Long · · Frank Jakobi
(Chairman)
· Prof. Klaus
· Angelika Gifford Mangold

· Valerie Gooding · Alexey Mordashov

1. At its meeting on 18 October 2017, the Committee dealt extensively with the Group's aviation strategy and business
development in South East Asia.

2. At its meeting on 11 December 2017, the Committee again discussed the aviation strategy and business performance in South
East Asia. We also defined performance indicators as a basis for the Group's strategy.

3. On 12 February 2018 we deliberated on the airline strategy and business development in South East Asia, which was an
overall focus of this year's work by the Strategy Committee. Moreover, the Strategy Committee heard a report on the status of
the online strategy in different source markets. We also discussed relevant key indicators.

4. At its extraordinary meeting on 5 March 2018, the Committee discussed the strategic importance of the acquisition of
Destination Management from Hotelbeds Group and prepared a corresponding draft resolution for the Supervisory Board plenary
meeting.

5. From 8 to 12 May 2018, the Committee went on a trip to the People's Republic of China to explore opportunities for
strategic expansion in source market China. To that end, we engaged in dialogue with Chinese companies to benefit from
experience and to discuss fundamental orientation with a view to strategic partnerships.

Corporate Governance

Due to the primary quotation of the TUI AG share on the London Stock Exchange and the constitution of the Company as a German
stock corporation, the Supervisory Board naturally grants regular and very careful consideration to the recommendations around
German and British corporate governance. Apart from the mandatory observance of the rules of the German Stock Corporation Act
(AktG), German Industrial Co-Determination Act (MitbestG), the Listing Rules and the Disclosure and Transparency Rules, TUI AG
had announced in the framework of the merger that the Company was going to observe both the German Corporate Governance Code
(DCGK) and - as far as practicable - the UK Corporate Governance Code (UK GCG).

For the DCGK - conceptually founded, inter alia, on the German Stock Corporation Act - we issued an unqualified declaration of

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compliance for 2018 pursuant to section 161 of the German Stock Corporation Act, together with the Executive Board. By
contrast, there are some deviations from the UK CGC due for the most part to the different concepts underlying a one-tier
management system for a public listed company in the UK (one-tier board) and the two-tier management system comprised of
Executive Board and Supervisory Board in a stock corporation based on German law.

More detailed information on corporate governance, the declaration of compliance for 2018 pursuant to section 161 of the
German Stock Corporation Act and the declaration on the UK CGC is provided in the Corporate Governance Report in the present
Annual Report, prepared by the Executive Board and the Supervisory Board (from page 112), as well as on TUI AG's website.

Conflicts of interest

In the period under review, the Supervisory Board continuously monitored for conflicts of interest and found that no conflict
of interest occurred in FY 2018.

Audit of the annual and consolidated financial statements of TUI AG and the Group

The Supervisory Board reviewed the annual and consolidated financial statements and the financial reporting to establish
whether they were in line with applicable requirements. Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Hanover, audited the
annual financial statements of TUI AG prepared in accordance with the provisions of the German Commercial Code (HGB), as well
as the combined management report of TUI AG and TUI Group, and the consolidated financial statements for FY 2018 prepared in
accordance with the provisions of the International Financial Reporting Standards (IFRS), and issued their unqualified audit
certificate. The above documents, the Executive Board's proposal for the use of the net profit available for distribution and
the audit reports by the auditors had been submitted in good time to all members of the Supervisory Board. They were discussed
in detail at the Audit Committee meeting on 11 December 2018 and the Supervisory Board meeting on 12 December 2018, convened
to discuss the annual financial statements, where the Executive Board provided comprehensive explanations of these statements.
At those meetings, the Chairman of the Audit Committee and the auditors reported on the audit findings, having determined the
key audit areas for the financial year under review beforehand with the Audit Committee. Neither the auditors nor the Audit
Committee identified any weaknesses in the early risk detection and internal control system. On the basis of our own review of
the annual financial statements of TUI AG and TUI Group and the combined management report, we did not have any grounds for
objections and therefore concur with the Executive Board's evaluation of the situation of TUI AG and TUI Group. Upon the
recommendation of the Audit Committee, we approve the annual financial statements for FY 2018; the annual financial statements
of TUI AG are thereby adopted. We comprehensively discussed the proposal for the appropriation of profits with the Executive
Board and approved the proposal in the light of the current and expected future financial position of the Group.

Composition of the Executive Board and
Supervisory Board

The composition of the Executive Board and Supervisory Board as at 30 September 2018 is presented in the tables on pages 112
for the Supervisory Board and page 114 for the Executive Board.

SUPERVISORY BOARD

Upon the close of the 2018 AGM, the second Deputy Chairman of the Supervisory Board, Sir Michael Hodgkinson, stepped down from
the Supervisory Board. At the same AGM, Dr Dieter Zetsche was elected to serve on TUI AG's Supervisory Board for the next five
years.

The Supervisory Board elected Peter Long as its new second Deputy Chairman.

PRESIDING COMMITTEE

Sir Michael Hodgkinson stepped down from the Supervisory Board and thus also the Presiding Committee with effect from the
close of the 2018 AGM. The Supervisory Board elected Peter Long as the fourth shareholder representative on the Presiding
Committee.

NOMINATION COMMITTEE

Sir Michael Hodgkinson also stepped down from the Nomination Committee from the close of the 2018 AGM. The Supervisory Board
elected Peter Long as his successor on the Nomination Committee.

EXECUTIVE BOARD

At the meeting on 13 March 2018, Birgit Conix was appointed to the Executive Board with effect from 15 July 2018 for a period
of three years.

Horst Baier stepped down from the Executive Board with effect from the close of 30 September 2018. He is succeeded by Birgit
Conix.

Word of thanks

The Supervisory Board expressly thanks all employees of TUI Group for their day-to-day dedication, which has again contributed
to a very successful financial year.

Hanover, 12 December 2018

On behalf of the Supervisory Board:

Prof. Klaus Mangold

Chairman of the Supervisory Board

AUDIT COMMITTEE REPORT

Dear Shareholders,

as the Audit Committee, it is our job to assist the Supervisory Board in carrying out its monitoring function during the
financial year, particularly in relation to accounting and financial reporting for the TUI Group, as required by legal
regulations, the German Corporate Governance Code as well as the UK Corporate Governance Code and the Supervisory Board Terms
of Reference.

In addition to these core functions, we are responsible in particular for monitoring the effectiveness and proper functioning
of internal controls, the risk management system, the internal audit department and the legal compliance system.

Furthermore, the Audit Committee is responsible for selecting external auditors. The selected auditors are then required to be
put forward by the Supervisory Board to the Annual General Meeting for appointment. Following the appointment by the Annual
General Meeting, the Supervisory Board formally commissions the external auditors with the task of auditing the annual
financial statements and consolidated financial statements and reviewing the half-year financial statements as well as
possible additional interim financial information, which comply with the requirements for half-year financial statements.

The Audit Committee was elected by the Supervisory Board directly after the annual general meeting 2016 and currently consists
of the following eight Supervisory Board members:

· Prof. Edgar Ernst · · Prof. Klaus Mangold
(Chairman)
· Coline Lucille
· Andreas Barczewski McConville

· Dr Dierk Hirschl · Michael Pönipp

· Janis Carol Kong · Ortwin Strubelt

The membership of the Audit Committee members corresponds to the duration of their appointment to the Supervisory Board. There
are no personnel changes to report in the composition of this committee since the last election.

Both the Chairman of the Audit Committee and the remaining members of the Audit Committee are seen by the Supervisory Board as
meeting the criterion of being independent. In addition to the Chairman of the Audit Committee, at least one other member is
required to have expertise in the field of accounting and experience in the use of accounting principles and internal control
systems.

The Audit Committee has six regular meetings a year and additional topic-specific meetings may also be convened. These
topic-specific meetings include one meeting in which the Executive Board explains to the Audit Committee the key content of
the pre-close trading updates published shortly before the reporting date of the annual financial statements. The remaining
meeting dates and agendas are geared in particular towards the Group's reporting cycle and the agendas of the Supervisory
Board.

The Chairman of the Audit Committee reports on the work of the Audit Committee and its proposals in the Supervisory Board
meeting that follows each Audit Committee meeting.

Apart from the Audit Committee members, the meetings have been attended by the Chairman of the Executive Board, the CFO and
depending on the topics covered the Directors Group Financial Accounting & Reporting, Group Audit, Group Legal, Group
Compliance & Risk and Group Treasury & Insurance.

The external auditors have also been invited to meetings on relevant topics. Wherever required, additional members of TUI
Group senior management and operational management have been asked to attend Audit Committee meetings, as have external
consultants.

Where it was deemed necessary to go into further detail on specific topics or cases, the Chairman of the Audit Committee held
- in addition to Audit Committee meetings - individual meetings with the relevant Executive Board, senior management or
auditor representatives. The Chairman of the Audit Committee reported on the key findings and conclusions from these meetings
in the next Audit Committee meeting.

The members took part in the Audit Committee meetings as shown in the table on page 17.

Implementation of the European General Data Protection Regulation

Since 25 May 2018, the European General Data Protection Regulation (EU GDPR) is in place. Even though we are convinced that
data protection, especially of customer data, has always been a high-priority matter within TUI, the new EU GDPR implemented
new and extended regulations that need to be taken into account. In our meetings we regularly received reports on the status
of the implementation in the single business units.

Based upon this , we can report, that the implementation according to the specific national regulations was finished on time
and that we are convinced that TUI took appropriate measures to comply with the EU GDPR rules.

Reliability of financial reporting and monitoring of accounting process

The Executive Board of a German stock corporation (Aktiengesellschaft) alone is responsible for preparing its Annual Report &

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Accounts (ARA). Section 243(2) of the German Commercial Code (HGB) requires the ARA to be clearly structured and to give a
realistic overview of the company's financial situation. This is equivalent to the requirement of the UK Corporate Governance
Code (UK CGC) for the ARA to be fair, balanced and understandable. Even though the evaluation of this requirement has not been
transferred to the Audit Committee, the Executive Board is comfortable that the submitted ARA satisfies the requirements of
both legal systems.

In order to be sure ourselves of the reliability of both the annual financial statements and interim reporting, we have
requested that the Executive Board informs us in detail about the Group's business performance and its financial situation.
This was done in the four Audit Committee meetings that took place directly before the financial statements in question were
published. In these meetings, the relevant reports were discussed and the auditors also reported in detail on key aspects of
the financial statements and on the findings of their audit or review.

In order to monitor accounting, we examined individual aspects in great detail. In addition, the accounting treatment of key
balance sheet items were reviewed, in particular goodwill, advance payments for tourism services and other provisions. In
consultation with the auditors, we made certain that the assumptions and estimates underlying the balance sheet were
appropriate. In addition, any material legal disputes and key accounting issues arising from the operating businesses were
assessed by the Audit Committee.

In the period under review, we focused above all on the following individual subjects:

As the transfer of the existing local brands to the uniform TUI brand in the course of the 'OneTUI' project is completed, we
asked the management to inform us about the costs and benefits of the project during this financial year. Based on these
information we estimate the costs as appropriate and justified by the sustainable benefits from a uniform international brand.

Moreover, we discussed the results from a tax inspection for the Riu group, which led to additional taxes in this financial
year. The Spanish tax authorities questioned the allocation of taxable profits to the companies involved in the sales
organisation of the Riu group in different countries. We received a report on details of this issue and on the next steps to
be taken. Additionally, we required a confirmation that there are no other similar organisational structures within the Riu
group.

Each quarterly reporting we asked for a report on the risks from guarantee and advance payment mechanisms related to Group and
third-party hotels in Turkey and North Africa and on the countermeasures being undertaken, even though the bookings showed a
noticeable recovery for these destinations in this financial year.

Besides, we gathered information about corporate transactions of the financial year. Furthermore, we also examined TUI's
investing activity in the following areas: Airlines, Hotels & Resorts, Cruises and IT. We obtained explanations of the key
investments within the Group divisions and the earnings contributions from these investments.

The Audit Committee also discussed the going concern and viability statement analysis prepared by the company to support the
statements made in the half-year report and the ARA.

Starting with FY 2018, the management report must contain information on corporate social responsibility (CSR). TUI started to
publish the respective information already in FY 2017. The responsibility for the review of the content lies with the
Supervisory Board. The Supervisory Board decided to take support from the Group Audit department of TUI. Accordingly, we asked
Group Audit to inform us about the findings of their evaluation during this financial year and we are convinced that the
content of the CSR report is suitable and fair.

In addition, the consistency of the reconciliation from profit before tax to the key figure 'underlying earnings' and the
material adjustments were discussed for all quarterly reports and for the annual financial statements.

Our evaluation of all discussed aspects of accounting and financial reporting is in line with that of both management and the
Group auditors.

Effectiveness of internal controls and the risk management system

The Audit Committee recognises that a robust and effective system of internal control is critical to achieving reliable and
consistent business performance. To fulfil its legal obligation to examine the effectiveness of internal controls and the risk
management system, the Audit Committee is informed regularly about their current status and also about the further development
of them.

The Group has continued to evolve its internal control framework which is underpinned by the COSO concept. Regular testing by
management of the key financial controls is now a matter of routine in the larger businesses, and in our two largest source
markets (UK and Germany) more widespread testing of internal controls is conducted.

Within the Group, the compliance function is further broken down into three areas: Finance, Legal and IT. These teams play a
crucial role in improving controls across the Group and identifying areas where more focus is required. The Group auditors
also report to us on any weaknesses they find in the internal control system of individual Group companies, and management
tracks these items to ensure that they are addressed on a timely basis.

As stated from page 40 of the risk report, the Audit Committee receives regular reports on the performance and effectiveness
of the risk management system. The Risk Oversight Committee is an important management committee within the Group and we are
satisfied that there is appropriate, active management of risk throughout the Group.

The Group Audit department ensures the independent monitoring of implemented processes and systems as well as of core projects
and reports directly to the Audit Committee in each regular meeting. In the period under review, the Audit Committee was not
provided with any audit findings indicating material weaknesses in internal controls or the risk management system. As well as
this, talks are held regularly between the Chairman of the Audit Committee and the Director of Group Audit for the purposes of
closer consultation. The audits planned by the Group Audit department for the following year were presented to the Audit
Committee in detail, discussed and approved. The Audit Committee feels that the effectiveness of the Group Audit department is
ensured through this regular consultation.

The legal compliance system was examined via checklists and, for the first time, also by a self-assessment of the entities.
The group-wide, uniformly implemented system was presented to us and we received a report about the conducted risk analysis
and the measures derived from it. In addition to the core elements of the internal control and risk management system, the
Group's hedging policy was part of the reporting to us during the year.

Whistleblower systems for employees in the event of compliance breaches

Whistleblower systems have been set up across the Group to enable employees to draw attention to potential breaches of
compliance guidelines.

Reporting on the legal compliance system included information about the group-wide standardisation of these whistleblower
systems and we were also shown the main findings during the current financial year from this system.

Examination of auditor independence and objectivity

For FY 2018, the Audit Committee recommended to the Supervisory Board that it proposes Deloitte GmbH
Wirtschaftsprüfungsgesellschaft (Deloitte) to the Annual General Meeting as auditors. Following the commissioning of Deloitte
as auditors by the Annual General Meeting in February 2018, the Supervisory Board appointed Deloitte with the task of auditing
the 2018 annual financial statements and reviewing the half-year financial statements as per 31 March 2018.

The Chairman of the Audit Committee discussed with Deloitte in advance the audit plan for the annual financial statements as
at 30 September 2018, including the key areas of focus for the audit and the main companies to be audited from the Group's
perspective. Based on this, the Audit Committee firmly believes that the audit has taken into account the main financial risks
to an appropriate degree and is satisfied that the auditors are independent and objective in how they conduct their work.

The audit fees were discussed with the auditors and we are convinced that the amount of these costs is reasonable. Based on
the regular reporting by the auditors, we have every confidence in the effectiveness of the external audit. Therefore, we
decided to recommend to the Supervisory Board that it propose to the AnnualGeneral Meeting to elect Deloitte as auditors for
the FY 2019 as well. In a tender process in the FY 2016, Deloitte was selected as auditors and continued to be auditor since
the first election by the Annual General Meeting in 2017.

In order to ensure the independence of the auditors, any non-audit services to be performed by the auditors must be submitted
to the Audit Committee for approval before commissioning. Depending on the amount involved, the Audit Committee makes use of
the option of delegating the approval to the company. The Audit Committee Chairman is only involved in the decision once a
specified cost limit has been reached. Insofar as the auditor has performed services that do not fall under the Group audit,
the nature and extent of these have been explained to the Audit Committee. This process complies with the company's existing
guideline regarding the approval of non-audit services and it takes into account the requirements from the AReG regulations
on prohibited non-audit services and on limitations of the scope of non-audit services. In FY 2018, these non-audit services

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accounted for 7 % of the auditor's overall fee of EUR 9,8 million.

I would like to take this opportunity to thank the Audit Committee members, the auditors and the management for their hard
work over the past financial year.

Hanover, 11 December 2018

Prof. Edgar Ernst

Chairman of the Audit Committee

TUI Group Strategy

Strategy & Business Model

The leisure travel market has consistently outperformed world output growth over the last decade. This market is also
projected to remain very attractive in the future. However, the traditional tour operator and package holiday market remains
highly competitive. Online Travel Agencies have started to combine hotel and flight offerings by providing customers with
dynamic packaging. In addition, airline operators now provide holiday accommodation as an add-on to de-risk their own flight
capacity, supported by increasingly sourcing hotels directly. Meanwhile it is increasingly likely that there will be new
market entrants, for example in the form of global tech companies.

Against this background, TUI has strategically moved away from the traditional tour operator model and developed into an
integrated provider of Holiday Experiences. We have invested in our own product offerings, enabling us to create unique
holidays for our customers, which is a key differentiation factor from our competitors. A TUI customer could be inspired by
TUI, and book with TUI, and then experience a TUI flight, TUI transfer in destination, TUI hotel / cruise and TUI activity, as
part of our end to end integrated product offering. This means our customers receive a holistic and seamless experience, while
TUI receives more accurate information about what our customers truly want, helping our aim to further facilitate
individualised offerings. From an end to end customer journey perspective, around 70 % of our underlying EBITA comes from our
own and committed differentiated products.

Holiday Experiences

TUI operates 380 hotels and 16 cruise ships globally through ownership, JVs, management contracts, leases or franchise, and
maintains a strong position in the growing tours & activities market with our 150 k excursion and activity offerings. Our
differentiated hotel and club brand portfolio, our uniquely positioned German and UK cruise brands, and our global tours,
activities and services destination business is well diversified to mitigate content cluster risks.

Details see from page 32

Our strong and in the future fully digitalised risk management tools within distribution and purchasing, allow us to optimise
occupancy and yield. 23 m customers come through our Markets & Airlines, including joint ventures in Canada and Russia,
complemented by 4 m customers sold either directly by Holiday Experiences, or via third parties. An optimised and in the
future fully dynamic allocation of around 100 m bed nights and approx. EUR 5 bn third party hotel beds purchasing volume
globally, will further contribute to our yield maximisation. As part of our divisional strategy, we continue to invest into
the growth and diversification of our hotel and cruise portfolio, leading to a more seasonally robust business mix delivering
superior margins. Looking ahead, building a new Southeast Asia hotel cluster is a strategic priority. In addition we have a
strong pipeline of new ship deliveries in the coming years.

The global and pre-dominantly offline, fast growing tours and activities market, worth over EUR 150 bn is highly fragmented
with over 300 k providers and therefore offers a strong growth and consolidation opportunity for TUI Group. By acquiring the
Hotelbeds Destination Management business and the technology platform specialist Musement, TUI has built a leading and fully
digitalised Destination Experiences business. From FY 2019 onwards we operate in 49 countries with over 150 k excursions and
activities in destinations in our inventory for our own and third party customers. This set up allows us to offer our 27 m
customers excursions and activities, in particular even prior to the customers' arrival in the destination. The trust in our
brand and our strong fulfillment capabilities allow us to fulfill our customers' expectations from order intake to payment.

Markets & Airlines

TUI operates a customer centric and diversified distribution and fulfillment business across Europe. We combine leveraging our
strong market and customer knowledge, driving customer satisfaction and retention, with service and fulfillment. Packaging and
purchasing is increasingly driven through our digital platforms and our own airlines, supported by third party flights,
facilitate the link between customer demand and our own, as well as third party committed and non-committed hotel and cruise
offerings.

Enhancing efficiency by harmonising these regional market organisations, which include our airlines as well, is a key
strategic priority.

In addition, we intend to diversify our existing market footprint further. Through our fully digital LTE platform, we are
pursuing a low risk entry strategy, simultaneously improving our position to yield our Holiday Experiences' risk capacity
through additional new source market demand.

Group Platforms

Our Group platform initiatives, in particular around IT and digitalised customer relationship management, will enable us to
enhance our Group yields further. By individualising our offerings and identifying the next best activity for our customers,
enabled by our integrated content management and distribution business model, we enhance customer satisfaction and drive our
ancillary yields, a win-win opportunity. As an example, our select your room initiative, allows our customers to book their
preferred and specific hotel room, which moves our offering from room category pricing to individualised room pricing.

It is the integrated and double diversified nature of our business, which sets us apart from the competition. Our integrated
business model proves to be robust, offering flexibility to react to external challenges, either in one of our Markets &
Airlines or destinations.

Capital Allocation

We will continue to operate within a clearly defined and disciplined capital allocation framework. Our strong cash generation
allows us to invest, pay dividends and strengthen the balance sheet. Since the merger, we have generated around EUR 2 bn of
disposal proceeds, which we have reinvested primarily into our higher margin, lower seasonality and better quality Holiday
Experiences business, with a ROIC hurdle rate for growth investments of at least 15 % on average. We also invest via
ring-fenced joint ventures, make use of highly efficient asset finance and other finance instruments, as well as more 'asset
light' hotel management contracts, to optimise the cash flow available to shareholders.

Finally, we have a clear financial policy to ensure balance sheet stability, targeting a leverage ratio of 3.0 times to 2.25
times and coverage ratio of 5.75 times to 6.75 times.

Summary

Looking ahead, we continue to expect to deliver superior annual earnings growth with improved seasonality, strong cash
conversion and strong ROIC performance. This will be driven by benefits of our digitalisation efforts, efficiency measures and
differentiation strategy through the disciplined expansion of own hotel and cruise, plus destination experience content.

Please refer to the Guidance section from page 56 for further details.

Our employees

Qualified and engaged employees are a major prerequisite for TUI's long-term success. We are aiming to be an attractive
employer, encouraging our employees to engage with passion and personality. One of the key elements of our global HR
strategy, therefore, is to attract and promote people with talent and to retain them by offering attractive employment
conditions. In 2018, our engagement index* is 76, one point below previous year's value. Our goal is to achieve a colleague
engagement score of over 80 by 2020 in order to be among the Top 25 global companies.

At the same time, digital transformation creates technical, cultural and organisational challenges
for our employees. However, digitalisation also creates opportunities for personalised lifestyles
and work design. We are seeking to actively address these requirements and the permanent change taking place in the world of
work so as to shape the future together.

* The Engagement Index comprises the individual commitment
and the team commitment of our employees. Individual commitment means not only overall satisfaction, but also
the willingness for recommendation, the pride to work for
a company as well as the belief in its future viability.

Our environment

For TUI Group, economic, environmental and social sustainability is a fundamental management principle and a cornerstone of
our strategy for continually enhancing the value of our Company. This is the way we create the conditions for long-term
economic success and assume responsibility for sustainable development in the tourism sector.

The goals we set ourselves in our 'Better Holidays, Better World' sustainability strategy include 'Step lightly', where we aim
to reduce the environmental impact of our business operations and to fix clear, ambitious goals for improvements in all Group
areas.

