TUI was established in 1997 and has grown to be one of the biggest tour operators in Europe. They have served around more than 30 million customers annually with a presence in around 180 countries. TUI started off as a transportation and industrial company but then diversified to concentrate only on tourism, shipping and logistics. They have a huge network of 3500 travel agencies, 285 hotels in 28 countries, 7 airlines, 10 cruise liners, and 79 tour operators. They have been unchallenged for most of the decade but then global environmental challenges have brought in its share of problems.
The biggest strength of TUI is the fact that it is one of the biggest travel groups in Europe. They have a huge footprint which makes it easy for them to gain access to the market and to sell their products to a large cross section of the population. They are also able to maximise on their brands by making them work in conjunction with each other. They also do not have any dire financial problems as they sold off one of their major assets. TUI is also well known for its high quality customer services. Their huge network comprises of a large mix of tour operators, airlines, hotels, cruise ships, travel agencies and retail stores. There is a lot of brand awareness for their brand names such as TUI, RIU, Thomson Airways, 1-2 Fly. This has helped them a great deal as people are aware of it and there is a lot of good faith for these brands.
One of the weaknesses of TUI is the fact that it has a very high level of debt it has to maintain which is (net debt/equity 2002E: 169%). This puts a lot of pressure on them to generate profits so that they can service their debts. They also have to contend with a lower margin of profits as there is a lot of competition within the market and they have no choice but to offer the best deals to everyone at the expense of a lower margin. The company also suffered from losses in 2008 due to the recession and other financial problems which created a major dent in travel packages. It is not feasible for them to sustain themselves for long if there is a huge drop in revenue.
There are plenty of opportunities for them to capitalise on looking at emerging markets in India and China which will give them opportunity for growth. The Indian and Chinese economies are growing very rapidly and there are people over there with money to spare on leisure activities. It would be a great idea to set up shop over there. They can also look at other business opportunities by looking at possible acquisitions or mergers with other companies.
There are still a lot of threats which can affect the business due to the recession. The recession may have eased a bit but then it has still affected how consumers buy products. If customers are tight fisted with their wallets then it can affect the bottom line of the company in the short term. There is also the threat that customers looking for savings can opt for cheaper packages such as the rail or bus for short trips and not to rely on airlines. This can also cause a major dent in their income. The money saving drive will also affect them as there are customers who are looking for budget packages and not looking for expensive packages with 4-5 star hotels in them.
ENVIRONMENTAL ANALYSIS OF THE TOURISM INDUSTRY
The airline industry has had to bear a lot of high costs ever since 9/11 and 7/7 occurred since the government has refused to bear the entire cost of security. This charge has been passed on to the consumer since the airline has refused to take the whole responsibility. There is a lot of high security due to this reason and immigration laws have been tightened up as well as not to allow unscrupulous elements in. This has also resulted in some destinations being off the list for some travellers as they have been unable to get any insurance for that particular destination. This has a lot of consequences for TUI as they also own a few airlines. The Tourism industry is also affected by the fact that not all destinations are stable. There can be any sort of political instability in those places which can also affect tourism in that country. They are also troubled by the fact that there can be a different tax band for different countries. Some countries tax more while some provide benefits so that their tourism industry can benefit in the longer run.
The recession is one of the factors which can affect the Tourism industry gravely. It has already claimed businesses such as Goldline, XL leisure group and many others. Many of these companies rely on a low margin of profit and if there is not enough to go around then the smaller players go under while the bigger ones also suffer heavy losses. This means that once the recession gets over only the big strong ones will be able to capitalise on the opportunity and gain new customers. There are also factors such as oil prices which can also affect how consumers make their travel plans. Airlines always add a surcharge whenever there is an increase in oil prices. This can make it a bit expensive for the consumer to travel as well. The recession has also lead to a fluctuation in the exchange rate of countries. The current Euro currency crisis made it quite weak against the pound and US dollar recently though it has now made a sizeable number of gains. Tourism is such that tourists will go in huge numbers to destinations with a weaker exchange rate as they can get more for their money. For example when the pound was at 1=$2 dollars there was a huge influx of British Tourists in the US to benefit from the weaker dollar.
