The task of the following assignment is taking a strategic fit for a package holiday company. A package holiday company is defined as one that offers minimum of travel and accommodation in a single package.
One company that operates internationally and offers minimum package of travel and accommodation is TUI Travel.
TUI is the world’s leading international leisure travel company operating in four different sectors (tuitravelplc.com)
The main competitors of TUI based on Market share are:
Carlson Wagonlit Travel
Thomas Cook plc.
“Our vision is Making Travel Experiences Special”
TASK A: Market Environment Analysis
In order to analyse the market environment proper analytical tools should be chosen:
PESTLE Analysis for Macro Environment
Porter’s five forces for Micro Environment
Changes in the taxation policy of the government in UK, such as increase in VAT percentage by 2.5% may have a negative impact on inbound tourism in UK as the prices of commodities will rise. Also, 24% Britishers claim that increase in VAT will also lead to expensive staycations (Casal 2011)
Unstable Political environment can seriously impact the tourism industry of a nation as the travelers fear for their safety and tend to avoid that nation. Such as recent Political uprising in mid east has lead to 50% cancellations in Arab nations (Zablit 2011).
Security and safety concerns have major impact on tourism industry. Terrorist attacks of 9/11 in US led to 10% fall in demand for travel and tourism (Bennett and Barry n.d.). Such attacks also raise a question on national security of the country and dampen the tourist’s confidence.
UK’s plan to emerge out of recession may just be stretched further as the recent political uprisings in Middle East and disaster struck Japan may have prolong effects on the world economy, affecting the tourism industry as well.
In measures to keep household budgets low, families are looking into more of domestic shore holidays, also stated as staycations. In year 2009 there was a decrease by 14% in overseas holidays in UK, whereas the domestic shore market rose by 5% (Mintel Report 2010).
In the year 2008 there was resistance amongst the US visitors for the UK due to strong Pound. Against the dollar, Pound was at two-year low. (Ashby 2008) Looking at the table 1, which shows Dollar strengthening against the pound in the recent years, may attract tourists from US. Furthermore, strengthening of Euro and Dollar can be stated as a cause for escalated interest in staycations and a concern for outbound tourism from UK.
Table 1: Currency Prices for last 5 years, with base currency being Pound (£)
The Oil prices rose to $120 per barrel in February 2011 due to political uprising in Middle East and have left airlines worried. International Airlines Group has decided to cut back by flying less often. IAG’s CEO said if the fuel prices do not recede the ultimate effect would be on fares (Milmo 2011). This would lead to increase in packaged holidays prices.
Mintel report 2009 suggests that the decline in average households is projected to continue whereas 5% growth in 1-3 person households. It states about 48% of 1 member family went on a holiday as compared to 68% of marries, 60% of three person and 70% of four households. (Mintel Report 2010)
Table2: Showing % change in households in UK.
(Source: Mintel Report 2010)
By 2031 it is projected that the single households (mainly people over 55) will comprise of 18% of the total households in UK. Therefore it would be a major market for the package operators (Communities 2009)
Continued concerns over health and hygiene are seen amongst UK residents. The outbreak of Foot and Mouth disease in year 2001 led to 16% fall in visitor expenditure in UK leading to negative images of Britain as a holiday destination (Pasty 2003). But, with the upcoming Olympics 2012 and Royal Wedding in 2011 will lead to high volume of tourists visiting UK.
As per the National statistics organization (2010) there were one in five people of retirement age in the UK. As the population is ageing there will be an extra cost for the companies who offer pension schemes to their employees so that their staff lives longer (Oxford University Press 2007).
In UK there were 20 million Internet subscribers out of 27 million households. High Level of Internet penetration is a key contributing factor to online travel retailors performing better. Online sales of travel retail product represented 34% of the total sales. This also has led to fierce competition amongst the players as the customers are looking for cheap vacation packages, third most important factor when selecting holiday package (Euromonitor)
Latest technology advancements in sectors such as engineering, airline industry, transport, infrastructure etc. such as coming of luxury passenger planes such as Airbus A380 and Boeing’s 787, Eurostar via Eurotunnel have made cross border travel easier and swifter than ever.