Greenhouse gas emissions and the impact of these emissions on climate change pose one of the major global challenges for the
tourism sector.
In FY 2018, TUI Group's total emissions increased year-on-year in absolute terms, primarily due to
the growth in Airlines & Aviation. At 66.7 g CO2 / pkm, specific carbon emissions of our airlines were flat year-on-year. This
means that we already operate one of Europe's most carbon-efficient airlines and continually seek to deliver further
improvements.

Our goal: We will operate the most carbon-efficient airlines in Europe and cut the carbon intensity of our operations by 10 %
by 2020 (baseline year 2014).

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Corporate profile

How we do it - Group structure

TUI AG parent company

TUI AG is TUI Group's parent company headquartered in Hanover and Berlin. It holds direct or, via its affiliates, indirect
interests in the principal Group companies conducting the Group's operating business in individual countries. Overall, TUI
AG's group of consolidated companies comprised 285 direct and indirect subsidiaries at the balance sheet date. A further 17
affiliated companies and 27 joint ventures were included in TUI AG's consolidated financial statements on the basis of at
equity measurement.

For further details on principles and methods of consolidation and TUI Group shareholdings see pages 161 and 251.

Organisation and management

TUI AG is a stock corporation under German law, whose basic principle is dual management by two boards, the Executive Board
and the Supervisory Board. The Executive and Supervisory Boards cooperate closely in governing and monitoring the Company. The
Executive Board is responsible for the overall management of the Company.

The appointment and removal of Board members is based on sections 84 et seq. of the German Stock Corporation Act in
combination with section 31 of the German Co-Determination Act. Amendments to the Articles of Association are effected on the
basis of the provisions of sections 179 et seq. of the German Stock Corporation Act in combination with section 24 of TUI AG's
Articles of Association.

Executive Board and Group Executive Committee

As at the balance sheet date, the Executive Board of TUI AG consisted of the CEO and five other Board members.

For details on Executive Board members see page 114

A Group Executive Committee was set up in order to manage TUI Group strategically and operationally. As at 30 September 2018,
the Committee consisted of twelve members who meet under the chairmanship of CEO Friedrich Joussen.

TUI Group structure

Since the merger between TUI AG and TUI Travel PLC in December 2014, TUI Group has been a world market leader in tourism. Its
core businesses, Holiday Experiences and Markets & Airlines, are clustered into the segments Hotels & Resorts, Cruises and
Destination Experiences as well as three regions: Northern, Central and Western Regions. TUI Group also comprises All other
segments.

In FY 2018 we have adjusted our segmental reporting to reflect the growing strategic importance of the services delivered in
our destinations. Destination Experiences is now reported separately in the segmental structure, and within Holiday
Experiences together with Hotels & Resorts and Cruises. The further businesses of former Other Tourism and All other segments
have been combined into All other segments. There are no changes to the total numbers. The prior year's reference figures were
restated accordingly.

Holiday Experiences

Holiday Experiences comprises our hotel, cruise and destination activities.

Hotels & Resorts

The Hotels & Resorts segment comprises TUI Group's diversified portfolio of Group hotel brands and hotel companies. The
segment includes ownership in hotels, joint ventures with local partners, stakes in companies giving TUI a significant
influence, and hotels operated under management contracts.

In FY 2018, Hotels & Resorts comprised a total of 330 hotels with 241,207 beds. 306 TUI Hotels & Resorts, i. e. the majority,
are in the four- or five-star category. 45 % were operated under management contracts, 40 % were owned by one of the hotel
companies, 13 % were leased and 2 % of the hotels were managed under franchise agreements.

In addition there are also 50 concept hotels operated by third party hoteliers under the TUI concept brands, TUI Sensatori,
TUI Sensimar and TUI Family Life, making a total of 380 Group hotels, incuding third party.

Categories of Hotels & Resorts
Hotel 3 stars 4 stars 5 stars Total Beds Main
brand hotels sites
Riu 3 46 41 90 82,638 Spain,
Mexico,
Caribbea
n, Cape
Verde,
Portugal
,
Morocco
Robinson - 18 6 24 14,403 Spain,
Greece,
Turkey,
Austria
Blue 2 10 14 26 27,016 Cuba,
Diamond Dom.
Rep.,
Jamaica,
Mexico,
Saint
Lucia
Other 19 117 54 190 117,150 Spain,
hotel Greece,
companies Turkey,
Egypt
Total 24 191 115 330 241,207
TUI - 32 18 50 11,696* Spain,
Sensatori Greece,
, TUI Italy
Sensimar,
TUI
Family -
third
party
concept
hotels

* rooms
As at 30 September 2018

Riu is the largest hotel company in the portfolio of Hotels & Resorts. The Majorca-based enterprise has a high proportion of
regular customers and stands for professionalism and excellent service. Most of the hotels are in the premium and comfort
segments and they are predominantly located in Spain, Mexico and the Caribbean.

Robinson, the leading provider in the German-speaking premium club holiday segment, is characterised by its professional
sport, entertainment and event portfolio. Moreover, the clubs offer high-quality hotel amenities, excellent service and
spacious architecture. Most of the hotels are located in Spain, Greece, Turkey, the Maldives and Austria. The facilities are
also aspirational in terms of promoting sustainable development and signing up to specific environmental standards.

Blue Diamond is a fast growing resort chain in the Caribbean with a unique approach of tailoring hotels to meet the highest
expectations. 26 Blue Diamond resorts are shown in the segment.

Other hotel companies include in particular the Group's other core brands TUI Blue and TUI Magic Life, as well as our
exclusive hotel concepts TUI Sensimar, TUI Sensatori and TUI Family Life. They provide holidays in top locations in our
destinations and meet high performance, quality and environmental standards.

Cruises

The Cruises segment consists of the joint venture TUI Cruises, Marella Cruises and Hapag-Lloyd Cruises. With their combined
fleet of 16 vessels, the three cruise lines offer different service concepts to serve different target groups.

Cruise fleet by ownership structure
Owned Finance Operating Total
Lease Lease
TUI Cruises 6 - - 6
(Joint Venture)
Marella Cruises 3 2 1 6
Hapag-Lloyd 3 - 1 4
Cruises

As at 30 September 2018

Hamburg-based TUI Cruises is a joint venture formed in 2008 between TUI AG and the US shipping company Royal Caribbean Cruises
Ltd., in which each partner holds a 50 % stake. With six ships so far, TUI Cruises is top-ranked in the German-speaking
premium market for cruises. The Berlitz Cruise Guide, the most important international reference guide for cruise ship
ratings, rated Mein Schiff 3, Mein Schiff 4, Mein Schiff 5 and Mein Schiff 6 among the world's five best liners in the
category 'Large Ships'.

Marella Cruises, operated under the brand Thomson Cruises until October 2017, offers voyages for different segments in the
British market with a fleet of six cruise liners.

Hapag-Lloyd Cruises is based in Hamburg, and it holds a position of leadership in the German-language market with its fleet of
four liners in the luxury and expedition cruise segments. Its flagships Europa and Europa 2 were again awarded the top rating
- the 5-stars-plus category - by the Berlitz Cruise Guide. Its expedition liners include Hanseatic and Bremen. Hanseatic
nature and Hanseatic inspiration will complement the luxury expedition segment from 2019.

Destination Experiences

The Destination Experiences segment delivers local services in the worldwide holiday destinations. TUI employs people in 49
countries to ensure these services and is among the top providers of tours, activities and excursions in the destinations.
Thanks to the acquisition of the technology start-up Musement in October 2018, TUI now has an online platform that gives small
and medium-sized companies the opportunity to offer their services in the holiday destinations following quality checks.

Markets & Airlines (formerly Sales & Marketing)

With our three regions Northern, Central and Western Region, we have well positioned sales and marketing structures providing
more than 23 m customers (including via our JVs in Canada and Russia) a year with exceptional holiday experiences. Our sales
activities are based on online and offline channels that also benefit from TUI's strong market position. The travel agencies
include Group-owned agencies as well as joint ventures and agencies operated by third parties. Thanks to our direct customer
access, we are able to build close relationships with our guests, and in future this will allow us to gear their entire

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DJ TUI AG: Annual Financial Report - Part 2 -9-

holiday experience even more closely to their personal wishes and preferences, giving us a crucial advantage over our
competitors. In order to offer our customers a wide choice of hotels, our Markets & Airlines organisations have access to the
exclusive portfolio of TUI hotels.

They also have access to third-party bed capacity, some of which have been contractually committed. Our own flight capacity
continues to play a key role in our integrated business model. A combination of owned and third-party flying capacity enables
us to offer tailor-made travel programmes for each individual source market region and to respond flexibly to changes in
customer preferences. Thanks to the balanced management of flight and hotel capacity, we are able to develop high-profile
destinations and optimise the margins of both service providers. In FY 2018, we continued to deliver our internal efficiency
enhancement programme at one Aviation, delivering further economies of scale. In the financial year under review, we continued
our path towards a modern, fuel-efficient fleet. In 2018, the first Boeing 737 Max jets were delivered. TUI Group has ordered
a total of 68 planes of this type, considered to be the state of the art in this category of aircraft. They are scheduled for
delivery by 2023. Overall, there are more than 150 aircraft in the TUI fleet.

Northern Region

The Northern Region segment comprises tour operator activities and airlines in the UK, Ireland and the Nordics. In addition,
the Canadian strategic venture Sunwing and the joint venture TUI Russia have been included within this segment.

Central Region

The Central Region segment comprises the tour operator activities and airlines in Germany and the tour operator activities in
Austria, Switzerland and Poland.

Western Region

The tour operator activities and airlines in Belgium, the Netherlands and the tour operator activities in France are included
within the segment Western Region.

All other Segments

The category 'All other segments' includes our business activities for the new markets, the French airline Corsair, the
corporate centre functions of TUI AG and the interim holdings, as well as the Group's real estate companies.

Research and development

As a tourism service provider, the TUI Group does not engage in research and development activities comparable with
manufacturing companies. This sub-report is therefore not prepared.

Value-oriented Group management

Management system and key performance indicators

A standardised management system has been created to implement value-driven management across the Group as a whole and in its
individual business segments. The value-oriented management system is an integral part of consistent Group-wide planning and
controlling processes.

Our key financial performance indicators for the development of the earnings position are turnover and the Group's underlying
earnings before interest, taxes and expenses for the measurement of interest hedges and amortisation of goodwill (underlying
EBITA). EBITA and underlying EBITA do not include measurement effects from interest hedges. In the prior year it did not
include earnings effects from container shipping. Underlying EBITA has been adjusted for gains on disposal of investments,
restructuring expenses according to IAS 37, all effects of purchase price allocations, ancillary acquisition costs and
conditional purchase price payments as well as other expenses for and income from one-off items. One-off items carried as
adjustments are income and expense items impacting or distorting the assessment of the operating profitability of the
segments and the Group due to their level and frequency. These one-off items include in particular major restructuring and
integration expenses not meeting the criteria of IAS 37, major expenses for litigation, gains and losses from the sale of
aircraft and other material business transactions of a one-off nature.

For the development of the Group's financial position in FY 2018, we have identified TUI Group's net capital expenditure and
investments and net financial position as key performance indicators.

Instead of the net financial position, we will report the Group's leverage ratio as the key performance indicator for its
financial position from FY 2019.

Key management variables used for regular value analysis are Return On Invested Capital (ROIC) and Economic Value Added. ROIC
is compared with the segment-specific cost of capital.

We regard specific CO2 emissions (in g CO2 / PKM) of our aircraft fleet as a key non-financial performance indicator.

In order to track business performance in our segments in the course of the year, we also monitor other secondary
non-financial performance indicators, such as customer numbers in Markets & Airlines, and capacity or passenger days,
occupancy and average prices in Hotels & Resorts and Cruises.

Information on operating performance indicators is provided in the sections 'Segmental performance' on page 67 and 'The
environment' on page 86.

Cost of capital (WACC)

Cost of capital (WACC)
Hotels Cruises Markets & TUI Group
Airlines3
% 2018 2018 2018 2018
Risk-free interest 1.00 1.00 1.00 1.00
rate
Risk adjustment 6.00 6.48 6.47 5.72
Market risk 6.50 6.50 6.50 6.50
premium
Beta factor1 0.92 1.00 0.99 0.88
Cost of equity 7.00 7.48 7.47 6.72
after taxes
Cost of debt 2.55 2.55 3.66 3.66
capital before
taxes
Tax shield 0.64 0.05 0.84 0.74
Cost of debt 1.91 2.50 2.82 2.92
capital after
taxes
Share of equity2 83.26 71.58 63.89 62.32
Share of debt 16.74 28.42 36.11 37.68
capital2
WACC after taxes 6.15 6.06 5.79 5.29
Cost of equity 8.93 7.60 9.17 8.01
before taxes
Cost of debt 2.55 2.55 3.66 3.66
capital before
taxes
Share of equity2 83.26 71.58 63.89 62.32
Share of debt 16.74 28.42 36.11 37.68
capital2
WACC before taxes 7.86 6.16 7.18 6.37

1 Segment beta based on peer group, group beta based on Capital IQ data base.

2 Segment share based on peer group, group share based on Capital IQ data base.

3 Due to insufficient statistical significance of Thomas Cook Group plc and H.I.S. Co., Ltd. shown in the standard procedure
of beta regression
(average of 60 monthly data points over 5 years), we have performed an alternative beta regression based on average of 104
weekly data points over two years.
The alternative beta regression shows statistical significance for all peer companies.

The cost of capital is calculated as the weighted average cost of equity and debt capital (WACC). While the cost of equity
reflects the return expected by investors from TUI shares, the cost of debt capital is based on the average borrowing costs of
the TUI Group. The cost of capital always shows pre-tax costs, i. e. costs before corporate and investor taxes. The expected
return determined in this way is subjected to the same tax level as the underlying earnings included in ROIC.

ROIC and Economic Value Added

ROIC is calculated as the ratio of underlying earnings before interest, taxes and amortisation of goodwill (underlying EBITA)
to the average invested interest-bearing capital (invested capital) for the relevant segment. Given its definition, this
performance indicator is not influenced by any tax or financial factors and has been adjusted for one-off items. From a Group
perspective, invested capital is derived from liabilities, comprising equity (including non-controlling interests) and the
balance of interest-bearing liabilities and interest-bearing assets and an adjustment to reflect the seasonal change in the
Group's net financial position. The cumulative amortisations of purchase price allocations are then added to invested capital.

Apart from ROIC as a relative performance indicator, Economic Value Added is used as an absolute value-oriented performance
indicator. Economic Value Added is calculated as the product of ROIC less associated capital costs multiplied by invested
interest-bearing capital.

Invested Capital
EUR million Notes 2018 2017
Equity 4,333.6 3,533.7
Subscribed capital (23) 1,502.9 1,501.6
Capital reserves (24) 4,200.5 4,195.0
Revenue reserves (25) - 2,005.3 - 2,756.9
Non-controlling interest (27) 635.5 594.0
plus interest bearing financial 3,516.2 3,328.2
liability items
Pension provisions and similar (28) 994.8 1,127.4
obigations
Non-current financial liabilities (30), (36) 2,250.7 1,761.2
Current financial liabilities (30), (36) 192.2 171.9
Derivative financial instruments (36) 78.5 267.7
less financial assets 3,390.1 3,024.7
Financial assets available for (36) 54.3 69.5
sale
Derivative financial instruments (36) 525.0 295.3
Cash and cash equivalents (21), (36) 2,548.0 2,516.1
Other financial assets 262.8 143.8
= Invested Capital before 4,459.7 3,837.2
addition of effects from purchase
price allocation
Invested Capital excluding 3,837.2 3,880.1
effects from purchase price
allocation prior year
Seasonal adjustment1 500.0 500.0
? Invested capital before 4,648.2 4,358.7
addition of effects from purchase
price allocation2

Invested Capital before addition 4,459.7 3,837.2
of effects from purchase price

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DJ TUI AG: Annual Financial Report - Part 2 -10-

allocation 
plus effects from purchase price             342.0     317.5 
allocation 
= Invested Capital                           4,801.7   4,154.7 
Invested Capital prior year                  4,154.7   4,180.6 
Seasonal adjustment1                         500.0     500.0 
? Invested Capital2                          4,978.2   4,667.7 
 
ROIC 
EUR million                           Notes    2018     2017 
Underlying EBITA                               1,147.0  1,102.1 
? Invested Capital2                            4,978.2  4,667.7 
ROIC%                                          23.04    23.61 
Weighted average cost of capital               6.37     6.75 
(WACC)% 
Value added                                    829.9    787.0 
 
1 Adjustment to net debt to reflect a seasonal average cash balance 
 
2 Average value based on balance at beginning and year-end 
 
For TUI Group, ROIC was 23.04 %, down by 0.57 percentage points year-on-year. With the cost of capital at 6.37 %, this yielded 
positive Economic Value Added of EUR 829.9 m (previous year EUR 787.0 m). 
 
Group indicators used in the remuneration 
system for the Executive Board 
 
JEV-relevant Group result at constant currency 
 
When determining the Executive Board's annual performance-based remuneration (JEV), the Group's EBT (earnings before taxes) 
on a constant currency basis is applied with a weighting of 50 %. Using this indicator means that the net financial result is 
included in calculations of JEV. It is adjusted for foreign exchange effects so that actual management performance can be 
measured without distortion from the impact of currency translation. 
 
EBT on a constant currency basis was as follows in the financial year under review: 
 
Reconciliation EBT 
EUR million                                 2018 
Earnings before income taxes                971.5 
FX effects from translation to budget rates 88.0 
EBT at budget rates                         1,059.5 
 
JEV-relevant Return on Invested Capital (ROIC) 
 
The Group performance indicator ROIC is applied to JEV with a weighting of 25 %. TUI Group's ROIC for the calculation of JEV 
is derived from the ratio of the Group's EBITA to the average invested interest-bearing capital for the financial year. TUI 
Group's ROIC used to calculate JEV was as follows in the financial year under review: 
 
ROIC JEV 
EUR million                                         2018 
EBITA                                               1,060.2 
? Invested capital excl. purchase price allocation* 4,648.4 
ROIC JEV%                                           22.81 
 
* Average value based on balance at beginning and year-end 
 
JEV-relevant cash flow 
 
The third Group performance indicator included in the calculation of JEV is the cash flow component 'Cash flow to the firm' 
with a weighting of 25 %. For this purpose, the cash flow to the firm is calculated using a simplified approach based on the 
management cash flow calculation, which covers the liquidity parameters directly controlled by the Executive Board 
(depreciation / amortisation, working capital, income from investments and dividends, net investments) on the basis of TUI 
Group's EBITA, adjusted for foreign exchange effects. 
 
The cash flow to the firm used to calculate JEV was as follows in the financial year under review: 
 
Cash Flow to the firm 
EUR million                                         2018 
EBITA                                               1,060.2 
Effect from translation to budget rates             96.9 
EBITA at budget rates                               1,157.1 
Amortisation (+) / write-backs (-) of other         438.3 
intangible assets and depreciation (+) / 
write-backs (-) of property, plant and equipment 
Delta Working Capital                               66.4 
Share of result of joint ventures and assoiciates   - 297.7 
Dividends from joint ventures and assoiciates       222.7 
Net capex and investments                           - 827.0 
Cash Flow to the firm                               759.7 
 
Reconciliation of change in working capital according to 
cash flow to the firm 
EUR million                              30 Sep 2018 30 Sep 2017 
Non-current assets                       4,929.7     4,317.9 
less cash and cash equivalents           - 2,548.0   - 2,516.1 
less non-current liabilities             - 6,506.8   - 6,152.1 
plus current financial liabilities       192.2       171.9 
less current other provisions            - 348.3     - 349.9 
less net tax receivables                 - 27.6      - 33.4 
less / plus net current derivative       - 376.1     1.8 
financial instruments 
less interest bearing receivables        - 55.5      - 49.2 
plus current accrued interest            25.6        28.6 
Working capital according to             - 4,714.8   - 4,580.5 
balance sheet 
Change in working capital acc. to        134.3 
balance sheet 
Exchange rate differences                - 67.9 
Change in working capital acc.           66.4 
to cash flow to the firm 
 
Underlying earnings per share 
 
When determining the long-term remuneration of the Executive Board (Long Term Incentive Plan - LTIP), the average development 
of underlying earnings per share from continuing operations (LTIP-relevant EPS) is applied with a weighting of 50 %. 
 
The table below shows TUI Group's underlying earnings per share. The net interest expense used for the calculation was 
adjusted for interest portions of the reversal of a provision of EUR 31.2 m recognised in the financial year under review. A 
normalised Group tax rate of 20 % was assumed for the calculation. An adjustment was carried for non-controlling interests to 
reflect the normalised tax rate used in determining underlying earnings per share in the financial year under review. The 
calculation is based on subscribed capital at the balance sheet date. Underlying earnings per share from continuing operations 
(LTIP-relevant EPS) developed as follows in the financial year under review: 
 
Pro forma underlying earnings per share TUI Group 
EUR million                                    2018     2017 
EBITA (underlying)                             1,147.0  1,102.1 
less: Net interest expense (adjusted)          - 119.9  - 119.2 
Underlying profit before tax                   1,027.1  982.9 
Income taxes (20 % assumed tax rate)           205.4    196.6 
Underlying Group profit                        821.7    786.3 
Minority interest (adjusted)                   134.8    116.6 
Underlying Group profit attributable to TUI    686.9    669.7 
shareholders of TUI AG 
Number of shares at FY endNo. million          587.9    587.0 
Underlying earnings per share                  1.17     1.14 
 
RISK REPORT 
 
Successful management of existing and emerging risks is critical to the long-term success of our business and to the 
achievement of our strategic objectives. In order to seize market opportunities and leverage the potential for success, risk 
must be accepted to a reasonable degree. Risk management is therefore an integral component of the Group's Corporate 
Governance. 
 
The current financial year has seen further maturity of the risk management system with the introduction of an aligned 
operational controls testing process in addition to regular testing of key financial controls occurring across all of our 
larger businesses. Further cohesion between all risk & control functions is being implemented to support an integrated 
assurance process between all of the second lines of defense departments. Our risk governance framework is set out below: 
 
Risk Governance 
 
Executive Board - Direct & Assure 
 
With oversight by the Supervisory Board, the Executive Board determines the strategic direction of the Group and agrees the 
nature and extent of the risks it is willing to take to achieve its strategic objectives. 
 
To ensure that the strategic direction chosen by the business represents the best of the strategic options open to it, the 
Executive Board is supported by the Group Strategy function. This function exists to facilitate the Executive Board's 
assessment of the risk landscape and development of potential strategies by which it can drive long-term shareholder value. On 
an annual basis the Group Strategy function develops an in-depth fact base in a consistent format which outlines the market 
attractiveness, competitive position and financial performance by division and market. These are then used to facilitate 
debate as to the level and type of risk that the Executive Board finds appropriate in the pursuit of its strategic objectives. 
The strategy, once fully defined, considered and approved by the Executive Board, is then incorporated into the Group's 
three-year roadmap and helps to communicate the risk appetite and expectations of the organisation both internally and 
externally. 
 
Ultimately, accountability for the Group's risk management rests with the Executive Board and therefore it has established and 
maintains a risk management system to identify, assess, manage and monitor risks which could threaten the existence of the 
company or have a significant impact on the achievement of its strategic objectives: these are referred to as the principal 
risks of the Group. This risk management system includes an internally-published risk management policy which helps to 
reinforce the tone set from the top on risk, by instilling an appropriate risk culture in the organisation whereby employees 
are expected to be risk aware, control minded and 'do the right thing'. The policy provides a formal structure for risk 
management to embed it in the fabric of the business. Each principal risk has assigned to it a member of the Executive 
Committee as overall risk sponsor to ensure that there is clarity of responsibility and to ensure that each of the principal 
risks are understood fully and managed effectively. 
 
The Executive Board regularly reports to the Audit Committee of the Supervisory Board on the adherence to both the UK and

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DJ TUI AG: Annual Financial Report - Part 2 -11-

German listing requirements, the overall risk position of the Group, on the individual principal risks and their management, 
and on the performance and effectiveness of the risk management system as a whole. 
 