People are always looking to move up the ladder and find ways of making changes in their lives. There have been a significant number of changes in the way people conduct their lifestyle these days. The internet has brought about a revolution in how people can go about and travel as they can use it to find the best packages to suit them. Companies such as TUI have websites which allow consumers to customize their travel plans. People are very conscious of which company they choose when they are on holiday as brand names matter a lot. A good brand name can guarantee a good holiday for them. However only those companies which have always provided good results in the past are the ones which can satisfy the needs of the customers. There is something known as brand loyalty which can guarantee that sort of experience.
Due to technological advances a lot of work has now been automated. People are relying on the internet for a lot of stuff. The internet has lead to a boom in the number of sales being conducted as people are able to do a lot from home. Consumers have been able to book a large number of holidays online as it’s quite easy to do that. The numbers have shown an upward trend ever since booking holidays online became popular. This is a double edged sword for big companies such as TUI because on one hand they can get rid of excess staff and relies on the internet for bookings etc but then the same model can be used by other competitors with lower reserves thus increasing competition.
There are a number of environmental problems associated with the tourism industry. Factors such as the environment have lead to the green culture. People are now always talking about their carbon foot print which is due to pollution. The UK government shot down plans for a third runway at Heathrow due to pollution and the fact that it would contribute to noise pollution. The government has also imposed a green tax to offset the effects of carbon emissions. There are also health factors which can affect tourism such as SARS (in the early part of the previous decade) which led to a huge decline in flights to the Southeast and more recently the Swine Flu pandemic. These are the reasons why tourism can be affected in certain areas.
There are always some sort of problems associated with the Tourism/Airline industry as it is governed by certain laws and regulations. There is always the need to have a permit of some sort for one thing or the other. All companies are aware of the legal repercussions if they do something which is against the rules.
PORTER’S FIVE FORCES ANALYSIS
It is not easy for new entrants to come into this field as TUI and some of the other giants already have a huge stake in the market. There is also a very high cost associated with entering the market as it requires a lot of capital and the costs associated with it. People are also familiar with TUI and its brands. This is one reason why it’s not easy for new companies to come into this field.
It is an obvious fact that people will never give up on leisure activities as they want an escape from home at times. There are cheaper ways of saving money such as activities at homes, local trips to town, video games but then it can never take the place of travel. This means that there will always be some demand for travel packages. Overall it means there is a low threat of substitutes.
The suppliers are the ones who can either hold a lot of power over the market or they are the ones who can be dictated to by the clients. However in the case of the Tourism industry they do not have much of a hold in the market as most of them already have a huge presence within the market and already have a lot of clout of their own as they have access to a lot of products they require i.e. TUI already has some hotels, airlines and their own travel agents so they do want need to take the support of others. The only chances of bargaining power are when there are some hotels or airlines which are not part of the group and TUI needs to sort out some travel package with them.
There aren’t many substitutes in the market and the fact that price difference between products is too low to make a big difference. Customers are able to select their products online via the internet but then it won’t make a big difference. Hence the reason why the buying power of customers is quite low.
TUI does not have to contend with much competition in the market as the only other big name out there is Thomas Cook and a number of smaller operators. However since TUI has a huge share of the market there is less competition within the market.
It has been mentioned earlier that TUI is the biggest tour company in Europe as it has a huge share of the market. They have been able to make a difference with the value and comfort them offer their clientele. This is the reason why they have been able to stay on top of the market for so long. They have a huge presence in a large number of countries and they are also able to serve millions of customers each year. One of the biggest reasons why they have been successful is the fact that they are that they have a huge presence in the market. They have interests in everything which is linked to tourism i.e. hotels, airlines, tour operators, retail shops, cruise liners, etc. They are able to spread value throughout their own interests and this is an added advantage as they don’t have to give business to any other company as the money goes right back within the organization. They provide their own supply and can easily fulfil the demand as well. They also have all the channels of gaining access to their customer base may it be online or through the brick or mortar store format as not everyone likes to buy their packages online. One of their strongest points is the fact that they have also been able to get support from their share holders who have allowed them flexibility. The customer service and excellent operations is a notch above their competitors. They are also more financially solvent than some of the other operators who recently went bust due to the economic downturn. TUI also has a very diverse portfolio of services which allow them to achieve a sense of differentiation. Since they can provide all these services they get repeat customers, are able to attain their uniqueness and can build upon their brand.
