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Market Structure of the German and British Tour Operators’ Industry Through the Analysis of the Package Tour Prices in the Balearic Islands. Essay

Abstract: In this paper we study a sample of package tour prices of German and British tour operators in the Balearic Islands. One of the proposes of this study is to analyse if there are significant differences in price between tour operators due to different factors than those associated to the characteristics of the offer (first hypothesis). These differences in price have been showed in Sinclair et al. (1990) by British tour operators in the resort of Malaga and in Aguiló et al. (2001) by German tour operators in Majorca. The main results point out differences in price between tour operators not associated with the characteristics of the package tour’s offer, that we interpret as an oligopolistic feature of the tour operators’ market. The genereted data is also useful to estimate the role that hotel chains play. Our second hypothesis is to contrast if the association of hotels in chains offset the tour operator’s market power.

Keywords: German and British tour operators’ industry; Balearic Islands; Package tour prices.

INTRODUCTION

The Balearic Islands could be one of the regions that best symbolised the Mediterranean sun and beach holidays. This type of tourism emerged in the 60’s and supposed a turning point in the evolution of tourism. Before this date few tourist visited the islands and all of them were of the upper class, after 1960 the middle and lower class can afford vacations due to several economical and cultural changes. One of the most important changes was the package tour made by tour operators, who due to the volume and standardisation of the packages generated economies of scale, and so, lower prices to tourist who become to arrive in mass. European consumers showed a growing tendency to this type of vacation, partly due to lower prices that, for the same final product, could offer tour operators (Travel and Tourism
Intelligence, 2000). This lower price is the result of a bulk negotiation with the different elements that compose the package tour, essentially: hoteliers and airlines. In the present paper, we will focus on the negotiation with hoteliers, as the main European tour operators are vertically integrated with charter airlines. The lack of studies on hoteliers-tour operators’ price negotiation is due to the non-availability of data related to this theme. So, although we consider that empirical evidence is necessary, our last choice was to arrange several interviews with different hoteliers to know about the price negotiation with tour operators. The results of these interviews highlight that operators who contract more room’s beds are those who get lower prices. Obviously, those operators are the large ones. So, we can start from the premise that large tour operators have market power on mass destinations. The main purpose of this paper is to study prices that tour operators fix on the package tour brochures in order to determine if they operate in a competitive or oligopolistic market. If in the origin market operates under perfect competition, tour operators could fix a marginal-cost price, on the other hand, they could fix a price above the marginal-cost without losing market share if the origin market is oligopolistic. Anyway, the existence of economies of scale in sales, marketing and purchasing, mean that there are conditions, which strongly favour concentration in the tour operator industry (Williams, 1996).

Both German and British tour operators dominated the European market in 1999, as seven of the ten main tour operators are of these nationalities (FVW Europäische Veranstalter in Zahlen, documentation 1999/2000). Moreover, in each country large tour operators have large market shares: in 1999 the seven large German tour operators have a 83% market share (FVW), whilst the four main British tour operators control the 86.6% of the Spanish market (AC Nielsen). On the other hand, the Balearics attract large numbers of German and British tourist, accounting for 70% of the total of foreign tourists in 2000[ii] and as exposes Williams (1996) the destinations that are dependent on the British and German markets are in fact locked into relationships with the powerful tour operators in these countries. The first propose (hypothesis 1) of this paper is to contrast the market power of these companies when selling the Balearic Islands. By the way, the hotel chains in the Balearic Islands, as an association of hotels, can negotiate lower prices with tour operators than an individual hotel, and thus, can offset the power of tour operators in the Islands. This is the last point (hypothesis 2) that we want to analyse in the paper. Dunning and McQueen (1982) argued that there are three conditions for the emergence of international hotel chains: 1) where there are net ownership advantages; 2) where there are locational endowments; 3) to internalise market transactions. In mass tourism the authors argued that the first two conditions do not exist, as the tourism product being sold is largely indifferent to branding and location factor endowment. We do not thing that mass tourism and hotel chains may not be held concurrently, as most Balearic hotels chains have internationalise and some of them are between the most important in the world. Resuming, in this paper we will examine the German and British tour operators’ industry through the analysis of the package tour prices on the Balearic Islands and the roll that hotel chains play. The evidence that price could give is not enough, but a gut approach to analyse the tour operators’ package tour industry. The paper is divided as follows: in the next section, we first review the literature concern to tour operators, then we describe the data used in the paper. After that, we show some descriptive results of the package tour prices, in order to identify the influence of some relevant characteristics of the package tour on its price. Then, an analysis of variance is done to evaluate the statistical significance of the variables detected as significant in determining the price of package tours; and finally some observations on the package tour industry are offered before reaching an overall conclusion.