Risk Oversight Committee - Review & Communicate 
 
On behalf of the Executive Board, the Risk Oversight Committee (the ROC), a subset of the Executive Committee, ensures that 
business risks are identified, assessed, managed and monitored across the businesses and functions of the Group. Meeting on at 
least a quarterly basis, the ROC's responsibilities include considering the principal risks to the Group's strategy and the 
risk appetite for each of those risks, assessing the operational effectiveness of the controls in place to manage those risks 
and any action plans to further improve controls, as well as reviewing the bottom-up risk reporting from the businesses 
themselves to assess whether there are any heightened areas of concern. 
 
Senior executives from the Group's major businesses are required to attend the ROC on a rotational basis and present on the 
risk and control framework in their business, so that the members of the ROC can ask questions on the processes in place, the 
risks present in each business and any new or evolving risks which may be on their horizon, and also to seek confirmation that 
an appropriate risk culture continues to be in place in each of the major businesses. 
 
Chaired by the Chief Financial Officer, other members of the Committee include the CEO Aviation, the directors of Strategy, 
Financial Accounting, Treasury & Insurance and Group HR. In addition to these, all of the second lines of defense functions 
including Risk, Financial Control, Legal Compliance, IT Security and Health & Safety are represented on the committee. The 
director of Group Audit attends as an independent member and therefore is without voting rights. 
 
The ROC reports bi-annually to the Executive Board to ensure that it is kept abreast of changes in the risk landscape and 
developments in the management of principal risks, and to facilitate regular quality discussions on risk management at the 
Executive Board meetings. 
 
Group Risk Department - Support & Report 
 
The Executive Board has also established a Group Risk department to ensure that the risk management system functions 
effectively and that the risk management policy is implemented appropriately across the Group. The department supports the 
risk management process by providing guidance, support and challenge to management whilst acting as the central point for 
coordinating, monitoring and reporting on risk across the Group. It also supports the ROC in fulfilling it's duties and the 
reporting to both the Executive and Supervisory Boards. Additionally, Group Risk is responsible for the operation of the risk 
and control software that underpins the Group's risk reporting and risk management process. 
 
Businesses & Functions - Identify & Assess 
 
Every business and function in the Group is required to adopt the Group Risk Management policy. In order to do this, each 
either has their own Risk Committee or includes risk as a regular agenda item at their Board meetings to ensure that it 
receives the appropriate senior management attention within their business. In addition, the businesses each appoint a Risk 
Champion, who promotes the risk management policy within their business and ensures its effective application. The Risk 
Champions are in close contact with Group Risk and are critical both in ensuring that the risk management system functions 
effectively, and in implementing a culture of continuous improvement in risk management and reporting. 
 
Risk Reporting 
 
The Group Risk department applies a consistent risk reporting methodology across the Group. This is underpinned by a risk and 
control software which reinforces clarity of language, visibility of risks, controls and actions and accountability of 
ownership. Although the process of risk identification, assessment and response is continuous and embedded within the 
day-to-day operations of the businesses and functions, it is consolidated, reported and reviewed at varying levels throughout 
the Group on at least a quarterly basis. 
 
Risk Identification: Management closest to the risks identify the risks relevant to the pursuit of the strategy within their 
business area in the context of four risk types: 
 
· Longer-term strategic and emerging threats; 
 
· Medium-term challenges associated with business change 
 
· Short-term risks triggered by changes in the external and regulatory environment; and 
 
· Short-term risks in relation to internal operations and control. 
 
A risk owner is assigned to each risk, who has the accountability and authority for ensuring that the risk is appropriately 
managed. 
 
Risk Descriptions: The nature of the risk is articulated in line with best practice, stating the underlying concern the risk 
gives arise to, identifying the possible causal factors that may result in the risk materializing and outlining the potential 
consequences should the risk crystallise. This allows the businesses, functions and the Group to assess the interaction of 
risks and potential triggering events and / or aggregated impacts before developing appropriate mitigation strategies for 
causes and / or consequences. 
 
Risk Assessment: The methodology used is to initially assess the gross (or inherent) risk. This is essentially the worst case 
scenario, being the product of the impact together with the likelihood of the risk materializing if there are no controls in 
place to manage, mitigate or monitor the risk. The key benefit of assessing the gross risk is that it highlights the potential 
risk exposure if controls were to fail completely or not be in place at all. Both impact and likelihood are scored on a rating 
of 1 to 5 using the criteria shown on the right: 
 
Impact Assessment 
               insignificant   minor     moderate   major    catastrophic 
quantitative< 3 % EBITA*    3 - < 5   5 - < 10   10 - <   >= 15 % 
               (< EUR 35 m)    %         % EBITA*   15 %     EBITA* 
                               EBITA*               EBITA* 
 
                                         (60 - <             ( >= EUR 180 
                               ( 35 -    EUR 120    (120 -   m)< EUR     m)< EUR 
                               60 m)                180 m) 
Qualitative    Minimal         Limited   Short      Medium   Detrimental 
               impact on       impact    term       term     impact on 
                               on        impact     impact 
                                         on         on 
 
               · Global      · ·       · ·        · ·      · · Global 
               reputation      Globa     Global     Glob     reputation 
                               l         reputa     al 
               · Programme     reput     tion       repu     · 
               delivery        ation                tati     Programme 
                                         ·          on       delivery 
               ·               ·         Progra 
               Technology      Progr     mme        ·        · 
               reliability     amme      delive     Prog     Technology 
                               deliv     ry         ramm     reliabilit 
               · Health &      ery                  e        y 
               Safety                    ·          deli 
               standards      ·         Techno     very     · Health & 
                               Techn     logy                Safety 
                               ology     reliab     ·        standards 
                               relia     ility      Tech 
                               bilit                nolo 
                               y         ·          gy 
                                         Health     reli 
                               ·         &          abil 
                               Healt     Safety     ity 
                               h &       stand 
                               Safet     ards       · 
                               y                    Heal 
                               stan                th & 
                               dards                Safe 
                                                    ty 
                                                    sta 
                                                    ndar 
                                                    ds 
 
* Budgeted underlying EBITA for the financial year ended 30 September 2018 
 
Likelihood Assessment 
         rare       unlikely     possible     likely      almost 
                                                          certai 
                                                          n< 10 %     10 - <       30 - <       60 - < 
         Chance     30 %         60 %         80 % 
                    Chance       Chance       Chance      >= 80 
                                                          % 
                                                          Chance 
 
The next step in the risk reporting process is to assess and document the controls that are currently in place to reduce the 
likelihood of the risk materializing and / or its impact if it does. Consideration of these then enables the current (or 
residual) risk score to be assessed, which is essentially the reasonably foreseeable scenario. This measures the impact and 
likelihood of the risk with the implemented controls in operation. The key benefit of assessing the current risk score is that 
it provides an understanding of the current level of risk faced today and the reliance on the controls currently in place. 
 
Risk Response: If management are comfortable with the current risk score, the risk is accepted and no further action is

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DJ TUI AG: Annual Financial Report - Part 2 -12-

required to further reduce the risk. The controls in place continue to be operated and management monitor the risk, the
controls and the risk landscape to ensure that they stay in line with management's tolerance of the risk.

If management assesses that the current risk score is too high, an action plan will be drawn up with the objective of
introducing new or stronger controls that will further reduce the impact and / or likelihood of the risk to an acceptable,
tolerable and justifiable level. This is known as the target risk score and is the parameter by which management can ensure
the risk is being managed in line with their overall risk appetite. The risk owner will normally be the individual tasked with
ensuring that this action plan is implemented within an agreed timetable.

Each business and function will continue to review their risk register on an ongoing basis through the mechanism appropriate
for their business e. g. local Risk Committee.

This bottom-up risk reporting is considered by the ROC alongside the Group's principal risks. New risks are added to the
Group's principal risk register if deemed to be of a significant nature so that the ongoing status and the progression of key
action plans can be managed in line with the Group's targets and expectations.

Ad Hoc Risk Reporting

Whilst there is a formal process in place for reporting on risks on a quarterly basis, the process of risk identification,
assessment and response is continuous and therefore if required, risks can be reported to the Executive Board outside of the
quarterly process, should events dictate that this is necessary and appropriate. Ideally such ad hoc reporting is performed by
the business or function which is closest to the risk, but it can be performed by the Group Risk department if necessary.

Entity Scoping

A robust exercise is conducted each year to determine the specific entities in the Group which need to be included within the
risk and control software and therefore be subject to the full rigor of the risk reporting process. The scoping exercise
starts with the entities included within the Group's consolidation system, and applies materiality thresholds to a combination
of revenue, profit and asset benchmarks. From the entities this identifies, the common business management level at which
those entities are managed is identified to dictate the entities which need to be included in the risk and control software
itself to facilitate completeness of bottom-up risk reporting across the Group. This ensures that the risks and controls are
able to be captured appropriately at the level at which the risks are being managed.

Effectiveness of the Risk Management System

The Executive Board regularly reports to the Audit Committee of the Supervisory Board on the performance, effectiveness and
adherence to listing requirements of the risk management system, supported by the ROC and the Group Risk department.
Additionally, the Audit Committee receives assurance from Group Audit through its audit plan over a selection of principal
risks and business transformation initiatives most critical to the Group's continued success.

The conclusion from all of the above assurance work is that the risk management system has functioned effectively throughout
the year and there have been no significant failings or weaknesses identified. Of course there is always room for improvement,
and the Risk Champions and the Group Risk department continue to work together to enhance the risk management and reporting
processes. Broadly this concerns ensuring consistency of approach in assessing risk scores, clearer identification of controls
currently in place as well as any action plans to introduce further controls, and ensuring that risk identification has
considered all four risk types.

Finally, in accordance with Section 317 (4) HGB (German Commercial Code), the auditor of TUI AG has reviewed the Group's early
detection system for risks in place as required by Section 91 (2) AktG (German Stock Corporation Act) to conclude, if the
system can fulfill its duties.

Principal Risks

The principal risks to the Group are either considered to be 'Active' or 'Monitored'.

Active principal risks are those that we have to actively manage in order to bring them into line with our overall risk
appetite. We have action plans in place to increase controls around each of these risks and reduce the current risk score to
the target level indicated in the heat map diagram.

Monitored principal risks are generally inherent to the tourism sector faced by all businesses in the industry. For these, we
have controls, processes and procedures in place as a matter of course that serve to mitigate each risk to either minimize the
likelihood of the event occurring and / or minimize the impact if it does occur. These risks remain on our risk radar where we
regularly monitor the risk, the controls and the risk landscape to ensure that the risk score stays stable and in line with
our risk appetite in each case.

In the heat map diagram, the assessment criteria used are shown on page 43. Note that the quantitative impact assessment is
based on the budgeted underlying EBITA for the financial year ended 30 September 2018.

FY 2018 Principal Risks

With the UK government formally triggering Article 50 of the Treaty on European Union of Lisbon on 29th March 2017, Brexit
continues to remain an active principal risk. Brexit has an impact both on existing principal risks (e. g. Macroeconomic and
Input Cost Volatility, particularly for the UK market through the uncertainty it has introduced to prospects for future growth
rates in the UK economy and the depreciation of sterling since the referendum result in 2016) as well as its own class of
principal risk due to the direct potential impact it could have on specific areas of our business model.

The main concern related to Brexit continues to be whether our airlines will continue to have access to EU airspace. We will
continue to address the importance of there being a special agreement for aviation to protect consumer choice with the
relevant UK and EU ministers and officials, and are in regular exchange with relevant regulatory authorities. We are currently
developing scenarios and mitigating strategies for various outcomes, including a 'hard Brexit', depending on the political
negotiations, with a focus to alleviate any potential impacts from Brexit for the Group. Our Brexit Steering Committee
continues to monitor external developments and coordinates measures to be taken ahead of March 2019, when the UK will be
formally exiting the European Union. Beyond weekly meetings an the level of different internal Brexit work-streams, the topic
is also regularly (bi-weekly / monthly) discussed in the TUI Group Executive Committee (GEC), and the Supervisory Board has
been updated quarterly in 2018.

With the EU GDPR regulation being enforced in May 2018, whereby any data breaches may result in a significant financial
penalty, the gross score of the Information Security principal risk has increased. Our mitigation strategy including making
information security part of everyone's job continues to focus on managing the likelihood of this risk materializing.

As the brand change program has been successfully implemented in all markets, the related risk is no longer considered
principal to the Group.

If the risk detail in the subsequent tables does not suggest otherwise, the risks shown below relate to all segments of the
Group. The risks listed are the principal risks to which we are exposed but are not exhaustive and will evolve over time due
to the dynamic nature of our business.

Active Principal Risks

Nature of Risk

1. IT DEVELOPMENT & STRATEGY

Our focus is on enhancing customer experience by providing engaging, intuitive, seamless and continuous customer service
through delivery of leading digital solutions, core platform capabilities, underlying technical infrastructure and IT services
required to support the Group's overall strategy for driving profitable top-line growth.

If we are ineffective in our IT strategy or technology development this could impact on our ability to provide leading
technology solutions in our markets and therefore impacting on our competitiveness, our ability to provide a superior customer
experience and associated impact on quality and operational efficiency. This would ultimately impact on our customer numbers,
revenue and profitability.

Mitigating Factors

· Developed and communicated (in conjunction with Executives, Business & IT Leadership Teams) the Group's IT Strategy which
is clearly aligned to our overall business objectives and considers external factors such as the pace of technology change
and internal factors such as the underlying quality required throughout IT.

· Continuing to implement our online platform in order to enhance customer experience and drive higher conversion rates.

· Implementing a SAP-based central customer platform to collate all information on our customers across their journey to
provide a single view of the customer alongside an eCRM platform which will support strategic marketing.

· Placing increased focus on ensuring continuity plans for critical IT systems are in place and regularly tested.

· Cascaded clear technology standards and associated delivery roadmaps which are linked to Group wide and individual market
objectives.

· Adopting API, Big Data and Cloud architecture to drive improved speed, productivity and efficiency.

· Using Blockchain technology to manage hotel bed allocation in all markets to be ahead of the competition.

Nature of Risk

2. GROWTH STRATEGY

We have set ourselves a target of achieving at least 10 % growth in underlying EBITA CAGR (see page 57). This will be driven
by growth in our hotel and cruises content, the destination experiences sector as well as top line and efficiency
improvements.

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Additionally our in-house aviation allows us to introduce extra flexibility into our packages and to utilise our flight
capacity in conjunction with own hotel capacity to build high profile destinations.

Asset utilisation of aircraft, cruise ships and hotels is critical to our financial success particularly when in a growth
phase.

There is a risk that we could be unsuccessful in maximising opportunities to execute our expansion strategy. This could mean
that we fail to achieve some of the initiatives we have embarked upon, which could result in us falling short against the
overall growth targets we have set for the business.

Mitigating Factors

· The Executive Board is very focussed on the strategy and mindful of the risks, so there is strong direction and commitment
from the top. The remuneration scheme in place for the Executive Board is designed to create incentives for the Group's
sustained growth and robust financial performance (see from page 128).

· The Group Tourism Board plays an important role in coordinating, executing and monitoring the various growth initiatives.

· There are a number of initiatives underway to achieve growth which reduces the risk through diversification.

· Each of the businesses tasked with achieving an element of the growth strategy are still required to maintain sound
financial discipline. The Group's investment criteria and authorisation processes must still be adhered to as we are not
prepared to be reckless in the pursuit of growth.

· We continue to maintain strong relationships with the providers of aircraft finance.

· Monitoring the overall market conditions continues to occur so that plans can be adapted or contingency plans invoked if
required.

Nature of Risk

3. INTEGRATION & RESTRUCTURING OPPORTUNITIES

Our key strategic rationale for the Group is to act 'as one' wherever it makes sense to do so particularly through our Group
Platforms, whilst maintaining local differences where the benefit of that differentiation is greater than that of
harmonisation.

There are a number of restructuring projects underway across the Group as a result to enable us to achieve these
opportunities. Furthermore our continuous review of our own businesses and competitors means that we have an active programme
of acquisitions (e. g. the destination management companies from Hotelbeds this year) and previously business disposals (e. g.
Travelopia in FY 2017) with associated integration projects.

There is an inherent risk with any large restructuring or integration programme that we face challenges in managing the
complexities associated with further integrating our business, and reducing overlapping activities in order to develop a more
lean and streamlined operating model.

If we are not successful in leveraging and optimizing the identified opportunities this could have a significant impact on our
ability to deliver the identified benefits in line with expectations and enhance shareholder value.

Mitigating Factors

· Strong project management structures exist for all of the major restructuring, acquisition and disposal programs, which
are underway to ensure that they are managed effectively.

· Project reporting tool ensures enhanced visibility of the progress of major projects as a matter of routine.

· Regular reporting by the major projects to the Executive Board to ensure swift resolution of any issues or to enhance
coordination across the Group where required.

Nature of Risk

4. CORPORATE & SOCIAL RESPONSIBILITY

For the Group, economic, environmental and social sustainability is a fundamental management principle and a cornerstone of
our strategy for continually enhancing the value of our Company. This is the way we create the conditions for long-term
economic success and assume responsibility for sustainable development in the tourism sector.

Our focus is to reduce the environmental impact of our holidays and promote responsible social policies and outcomes both
directly through our own business and indirectly via our influence over our supply chain partners, thereby creating positive
change for people and communities and being a pioneer of sustainable tourism across the world.

There is a risk that we are not successful in driving forecast social and environmental improvements across our operations,
that our suppliers do not uphold our corporate and social responsibility standards and we fail to influence destinations to
manage tourism more sustainably.

If we do not maximize our positive impact on destinations and minimize the negative impact to the extent that our stakeholders
expect, this could result in a decline in stakeholder confidence, reputational damage, reduction in demand for our products
and services and loss of competitive advantage.

Furthermore, if the Group falls short of achieving its sustainable development targets and at the same time the objectives of
the UN Paris Climate Change Agreement (December 2015) are not met, this could lead to sustained long-term damage to some of
the Group's current and future destinations, which could also have a material adverse effect on demand for our products and
services.

Mitigating Factors

· Developed and launched in 2015 the 'Better Holidays, Better World' 2020 sustainability strategy framework which includes
specific targets for key sustainability indicators.

· Established a dedicated sustainability department to work closely with the business and other stakeholders to implement
the sustainability strategy.

· Operating one of the most carbon efficient airlines in Europe with continued investment in new, more efficient aircraft
(e. g. Boeing 787 Dreamliner & 737 Max) and cruise ships (e. g. the new Mein Schiff 1 & 2).

· Implemented an environmental management system with five of our airlines having achieved ISO 14001 certification.

· Increased measures to influence accommodation suppliers to achieve third party sustainability certification recognized by
the Global Sustainable Tourism Council (GSTC).

· TUI Care Foundation expanded to focus on the achievement of 2020 target for charitable donations and sustainability
projects, with particular emphasis empowering young people, protecting the natural environment and maximizing the economic
benefits of tourism in destinations.

Nature of Risk

5. INFORMATION SECURITY

Our responsibility is to protect the confidentiality, integrity and availability of the data we have to provide to our
customers, employees, suppliers and service delivery teams.

This is a dynamic risk due to increased global cyber-crime activity and new regulations (e. g. EU GDPR). At the same time our
consolidation under the TUI brand and our increasing dependence on online sales and customer care channels (web / mobile)
increases our exposure and susceptibility to cyber-attacks and hacks.

If we do not ensure we have the appropriate level of security controls in place across the Group, this could have a
significant negative impact on our key stakeholders, associated reputational damage and potential for financial implications.

Mitigating Factors

· Continued commitment from the Executive Board in support of key initiatives to ensure all existing and future IT systems
are secure by design, that exposure to vulnerability is managed effectively, user access is sufficiently controlled and
colleagues are made aware of information security risks through appropriate training.

· Launch of a company-wide Information Security awareness campaign to promote secure behaviors amongst our colleagues.
Overall goal is to make information security part of everyone's job.

· Continuous review and testing of all external devices and ongoing monitoring of logs in order to identify any potential
threats as and when they arise.

· Continuous improvement through lessons learned from real or simulated cyber incidents.

Nature of Risk

6. BREXIT

Our main concern is whether or not all of our airlines will continue to have access to EU airspace as now. If we were unable
to continue to fly intra-EU routes, such as from Germany to Spain, this would have a significant operational and financial
impact on the Group.

Other areas of uncertainty include the status of our UK employees working in the EU and vice versa and the potential for
customer visa requirements for holidays from the UK to the EU.

Mitigating Factors

· The Executive Board has established a Brexit Steering Committee to monitor developments as the political negotiations take
place, assess any impacts on the Group's business model and coordinate suitable mitigation strategies to be taken ahead of
March 2019, when the UK will be formally exiting the European Union.

· In addition we continue to lobby relevant UK and EU ministers, officials and regulators to stress the continued importance
of a liberalized and deregulated aviation market across Europe to protect consumer choice in both regions.

Monitored Principal Risks

Nature of Risk

A. DESTINATION DISRUPTION

Providers of holiday and travel services are exposed to the inherent risk of incidents affecting some countries or
destinations within their operations. This can include natural catastrophes such as hurricanes or tsunamis; outbreaks of
disease such as Ebola; political volatility as has been seen in Egypt and Greece in recent years; the implications of war in
countries close to our markets and destinations; and terrorist events such as the tragic incident in Tunisia in 2015.

There is the risk that if such an event occurs, impacting one or more of our destinations that we could potentially suffer
significant operational disruption and costs in our businesses. We may possibly be required to repatriate our customers and /
or the event could lead to a significant decline in demand for holidays to the affected destinations over an extended period
of time.

Mitigating Factors

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· Whilst we are unable to prevent such events from occurring, we have well defined crisis management procedures and
emergency response plans, which are implemented when an event of this nature occurs, with the focus being on the welfare of
our customers.

· Where the appropriate course of action is to bring customers home immediately, our significant fleet of aircraft allows us
to do this smoothly and efficiently.

· Our policy is to follow foreign office advice in each of our markets with regards to non-essential travel. This serves to
minimize the exposure of our customers to turbulent regions.

· Due to our presence in all key holiday regions, when a specific destination has been impacted by an external event, we are
able to offer alternative destinations to our customers and to remix our destination portfolio away from the affected area
in future seasons if necessary.

· We always assume some level of destination disruption each year when setting financial plans and targets, so that we are
able to cope with a 'normal' level of disruption without it jeopardizing achievement of our targets.

Nature of Risk

B. MACROECONOMIC

Spending on travel and tourism is discretionary and price sensitive. The economic outlook remains uncertain with different
markets at different points in the economic cycle. Furthermore, terrorist incidents in markets can influence the overall
demand for overseas travel. Customers are also waiting longer to book their trips in order to assess their financial
situation.

There is the risk that fluctuations in macroeconomic conditions in our markets will impact on the spending power of our
customers, which could impact our short-term growth rates and lead to margin erosion.

Mitigating Factors

· Many customers prioritize their spending on holidays above other discretionary items.

· Creating unique and differentiated holiday products which match the needs of our customers.

· Leveraging our scale to keep costs down and prices competitive.

· Having a range of markets so that we are not over exposed to one particular economic cycle.

· Promoting the benefits of travelling with a recognized and leading tour operator to increase customer confidence and peace
of mind.

Nature of Risk

C. COMPETITION & CUSTOMER PREFERENCES

The tourism industry is fast-paced and competitive with the emergence of new market participants operating new business
models, combined with customer tastes and preferences evolving all the time.

In recent years there has been an emergence of successful substitute business models such as web-based travel and hotel
portals which allow end users to combine the individual elements of a holiday trip on their own and book them separately.

Customer tastes and preferences have evolved in recent years as well, with more booking their holidays online and via mobiles
and tablets, and booking closer to the time of travel.