Emissions Trading Scheme:
This scheme was presented in the year 2003 for EU in-order to curb carbon emission. In 2008 amendments were made to this scheme, including the aviation activities as well. It means the aircraft operators will be subject to a cap and will have to pay allowance to cover their emissions. This could have an upward impact on the prices of holiday packages (Euro Monitor).
Open Skies Agreement:
Signed between EU and US in the mid 2008 allowing and airline from the EU or the US to any place between EU and US. (Euro Monitor) This allows the customers to fly with their choice of airline and thus can help reduce costs because of competition amongst the operators.
The Ethical Purchasing Index states that the ethical purchasing has grown phenomenally with total market valued at £30million. Eco Holidays, Fair trade holidays have experienced exceptional growth due to the rasing concern regarding the environment amongst the people (Mintel Report 2005).
In today’s world it is impossible for the travel and tourism industry to ignore the growing concerns over environment. In a survey in year 2002, 85% of the people said it is important their vacation does not hamper the environment. Due to this fact the package operators are aligning themselves to become environment friendly (Euro Monitor). Such as Thomas cook has now started to highlight about their services meeting responsible tourism criteria (Mintel Report 2005)
Porters Five forces:
The four major players in the market (Thomson, MyTravel, First-Choice and Thomas Cook) have, for number of years, jostled each other for bigger market share and profits have proved to be volatile (Evans et al, 2003). The major package holiday players target different segments in the market such as, offering luxury vacations, adventure vacations etc. with some uniqueness as well. Package operators such as Thomson introduced their own low cost airline- Thomson fly and “dynamic packaging” where customers can book their accommodation and flights separately (Lueck 2005)
The level of customer services affect when choosing a company, if one offers better customer service than others it helps in retaining customers. Therefore there is intense rivalry in the industry
Threat of New Entrants:
The total expenditure on holidays is expected to rise by nearly 22% in 2014 from 2004(Mintel report, 2010) making the tourism industry attractive one because of the market size. Yet, high level of capital investment required targeting larger audience and the need to differentiate acts as a barrier to entry. And to add, top 10 companies control 70% of the market. This reduces the price retaliation and keeps the economies of scale high. Findings from Mintel report (2010) states Brand awareness plays an important role in package holiday industry and thus can act as a barrier. Therefore threat of new entrant is low.
Threat from Substitutes:
Holidays can have direct as well indirect substitutes, such as instead of spending couple of pounds on a week’s vacation people might spend same amount of money on buying a car or towards house extension. Therefore threat from substitutes if moderate.
Bargaining Power of Suppliers:
Supplier can have high negotiation power over the companies having small market share, but in a market where 4 major players control over 50% of the market there is threat of backward integration. Therefore the bargaining power of the suppliers is low
Bargaining Power of buyers:
Customers today have the option to book their holidays over the Internet they eye to fetch cheap deals. Regards to this the customers have more choices. But, due to low level of differentiation and lesser substitutes make the bargaining power moderate.
Critical Success Factor
New Destinations: As per the Mintel report (2010) visiting a new destination has seen highest growth in terms of percentage, 12%. Places that have hot weather, beaches, landscapes, cultural heritage are a major hit amongst various demographics. Therefore in order to have larger market share it is important for the package operators to continuously look to update their offering of destinations.
It is important for the tour operators to offer short and medium haul holiday’s destinations and domestic places for vacations, as it is the growing market as per the current statistics. (Mintel Report 2010)
Convenience: In today’s technologically advanced world where most of the population is the subscriber to Internet, it is important for travel agents to offer the customers with online booking facility. In UK itself out of 27 million households 20 millions are the Internet subscribers (Euro Monitor). Mintel report (2010) states there was nearly 20% growth in online booking, way more than any other method of booking holidays. Also, a company should be easily searched over the Internet. Therefore the companies should optimize their websites to reach larger audience.
Brand Value: It is important to persuade customer to buy package holidays. Here, brand comes into the picture. The recent volcanic eruption helped the package operators build on their brand image and capitalizing on what could happen if independent holidays are booked.
Green initiatives: The growing concerns for the environment amongst the customers (see Environmental factors in PEST) have made travel operators take stock of the growing concern. Thomas cook has now started to highlight in their brochure that their services meet the responsible tourism criteria. (Euro Monitor)