TUI has been able to provide value for the money as it strikes the right balance between profits and the needs of its customers. They are also able to adapt to drastic changes in the market by changing themselves as they have the experience to do that. They also are able to achieve more economy of scale simply because they are their own suppliers.
FUTURE IMPLICATIONS FOR TUI
The ANSOFF matrix can be used to find out what direction TUI can take in order to further develop itself.
TUI can diversify by looking towards the rail, bus and ferry sector. There is a lot of potential in that sector mainly because of the fact that there will always be people who want to save money by opting for a cheaper mode of travel. They can start their own services to capitalise on that and gain a share of that pie as their primary mode of transportation is airlines followed by luxury cruises.
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TUI has the biggest market share in the whole area along with a huge presence in the European Market. They know that it will not be easy for new competitors to come into the frame but then they have to keep tapping the other corners of the market. They have to contend with the fact that other websites can offer the same deals without setting up shop. They can enhance their market standing further online so that they can gain more revenues.
TUI has a lot of packages which are developed for specific locations. They can do a lot by looking for new destinations for its customers to give them a new taste. They can also create some budget packages for its customers so that they have more options if they are unable to choose from the expensive choices.
TUI has the biggest presence in the market and they have been able to market their product well. It is a good idea to move on to other markets so that they do not stagnate. They have pretty much cornered the market in Europe and need to find a new one. They can easily capitalise on the Indian and Chinese markets mainly because they have great economies and they have a lot of people with disposable income over there. They can find new revenues within those markets while the situation improves in the other markets.
TUI has to also look at other factors which can affect them such as the fact that oil prices keep fluctuating. They need to buy oil prices at a lower price now by hedging their bets but then there is no guarantee if the price will go down or stay up in the future. It could be a safe bet if the prices go up in the future. This can prove to be a risk but then it won’t be as big of a risk as buying oil at more expensive prices. For example if they buy oil at 75 dollars a barrel and it goes back to 65 then they will have paid more but not lost much.
They also have to face the possibility that airlines may be taxed more for the green tax in the future in order to offset carbon emissions. They are already taxed a lot currently and there are also possible measures in the future where the number of flights will be capped in order to reduce pollution.
USES AND LIMITATIONS OF TOOLS USED
This report has used a number of tools to come up with an analysis. It would not be practical to do it without the use of the tools. There are however some limitations when it comes to the tools being used.
PESTEL is a great tool as it allows us to analyse the macro environment and get a better understanding of the industry and its environment. All these factors allow us to see the future threats. PESTEL also allows us to check out the key factors which can affect the strategy of an organization as well. They are brought to the forefront and can be seen.
However it is just an understanding of the whole situation and does not provide any solutions. It also does not allow us to assess the level of the problem. It is also not feasible to analyse the entire macro environment because there are endless possibilities.
PORTER’S FIVE FORCES
Porters Five Forces allows us to understand what drives competitive behaviour and the factors behind it. It is a bit more detailed and can easily identify the reasons behind competitive behaviour. It can also check the advantages and disadvantages of the industry by analysing its profitability and competitiveness scale. It is also used to determine the feasibility of the industry and understand the fundamentals behind it.
The only problem with it is the fact that the environment is always changing and it can never be used for a long term analysis. It also does not take the industry into segments and considers them to be a whole. It is flawed as it does not look at HR, culture and the management skills of an organization.
The SWOT analysis is to the point and focuses on the strengths, weaknesses, opportunities and threats of a business. It takes into account both the internal and external aspects of the business. It is a great decision making tool and also understands which points of the business to take into account. It also addresses the key issues and identifies the relevant information.
Despite all the strengths of the model it will still ignore some of the important factors of the business. It does not provide any solution to strengthening the business.
The ANSOFF matrix allows the business to check out its best options in different scenarios. This also allows them to explore how they can grow as a corporation.
It is a bit limited as it only takes into account the fact that it only looks at growth and share and not other factors. It also uses a growth matrix to analyse the operations which is not sufficient.
TUI still needs to a do a lot to capitalise on its current position. They can make hay while the sun shines and gain as many customers as they can. If they diversify and start catering to people with limited incomes they can gain a whole new market. They only need to play their cards right and they can grow a great deal.