There is the risk that if we do not respond adequately to such business model disruption or if our products and services fail
to meet changing customer demands and preferences, that our turnover, market share and profitability will suffer as a result.

Mitigating Factors

· Our outstanding market position as a leading tourism group, the strength of our brand and our integrated business model
enables us to respond robustly to competitive threats.

· The Group is characterized by the continuous development of unique and exclusive holiday experiences, developing new
concepts and services which match the needs and preferences of our customers.

· Our integrated business model offers end-to-end customer services, from consultation and booking of holidays via flights
with the Group's own airlines through to Group-owned or operated hotels, resorts and cruise ships. Integration thus
facilitates the development and marketing of individual, tailored holiday offerings for customers which is difficult for
competitors to replicate.

· Building strong and lasting relationships with our key hotel partners, which further reinforces our ability to develop new
concepts exclusive to the Group.

· Focusing on being online throughout the whole of the customer journey - from inspiration, to booking, to the holiday
itself, as well as returning and sharing experiences through social media.

Nature of Risk

D. INPUT COST VOLATILITY

A significant proportion of operating expenses are in non-local currency and / or relate to aircraft fuel which therefore
exposes the business to fluctuations in both exchange rates and fuel prices.

There is the risk that if we do not manage adequately the volatility of exchange rates, fuel prices and other input costs,
then this could result in increased costs and lead to margin erosion, impacting on our ability to achieve profit targets.

There is also the risk that if our hedging policy is too rigid, we may find ourselves unable to respond to competitive pricing
pressures during the season without it having a direct detrimental impact on our market position and / or profitability.

Furthermore, changes in macroeconomic conditions can have an impact on exchange rates which, particularly for the GBP / EUR rate
and this year for the TRY / EUR rate, has a direct impact on the translation of non-euro market results into euros, the
reporting currency of our Group.

Mitigating Factors

· Ensuring that the appropriate derivative financial instruments are used to provide hedging cover for the underlying
transactions involving fuel and foreign currency.

· Maintaining an appropriate hedging policy to ensure that this hedging cover is taken out ahead of the markets' customer
booking profiles. This provides a degree of certainty over input costs when planning pricing and capacity, whilst also
allowing some flexibility in prices so as to be able to respond to competitive pressures if necessary.

· Tracking the foreign exchange and fuel markets to ensure the most up-to-date market intelligence and the ongoing
appropriateness of our hedging policies.

· Expressing our key profit growth target in constant currency terms so that short term performance can be assessed without
the distortion caused by exchange rate fluctuations.

Further information on currency and fuel hedges can be found in the Notes to the consolidated financial statements in the
financial instruments section.

Nature of Risk

E. SEASONAL CASHFLOW PROFILE

Tourism is an inherently seasonal business with the majority of profits earned in the European summer months. Cash flows are
similarly seasonal with the cash high occurring in the summer as advance payments and final balances are received from
customers, with the cash low occurring in the winter as liabilities have to be settled with many suppliers after the end of
the summer season.

There is the risk that if we do not adequately manage cash balances through the winter low period this could impact on the
Group's liquidity and ability to settle liabilities as they fall due whilst ensuring that financial covenants are maintained.

Mitigating Factors

· Our focus on holiday experiences is helping to reduce the seasonality risk, as hotels, cruises and destination
experiences have a more evenly distributed profit and cash profile across the year. This is highlighted by the fact that the
Group made an underlying operating profit for the second successive year over the nine months to 30 June.

· As our business is spread across a number of markets, there are some counter-cyclical features e. g. winter is a more
important season for the Nordic and Canadian markets. Some brands, such as the UK ski brand Crystal Ski, have a different
seasonality profile which helps to counter-balance the overall profile.

· The business regularly produces both short term and long term cash forecasts during the year, which the Treasury
department use to manage cash resources effectively.

· We have implemented a financial policy which has led to an improvement in our credit rating and makes it easier to
maintain financing facilities at suitable levels.

· Existing financing facilities are considered to be more than sufficient for our requirements and provide ample headroom.

· We continue to maintain high-quality relationships with the Group's key financiers and monitor compliance with the
covenants contained within our financing facilities.

· Raising additional finance from the Capital Markets, should it be required, remains an option.

Nature of Risk

F. LEGAL & REGULATORY COMPLIANCE

Most providers of holiday and travel services operate across a number of economies and jurisdictions, which therefore exposes
them to a range of legal, tax and other regulatory laws which must be complied with.

As we are operating from multiple source markets and providing holidays in more than 115 destinations, we are exposed to a
range of laws and regulations with which we must comply or else risk incurring fines or other sanctions from regulatory
bodies.

Mitigating Factors

· Communication and strong tone from the top concerning compliance with laws and regulations.

· Legal Compliance Committee established to ensure appropriate oversight, monitoring and action plans and to further drive
the compliance culture across the Group.

· Embedded legal and tax expertise in all major businesses responsible for maintaining high quality relationships with the
relevant regulators and authorities.

· Ongoing implementation and review of Compliance Management System conducted by the Group Legal Compliance department to
monitor compliance with regulations and provide expert advice to local teams on specific compliance areas.

Nature of Risk

G. HEALTH & SAFETY

For all providers of holiday and travel services, ensuring the health and safety of customers is of paramount importance. This

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is especially so for us as we are one of world's leading tourism group selling holidays to over 27 m customers per annum.

There is the risk of accidents or incidents occurring causing illness, injury or death to customers or colleagues whilst on a
TUI holiday. This could result in reputational damage to the business and / or financial liabilities through legal action
being taken by the affected parties.

Mitigating Factors

· Health and safety functions are established in all businesses in order to ensure there is appropriate focus on health and
safety processes as part of the normal course of business.

· Ongoing monitoring is conducted by the Group Security, Health & Safety function to ensure compliance with minimum
standards.

· Appropriate insurance policies are in place for when incidents do occur.

Nature of Risk

H. SUPPLIER RELIANCE

Providers of holiday and travel services are exposed to the inherent risk of failure in their key suppliers, particularly
hotels. This is further heightened by the industry convention of paying in advance ('prepayments') to secure a level of room
allocation for the season.

There is the risk that we do not adequately manage our financial exposure should demand drop either for individual hotels and
/ or for the destination in which the hotels are located and to which the Group still has a level of prepayment outstanding
which could result in financial losses.

Mitigating Factors

· Owned and joint venture partner hotels form a substantial part of our program which reduces our inherent risk in this
area.

· A robust prepayment authorisation process is established and embedded to both limit the level of prepayments made and
ensure that they are only paid to trusted, credit-worthy counterparties.

· Where prepayments are made to external hoteliers, this is to secure access to unique and differentiated product for which
demand is inherently higher and more resilient to external events than for commodity product.

· Prepayments are monitored on a timely and sufficiently granular basis to manage our financial exposure to justifiable
levels.

Nature of Risk

I. JOINT VENTURE PARTNERSHIPS

It is common for tourism groups to use joint venture partnerships in some of their operations in order to reduce the risk of
new ventures or to gain access to additional expertise. There are three significant joint ventures within the Group - Riu, TUI
Cruises and Sunwing.

There is the risk that if we do not maintain good relations with our key partners that the ventures' objectives may not remain
consistent with that of the Group which could lead to operational difficulties and jeopardize the achievement of financial
targets.

Mitigating Factors

· Good working relationships exist with all of our main joint venture partners and they are fully aligned with and committed
to the growth strategy of the Group.

Viability Statement

In accordance with provision C2.2 of the 2016 revision of the UK Corporate Governance Code, the Executive Board has assessed
the prospect of the Company over a longer period than the twelve months required by the 'Going Concern' provision. The
Executive Board considers annually and on a rolling-basis a three year strategic plan for the business, the latest was
approved in October 2018 and covers the period to 30 September 2021. A three year horizon is considered appropriate for a
fast-moving competitive environment such as tourism.

It is also noted that the Group's current EUR 1,535.0 m revolving credit limit, which expires in July 2022, is used to manage
the seasonality of the Group's cash flows and is reviewed on a timely basis. The three year plan considers cash flows as well
as the financial covenants which the credit facility requires compliance with.

Key assumptions underpinning the three year plan and the associated cash flow forecast is that aircraft and cruise ship
finance will continue to be readily available, and that the terms of the UK leaving the EU are such that all of our airlines
continue to have access to EU airspace as now.

The Executive Board has conducted a robust assessment of the principal risks facing the company, including those that would
threaten its business model, future performance, solvency or liquidity. Sensitivity analysis is applied to the cash flow to
model the potential effects should certain principal risks actually occur, individually or in unison. This includes modelling
the effects on the cash flow of significant disruption to a major destination in the summer season.

Taking account of the company's current position, principal risks and the aforementioned sensitivity analysis, the Executive
Board has a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they
fall due over the three year period of the assessment.

Key features of the internal control and risk
management system in relation to the (Group)
accounting process (sections 289 (4) and 315 (2)
no 5 of the German Commercial Code HGB)

1. Definition and elements of the internal
control and risk management system in
the TUI Group

The TUI Group's internal control system comprises all the principles, processes and measures that are applied to secure
effective, efficient and accurate accounting which is compliant with the necessary legal requirements.

The internationally recognised framework of COSO (Committee of Sponsoring Organizations of the Treadway Commission) forms the
conceptual basis for TUI Group's internal control system, consisting of internal controls and the internal monitoring system.
The Executive Board of TUI AG, in exercising its function of managing business operations, has entrusted responsibility for
the internal control system in the TUI Group to specific Group functions.

The elements of the internal monitoring system in the TUI Group comprise both measures integrated into processes and measures
performed independently. Besides manual process controls, e. g. the 'four-eyes principle', another key element of the
process-related measures are automated IT process controls. Process-related monitoring is also secured by bodies such as the
Risk Oversight Committee of TUI AG and by specific Group functions.

The Supervisory Board of TUI AG, in particular its Audit Committee, as well as the Group Auditing department at TUI AG are
incorporated into the TUI Group's internal monitoring system through their audit activities performed independently from
business processes. On the basis of section 107 (3) of the German Stock Corporation Act, the Audit Committee of TUI AG deals
primarily with the auditing of the annual financial statements, monitoring the accounting process and the effectiveness of the
internal control and risk management system. In the Audit Committee Report the reliability of the financial reporting and the
monitoring of the financial accounting process as well as the effectiveness of the internal control and risk management
system are described.

Audit Committee Report see from page 22

The Group's auditors have oversight of the TUI Group's control environment. The audit of the consolidated financial statements
by the Group auditor and the audit of the individual financial statements of Group companies included in the consolidated
financial statements, in particular, constitute a key non-process-related monitoring measure with regard to Group
accounting.

In relation to Group accounting, the risk management system, introduced as an Enterprise Risk Management System (ERM System)
as a component of the internal control system, also addresses the risk of misstatements in Group bookkeeping and external
reporting. Apart from operational risk management, which includes the transfer of risks to insurance companies by creating
cover for damage and liability risks and also hedging transactions to limit foreign currency and fuel price risks, the TUI
Group's risk management system embraces the systematic early detection, management and monitoring of risks across the Group. A
more detailed explanation of the risk management system is provided in the section on the Risk Governance Framework in the
Risk Report.

2. Use of IT systems

Bookkeeping transactions are captured in the individual financial statements of TUI AG and of the subsidiaries of TUI AG,
through local accounting systems such as SAP or Oracle. As part of the process of preparing their individual financial
statements, subsidiaries complete standardized reporting packages in the Group's Oracle Hyperion Financial Management 11.1.2.4
(HFM) reporting system. HFM is used as the uniform reporting and consolidation system throughout the Group so that no
additional interfaces exist for the preparation of the consolidated financial statements.

Nearly all consolidation processes used to prepare the consolidated financial statements of TUI AG, e. g. capital
consolidation, assets and liabilities consolidation and expenses and income elimination including at equity measurement, are
generated and fully documented in HFM. All elements of TUI AG's consolidated financial statements, including the disclosures
in the Notes, are developed from the HFM consolidation system. HFM also provides various modules for evaluation purposes in
order to prepare complementary information to explain TUI AG's consolidated financial statements.

The HFM reporting and consolidation system has an in-built workflow process whereby when businesses promote their data within
the system, to signal that their reporting package is complete, they are then locked out from making any further changes to
that data. This ensures data integrity within the system and also facilitates a strong audit trail enabling changes to a
reporting package to be identified. This feature of the HFM system has been checked and validated by the TUI AG Group Audit
department on several occasions since the system was introduced.

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At their own discretion, TUI AG's Group auditors select certain individual financial statements from the financial statements
entered in the HFM reporting and consolidation system by the Group companies, which are then reviewed for the purposes of
auditing the consolidated financial statements.

3. Specific risks related to Group Accounting

Specific risks related to Group accounting may arise, for example, from unusual or complex business transactions, in
particular at critical times towards the end of the financial year. Business transactions not routinely processed also entail
special risks. The discretion necessarily granted to employees for the recognition and measurement of assets and liabilities
may result in further Group accounting-related risks. The outsourcing and transfer of accounting-specific tasks to service
companies may also give rise to specific risks. Accounting-related risks from derivative financial instruments are outlined in
the Notes to the consolidated financial statements.

4. Key regulation and control activities to
ensure proper and reliable (Group) Accounting

The internal control measures aimed at securing proper and reliable Group accounting ensure that business transactions are
fully recorded in a timely manner in accordance with legal requirements and the Articles of Association. This also ensures
that assets and liabilities are properly recognised, measured and presented in the financial statements and the consolidated
financial statements. The control operations also ensure that bookkeeping records provide reliable and comprehensive
information.

Controls implemented to secure proper and reliable accounting include, for instance, analysis of facts and developments on the
basis of specific indicators. Separation of administrative, execution, settlement and authorisation functions and the
implementation of these functions by different persons reduces the potential for fraudulent operations. Organisational
measures also aim to capture any corporate or Groupwide restructuring or changes in sector business operations rapidly and
appropriately in Group accounting. They also ensure, for instance, that bookkeeping transactions are correctly recognised in
the period in which they occur in the event of changes in the IT systems used by the accounting departments of Group
companies. The internal control system likewise ensures that changes in the TUI Group's economic or legal environment are
mapped and that new or amended accounting standards are correctly applied.

The TUI Group's accounting policies together with the International Financial Reporting Standards (IFRS) in compliance with EU
legislation, govern the uniform accounting and measurement principles for the German and foreign companies included in TUI's
consolidated financial statements. They include general accounting principles and methods, policies concerning the statement
of financial position, income statement, notes, management report and cash flow statement.

The TUI Group's accounting policies also govern specific formal requirements for the consolidated financial statements.
Besides defining the group of consolidated companies, they include detailed guidance on the reporting of financial information
by those companies via the group reporting system HFM on a monthly, quarterly and year end basis. TUI's accounting policies
also include, for instance, specific instructions on the initiating, reconciling, accounting for and settlement of
transactions between group companies or determination of the fair value of certain assets, especially goodwill.

At Group level, specific controls to ensure proper and reliable Group accounting include the analysis and, where necessary,
correction of the individual financial statements submitted by the Group companies, taking account of the reports prepared by
the auditors and meetings to discuss the financial statements which involve both the auditors and local management. Any
further content that requires adjusting can be isolated and processed downstream.

The control mechanisms already established in the HFM consolidation system minimize the risk of processing erroneous financial
statements. Certain parameters are determined at Group level and have to be applied by Group companies. This includes
parameters applicable to the meas-urement of pension provisions or other provisions and the interest rates to be applied when
cash flow models are used to calculate the fair value of certain assets. The central implementation of impairment tests for
goodwill recognized in the financial statements secures the application of uniform and standardized evaluation criteria.

5. Disclaimer

With the organisational, control and monitoring structures established by the TUI Group, the internal control and risk
management system enables company-specific facts to be captured, processed and recognized in full and properly presented in
the Group's accounts.

However, it lies in the very nature of the matter that discretionary decision-making, faulty checks, criminal acts and other
circumstances, in particular, cannot be ruled out and will restrict the efficiency and reliability of the internal control and
risk management systems, so that even Group-wide application of the systems cannot guarantee with absolute certainty the
accurate, complete and timely recording of facts in the Group's accounts.

Any statements made relate exclusively to TUI AG and to subsidiaries according to IFRS 10 included in TUI AG's consolidated
financial statements.

OVERALL ASSESSMENT BY THE EXECUTIVE BOARD AND REPORT ON EXPECTED DEVELOPMENTS

Actual business performance 2018 compared with
our forecast

Our business performance in FY 2018 matched our overall expectations.

At year-on-year growth of 6.3% on a constant currency basis, TUI Group's turnover exceeded expectations. We delivered
consistently high occupancy rates and yields on a further expansion of our hotel and cruise portfolio. At the same time, the
number of customers booking their holiday with us rose in all key source markets this summer, despite the prolonged phase of
hot weather in Northern Europe.

In FY 2018 we delivered double-digit growth in our underlying EBITA on a constant currency basis for the fourth consecutive
time since the merger. In the financial year under review, TUI Group's underlying EBITA improved by 4.1 % to EUR 1,147.0 m. On
a constant currency basis for the reporting period and the prior year reference period, this equates to an improvement of 10.9
%. We have thus outperformed the guidance we communicated for FY 2017, which envisaged an increase in our operating result of
at least 10 % on a constant currency basis.

The one-off charges adjusted for in our underlying EBITA were slightly higher than expected at EUR86.8m in the financial year
under review. Overall the Group's EBITA thus improved by 3.3 % to EUR 1,060.2 m.

TUI Group's ROIC decreased by 0.57 percentage points to 23.04 % in FY 2017 while our plan assumed a slight increase. With the
cost of capital at 6.37 %, this yields positive Economic Value Added of EUR 829.9 m (previous year EUR 787.0 m), in line with
expectations.

The Group's net capex and financial investments remained below the target of around EUR 1.2 bn at EUR 827.0 m. This was
primarily attributable to delays in larger hotel projects.

The net liquidity of EUR 123.6 m reported as at year-end 2018 developed slightly better than assumed in our most recent
guidance, which had still expected a slight net debt. This was mainly due to the Group's lower net capex and financial
investments.

Expected changes in the economic framework

Expected development of world output
Var. % 2019 2018
World + 3.7 + 3.7
Eurozone + 1.9 + 2.0
Germany + 1.9 + 1.9
France + 1.6 + 1.6
UK + 1.5 + 1.4
US + 2.5 + 2.9
Russia + 1.8 + 1.7
Japan + 0.9 + 1.1
China + 6.2 + 6.6
India + 7.4 + 7.3

Source: International Monetary Fund (IMF), World Economic Outlook, October 2018

Macroeconomic situation

The steady expansion of the world economy continued in calendar year 2018. The International Monetary Fund expects world
output to grow by 3.7 % in 2018, flat year-on-year. For 2019, the IMF expects the global economy to again grow by 3.7 % (IMF,
World Economic Outlook, October 2018).

Market trend in tourism

UNWTO expects international tourism to continue growing globally during this decade. For the period from 2010 to 2020, average
weighted growth of around 3.8 % per annum has been forecast (source: UNWTO, Tourism Highlights, 2018 edition). In the first
six months of 2018, international arrivals grew by 6.1 %. UNWTO expects growth of 4 % to 5 % for the full calendar year 2018
(source: UNWTO, World Tourism Barometer, October 2018).

Effects on TUI Group

As one of world's leading tourism group, TUI Group depends on patterns in consumer demand in the large source markets in which
we operate with our hotel, cruise and tour operator brands. Our budget is based on the assumptions used as a basis by the IMF
to predict the future development of the global economy.

Apart from trends in consumer sentiment, political stability in the destinations is a further crucial factor affecting demand
for holiday products. In our view, our business model is sufficiently flexible to compensate for the currently identifiable
challenges.

The expected turnover growth assumed for our source markets in our budget for FY 2019 is in line with UNWTO's long-term
forecast. Our strategic focus is to deliver further efficiency enhancements through the harmonisation of our three regional
business segments, which are now operated under the unified TUI brand in all three regions.

Expected development of Group turnover and earnings

TUI Group

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DJ TUI AG: Annual Financial Report - Part 2 -17-

The translation of the income statements of foreign subsidiaries in our consolidated financial statements is based on average
monthly exchange rates. TUI Group generates a considerable proportion of consolidated turnover and large earnings and cash
flow contributions in non-euro currencies, in particular GBP, $ and SEK. Taking account of the seasonality in tourism, the value
of these currencies against the euro in the course of the year therefore strongly impacts the financial indicators carried in
TUI AG's consolidated financial statements. The comments on the expected development of our Group in FY 2019 provided below
are based on an assumption of constant currencies for the completed FY 2018.

The key financial performance indicators for our earnings position in FY 2019 are Group turnover and underlying EBITA.

Definition of underlying EBITA see Value-oriented Group management on page 35

For a meaningful comparison at constant currency between expected earnings and our performance in the completed financial
year, the reference figure for underlying EBITA in FY 2018 has been modified. The starting point for the forecast is the
rebased underlying EBITA. This rebased figure was determined by the underlying EBITA of the FY 2018 increased to account for
the negative effect of the revaluation of euro-denominated loans in Turkey amounting to EUR 40 m, translated at actual
exchange rates in FY 2018.

Key management variables used for regular value analysis are Return On Invested Capital (ROIC) and Economic Value Added. ROIC
is shown against the segment-specific cost of capital.

Future development depends on demand in our source markets and customer segments, input costs and the potential impact of
exogenous events beyond our control such as strikes, terror attacks or natural disasters. Whilst these may influence results
in the individual segments, we believe our balanced portfolio of markets and destinations still leaves us well placed to
deliver the targets outlined below in FY 2019.

Expected development of Group turnover and underlying EBITA
EUR million 2018 FX 2018 20191
effects3 rebased3
Turnover 19,524 19,524 around 3 %
growth2
Underlying EBITA 1,147 40 1,187 at least 10 %
growth
Adjustments 87 approx. EUR
125 m costs

1 Variance year-on-year assuming constant foreign exchange rates are applied to the result in the current and prior period and
based on the current group structure; guidance relates to continuing operations. For underlying EBITA the expected growth
refers to the FY 2018 rebased number.

2 Excluding cost inflation relating to currency movements

3 Rebased to take into account EUR 40 m impact of revaluation of EUR loan balances in Turkey in FY 2018

Turnover

We expect turnover to grow by around 3 % in FY 2019 on a constant currency basis, excluding cost inflation relating to
currency movements.

Underlying EBITA

TUI Group's underlying EBITA in FY 2019 is expected to grow by at least 10 % versus the rebased prior-year value at constant
currency. In order to determine the rebased previous year's value, the actual value for the previous year was increased by the
effect of the revaluation of euro-denominated loans of Turkish hotel companies.

ADJUSTMENTS

In order to deliver further business harmonisation and efficiency in Markets & Airlines, we expect an elevated level of
adjustments in FY 2019 of approximately EUR 125 m.

Details on Goals and Strategies from page 28
Details on Risks in Risk Report from page 40

ROIC and Economic Value Added

We expect ROIC to reduce slightly in FY 2019. Due to the higher invested capital, Economic Value Added is expected to rise
further, depending on the development of TUI Group's capital costs.

Development in the segments in FY 2019

Hotels & Resorts

In the Hotels & Resorts segment, we will continue to expand our portfolio of holiday destinations with a series of planned
hotel openings in FY 2019 and beyond. We are thus on track to have opened around 60 additional hotels between the merger and
the end of FY 2019. Overall, we expect the segment to deliver growth in underlying EBITA versus the rebased prior-year value
at a level below the guidance for the Group of at least 10 % for FY 2019. In order to determine the rebased previous year's
value, the actual value for the previous year was increased by the effect of the revaluation of euro-denominated loans of
Turkish hotel companies.

Cruises

In FY 2019, we will launch three ships for our cruise brands. Bookings for the new ships and the existing fleet continue to
perform well. Overall, we therefore expect this segment to deliver growth in underlying EBITA of more than 10 % in FY 2019.

Destination Experiences

With the acquisition of Destination Management and Musement, we have expanded our Destination Experiences segment from an
offline business in 23 countries to a fully digitalised business in 49 countries. We are also developing our customised TUI
Tours portfolio. Taking account of the related additional expenses required to expand the digital platforms, we expect this
segment to deliver growth in underlying EBITA of more than 10 % in FY 2019.

Markets & Airlines

In our Markets & Airlines, we are focusing on the harmonisation of business workflows, in particular for processes, overheads
and aviation, as well as the delivery of benefits from digitalisation. We expect the challenging market environment to
continue. Its impact will primarily be felt in the first half of FY 2019. In FY2019, we expect the Markets & Airlines to
deliver growth in underlying EBITA which is broadly in line with Group guidance.

Expected development of financial position

For the development of the Group's financial position in FY 2019, we have defined the Group's net capital expenditure and
investments and its leverage ratio as key performance indicators.

Expected development of Group financial position
Expected development vs. PY
FY 2018 FY 2019
Net capex and investments 827.0 around
EUR 1.0 - 1.2 bn
Leverage Ratio 2.7 3.00(x) - 2.25(x)

Net capex and investments

In the light of investment decisions already taken and projects in the pipeline, we expect TUI Group's net capex and financial
investments to total around EUR 1.0 - 1.2 bn in FY 2019. This includes expected down payments on aircraft orders (excluding
aircraft assets financed by debt or finance leases) and proceeds from the sale of fixed assets. Capex mainly relates to the
launch of new production and booking systems for our markets, maintenance and expansion of our hotel portfolio and the
acquisition of two cruise ships.

Leverage Ratio

For FY 2019, we are aiming to deliver a leverage ratio of 3.00(x) to 2.25(x).

Sustainable development

Climate protection and emissions

We have identified specific CO2 emissions (in g CO2 / PKM) of our aircraft fleet as a key non-financial performance indicator.
These emissions are to be reduced by 10 % by 2020. We also aim to reduce the carbon intensity of our global operations by 10 %
by 2020 (against the baseline of 2014).

Overall Executive Board assessment of TUI Group's current situation and expected development

At the date of preparation of the Management Report (11 December 2018), we uphold our positive assessment of TUI Group's
economic situation and guidance for FY 2019. With its finance profile, strong brand and services portfolio, TUI Group is well
positioned in the market. In the first few weeks of the new FY 2019, overall business performance was slightly below previous
year's level and has matched expectations.

TUI Group's underlying EBITA is to grow by at least 10 % in FY 2019 on a constant currency basis compared with the rebased
prior-year level. In order to determine the rebased previous year's value, the actual value for the previous year was
increased by the effect of the revaluation of euro-denominated loans of Turkish hotel companies.

Based on our growth strategy, we reiterate our guidance of at least 10 % CAGR in underlying EBITA for the three years to FY
2020.* Our long-term target for TUI Group's gross capex amounts 3.5 % of consolidated turnover.

* Based on constant currency growth, three year CAGR from FY 2017 base to FY 2020

Guidance for TUI AG

The future business performance of TUI AG is essentially subject to the same factors as those impacting TUI Group. Due to the
business ties between TUI AG and its Group companies, the guidance, opportunities and risks presented for TUI Group are
largely mirrored by expectations for TUI AG. The comments made for TUI Group therefore also apply to TUI AG.

Opportunity Report

TUI Group's opportunity management follows the Group strategy for core business Tourism. Responsibility for systematically
identifying and taking up opportunities rests with the operational management of the Hotels & Resorts, Cruises and Destination
Experiences segments as well as our source markets. Market scenarios and critical success factors for the individual sectors
are analysed and assessed in the framework of the Group-wide planning and control process. The core task of the Group's
Executive Board is to secure profitable growth for TUI Group by optimising the shareholding portfolio and developing the Group
structure over the long term.

Overall, TUI Group is well positioned to benefit from opportunities resulting from the main trends in its markets.

Opportunities from the development of the overall framework

Should the economy perform better than expected, TUI Group and its segments would benefit from the resulting increase in

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DJ TUI AG: Annual Financial Report - Part 2 -18-

demand in the travel market. Moreover, changes in the competitive environment could create opportunities for TUI Group in
individual markets.

Corporate strategy

We see opportunities for further organic growth in particular by expanding our hotel portfolio, cruise business and the
offering of our Destination Experiences segment. As market leader, we also intend to benefit in the long term from demographic
change and the resulting expected increase in demand for high-quality travel at an attractive price / performance ratio.

Operational opportunities

We intend to improve our competitive position further by offering unique product and further expanding controlled distribution
in the source markets, in particular online distribution and via mobile devices. We also see operational opportunities arising
from stronger integration of our Destination Experiences segment and tour operation business.

BUSINESS REVIEW

Macroeconomic industry and market framework

Macroeconomic development

World Output
Var. % 2018 2017
World + 3.7 + 3.7
Eurozone + 2.0 + 2.4
Germany + 1.9 + 2.5
France + 1.6 + 2.3
UK + 1.4 + 1.7
US + 2.9 + 2.2
Russia + 1.7 + 1.5
Japan + 1.1 + 1.7
China + 6.6 + 6.9
India + 7.3 + 6.7

Source: International Monetary Fund (IMF), World Economic Outlook, October 2018

In calendar year 2018, the global upswing in economic activity achieved the previous year's level. In its outlook (IMF, World
Economic Outlook, October 2018), the International Monetary Fund projects global growth of 3.7 % again for 2018. The outlook
had been revised downwards in the course of the year and now reflects the growing downside risks, in particular the trade
conflicts between the world's two largest economies, the United States and China.

Key exchange rates and commodity prices

The exchange rate charts are presented on the basis of the indirect quotation format customary in the foreign exchange market.
If the exchange rate falls, the foreign currency is appreciating against the euro. By contrast, if the exchange rate rises,
the foreign currency is depreciating against the euro.

TUI Group companies operate on a worldwide scale. This presents financial risks for TUI Group arising from changes in exchange
rates and commodity prices. The essential financial transaction risks from operations concern euros and US dollars. They
mainly result from foreign exchange items in the individual Group companies, for instance aircraft fuel and bunker oil
invoices, ship handling costs or products and services sourced by hotels. The parity of sterling against the euro affects the
translation of results generated in the UK market in TUI's consolidated financial statements. Following the UK vote for
Brexit, the currency fluctuations continued, impacting the translation of results from our UK business.

At the beginning of the financial year under review, the exchange rate of sterling against the euro stood at 0.88 GBP / EUR.
After slight fluctuations in the course of the year, it returned to roughly the same level, marking 0.89 GBP / EUR as at 30
September 2018. At 1.16 $ / EUR at year-end, the US dollar also returned to roughly the level recorded at the beginning of
the financial year, when the rate was 1.17 $ / EUR.

Changes in commodity prices above all affect TUI Group when procuring fuels such as aircraft fuel and bunker oil. The price of
Brent oil stood at $ 82.72 per barrel as at 30 September 2018, up by around 47.4 % year-on-year.

In Tourism, most risks relating to changes in exchange rates and price risks from fuel sourcing are hedged by derivatives.
Information on hedging strategies and risk management as well as financial transactions and the scope of such transactions at
the balance sheet date is provided in the sections Financial Position and Risk Report in the Management Report and the section
Financial Instruments in the Notes to the consolidated financial statements.

Financial Position see page 75, Risk Report see page 50 and Financial Instruments see Notes page 225

Market environment and competition in Tourism

Since the merger between TUI AG and TUI Travel PLC in December 2014, TUI Group has been one of the world's leading leisure
tourism business. The development of the international leisure tourism market impacts all businesses in TUI Group.

Tourism remains a stable growth sector

According to the United Nations World Tourism Organization (UNWTO), tourism comprises the activities of persons travelling to
and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other
purposes. The key tourism indicators to measure market size are the number of international tourist arrivals and international
tourism receipts. In 2017, international tourism receipts amounted to $ 1,340 bn. International arrivals grew to 1.32 bn, an
increase of 7.0 %, the strongest growth since the financial crisis in 2009. International tourism arrivals are expected to
grow by around 3.8 per cent per annum on average between 2010 and 2020. The tourism industry thus remains one of the most
important sectors in the global economy: in terms of tourism exports (international tourism receipts plus passenger transport
services), tourism ranks third worldwide (UNWTO Tourism Highlights, Edition 2018).

Change of international tourist arrivals
vs. prior year
Var. % 2018* 2017
World + 6.1 + 7.0
Europe + 6.8 + 8.4
Asia and the Pacific + 7.4 + 5.6
Americas + 3.3 + 4.8
Africa + 4.0 + 8.6
Middle East + 4.6 + 4.6

Source: UNWTO World Tourism Barometer, October 2018
* Period January till June

In the first half of calendar year 2018, the growth trend continued, with international tourist arrivals growing by 6.1 %
worldwide during that period. Travel for holidays, recreation and other forms of leisure accounted for just over half of all
international tourist arrivals (UNWTO, World Tourism Barometer, October 2018).

Segmental performance see from page 67

Europe remained the largest and most mature tourism market in the world, accounting for 51 % of international tourist arrivals
and 39 % of tourism receipts in 2017. Both indicators thus grew by 8 %. Five European countries - France, Spain, Italy, the
United Kingdom and Germany - figured in the top ten international tourism destinations in 2017. Three of our main source
markets - Germany, the UK and France - were in the top five of all source markets worldwide measured by international tourism
receipts. The source markets display different levels of concentration. While the British market is characterised by two main
players, TUI Travel and Thomas Cook, the German and French markets are more heavily fragmented.

Hotel market

The total worldwide hotel market for business and leisure travel was worth EUR 476 bn in 2017 (at constant currency). From
2017 to 2023, average annual growth (CAGR) is expected to amount to 3 % at constant 2017 prices (Euromonitor International
Travel, October 2018). The hotel market is divided between business and leisure travel. A number of characteristics
differentiate leisure travel hotels from business hotels, including longer average lengths of stay for guests in leisure
hotels. Locations, amenities and service requirements also differ. From a demand perspective, the leisure hotel market in
Europe is divided into several smaller submarkets which cater to the individual needs and preferences of tourists. These
submarkets include premium, comfort, budget, family /
apartment, and club or resort-style hotels. Hotel companies may offer a variety of hotels for different submarkets, often
defined by price range, star ratings, exclusivity, or available facilities.

The upper end of the leisure hotel market is characterised by a high degree of sophistication and specialisation, with the
assets managed by large international companies and investors. There are also many small, often family-run businesses,
particularly in Europe, not quite so upscale and with fewer financial resources. Most family-owned and -operated businesses
are not branded. Given the variety of models for owning and operating leisure hotels and the fragmented competition landscape
which, at least in Europe, is not dominated by large hotel chains, conditions differ greatly between locations.

Cruise market

The global cruise industry will generate estimated revenues of around $ 45.6 bn in 2018, an increase of 4.6 % year-on-year.
The global estimate suggests that altogether around 26 million guests will have undertaken an ocean cruise in calendar year
2018. The North American market (United States, Caribbean, Canada, Mexico) is by far the largest and most mature cruise market
in the world, with approximately 14 million guests and a strong penetration rate of 3.7 % of the total population taking a
cruise in 2017.

By contrast, the European cruise markets recorded approximately 6.8 million passengers, with penetration rates varying
significantly from country to country, but considerably lower overall. Germany, the United Kingdom & Ireland and France are
among the five largest cruise markets in Europe. Germany is Europe's largest cruise market, with 2.1 million passengers in
2018. At 2.7 %, its penetration rate was lower than in the United Kingdom & Ireland. The United Kingdom & Ireland is the
second largest cruise market in Europe, with approximately 2.0 million cruise passengers and Europe's strongest penetration
rate of 3.0 % in 2018. (Cruise Market Watch Website, www.cruisemarketwatch.com/market-share, October 2018; CLIA, Cruise
Industry Ocean Source Market Report - Australia, 2018)

Destination Experiences

The market for tours and activities in the destinations remains highly fragmented on the supplier side. More than 90 % of the

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DJ TUI AG: Annual Financial Report - Part 2 -19-

around 300,000 companies are small providers with annual revenues of less than EUR 1 m, almost exclusively providing services
to occasional customers. At global turnover of EUR 150 bn and annual growth of 7 %, the segment is one of the most attractive
tourism areas. With the acquisition of the Italian tech start-up Musement in FY 2019 and of the Destination Management of
Hotelbeds in the FY 2018, TUI Group has strengthened its position in the excursions, tours and activities business in the
destinations. In future, the combination of a single customer platform and cutting-edge technology will enable the Group to
present tailored offerings to its customers both before and during their holiday.

Brand

Strong TUI master brand

Our brand with the 'smile' - the smiling logo formed by the three letters of our brand name TUI - stands for a consistent
customer experience, digital presence and competitive strength. The red smile is as well known as the logo of other leading
brands. In order to further leverage the appeal and strength of our core brand and tap the associated growth potential, we
have created a global branding and consistent brand experience in recent years. In 2018, TUI played in the Champions League of
global brands in almost all markets. TUI is among the best-known travel brands in core European countries. The rollout of the
TUI brand in the framework of the local rebranding in the past few years has been very successful. In FY 2018, the UK was the
last source market to undergo rebranding to TUI when the large local tour operator Thomson was replaced by TUI - here, too,
TUI already achieves an aided brand awareness level of 80 %.

Group earnings

Comments on the consolidated income statement

TUI Group's earnings position continued to show a positive development in FY 2018. The operating result (underlying EBITA) of
TUI Group's continuing operations improved by 4.1 % to EUR 1,147.0 m in the period under review, or by 10.9 % year-on-year on
a constant currency basis. This growth was driven in particular by the continued good operating performance in the Holiday
Experiences segment.

Income Statement of the TUI Group
for the period from 1 Oct 2017 to 30 Sep 2018
EUR million 2018 2017 Var. %
Turnover 19,523.9 18,535.0 + 5.3
Cost of sales 17,542.4 16,535.5 + 6.1
Gross profit 1,981.5 1,999.5 - 0.9
Administrative expenses 1,289.9 1,255.8 + 2.7
Other income 67.4 12.5 + 439.2
Other expenses 3.5 1.9 + 84.2
Financial income 83.8 229.3 - 63.5
Financial expenses 165.5 156.2 + 6.0
Share of result of joint ventures 297.7 252.3 + 18.0
and associates
Earnings before income taxes 971.5 1,079.7 - 10.0
Income taxes 191.3 168.8 + 13.3
Result from continuing operations 780.2 910.9 - 14.3
Result from discontinued 38.7 - 149.5 n. a.
operations
Group profit 818.9 761.4 + 7.6
Group profit attributable to 732.5 644.8 + 13.6
shareholders of TUI AG
Group profit attributable to 86.4 116.6 - 25.9
non-controlling interest

Turnover and cost of sales

Turnover
EUR million 2018 2017 Var. %
restated
Hotels & Resorts 606.8 679.0 - 10.6
Cruises 901.9 815.0 + 10.7
Destination 303.5 202.5 + 49.9
Experiences
Holiday Experiences 1,812.2 1,696.5 + 6.8
Northern Region 6,854.9 6,601.5 + 3.8
Central Region 6,563.7 6,039.5 + 8.7
Western Region 3,577.6 3,502.2 + 2.2
Markets & Airlines 16,996.2 16,143.2 + 5.3
All other segments 715.5 695.3 + 2.9
TUI Group 19,523.9 18,535.0 + 5.3
TUI Group at constant currency 19,701.5 18,535.0 + 6.3
Discontinued operations - 829.0 n. a.
Total 19,523.9 19,364.0 + 0.8

In FY 2018, turnover by TUI Group climbed by 5.3 % to EUR 19.5 bn. On a constant currency basis, turnover grew by 6.3 %.
Alongside a year-on-year increase in customer numbers of 4.7 % in the source markets, capacity increases in the Cruises
segment, higher average prices in the Hotels & Resorts segment and higher prices in the UK contributed to the turnover growth.
Turnover is presented alongside the cost of sales, which was up 6.1 % in the period under review.

Gross profit

Gross profit, i. e. the difference between turnover and the cost of sales, was flat year-on-year at around EUR 2.0 bn.

Administrative expenses

Administrative expenses rose by EUR 34.1 m year-on-year to EUR 1,289.9 m, above all due to higher personnel and IT costs.

Financial result

The financial result declined by EUR 154.8 m to EUR - 81.7 m. The decrease was essentially due to the profit of EUR 172.4 m
generated in the prior year from the disposal of the remaining stake in Hapag-Lloyd AG.

Share of results of joint ventures and associates

The result from joint ventures and associates comprises the proportionate net profit for the year of these companies measured
at equity and where appropriate impairments of goodwill for these companies. In the period under review, the at equity result
totalled EUR 297.7 m. The significant increase of EUR 45.4 m mainly resulted from a higher profit contribution by TUI Cruises.

Result from continuing operations

The result from continuing operations declined by EUR 130.7 m to EUR 780.2 m in FY 2018.

Result from discontinuing operations

The sale of Hotelbeds Group in 2016 had included a turnover guarantee for the benefit of the buyer. On the basis of the
turnover generated by Hotelbeds Group with TUI Group in prior periods, the other liability formed for the sale of Hotelbeds
Group was revalued and reduced by EUR 41.4 m. The other items refer to the Specialist Group sold in FY 2017.

Group profit

Group profit increased by EUR 57.5 m year-on-year to EUR 818.9 m in FY 2018.

Share in Group profit attributable to TUI AG shareholders

The share in Group profit attributable to the TUI AG shareholders increased from EUR 644.8 m in the prior year to EUR 732.5 m
in FY 2018. Alongside a sound operating performance, the increase is accounted for by the profit share attributable to
Travelopia in the prior year.

Non-controlling interests

Non-controlling interests in Group profit for the year totalled EUR 86.4 m. They mainly related to RIUSA II Group.

Earnings per share

The interest in Group profit for the year attributable to TUI AG shareholders after deduction of non-controlling interests
totalled EUR 732.5 m in FY 2018 (previous year EUR 644.8 m). Basic earnings per share therefore amounted to EUR 1.25 (previous
year EUR 1.10) in FY 2018.

Alternative performance indicators

Key indicators used to manage the TUI Group are EBITA and underlying EBITA. EBITA comprises earnings before interest, taxes
and goodwill impairments. EBITA includes amortisation of other intangible assets. It does not include the result from the
measurement of interest hedges, and in the prior year did not include results from container shipping operations.

The table below shows the reconciliation of earnings before tax from continuing operations to underlying EBITA.

Reconciliation to underlying earnings (continuing operations)
EUR million 2018 2017 Var. %
Earnings before income taxes 971.5 1,079.7 - 10.0
plus: Profit on sale of financial - - 172.4 n. a.
investment in Container Shipping
plus: Net Interest expense 82.3 113.5 - 27.5
plus: Expense from the measurement of 6.4 5.7 + 12.3
interest hedges
EBITA 1,060.2 1,026.5 + 3.3
Adjustments:
less: Gain on disposals - 2.1 - 2.2 + 4.5
plus: Restructuring expense 34.9 23.1 + 51.1
plus: Expense from purchase price 31.8 29.2 + 8.9
allocation
plus: Expense (prior year income) 22.2 25.5 - 12.9
from other one-off items
Underlying EBITA 1,147.0 1,102.1 + 4.1

The reported earnings (EBITA) of TUI Group rose by EUR 33.7 m to EUR 1,060.2 m due to a sound operating performance in FY
2018.

EBITA
EUR million 2018 2017 Var. %
restated
Hotels & Resorts 425.6 353.7 + 20.3
Cruises 324.0 255.6 + 26.8
Destination Experiences 43.1 32.6 + 32.6
Holiday Experiences 792.7 641.9 + 23.5
Northern Region 221.2 309.6 - 28.6
Central Region 72.5 67.3 + 7.7
Western Region 85.1 79.4 + 7.2
Markets & Airlines 378.8 456.3 - 17.0
All other segments - 111.3 - 71.7 - 55.4
TUI Group 1,060.2 1,026.5 + 3.3
TUI Group at constant currency 1,133.4 1,026.5 + 10.4
Discontinued operations 38.7 - 22.1 n. a.
Total 1,098.9 1,004.4 + 9.4

In order to explain and evaluate the operating performance of the segments, earnings adjusted for special one-off effects
(underlying EBITA) are presented below. Underlying EBITA has been adjusted for gains on disposal of financial investments,
restructuring expenses according to IAS 37, all effects from purchase price allocations, ancillary acquisition costs and
conditional purchase price payments and other expenses for and income from one-off items.

One-off items carried here include adjustments for income and expense items that reflect amounts and frequencies of occurrence

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rendering an evaluation of the operating profitability of the segments and the Group more difficult or causing distortions.
These items include in particular major restructuring and integration expenses not meeting the criteria of IAS 37, material
expenses for litigation, gains and losses from the sale of aircraft and other material business transactions with a one-off
character.

TUI Group's underlying EBITA improved by EUR 44.9 m to EUR 1,147.0 m in FY 2018.

Underlying EBITA
EUR million 2018 2017 Var. %
restated
Hotels & Resorts 425.7 356.5 + 19.4
Cruises 324.0 255.6 + 26.8
Destination 44.7 35.1 + 27.4
Experiences
Holiday Experiences 794.4 647.2 + 22.7
Northern Region 254.1 345.8 - 26.5
Central Region 89.1 71.5 + 24.6
Western Region 109.3 109.2 + 0.1
Markets & Airlines 452.5 526.5 - 14.1
All other segments - 99.9 - 71.6 - 39.5
TUI Group 1,147.0 1,102.1 + 4.1
TUI Group at constant currency 1,221.7 1,102.1 + 10.9
Discontinued operations - - 1.2 n. a.
Total 1,147.0 1,100.9 + 4.2

In FY 2018, adjustments worth EUR 12.5 m were carried for the reduction in pension obligations in the UK and the sale of
aircraft assets. On the other hand, expenses of EUR 31.8 m were incurred for purchase price allocations, and other underlying
expenses amounted to EUR 67.5 m. They mainly related to the following items and circumstances:

Gains on disposal

In FY 2018, gains on disposal of financial assets worth EUR 2 m had to be adjusted for. They related in particular to the
measurement of a stake in the framework of the takeover of Destination Management from Hotelbeds Group.

Restructuring costs

In FY 2018, restructuring costs of EUR 35 m had to be adjusted for. They included an amount of around EUR 13 m for the
realignment of the aviation business in the Nordics. Adjustments also included expenses worth around EUR 9 m for
restructurings at TUI fly in Germany and around EUR 10 m for the integration of Transat in France.

Expenses for purchase price allocations

Expenses for purchase price allocations related in particular to scheduled amortisation of intangible assets from acquisitions
made in previous years.

One-off items

Net expenses for one-off items of EUR 22 m included in particular an amount of EUR 6 m relating to IT projects in Northern and
Western Regions. Further expenses worth EUR 15 m related to reorganisation schemes in regions and destination agencies.

Other segment indicators

Reconciliation to EBITDAR (continuing operations)
EUR million 2018 2017 Var. %
EBITA 1,060.2 1,026.5 + 3.3
Amortisation (+) / 438.3 464.4 - 5.6
write-backs (-) of
other intangible
assets and
depreciation (+) /
write-backs (-) of
property, plant and
equipment
EBITDA 1,498.5 1,490.9 + 0.5
Long-term rental, 721.4 750.0 - 3.8
leasing and leasing
expenses
EBITDAR 2,219.9 2,240.9 - 0.9

EBITDA and underlying EBITDA
EBITDA Underlying EBITDA*
EUR million 2018 2017 Var. % 2018 2017 Var. %
restated restated
Hotels & 524.3 484.5 + 8.2 524.5 485.2 + 8.1
Resorts
Cruises 398.3 312.9 + 27.3 398.3 312.9 + 27.3
Destination 52.1 40.4 + 29.0 53.6 42.9 + 24.9
Experiences
Holiday 974.7 837.8 + 16.3 976.4 841.0 + 16.1
Experiences
Northern 281.7 378.6 - 25.6 302.8 402.7 - 24.8
Region
Central 95.3 87.6 + 8.8 109.8 89.8 + 22.3
Region
Western 107.8 102.0 + 5.7 127.6 126.8 + 0.6
Region
Markets & 484.8 568.2 - 14.7 540.2 619.3 - 12.8
Airlines
All other 39.0 84.9 - 54.1 47.3 81.4 - 41.9
segments
TUI Group 1,498.5 1,490.9 + 0.5 1,563.9 1,541.7 + 1.4
Discontinued 38.7 - 22.1 n. a. - - 1.2 n. a.
operations
Total 1,537.2 1,468.8 + 4.7 1,563.9 1,540.5 + 1.5

* Adjustments according to reconciliation from page 65, excluding amortisation and write-backs.

Segmental performance

Outlook

In FY 2018 we delivered the fourth consecutive year of double digit growth of underlying EBITA at constant currency rates
since the merger, with a continued strong ROIC performance. TUI's sustained strong performance in a challenging market
environment demonstrates its successful transformation as an integrated provider of holiday experiences, with strong
strategic positioning and diversification across destinations and markets. Looking ahead, we expect growth to continue the
benefits of our digitalisation efforts, efficiency measures and differentiation strategy through the disciplined expansion of
our own hotel, cruise and destination experience content.

In Hotels & Resorts, our diversified portfolio means we will continue to benefit from growth in demand for Turkey and North
Africa, with a normalisation in demand for Spain, including the Canaries. Demand also remains strong for our year round
destinations such as Mexico and Cape Verde. We will continue to develop our portfolio of destinations, with a strong pipeline
of own hotel openings for FY 2019 and beyond, and we remain on track to open approximately 60 additional hotels since merger
by the end of FY 2019.

We will also launch three ships for our cruise brands in FY 2019. Bookings for the new ships and the existing fleet are
progressing well, with a continued strong yield performance. Two ships exited our fleets (Marella Spirit and Hapag-Lloyd
Cruises' Hanseatic) in Autumn 2018. Five further new builds are on order for TUI Cruises and Hapag-Lloyd Cruises, for delivery
between FY 2020 and FY 2026, as we continue to build on our leadership position in the German-speaking cruise market.

We are re-shaping our Destination Experiences business based on the recent acquisitions of Destination Management and
Musement, from an off-line to fully digitalised business in 49 countries. We are also developing our tailored TUI Tours offer.
In order to achieve these strategic goals, some additional investment into the digital platform (as operating cost) will be
required in FY 2019.

In Markets & Airlines, we are focussed on delivering business harmonisation, especially in terms of business processes,
overheads and aviation, and the benefits of digitalisation. We expect the challenging market environment to continue, and that
this will be evident in our Q1 / Q2 FY 2019 results. This reinforces the importance of TUI's transformation away from the
traditional tour operator space, to become an integrated provider of holiday experiences, and which helps to mitigate
continued market challenges. Currently Winter 2018 / 19 bookings are down 1 % and average selling prices are down 2 % versus
prior year, with 60 % of the programme sold, 2 percentage points behind prior year*. As outlined above, the programme to North
Africa and Turkey has been expanded, offset by a reduction in the programme to the Canaries. Flight capacity from Nordics has
been proactively reduced, with the planned closure of three airport bases as we continue to drive efficiency in our airlines,
and also following the prolonged hot weather this Summer which has continued to subdue demand. We have also reduced our flight
capacity from Germany, as we continue to improve our flight plan efficiency following the bankruptcies of Air Berlin and Niki.
Bookings for next Summer 2019 are at a very early stage. Only the UK is more than 20 % booked, and at this stage bookings are
up 5 % with average selling price down 1 %.

* These statistics are up to 2 December 2018, shown on a constant currency basis and relate to all customers whether risk or
non-risk

Disclosures on outlook are regularly published on TUI's website in the framework of TUI Group's quarterly reporting.

See www.tuigroup.com/en-en/investors

Holiday Experiences

Holiday Experiences
EUR million 2018 2017 Var. %
Turnover 1,812.2 1,696.5 + 6.8
Underlying EBITA 794.4 647.2 + 22.7
Underlying EBITA at constant 866.0 647.2 + 33.8
currency

Hotels & Resorts
EUR million 2018 2017 Var. %
restated
Total turnover 1,389.7 1,366.2 + 1.7
Turnover 606.8 679.0 - 10.6
Underlying EBITA 425.7 356.5 + 19.4
Underlying EBITA at constant 494.5 356.5 + 38.7
currency
Capacity hotels total1 39,428 39,163 + 0.7
in '000
Riu 17,503 17,942 - 2.4
Robinson 3,095 3,115 - 0.6
Blue Diamond 3,638 2,859 + 27.3
Occupancy rate hotels total2 in %, 83 79 + 4
variance in % points
Riu 89 90 - 1
Robinson 71 66 + 5
Blue Diamond 80 83 - 3
Average revenue per bed hotels total3 65 63 + 2.0
in EUR
Riu 64 64 + 0.2
Robinson 93 91 + 2.6
Blue Diamond 127 112 + 12.8

Turnover measures include fully consolidated companies, all other KPIs incl.
companies measured at equity.

1 Group owned or leased hotel beds multiplied by opening days per quarter

2 Occupied beds divided by capacity

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3 Arrangement revenue divided by occupied beds 
 
4 Previous year's total capacity now includes Blue Diamond 
 
· Our leading leisure hotel and club brands delivered another strong performance in FY 2018, with EUR 138 m increase in 
underlying EBITA at constant currency (including EUR 43 m net gains on hotel disposals by Riu). Occupancy rate increased to 
83 % and average rate per bed by 2 %. ROIC increased for the fourth successive year to 14.5 % (versus Hotels & Resorts WACC 
of 7.86 %), demonstrating the attractiveness of our portfolio of hotel and club brands across multiple destinations, the 
benefit of having high levels of our own distribution, and our disciplined approach to investment. 
 
· The underlying EBITA result at FY 2018 exchange rates includes an adverse foreign exchange impact of EUR 69 m, EUR 40 m of 
which is the non-cash impact from the revaluation of Euro loan balances within Turkish hotel entities, as a result of the 
weaker Turkish Lira. 
 
· The Hotels & Resorts portfolio strategy continued to pay off in FY 2018. The increase in earnings was driven by a 
rebalance in demand for Turkey and North Africa, as well as strong demand for Greece and continued high demand for the 
Caribbean. Spain remains one of our key destinations, but with more normal levels of demand following a couple of years of 
very high performance. 
 
· The industry-leading occupancy rate demonstrates the strength and popularity of our portfolio of brands and destinations, 
as well as the success of the integrated model with a significant proportion of rooms distributed directly by us, either 
through our Markets or by the hotels themselves. 
 
· We continued to deliver our growth strategy in Hotels & Resorts, having opened a total of 44 new hotels since merger. 
Hotels and clubs were opened in Zanzibar, Mexico, Maldives, Thailand, Dominican Republic, Tunisia, Egypt, Greece and Cyprus. 
We also continued to streamline our portfolio, with several repositionings and the disposal of properties by Riu generating 
EUR 43 m net gain on disposal. 
 
· Our key brands continued to perform very well. Riu delivered another strong earnings and ROIC performance in FY 2018, with 
a very high occupancy rate of 89 % and sustained average rate per bed, as well as the benefit of the disposal gains outlined 
above. Robinson delivered growth in earnings, with improved performance in its Turkish and North African hotels partly 
offset by the planned closure of certain clubs for renovation. Blue Diamond earnings increased as a result of hotel openings 
in the Caribbean, with a continued high level of occupancy despite these new openings. 
 
· Underlying EBITA at constant currency in our other hotel brands grew significantly, driven by a stronger performance in 
our Turkish and North African hotels. 
 
Cruises 
EUR million                           2018     2017     Var. % 
Turnover1                             901.9    815.0    + 10.7 
Underlying EBITA                      324.0    255.6    + 26.8 
Underlying EBITA at constant         324.6    255.6    + 27.0 
currency 
Occupany in %, 
variance in % points 
TUI Cruises                           100.8    101.9    - 1.1 
Marella Cruises2                      100.9    101.7    - 0.8 
Hapag-Lloyd Cruises                   78.3     76.7     + 1.6 
Passenger days in '000 
TUI Cruises                           5,194    4,483    + 15.9 
Marella Cruises2                      2,953    2,720    + 8.6 
Hapag-Lloyd Cruises                   352      349      + 0.9 
Average daily rates3 in EUR 
TUI Cruises                           178      173      + 2.9 
Marella Cruises2, 4 in GBP              141      131      + 7.6 
Hapag-Lloyd Cruises                   615      594      + 3.5 
 
1 No turnover is carried for TUI Cruises as the joint venture is consolidated at equity 
 
2 Rebranded from Thomson Cruises in October 2017. 
 
3 Per day and passenger 
 
4 Inclusive of transfers, flights and hotels due to the integrated nature of Marella Cruises. 
 
· Our leading German and UK cruise brands delivered another year of strong growth in FY 2018, with EUR 69 m growth in 
underlying EBITA at constant currency. This was driven by new ship launches in Germany and UK, with continued high occupancy 
and average daily rates across the fleets. Overall, the segment delivered a record ROIC performance of 22.8 % (versus 
Cruises WACC of 6.16 %), reflecting the return on equity in the high-performing TUI Cruises as well as strong performances 
by our Marella Cruises and Hapag-Lloyd Cruises subsidiaries. 
 
· TUI Cruises (our joint venture with Royal Caribbean in the German speaking market) benefitted from the first Winter 2017 / 
18 of operations for Mein Schiff 6 and launched the New Mein Schiff 1 in May 2018. The fleet also benefitted from fewer dry 
dock days in FY 2018. Average daily rate increased versus prior year, driven by the sustained growth in demand for cruise in 
Germany (which remains a market with relatively low rates of cruise penetration), and in particular high demand for our 
German language, premium all-inclusive product. 
 
· Marella Cruises (our UK cruise brand) delivered the first Winter of operations for the Marella Discovery 2 and launched 
Marella Explorer (previously Mein Schiff 1 in TUI Cruises) in May. The older style Marella Majesty exited the fleet in 
October 2017. Average daily rate increased versus prior year, as we continue to deliver our modernisation programme and 
expansion in line with the UK cruise market. 
 
· Hapag-Lloyd Cruises (our luxury and expedition brand) delivered a strong performance and an increase in earnings, with 
increased occupancy and average daily rate and a good operational performance offsetting the higher number of dry dock days. 
 
Destination Experiences 
EUR million                           2018     2017     Var. % 
Total turnover                        594.1    444.8    + 33.6 
Turnover                              303.5    202.5    + 49.9 
Underlying EBITA                      44.7     35.1     + 27.4 
Underlying EBITA at constant         46.9     35.1     + 33.6 
currency 
 
· Our tours, activities and service provider in destination delivered a significant increase in underlying EBITA in FY 2018. 
This was driven by higher customer volumes in Turkey, Greece and North Africa, efficiencies in Spain, Portugal and Greece, 
and the inclusion of earnings of Destination Management following completion of the acquisition from Hotelbeds in August 
2018. 
 
· Excluding the acquisition of Destination Management, underlying EBITA at constant currency grew by 20 % in FY 2018. 
 
· The acquisition of technology start-up Musement, a leading online platform for tours and activities in destination, was 
also completed in October 2018. Together with the Destination Management acquisition, this will enable us to grow our 
Destination Experiences as a fully digitalised provider with destination product offerings in 49 countries. 
 
Markets & Airlines (formerly Sales & Marketing) 
 
Markets & Airlines 
EUR million                           2018     2017     Var. % 
Turnover                              16,996.2 16,143.2 + 5.3 
Underlying EBITA                      452.5    526.5    - 14.1 
Underlying EBITA at constant         449.8    526.5    - 14.6 
currency 
Net Promoter Score (NPS)1 in %,       50       50       - 
variance in % points 
Direct distribution2 in %, variance   74       73       + 1 
in % points 
Online distribution3 in %, variance   48       46       + 2 
in % points 
Customers in '000                     21,127   20,183   + 4.7 
 
1 NPS is measured in customer satisfaction questionnaires completed post-holiday. It is based on the question 'On a scale of 0 
to 10 where 10 is extremely likely and 0 ist not at all likely, how likely is it that you would recommend the brand to a 
friend, colleague or relative?" and is calculated by taking the percentage of promoters (9s and 10s) less the percentage of 
detractors (0s through 6s). 
 
2 Share of sales via own channels (retail and online) 
 
3 Share of online sales 
 
· Markets & Airlines are leaders in packaged distribution and fulfillment, leveraging their strong market and customer 
knowledge. Against a backdrop of significant and unforseen external challenges - namely, the Summer heatwave and airline 
disruption - several of our major source markets delivered significant growth in earnings, offset by currency inflation in 
the UK. Overall Markets & Airlines delivered 4.7 % increase in customer volumes with another year of increased direct and 
online distribution. Net promoter scores remain high at 50, demonstrating the strength of our customer offer and focus on 
their holiday experience. 
 
· We are focused on delivering further efficiency improvements through the harmonisation of our three regional businesses, 
as well as the benefits of digitalisation. Having successfully delivered the TUI rebranding in all of Markets & Airlines, we 
now have one leadership covering all regions, and have identified further potential for harmonisation in business processes 
and overheads. In addition, we will continue to expand the synergies from One Aviation. 
 
Northern Region 
EUR million                           2018     2017     Var. % 
Turnover                              6,854.9  6,601.5  + 3.8 
Underlying EBITA                      254.1    345.8    - 26.5 
Underlying EBITA at constant         251.1    345.8    - 27.4 
currency 
Direct distribution1 in %, variance   93       92       + 1 
in % points 
Online distribution2 in %, variance   66       63       + 3 
in % points 
Customers in '000                     7,566    7,389    + 2.4 
 
1 Share of sales via own channels (retails and online) 
 
2 Share of online sales 
 
Northern Region comprises UK, Nordics and joint ventures in Canada and Russia. 
 
· In the UK, the TUI rebrand was delivered successfully in FY 2018, as well as another year of growth in revenues and

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DJ TUI AG: Annual Financial Report - Part 2 -22-

customer volumes (up 2.3 %). Despite a further increase in average selling price, margins reduced as a result of currency
inflation due to the weaker Pound Sterling. In addition, the Summer heatwave and French air traffic control strikes had a
negative impact on margin. Going forward, the UK is well positioned as a clear market leader for package holidays, with a
high net promoter score for its unique holidays, high level of direct and online distribution, and strong degree of business
efficiency and integration.

· Nordics delivered an increase in revenues, customer volumes (up 2.6 %) and earnings in FY 2018, driven by a strong Winter
performance. Summer trading started well, however the prolonged heatwave led to an adverse impact on yield and customer
volumes, resulting in a more subdued performance in the second half of the year. At the end of the year, as part of the
drive for greater efficiency in aviation, the business announced plans to move short-haul air operations to external
airlines at three bases in Scandanavia.

· Underlying EBITA at constant currency rates in Canada increased in FY 2018 as the business continues to deliver growth,
with high levels of sales of Group hotels such as Blue Diamond and Riu. In Russia, TUI's equity participation was reduced in
FY 2019 to 10 %.

Central Region
EUR million 2018 2017 Var. %
Turnover 6,563.7 6,039.5 + 8.7
Underlying EBITA 89.1 71.5 + 24.6
Underlying EBITA at constant 89.4 71.5 + 25.0
currency
Direct distribution1 in %, variance 50 49 + 1
in % points
Online distribution2 in %, variance 22 19 + 3
in % points
Customers in '000 7,707 7,151 + 7.8

1 Share of sales via own channels (retails and online)

2 Share of online sales

Central Region comprises Germany and Austria (operated as one source market), Switzerland and Poland.

· Germany and Austria delivered 2.9 % increase in customer volumes in FY 2018, driven in particular by strong demand for
Turkey, North Africa and Greece. We delivered good progress on our strategy of increasing the proportion of holidays sold
direct and online, to 50 % and 22 % respectively. The result also benefitted from the non-repeat of last year's sickness
event in TUI fly which was largely offset by the impact of the Niki bankruptcy this year. However, as seen in our other
source markets, the strong demand in Winter and at the start of the Summer become more subdued as a result of the heatwave.
In addition, there was a significant increase in capacity on leisure routes this Summer due to aircraft redeployment
following the Air Berlin bankruptcy which impacted margins, especially to Spain.

· Switzerland and Poland continued to deliver good performances, with an increase in customer volumes and earnings.

· The Central Region result has been impacted over the past two years by the insolvencies of Air Berlin and Niki, to whom
TUI fly (our German airline) wet leased a number of aircraft. As a result, earnings were adversely impacted in FY 2017 and
FY 2018. Following the insolvencies, TUI fly took back some of the aircraft and crew (previously operated under wet lease to
Air Berlin and Niki), with the remainder being wet leased out under a new (albeit less profitable) agreement.

Western Region
EUR million 2018 2017 Var. %
Turnover 3,577.6 3,502.2 + 2.2
Underlying EBITA 109.3 109.2 + 0.1
Underlying EBITA at constant 109.3 109.2 + 0.1
currency
Direct distribution1 in %, variance 73 71 + 2
in % points
Online distribution2 in %, variance 55 54 + 1
in % points
Customers in '000 5,854 5,643 + 3.7

1 Share of sales via own channels (retails and online)

2 Share of online sales

Western Region comprises Belgium, Netherlands and France.

· Our market leaders in Belgium and Netherlands continued to grow customer volumes, by 6.8 % in total, with good margins
overall and increasing levels of direct and online distribution. Similar to other markets, there was a relatively high level
of airline disruption during the early Summer.

· France's performance was disappointing in FY 2018. The trading environment was very difficult, particularly as a result of
the Summer heatwave which impacted on demand, due to the large number of domestic alternatives and overcapacity in the
market.

The result has benefitted from the delivery of further cost synergies from the Transat integration, however, this was not
enough to offset the challenging trading environment. In addition, further investment was required to launch the TUI brand in
the French market at the start of the year.

All other segments

All other segments
EUR million 2018 2017 Var. %
restated
Turnover 715.5 695.3 + 2.9
Underlying EBITA - 99.9 - 71.6 - 39.5
Underlying EBITA at constant - 94.1 - 71.6 - 31.4
currency

This segment comprises the business operations for new markets, the scheduled French airline Corsair, and the central
corporate functions and interim holdings of TUI Group and the Group's real estate companies. The increase in operating loss
was driven by Corsair, partly as the result of a planned airline maintenance event at the start of the year, and partly due to
an aircraft towing incident in Q4.

Net assets

Development of the Group's asset structure
EUR million 30 Sep 2018 30 Sep 2017 Var. %
Fixed assets 9,918.6 9,067.0 + 9.4
Non-current 763.5 800.6 - 4.6
receivables
Non-current assets 10,682.1 9,867.6 + 8.3
Inventories 118.5 110.2 + 7.5
Current receivables 2,257.7 1,682.0 + 34.2
Cash and cash equivalents 2,548.0 2,516.1 + 1.3
Assets held for sale 5.5 9.6 - 42.7
Current assets 4,929.7 4,317.9 + 14.2
Assets 15,611.8 14,185.5 + 10.1
Equity 4,333.6 3,533.7 + 22.6
Liabilities 11,278.2 10,651.8 + 5.9
Equity and liabilities 15,611.8 14,185.5 + 10.1

The Group's balance sheet total increased by 10.1 % as against 30 September 2017 to EUR 15.6 bn.

Vertical structural indicators

Non-current assets accounted for 68.4 % of total assets, compared with 69.6 % in the previous year. The capitalisation ratio
(ratio of fixed assets to total assets) decreased from 63.9 % to 63.5 %.

Current assets accounted for 31.6 % of total assets, compared with 30.4 % in the previous year. The Group's cash and cash
equivalents increased by EUR 31.9 m year-on-year to EUR 2,548.0 m. They thus accounted for 16.3 % of total assets, as against
17.7 % in the previous year.

Horizontal structural indicators

At the balance sheet date, the ratio of equity to non-current assets was 40.6 %, as against 35.8 % in the previous year. The
ratio of equity to fixed assets was 43.7 % (previous year 39.0 %). The ratio of equity plus non-current financial liabilities
to fixed assets was 66.4 %, compared with 58.4 % in the previous year.

Development of the Group's non-current assets

Structure of the Group's non-current assets
EUR million 30 Sep 2018 30 Sep 2017 Var. %
Goodwill 2,958.6 2,889.5 + 2.4
Other intangible assets 569.9 548.1 + 4.0
Property, plant and 4,899.2 4,253.7 + 15.2
equipment
Companies measured at 1,436.6 1,306.2 + 10.0
equity
Financial assets 54.3 69.5 - 21.9
available for sale
Fixed assets 9,918.6 9,067.0 + 9.4
Receivables and assets 537.8 476.9 + 12.8
Deferred tax claims 225.7 323.7 - 30.3
Non-current receivables 763.5 800.6 - 4.6
Non-current assets 10,682.1 9,867.6 + 8.3

Goodwill

Goodwill rose by EUR 69.1 m to EUR 2,958.6 m. The increase in the carrying amount is essentially due to the acquisition of the
Destination Management business. An opposite effect was driven by the translation of goodwill not managed in TUI Group's
functional currency into euros. In the period under review, no adjustments were required as a result of impairment tests.

Property, plant and equipment

Property, plant and equipment increased to EUR 4,899.2 m in the financial year under review, primarily driven by the
acquisition of the cruise ship Marella Explorer, investments in hotel facilities, down payments on aircraft orders and the
delivery of aircraft. Property, plant and equipment also comprised leased assets in which Group companies held economic
ownership. At the balance sheet date, these finance leases had a carrying amount of EUR 1,290.2 m, up 11.4 % year-on-year.

Development of property, plant and equipment
EUR million 30 Sep 2018 30 Sep 2017 Var. %
Real estate with hotels 1,262.8 1,040.8 + 21.3
Other land 194.1 165.1 + 17.6
Aircraft 1,415.1 1,207.2 + 17.2
Ships 995.2 860.1 + 15.7
Machinery and fixtures 407.9 361.2 + 12.9
Assets under 624.1 619.3 + 0.8
construction, payments
on accounts
Total 4,899.2 4,253.7 + 15.2

Companies measured at equity

Seventeen associated companies and 27 joint ventures were measured at equity. At EUR 1,436.6 m, their value increased by 10.0
% year-on-year as at the balance sheet date.

Development of the Group's current assets

Structure of the Group's current assets

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EUR million 30 Sep 2018 30 Sep Var. %
2017
Inventories 118.5 110.2 + 7.5
Trade accounts receivable 2,143.9 1,583.3 + 35.4
and
other assets*
Current tax assets 113.8 98.7 + 15.3
Current receivables 2,257.7 1,682.0 + 34.2
Cash and cash equivalents 2,548.0 2,516.1 + 1.3
Assets held for sale 5.5 9.6 - 42.7
Current assets 4,929.7 4,317.9 + 14.2

* incl. receivables from derivative financial instruments and touristic prepayments

Current receivables

Current receivables comprise trade accounts receivable and other receivables, current income tax assets and claims from
derivative financial instruments. At EUR 2,257.7 m, current receivables increased by 34.2 % year-on-year.

Cash and cash equivalents

At EUR 2,548.0 m, cash and cash equivalents increased by 1.3 % year-on-year.

Unrecognised assets

In the course of their business operations, Group companies used assets of which they were not the economic owner according to
the IASB rules. Most of these assets were aircraft, hotel complexes or ships for which operating leases, i. e. rental, lease
or charter agreements, were concluded at terms and conditions customary in the sector.

Operating rental, lease and charter contracts
EUR million 30 Sep 2018 30 Sep 2017 Var. %
Aircraft 1,547.1 1,461.1 + 5.9
Hotel complexes 675.2 728.4 - 7.3
Travel agencies 212.3 217.1 - 2.2
Administrative buildings 244.0 233.8 + 4.4
Ships, Yachts and 1.0 29.2 - 96.6
motor boats
Other 131.3 107.8 + 21.8
Total 2,810.9 2,777.4 + 1.2

Further explanations as well as the structure of the remaining terms of the financial liabilities from operating rental, lease
and charter agreements are provided in the section Other financial liabilities in the Notes to the consolidated financial
statements.

Information on other intangible, unrecognised assets in terms of brands, customer and supplier relationships and
organisational and process benefits is provided in the section TUI Group Corporate Profile; relationships with investors and
capital markets are outlined in the section TUI Share.

TUI Group Corporate Profile see page 32; TUI Share from page 103

Financial position of the Group

Principles and goals of financial management

Principles

TUI Group's financial management is centrally operated by TUI AG, which acts as the Group's internal bank. Financial
management covers all Group companies in which TUI AG directly or indirectly holds an interest of more than 50 %. It is based
on policies covering all cash flow-oriented aspects of the Group's business activities. In the framework of a cross-national
division of tasks within the organisation, TUI AG has outsourced some of its operational financial activities to First Choice
Holidays Finance Ltd, a British Group company. However, these financial activities are carried out on a coordinated and
centralised basis.

Goals

TUI's financial management goals include ensuring sufficient liquidity for TUI AG and its subsidiaries and limiting financial
risks from fluctuations in currencies, commodity prices and interest rates as well as default risk of treasury activities.

Liquidity safeguards

The Group's liquidity safeguards consist of two components:

· In the course of the annual Group planning process, TUI draws up a multi-annual finance budget, from which long-term
financing and refinancing requirements are derived. This information and financial market observation to identify
refinancing opportunities create a basis for decision-making, enabling appropriatefinancing instruments for the long-term
funding of the Company to be adopted at an early stage.

· TUI uses syndicated credit facilities and bilateral bank loans as well as its liquid funds to secure sufficient short-term
cash reserves. Through intra-Group cash pooling, the cash surpluses of individual Group companies are used to finance the
cash requirements of other Group companies. Planning of bank transactions is based on a monthly rolling liquidity planning
system.

Limiting financial risks

The Group companies operate on a worldwide scale. This gives rise to financial risks for TUI Group, mainly from changes in
exchange rates, commodity prices and interest rates.

The key operating financial transaction risks relate to the euro, US dollar and pound sterling and changing fuel prices. They
mainly result from cost items in foreign currencies held by individual Group companies, e. g. hotel sourcing, aircraft fuel
and bunker oil invoices or ship handling costs.

The Group has entered into derivative hedges in various foreign currencies in order to limit its exposure to risks from
changes in exchange rates for the hedged items. Changes in commodity prices affect TUI Group, in particular in procuring fuels
such as aircraft fuel and bunker oil. These price risks related to fuel procurement are largely hedged with the aid of
derivative instruments. Where price increases can be passed on to customers due to contractual agreements, this is also
reflected in our hedging behaviour. In order to control risks related to changes in interest rates arising on liquidity
procurement in the international money and capital markets and investments of liquid funds, the Group uses derivative interest
hedges on a case-by-case basis as part of its interest management system.

In order to limit default risks from settlement payments for derivatives as well as money market investments with banks and
investments in money market funds, TUI AG and First Choice Holidays Finance Ltd. have defined credit rating criteria for the
selection of their counterparties. Trading and transaction limits are fixed on the basis of the credit ratings granted by the
main rating agencies. The credit ratings and the corresponding limits are regularly reviewed. In the event of fair value
changes in derivatives or rating changes, new business with these counterparties may temporarily be suspended until the limits
can be adequately utilised again. The limits are fixed in consultation between the CFO and the Treasury Department.

The use of derivative hedges is based on underlying transactions; the derivatives are not used for speculation purposes.

More detailed information on hedging strategies and risk management as well as financial transactions and the scope of such
transactions at the balance sheet date is provided in the Risk Report and the section Financial instruments in the Notes to
the consolidated financial statements.

See from page 50 and 225

Capital structure

Capital structure of the Group
EUR million 30 Sep 30 Sep 2017 Var. %
2018
Non-current assets 10,682.1 9,867.6 + 8.3
Current assets 4,929.7 4,317.9 + 14.2
Assets 15,611.8 14,185.5 + 10.1
Subscribed capital 1,502.9 1,501.6 + 0.1
Capital reserves 4,200.5 4,195.0 + 0.1
Revenue reserves - 2,005.3 - 2,756.9 + 27.3
Non-controlling 635.5 594.0 + 7.0
interest
Equity 4,333.6 3,533.7 + 22.6
Non-current 1,730.3 1,896.1 - 8.7
provisions
Current provisions 380.9 382.6 - 0.4
Provisions 2,111.2 2,278.7 - 7.4
Non-current financial 2,250.7 1,761.2 + 27.8
liabilities
Current financial liabilities 192.2 171.9 + 11.8
Financial liabilities 2,442.9 1,933.1 + 26.4
Other non-current 409.5 459.8 - 10.9
liabilities
Other current 6,314.6 5,980.2 + 5.6
liabilities
Other liabilities 6,724.1 6,440.0 + 4.4
Equity and liabilities 15,611.8 14,185.5 + 10.1

Capital ratios
EUR million 30 Sep 2018 30 Sep 2017 Var. %
Non-current capital 8,724.1 7,650.8 + 14.0
Non-current capital 55.9 53.9 + 2.0*
in relation to balance sheet
total%
Equity ratio% 27.8 24.9 + 2.9*
Equity and non-current 6,584.3 5,294.9 + 24.4
financial liabilities
Equity and non-current 42.2 37.3 + 4.9*
financial liabilities
in relation to balance sheet
total%

* Percentage points

Overall, non-current capital increased by 14.0 % to EUR 8,724.1 m. As a proportion of the balance sheet total, it amounted to
55.9 % (previous year 53.9 %).

The equity ratio was 27.8 % (previous year 24.9 %). Equity and non-current financial liabilities accounted for 42.2 %
(previous year 37.3 %) of the balance sheet total at the reporting date.

Equity

Subscribed capital and the capital reserves rose slightly year-on-year. The increase of 0.1 % each was driven by the issue of
employee shares. Revenue reserves rose by EUR 751.6 m to EUR- 2,005.3 m. Non-controlling interests accounted for EUR 635.5 m
of equity.

Provisions

Provisions mainly comprise provisions for pension obligations, for maintenance and other typical operating risks classified as
current or non-current, depending on expected occurrence. At the balance sheet date, they accounted for a total of EUR 2,111.2
m, down by EUR 167.5 m or 7.4 % year-on-year.

Financial liabilities

Composition of liabilities
EUR million 30 Sep 2018 30 Sep 2017 Var. %
Bonds 296.8 295.8 + 0.3
Liabilites to banks 780.5 381.3 + 104.7
Liabilites from finance leases 1,342.7 1,226.5 + 9.5
Other financial liabilities 22.9 29.5 - 22.4

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Financial liabilities 2,442.9 1,933.1 + 26.4

Structural changes in financial liabilities

The Group's financial liabilities increased by a total of EUR 509.8 m to EUR 2,442.9 m. The structure of liabilities was
affected by a slight rise in liabilities from finance leases and an increase in financial liabilities from the issue of a
Schuldschein.

Overview of TUI's listed bond

The table below lists the maturities, nominal volumes and annual interest coupon of listed bonds from 2016 with a nominal
value of EUR 300.0 m and a 5-year period to maturity.

Listed bonds
Capital Issuance Maturity Amount Amount Interest
measures initial outstanding rate
EUR EUR million % p. a.
million
Senior October 2016 October 2021 300.0 300.0 2.125
Notes
2016

Bank loans and other liabilities from
finance leases

Apart from the bonds worth EUR 300.0 m for the purposes of general corporate financing, TUI AG issued a Schuldschein worth a
total of EUR 425.0 m in July 2018. A fixed interest rate was agreed for three tranches with tenors of 5, 7 and 10 years. Two
other tranches with tenors of 5 and 7 years will carry a floating interest rate based on 6-month EURIBOR plus a fixed margin.
The resulting interest rate risks are hedged by interest rate transactions with the same terms. At an average tenor of nearly
6.5 years for the Schuldschein, the interest costs amount to around 1.75 % p. a.

Moreover, the Hotels & Resorts and Cruises segments took out separate bank loans, primarily in order to finance investments by
these companies. Most liabilities from finance lease contracts are attributable to aircraft as well as one cruise ship. More
detailed information, in particular on the remaining terms, is provided under Financial liabilities in the Notes to the
consolidated financial statements.

Other liabilities

Other liabilities totalled EUR 6,724.1 m, up by EUR 284.1 m or 4.4 % year-on-year.

See section on Financial liabilities in the Notes, page 217

Off-balance sheet financial instruments and
key credit facilities

Operating leases

The development of operating rental, leasing and charter contracts is presented in the section Net assets in the Management
Report.

See page 74

More detailed explanations and information on the structure of the remaining terms of the associated financial liabilities are
provided in the section Other financial liabilities in the Notes to the consolidated financial statements. There were no
contingent liabilities related to special-purpose vehicles.

Syndicated credit facilities of TUI AG

TUI AG signed a syndicated credit facility worth EUR 1.75 bn in September 2014. This syndicated credit facility is available
for general corporate financing purposes (in particular in the winter months). It carries a floating interest rate which
depends on the short-term interest rate level (EURIBOR or LIBOR) and TUI's credit rating plus a margin. At the balance sheet
date, an amount of EUR 102.4 m from this credit facility had been taken up in the form of bank guarantees.

Bilateral guarantee facilities of TUI AG with insurance companies and banks

TUI AG has concluded several bilateral guarantee facilities with various insurance companies with a total volume of GBP 85.0 m
and EUR 130.0 m. These guarantee facilities are required for the delivery of tourism services in order to ensure that Group
companies are able to meet, in particular, the requirements of European oversight and regulatory authorities on the provision
of guarantees and warranties. The guarantees issued usually have a term of 12 to 18 months. They give rise to a commission in
the form of a fixed percentage of the maximum guarantee amount. At the balance sheet date, an amount of GBP 27.3 m and EUR 30.0
m from these guarantee facilities had been used.

TUI AG also concluded bilateral guarantee facilities with a total volume of EUR 42.5 m with banks to provide bank guarantees
in the framework of ordinary business operations. Some of the guarantees have a term of several years. The guarantees granted
give rise to a commission in the form of a fixed percentage of the maximum guarantee amount. At the balance sheet date, an
amount of EUR 15.8 m from these guarantee facilities had been used.

Obligations from financing agreements

The Schuldschein worth EUR 425.0 m from 2018, the bond worth EUR 300.0 m from 2016 and the credit and guarantee facilities of
TUI AG contain a number of obligations. TUI AG has a duty to comply with certain financial covenants (as defined in the
respective contracts) from its syndicated credit facility worth EUR 1.75 bn and a number of bilateral guarantee lines. These
require (a) compliance with a underlying EBITDAR-to-net interest expense ratio measuring TUI Group's relative charge from the
interest result and the lease and rental expenses; and (b) compliance with a net debt-to-underlying EBITDA ratio, calculating
TUI Group's relative charge from financial liabilities. The underlying EBITDAR-to-net interest expense ratio must have a
coverage multiple of at least 1.5; net debt must not exceed 3.0 times underlying EBITDA. The financial covenants are
determined every six months. They restrict, inter alia, TUI's scope for encumbering or selling assets, acquiring other
companies or shareholdings, or effecting mergers.

The Schuldschein worth EUR 425.0 m, the bond worth EUR 300.0 m and the credit and guarantee facilities of TUI AG also contain
additional contractual clauses typical of financing instruments of this type. Non-compliance with these obligations awards the
lenders the right to call in the facilities or terminate the financing schemes for immediate repayment.

Ratings by Standard & Poor's and Moody's

TUI AG ratings
2013 2014 2015 2016 2017 2018 Outlook
Standard B B+ BB- BB- BB BB stable
& Poor's
Moody's B3 B2 Ba3 Ba2 Ba2 Ba2 positive

In the light of improved metrics and continuous operating improvements as well as resilience against geopolitical events,
Moody's upgraded the corporate rating of 'Ba2' with a 'positive outlook' in February 2018.

TUI AG's bond worth EUR 300.0 m has been assigned a 'BB' rating by Standard & Poor's and a 'Ba2' rating by Moody's. TUI AG's
syndicated credit facility worth EUR 1.75 bn is assigned a 'BB' rating by Standard & Poor's.

Financial stability targets

TUI considers a stable credit rating to be a prerequisite for the further development of the business. In response to the
structural improvements resulting from the merger between TUI AG and TUI Travel and the operating performance observed over
the past few years, combined with a strengthening business model despite a challenging environment, Moody's upgraded their TUI
ratings with a 'positive outlook'. We are seeking further improvements in the rating so as to ensure better access to the debt
capital markets even in difficult macroeconomic situations, apart from achieving better financing terms and conditions. The
financial stability ratios we have defined are leverage ratio and coverage ratio, based on the following basic definitions:

Leverage ratio = (gross financial liabilities + discounted value of financial commitments from lease, rental and leasing
agreements + defined-benefit obligations) / (reported EBITDA + long-term leasing and rental expenses); Coverage ratio =
(reported EBITDA + long-term leasing and rental expenses) / (net interest expense + ? of long-term leasing and rental
expenses). These basic definitions are subject to specific adjustments in order to reflect current circumstances. For the
completed financial year, the leverage ratio was 2.7(x), while the coverage ratio was 6.7(x). We aim to achieve a leverage
ratio between 3.00(x) and 2.25(x) and a coverage ratio between 5.75(x) and 6.75(x) for FY 2019.

See (37) Capital management in the Notes on page 239

Interest and financing environment

In the period under review, short-term interest rates remained at an extremely low level compared with historical rates. In
some currency areas, the interest rate remained negative throughout the year, with corresponding impacts on returns from money
market investments but also on reference interest rates for floating-rate debt.

Quoted credit margins (CDS levels) for corporates in the sub-investment grade area remained almost flat year-on-year.
Quotations remained on a persistently low level for TUI AG. Refinancing options were available against the backdrop of the
receptive capital market environment, and TUI AG took advantage of this in July 2018 by issuing a Schuldschein worth EUR 425.0
m.

In the completed financial year, in addition to the issue of a Schuldschein worth EUR 425.0 m, sale-and-lease-back agreements
were signed for seven new airplane. These include finance leases for one B787-8 and two B737-8 Max and operating lease
agreements for one B787-9 and three B737-8 Max.

Liquidity analysis

Liquidity reserve

In the completed financial year, TUI Group's solvency was secured at all times by means of cash inflows from operating
activities, liquid funds, and bilateral and syndicated credit agreements with banks.

At the balance sheet date, TUI AG, the parent company of TUI Group, held cash and cash equivalents worth EUR 889.3 m.

Restrictions on the transfer of liquid funds

At the balance sheet date, there were restrictions worth around EUR 0.2 bn on the transfer of liquid funds within the Group
that might significantly impact the Group's liquidity, such as restrictions on capital movements and restrictions due to
credit agreements concluded.

Change of control

Significant agreements taking effect in the event of a change of control due to a takeover bid are outlined in the chapter on
Information required under takeover law.

See chapter Information required under takeover law

Cash flow statement

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Summary cash flow statement
EUR million 2018 2017
Net cash inflow from operating + 1,150.9 + 1,583.1
activities
Net cash outflow from investing - 845.7 - 687.7
activities
Net cash outflow from financing - 236.9 - 733.8
activities
Change in cash and cash equivalents with + 68.3 + 161.6
cash effects

The cash flow statement shows the flow of cash and cash equivalents with cash inflows and outflows presented separately for
operating, investing and financing activities. The effects of changes in the group of consolidated companies are eliminated.
The prior year's cash flow statement shows the flow of cash and cash equivalents for the continuing and discontinued
operations.

In the period under review, cash and cash equivalents rose by EUR 31.9 m to EUR 2,548.0 m.

Net cash inflow from operating activities

In the financial year under review, the cash inflow from operating activities amounted to EUR 1,150.9 m (previous year EUR
1,583.1 m). The year-on-year decrease on a positive operating performance was mainly driven by a lower increase in working
capital year-on-year as well as a higher one-off payment to pension funds in the UK.

Net cash outflow from investing activities

In the financial year under review, the cash outflow from investing activities totalled EUR 845.7 m (previous year EUR 687.7
m). While the cash outflow for capital expenditure related to property, plant and equipment and financial investments amounted
to EUR 956.2 m, the cash inflow from the sale of property, plant and equipment and financial investments stood at EUR 192.4 m.
The cash outflow of EUR 135.6 m for the acquisition of consolidated companies almost exclusively relates to the Destination
Experiences and Hotels & Resorts segments. The cash outflow for capital expenditure related to property, plant and equipment
and intangible assets and the cash inflow from corresponding sales do not match the additions and disposals shown in the
development of fixed assets, as these also include non-cash investments and disposals.

Net cash outflow from financing activities

The cash outflow from financing activities totals EUR 236.9 m (previous year EUR 733.8 m). TUI AG recorded an inflow of cash
of EUR 422.9 m from the issue of an unsecured Schuldschein after deducting borrowing costs. TUI Group companies took out
further financial liabilities worth EUR 11.3 m. A further cash outflow of EUR 162.7 m related to the redemption of financial
liabilities, including EUR 106.5 m for finance lease obligations. An amount of EUR 110.8 m was used for interest payments,
while a cash outflow of EUR 381.8 m related to dividend payments to TUI AG shareholders and a further outflow of EUR 53.5 m to
dividend payments to minority shareholders.

Change in cash and cash equivalents
EUR million 2018 2017
Cash and cash equivalents at the + 2,516.1 + 2,403.6
beginning of period
Changes due to changes in exchange - 36.4 - 49.1
rates
Cash changes + 68.3 + 161.6
Cash and cash equivalents at the + 2,548.0 + 2,516.1
end of period

Cash and cash equivalents comprise all liquid funds, i. e. cash in hand, bank balances and cheques.

The detailed cash flow statement and additional explanations are provided in the consolidated financial statements and in the
section Notes to the cash flow statement in the Notes to the consolidated financial statements.

See page 158 and 241

Analysis of investments

The development of fixed assets, including property, plant and equipment, intangible assets and shareholdings and other
investments, is presented in the section on Net assets in the Management Report. Additional explanatory information is
provided in the Notes to the consolidated financial statements.

Additions to property, plant and equipment

The table below lists the cash investments in intangible assets and capital expenditure in property, plant and equipment. This
indicator does not include financing transactions such as the taking out of loans and finance leases.

Net capex and investments
EUR million 2018 2017 Var. %
Cash gross capex
Hotels & Resorts 240.6 223.0 + 7.9
Cruises 244.6 281.4 - 13.1
Destination 9.5 10.1 - 5.9
Experiences
Holiday Experiences 494.8 514.5 - 3.8
Northern Region 78.9 58.5 + 34.9
Central Region 26.8 22.3 + 20.2
Western Region 46.4 31.0 + 49.7
Markets & Airlines 152.2 111.9 + 36.0
All other segments 146.2 146.1 + 0.1
TUI Group 793.2 772.5 + 2.7
Discontinued operations - 28.6 n. a.
Total 793.2 801.2 - 1.0
Net pre delivery payments on 17.7 202.5 - 91.3
aircraft
Financial investments 164.1 122.6 + 33.8
Divestments - 148.0 - 54.4 - 172.1
Net capex and investments 827.0 1,071.9 - 22.8

Investments in other intangible assets and property, plant and equipment totalled EUR 793.2 m in the period under review, down
- 1.0 % year-on-year.

In the financial year under review, investments mainly related to the acquisition and renovation of Marella Explorer, the
construction of hotels, in particular in Mexico and the Cape Verde Islands, and the acquisition of two hotels in Zanzibar, the
development and launch of Group-wide IT platforms and down payments on ordered aircraft. Investments were also effected for
renovation and maintenance in all areas.

The table below shows a reconciliation of capital expenditure to additions to TUI Group's other intangible assets and
property, plant and equipment.

Reconciliation of capital expenditure
EUR million 2018 2017
Capital expenditure 793.2 801.2
Finance leases 194.0 136.0
Advance payments 163.1 247.8
Additions within assets held for - - 28.6
sale
Other non-cash changes - 4.2 3.5
Additions to other intangible 1,146.1 1,159.9
assets and property, plant and
equipment

Investment obligations

Order commitments

Due to agreements concluded in FY 2018 or in prior years, order commitments for investments totalled EUR 3,883.3 m as at the
balance sheet date; this total includes an amount of EUR 1,092.1 m for scheduled deliveries in FY 2018.

At the balance sheet date, order commitments for aircraft comprised 70 planes (two B-787s and 68 B-737s), to be delivered by
the end of FY 2023. Delivery of 18 B-737-Max aircraft has been scheduled for FY 2019.

More detailed information is provided in the section Other financial liabilities in the Notes to the consolidated financial
statements.

Net financial position

From the H1 2018 interim report onwards, we have adjusted the definition of our net debt. While net debt had previously been
calculated as the balance between current and non-current financial debt on the one hand and cash and cash equivalents on the
other, from now on we also consider short-term interest-bearing investments as deduction items. The majority of these
investments have terms of three to six months. In accordance with IFRS regulations, these investments are not shown in the
consolidated balance sheet as cash and cash equivalents but as current trade receivables and other assets. The adjustment had
no effect on the previous year.

The net liquidity position of the continuing operations decreased by EUR 459.4 m year-on-year to EUR 123.6 m as at 30
September 2018. The year-on-year reduction in the net liquidity position was primarily attributable to the reinvestment of
gains on disposal received last year as well as higher touristic prepayments.

Net financial position
EUR million 30 Sep 2018 30 Sep 2017 Var. %
Financial debt 2,442.9 1,933.1 + 26.4
Cash and cash equivalents 2,548.0 2,516.1 + 1.3
Short-term interest-bearing 18.5 - n. a.
investments
Net cash 123.6 583.0 - 78.8

Non-financial Declaration

pursuant to the CSR Directive Implementation Act

For TUI Group, economic, environmental and social sustainability is a fundamental management principle and a cornerstone of
our strategy for continually enhancing the value of our company and beyond. We recognise that sustainable development is
critical for long term economic success and we aspire to pioneer sustainable tourism across our sector.

In the following section we report on sustainability issues which support better understanding of our business's operations,
context and future development, in line with CSR reporting legislation. In compliance with Section 315b, paragraph 1, clause 3
German Commercial Code (HGB) we also refer to relevant aspects of non-financial disclosure found in other parts of the Group
management report.

Within the framework of our materiality analysis we gained insight into the sustainability risks and opportunities. We did not
identify any non-financial risks as defined by the CSR-RUG. In particular, we report on our risk management system and
principle risks linked with our business activities, business relations and services in our Risk Report from page 40 on.

This non-financial Group statement has been reviewed by the Supervisory Board with regard to aspects of legality, regularity
and relevance. Our reporting covers the United Nations Global Compact principles and we regularly review our activities
against the United Nations Sustainable Development Goals (SDGs). The goals provide a useful framework with which to view our

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DJ TUI AG: Annual Financial Report - Part 2 -26-

impact and the contributions we make to a better world. We see a special contribution towards seven of the SDGs - knowing
these are also interdependent. A detailed mapping is published in our sustainability report.

Business model

TUI Group's business model as defined in HGB section 289b is outlined from page 28 in the present Annual Report.

Sustainability strategy and implementation

Our 'Better Holidays, Better World' 2015 - 2020 strategy is built around the following core pillars:

· Step lightly, where we commit to operate the most carbon-efficient airlines in Europe and cut the carbon intensity of our
operations by 10 % by 2020.

· Make a difference, where we commit to deliver 10 m 'greener and fairer'* holidays per year by 2020, enabling more local
people to share in the benefits of tourism.

· Lead the way, where we commit to invest EUR 10 m per year by 2020, to support good causes and enhance the positive impacts
of tourism, using the TUI Care Foundation to support this work.

· Care more, where we commit to achieve a colleague engagement score of over 80.

* Measured by the number of customers we take to hotels with credible sustainability certification - defined as those
recognised or approved by the Global Sustainable Tourism Council (GSTC).

Materiality

TUI Group carried out a formal materiality assessment in FY 2018 involving a variety of stakeholder groups. Through a global
stakeholder survey and an impact analysis, the most material aspects were identified and prioritized using recognized
qualitative and quantitative methods. The graph below shows the major areas where TUI's stakeholders would like us to focus
even more commitment and engagement.

For our assessment, we identified the following key stakeholder groups

· Customers

· Employees

· Financial markets

· Media

· Non-Governmental Organisations

· Politics

· Science

· Shareholders

· Suppliers / Business Partners

Findings will now be discussed with senior management and help inform the development of TUI's sustainability strategy for the
next years.

Managing Sustainability

Across TUI Group dedicated and experienced sustainability professionals work in close collaboration with senior management at
Group and at divisional level to help ensure that TUI's business and sustainability strategies are aligned. Our sustainability
colleagues' role is to drive uptake of more sustainable business practices across the TUI Group and along its supply chain,
and to advise the TUI Care Foundation on destination project proposals and implementation. On a regular basis the TUI Group
Executive Committee is updated on our performance against the sustainability strategy and on material issues. Also
sustainability is regularly on the agenda in divisional management boards, platform boards (i. e. hotels and aviation) and in
the risk oversight committee.

As part of TUI's sustainability management approach, the corporate headquarters has been successfully audited against the ISO
14001:2015 environmental standard.

Senior Management from across TUI regularly speak at a range of forums and conferences about the industry's most material
issues and TUI's response to them. Furthermore sustainability is a key issue whenever we collaborate with destination
governments and develop our growth strategy.

Sustainability indices and awards

TUI AG is represented in the sustainability index FTSE4Good and on the Ethibel Investment Register. In 2018 TUI was included
in the RobecoSam Sustainability Yearbook with a 'Silver Class' distinction. TUI participated again in the CDP Climate Change
assessment 2018, results being announced in early 2019.

Throughout the year TUI companies have been recognized by a variety of awards. TUI Cruises was awarded in December 2017 with
the EcoTrophea at the German Travel Association Awards. In January 2018 TUI fly Belgium won the Brussels Airport Environment
Award and in March 2018 TUI fly Germany, TUICruises, TUI Germany, Robinson Club and TUI Magic Life ranked high in a consumer
research within the sustainability dimension undertaken by the Service Value and Focus in Germany.

The environment

Respecting the environment in our products, services and processes is an essential feature of our quality standards. We place
priority on improving carbon and resource efficiency. Conserving natural resources and mitigating negative environmental
impacts are both in the interests of our business as as well as the future success of travel and tourism.

We face additional environmental challenges at a local level. Plastic waste, for example, is having a negative impact on
destinations and ecosystems, especially in the oceans. Fresh water is also likely to become increasingly scarce in the coming
years in some destinations.

Tackling climate change is an urgent global challenge. The goal of the Paris Agreement to limit global warming to below 2°C
above pre-industrial levels is ambitious and requires that every industry makes a timely transition towards an
energy-efficient, lower-carbon future. As a sector leader, TUI has a responsibility to play our part. Carbon emissions are one
of the most significant environmental impacts of tourism. Travel and tourism contribute some 5 % (UNEP 2008) of global carbon
emissions - half of which is attributable to aviation.

Our 'Step lightly' strategy therefore aims to reduce the environmental intensity of our operations and sets clear stretch
targets for improvement across aviation, cruise, hotels, offices, retail shops and ground transport. TUI has implemented
specific carbon reduction initiatives across the business - from airline and cruise efficiency programmes, to retail energy
savings and the reduction of printed brochures.

· Our headline goal: We will operate Europe's most carbon-efficient airlines and reduce the carbon intensity of our
operations by 10 % by 2020 (Baseline year 2014)

Carbon dioxide emissions (CO2)
tons 2018 2017 Var. %
Airlines & Aviation 6,393,342 6,115,492 + 4.5
Cruises 850,335 815,582 + 4.3
Hotels 554,666 507,230 + 9.4
Major premises / shops 26,195 29,511 - 11.2
Ground Transport 16,782 15,388 + 9.1
Scope 3 (Other) 78,852 73,254 + 7.6
Group 7,920,172 7,556,457 + 4.8

In FY 2018, TUI Group's total emissions increased year-on-year in absolute terms, primarly due to growth in its Airline &
Aviation sector. The increase in absolute carbon emissions in Hotels is driven by the expansion of TUI's hotel portfolio.
Carbon emissions in Cruises increased by 4.3 % which was the result of the launch of the new Mein Schiff 1 (operated by TUI
Cruises) and the first full year reporting of Mein Schiff 6.

Emissions from offices and retail shops significantly declined, mainly due to energy efficiency initiatives in the UK and
Germany.

Energy usage by business area
MWh 2018 2017 Var. %
Airlines & Aviation 26,070,988 24,940,489 + 4.5
Cruises 3,227,813 3,077,062 + 4.9
Hotels 1,527,259 1,420,438 + 7.5
Major premises / shops 88,076 91,422 - 3.7
Ground transport 67,283 61,697 + 9.1
Total 30,981,419 29,591,108 + 4.7

Energy usage by business area

As part of TUI's environmental reporting we have included a breakdown of energy usage by business area. Airlines and Aviation
represents more than 84 % of the total energy used.

Climate protection and resource efficiency
by TUI Airlines

We already operate one of Europe's most carbon-efficient airlines and we aim to continuously improve. TUI Airlines'
comparative performance was recognised in November 2017 by the independent climate protection organisation atmosfair, which
ranked TUI Airways and TUI fly Germany #1 and #3 respectively as the most carbon-efficient airlines amongst the 200 largest
airlines worldwide. TUI Airlines have numerous measures in place to further enhance carbon efficiency. We have implemented the
following measures to support our efficiency goals:

· Fleet renewal: TUI took receipt of the first five Boeing 737 Max aircraft in FY 2018 (of 73 total confirmed orders), which
are 14 % more fuel efficient resulting in lower carbon and NOx emissions and have a 40 % smaller noise footprint compared to
previous generation aircraft

· Process optimisation, e. g. single-engine taxing in and out, acceleration altitude reduction and wind uplinks

· Weight reduction, e. g. introduction of carbon brakes and water uplift optimisation

· Flight planning optimisation, e. g. Alternate Distance Optimisation and Minimum Fuel Optimisation

· Implementation of fuel management systems to improve fuel analysis, identify further opportunities and track savings

With efficiency measures and fleet renewal, we expect to continue to make progress over the next few years but acknowledge
that reaching our commitment to reduce our operational carbon intensity by 10 % by 2020 will be a challenge.

TUI's airlines play a pioneering role in introducing environmental management systems based on the internationally recognised
ISO 14001 standard. In the period under review, each of our five tour operator airlines (representing 95 % of our aircraft)
achieved ISO 14001:2015 certification.

The TUI Aviation Environment & Fuel Team is responsible for an alignment of the fuel and environment practices and activities,
integrating them into a single TUI Airlines operating policy, procedures and performance tools. The team drives best practice
in fuel and environment management, providing end-to-end delivery of initiatives and projects in order to deliver the TUI
Group sustainability objectives. Latest developments and updates about the performance are presented to the TUI Aviation Board
regularly so that appropriate measures can be taken.

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DJ TUI AG: Annual Financial Report - Part 2 -27-

TUI Airlines - Fuel consumption and CO2 emissions
2018 2017 Var. %
Specific fuel l / 100 rpk* 2.65 2.65 - 0.1
consumption
Carbon dioxide t 5,860,431 5,571,719 + 5.2
(CO2) - total
Carbon dioxide kg / 100 rpk* 6.67 6.67 - 0.1
(CO2) -
specific

* rpk=revenue passenger kilometer

TUI Airlines - Carbon intensity
2018 2017 Var. % g CO2e / rpk*
TUI g CO2 / rpk* 66.7 66.7 - 0.1 67.3
Airline
fleet
Corsair g CO2 / rpk* 84.9 84.3 + 0.8 85.8
Internatio
nal
TUI g CO2 / rpk* 63.6 63.4 + 0.2 64.2
Airways
TUI fly g CO2 / rpk* 70.0 71.5 - 2.2 70.7
Belgium
TUI fly g CO2 / rpk* 64.7 63.5 + 1.9 65.4
Germany
TUI fly g CO2 / rpk* 64.0 65.2 - 1.8 64.7
Netherland
s
TUI fly g CO2 / rpk* 58.2 61.3 - 5.3 58.8
Nordic

* rpk=revenue passenger kilometer

We commissioned PwC Netherlands to provide assurance on the carbon intensity metrics displayed in the table 'TUI Airlines -
Carbon Intensity' above. To read our airline carbon data methodology document and PwC's Assurance report in full, please visit
www.tuigroup.com/en-en/sustainability/reporting

Relative carbon emissions across our airlines improved by 0.1 % in the FY 2018. As a scheduled longhaul operator Corsair
International's payload consists of both passengers and cargo. Cargo transportation results in higher fuel burn and carbon
emissions as is reflected in Corsair's carbon intensity performance. TUI fly Germany's carbon efficiency performance
deteriorated due to fleet expansion associated with Air Berlin's insolvency.

To enhance the information content, specific emissions are also shown in the form of CO2 equivalents (CO2e). Apart from carbon
dioxide (CO2), they include the other five greenhouse gases impacting the climate as listed in the Kyoto Protocol: methane
(CH4), nitrous oxide (N2O), hydro-fluorocarbons (HFCs), perfluorocarbons (PFCs) and Sulphur hexafluoride (SF6).

Climate protection and resource management
in Cruises

In 2018, TUI Cruises launched the new Mein Schiff 1. The newbuild ships in the fleet save fuel through a combination of the
latest technologies. A smart energy management system, efficient air conditioning, innovative lighting controls and the use of
waste heat from the engines all contribute to a significantly reduced carbon footprint. The International Maritime
Organization (IMO) has defined particularly stringent NOx limit values for ship newbuilds in specified Nitrogen Emission
Control Areas (NECAS) off the North American coast. Equipped with a main engine that is completely compliant with TIER III,
the new Mein Schiff 1 fully meets these criteria.

TUI Cruises Environment Report:
www.tuicruises.com/nachhaltigkeit/umweltbericht/

Sulphur emissions from the newbuilds in the fleet are also up to 99 % lower thanks to new systems that treat exhaust fumes
before releasing them. The ships are fitted with advanced emission purification systems, which operate around the clock
worldwide - not only in the designated special emission control areas of the North and Baltic Seas, the English Channel and
North America but also in the other areas that TUI Cruises travels to, such as the Mediterranean, Orient, Caribbean and
Central America.

In FY 2018, TUI Cruises continued a food waste project supported by the industry initiative Futouris entitled 'Reduction of
food waste on cruise ships'. Using a waste analysis tool and applying various measures onboard led to an overall 17 %
reduction in food waste onboard the ship. These results, including specific proposals relating to measurement of food waste
and best practices, will be made available to the entire cruise sector and are being implemented more widely across the TUI
Cruises fleet.

All Hapag-Lloyd Cruises ships have Tributyltin-free underwater coatings, seawater desalination systems for water treatment
purposes as well as a biological sewage treatment system for wastewater. Waste is separated on board in an
environmentally-friendly manner prior to disposal on land by specialized companies in accordance with international
regulations (MARPOL). Hapag-Lloyd Cruises' expedition vessel MS Bremen is one of the first ships worldwide which has achieved
the 'Polar Ship Certificate', a certificate for navigating in polar regions. To reduce emissions in harbors, the MS Europa 2
has facilities for cold ironing for the energy supply onboard when berthing in respective harbors.

In the FY 2018 Marella Cruises has invested significant time improving its environmental data management systems and
processes. This has helped to drive environmental performance with carbon emissions, fresh water consumption and waste
production per passenger cruise night all improving year on year. The fleet continues to operate as efficiently as possible.
This is achieved through the installation of new equipment on board such as air conditioning plant, and operating single
engine running, or drifting on passage, so that the engines can run at their most efficient speed - all of which cuts energy
demand on board.

Cruises - carbon intensity, fresh water and waste
2018 2017 Var. %
Carbon dioxide 101 108 - 6.5
(CO2) - relative
kg / Cruise
passenger night
Fresh water - 110 162 - 31.9
relative l / Cruise
passenger night
Waste - relative l 12.7 14.7 - 13.6
/ Cruise passenger
night

In FY 2018, relative carbon emissions in Cruises decreased by 6.5 % mainly driven by the on-going re-fleeting programme, more
efficient energy use and technological improvements.

Per cruise passenger night 12.7 litres of waste were measured - a reduction by 13.6 % and 110 litres of fresh water consumed,
a reduction by 31.9 %, due to fleet renewal and enhanced water desalination facilities on board.

Climate protection and resource management
by hotels

Together with our hotel partners we constantly work on improving our sustainability performance. We have found our hotels with
sustainability certifications deliver on average better environmental performance and higher customer satisfaction.

We have included a sustainability clause in contracts with our accommodation suppliers outlining minimum expectations and the
requirement to work towards credible sustainability certification recognised by the Global Sustainable Tourism Council (GSTC).
TUI is supporting its hotel partners by providing guidance and consultancy to enable our hotel partners to prepare for
certification.

TUI hotels were involved in numerous sustainability projects and initiatives in 2018 including the following:

· In time for the 2018 summer season Robinson Club Apulia has installed a large solar panel system with 3,280 solar panels
across a total area of 5,500 square meters. During the four-month construction period, the modern solar system was installed
on various building complexes of the club including the restaurant, workshop and some guest houses. Around 71 % of the
electricity produced will be used for the self-supply of the club and 29 % will be fed into the local power grid.

· TUI Group's largest hotel brand Riu made an important contribution to avoiding plastic waste. The Riu hotels in Spain and
Portugal as well as Cape Verde have been offering compostable straws to their guests since this summer. Likewise, Riu is
planning to incorporate them into its hotels in the Americas as of 2019. This will produce less plastic waste and protect
the environment. The new drinking straws are 100 %biodegradable and also compostable. Several other TUI hotel brands also
took the decision to ban the single-use plastics straws and to offer - if necessary - environmentally friendly straws, i. e.
TUI Blue, TUIMagic Life and Robinson.

· TUI Group developed a programme to identify potential cost savings for energy and water. Through an intensive analysis of
the consumption data as well as an onsite visit with experts in Portugal, on Lanzarote and Menorca, potential savings of
more than 1,700 MWh were identified in three TUI Hotels, and recommended measures are now being implemented.

Hotels - carbon intensity, water* and waste
2018 2017 Var. %
Carbone dioxide (CO2) - 9.45 9.43 + 0.2
relative
kg / guest night
Water - 556 531 + 4.7
relative l / guest night
Waste - 2.2 2.3 - 4.3
relative kg / guest night

* Includes water for domestic, pool and irrigation purposes

Effective waste management aims to conserve resources and reduce environmental impacts and costs through recycling practices.
Our owned and partner hotels implement various measures to reduce waste, for example through a stronger focus on local
procurement and reducing packaging via buying in bulk. Per guest night 2.2 kg of waste were measured in FY 2018.

Water is one of the most precious resources in the world. Beyond measures to control usage, hotels are finding innovative ways
to address fresh water supply problems. For instance, desalination projects can make a big impact in destinations where they
are in operation.

Animal Welfare

TUI audits its suppliers against established animal welfare guidelines. TUI excursions featuring animals must comply with ABTA
guidelines (Global Animal Welfare Guidance for Animals in Tourism). Since 2016 more than 150 independent audits of animal
attractions featured by TUI were conducted. Wherever possible we prefer to work with suppliers on improvement plans, however a
number of venues were taken out of the programme who did not meet the standards.

Social issues and destination collaboration

Tourism can be a powerful force for good - boosting economies, creating jobs and enhancing cultural understanding and

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tolerance. Through our 'Better Holidays, Better World' strategy we aim to ensure that local communities share the benefits of
tourism and that the environment and human rights are protected along our value chain.

· Our headline goal: We will deliver 10 m 'greener and fairer'* holidays a year by 2020, enabling more local people to share
in the benefits of tourism

* Measured by the number of customers we take to hotels with credible sustainability certification - defined as those
recognised or approved by the Global Sustainable Tourism Council (GSTC).

Greener and fairer holidays

One of our key areas of focus is the hotel - the largest component of the holiday experience. Our expectation of hotels that
work with us is that they will commit to social and environmental good practice.

Certification is central to our commitment to offer 'greener and fairer' holidays. It is a credible way of showing whether our
hotels go further than others when it comes to social and environmental issues. We encourage our hotels to aim for
certification that is GSTC (Global Sustainable Tourism Council) recognised and we are strong supporters of the certification
programme Travelife.

We also have a set of exclusive TUI Collection excursions that have been developed by TUI and tailored to give customers a
true taste of the destination. Each excursion must meet specific criteria for sustainability, showing that it is bringing
benefit to local people and minimising its impact on the environment.

Greener and fairer holidays
2018 2017 Var. %
Number of customers (millions) 9.2 8.3 + 11.9
staying at certified hotels 1
Number of contracted hotels with 1,520 1,356 + 12.1
certifications 1
% of TUI Hotels with certifications 78 76 + 2 2
1
Number of TUI Collection excursions 1,177,095 1,024,000 + 15.0

1 Hotels that are certified to a GSTC-recognised certification

2 Variance is given in percentage points

In FY 2018, the number of customers staying in a hotel which is certified according to a GSTC-recognised standard increased by
11.9 % to 9.2 million. This increase reflects improved and adjusted reporting processes, as well as the increase in the number
of accommodation suppliers who achieved certification to GSTC-recognised standards, by 12.1 % to 1,520 hotels. The number
stated in FY 2017 was updated for a like to like comparison which resulted in an increase from 1,220 hotels to 1,356 hotels.
Our customers went on 1,177,095 TUI Collection excursions in FY 2018, up 15 % on 2017.

Customer demand

Embedding sustainability into our brand and raising customer awareness are key priorities. We want to stimulate demand for
more sustainable holidays by showing customers how these contribute to a better holiday experience and highlighting the role
they can play in creating positive change.

Our consumer research from 2017 showed a significant increase in customer demand for holiday companies to manage their
sustainability impacts and to provide more sustainable holiday products. This aligns with our Better Holidays, Better World
strategy and spurs on efforts to communicate proactively with customers on sustainability throughout the holiday journey.

· 57 % would book more environmentally responsible holidays if they were more readily available (up from 40 % in 2012)

· 53 % have a better image of holiday companies that actively invest in environmental and social initiatives (up from 39 %
in 2012)

· 68 % are prepared to make lifestyle changes to benefit the environment (up from 60 % in 2012)

Access for all

We aim to provide as many people as possible with accessible holidays, and to pioneer development of new products and
processes that enhance the ease and comfort of travel.

In 2018 we continued to assess the services we offer to ensure we are in line with the requirements of the new EU Package
Travel Directive 2015 on accessible travel, that was implemented on 1 July 2018. We will continue to focus on improving the
information available to customers to ease their holiday booking experience.

Dialogue

Stakeholders in destinations have a significant role to play in sustainable tourism management. We work closely with
communities, local and national governments, non-governmental organisations and trade associations to support the sustainable
management of destinations.

The lab of tomorrow

The tourism industry is a major part of Egypt's economy. In the 'lab of tomorrow', a joint initiative with the German
development organisation GIZ, TUI - with the support of the TUI Care Foundation - is tackling the challenges of lack of
appropriately skilled personnel and vocational training opportunities, as well as the low participation of women in the labour
force. During 2018 we worked with the project's public and private partners to develop solutions for these problems,
researching, co-creating and piloting new business models on a small scale in Egypt to prove the concepts. Issues being
examined include development of hotel management skills and improving technical and vocational education for young people in
the tourism sector to improve quality standards.

Leading the way

The TUI Care Foundation is the main channel to fulfil our ambition to support good causes and enhance the positive impacts of
tourism.

Read more about TUI Care Foundation on www.tuicarefoundation.com

· Our headline goal: We will invest EUR 10 m per year by 2020, to support good causes and enhance the positive impacts of
tourism, using the TUI Care Foundation to support this work

Investments into projects and good causes
EUR million 2018 2017 Var. %
Amount raised for 7.8 7.3 + 6.8
research / good causes

The amount raised for sustainability projects and good causes reached 7.8 million in FY 2018, an increase by 6.8 %.

TUI Care Foundation was adopted as our Group corporate foundation in 2016 to unite our project activities. The TUI Care
Foundation is an independent charitable foundation, with a majority of non-TUI trustees. TUI Care Foundation builds on the
potential of tourism as a force for good by supporting and initiating partnerships and projects that create new opportunities
for the young generation and contribute to thriving destinations all over the world.

The Foundation's 'Caring for a Better World' strategic framework has three fields of engagement - empowering young people,
protecting the natural environment and helping communities thrive. Examples include:

· The Foundation is helping to empower young people through the TUI ACADEMY programme in the Dominican Republic, Zanzibar
and Vietnam, where disadvantaged youth are given education and vocational training opportunities.

· The TUI TURTLE AID programme aims to save one million sea turtles by 2020 through innovative research and protection
methods. Projects are supported with local organisations in Cape Verde, Turkey and Greece.

· Through the TUI CARES programme, the Foundation is driving local sourcing, creating cultural experiences for holidaymakers
and enhancing entrepreneurship opportunities in holiday destinations such as Crete, Lanzarote and Andalucía.

Human Rights

TUI Group respects all internationally proclaimed human rights as specified in the International Bill of Human Rights and
expects the same of our suppliers and business partners. Modern slavery and its components of forced labour and human
trafficking are of particular concern given their egregious nature and increasing prevalence.

Modern Slavery Act Statement on
http://www.tuigroup.com/en-en/sustainability/msa

In accordance with applicable law, conventions and regulation TUI is committed to respecting human rights throughout its
worldwide operations. We have a number of policies and initiatives in place to monitor, identify, mitigate and prevent human
rights impacts in line with the UN Guiding Principles on Business and Human Rights, and will take remedial action where
necessary.

In September 2014, TUI signed up to the UN Global Compact, committing the Group to 10 universally accepted principles in the
areas of human rights, labour, environment and anticorruption. In 2012, TUI signed the UN World Tourism Organisation's (UNWTO)
Global Code of Ethics- further underlining our commitment to respecting human rights.

We have a working group on human rights, drawing on senior management from major departments across our business to help with
the continuous process of analysing potential human rights risks. We also sit on the Boards of the Global Sustainable Tourism
Council (GSTC) and Travelife, both of which are addressing these issues through sustainability certification standards.

TUI Group has a number of policies and procurement processes in place focused on the prevention of human rights violations and
modern slavery.

· The Employee Code of Conduct commits us to respect and observe human rights. TUI Group employees are also encouraged to
report any wrongdoing to the 'Speak Up' Line.

· The Supplier Code of Conduct sets out the minimum standards we expect from suppliers. The code includes guidance on human
rights and labour laws, bribery and corruption, environmental impacts and support for local communities.

· We have incorporated environmental and social requirements into contracts for our accommodation suppliers as well as other
areas of procurement.

We require our hotel suppliers to implement credible sustainability 3rd party certifications recognised or approved by the
Global Sustainable Tourism Council (GSTC). Schemes approved and / or recognised by GSTC mandate the highest standards of human
rights, child protection and social welfare in the tourism industry. The number of TUI customers staying in a hotel certified
to a GSTC-recognised standard grew to 9.2 million and the number of hotels with certification grew to 1,520.

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