LITERATURE REVIEW

There are implicit statements between those who work on the tourism sector, that tour operators dominate mass destination markets and although there are numerous assertions of the importance of tour operators, there has been little detailed research on this topic. We thought that the package tour industry analysis is still at its beginnings, despite its relevance in most of the European markets. Several researchers have discussed the structure of this industry, but the conclusions in some cases have turned out to be contradictory. Sheldon (1986) argues that the US package tour industry is polarised into a few large stable firms and many small less stable firms, and conclude that the industry is contestable. Fitch (1987) presents descriptive evidence of market power in the UK package tour industry. Baum and Mudambi (1994) argue that the UK package tour industry is oligopolistic and prone to price instability. Taylor (1996) queries whether the UK industry is contestable or oligopolistic and concludes that the UK market is contestable. Curtin and Busby (1999) expose that due to economies of scale, tour operators have enormous buying power (monopsony) as well as considerable control of the distribution and sale of their product in the market place (monopoly power). The above papers are based in theoretical arguments. Evans and Stabler (1995) use descriptive statistics to argue that the UK industry is segmented according to strategic groupings, where the large firms are oligopolistic and the small ones are competitive. Gratton and Richards (1997) introduce some empirical evidence on package tour prices and tour operators’ market shares. They conclude that the UK package tour industry is contestable, whilst the German is a stable oligopoly.

Davies and Downward (1998, 2000) use econometrics, and the results gave empirical support to the Evans and Stabler thesis of strategic groupings. Concretely, they argue that the UK package tour industry is segmented by size. On the other hand, there are some papers that study the tour operators’ industry in destination places rather than in the origin markets: Taylor (1995) analyses the package tour price competitiveness in several Mediterranean destinations and concludes that the Spanish hotels are price acceptant, and emphasises the high tour operators’ negotiation power. Sinclair et al. (1990) examine the package tour prices in Malaga and conclude that there are significant differences in prices between UK tour operators. Aguiló et al. (2001) study the German package tour prices in Majorca and come to the conclusion that there are significant differences in prices, no related with the package tour characteristics. Furthermore, due to the antimonopoly legislation, some concentrations between tour operators have been analysed by The Monopolies and Mergers Commission (the British authority on mergers and concentrations) and the European Commission (the European authority on mergers and concentrations). In 1988 The Monopolies and Mergers Commission investigated the acquisition of Horizon Travel by Thomson Travel Group and reported that the British tour operators’ market was competitive. They demonstrated that
with the followings facts: the price competitiveness of the market, low profitability, relatively easy entry by new firm to the tour operating industry and higher prices in Germany and other European countries. On the other hand, in 1999 the European Commission investigated and blocked the acquisition of First Choice by Airtours alluding to several features that indicated a dominant position on the British tour operators’ market. By the way, other acquisitions between tour operators of different nationalities investigated by the European Commission have been expected not to operate against the competition (Airtours/Frosch Touristik and TUI/Thomson). At this point, we consider that the European Commission do not investigated the market power that this macro European tour operators can have in a nearly future on some destinations, as the Balearic Islands, where almost 20% of the tourist are carried by Thomson and TUI, nowadays belonging to the same touristic group.

THE DATA

The data used in this paper is from 28 German and 20 British tour operators’ summer 2000 brochures[iii]. The brochures describe in detail the characteristics of each offer (hotel category, proximity to beaches, swimming pool, etc) and give an overall price, not giving a price to each element of the offer. Many of the characteristics described in the brochures are related to the hotel star rating[iv], regulated by law. However it should be stress that the star rating don’t constitute an exhaustive description of the hotel, so there are other characteristics that impinge on package tour prices. Concretely, we consider: zone, hotel star rating, beds in room, type of board, proximity to a population centre, picturesque surroundings, lift, child care, playground, air condition, TV, SAT, garden, entertainment, no smoking areas, swimming pool, tennis, bicycles, sports, sauna, gym, golf, room sea view, mini bar, proximity to a natural area, proximity to beaches, total rooms and floors of the hotel and exclusive to the tour operator. Tour operators’ package tour prices for the same hotel vary depending on the specific characteristic of the offer (beds in room, type of board, zone, etc) and of other facts, concretely transport cost, length and time of the year. As in Aguiló et al. (2001) we consider, from the point of view of price competitiveness, the influence on prices of product’s characteristics rather than transport cost and time of year for the present analysis. Thus, the present analysis focuses on offers for a stay in one-to five-star hotels in the Balearic Islands, considering only prices for the first week of August 2000 (high season) and with departure from Düsseldorf and Gatwick.

The high season was chosen because that time of the year (May-October) is when more tourists visit the Balearic Islands. Nearly the 50% of the tourist that visit the Islands concentrate in the months of June, July and August[v]. The selection of the first week of August was arbitrary. The choice of Düsseldorf was based on the fact that it moves 20.9% of the German tourist that come to the Balearic Islands; and for the British tourist, Gatwick was chosen because it canalise 29.9% of British tourist[vi]. Comparisons between nationalities are workable because a charter flight’s mean price from Gatwick or from Düsseldorf to the Balearic Islands do not present significantive differences. We really thought that our data is suitable to analyse the tour operators’ price structure in the Balearic Island. Our previous statement is based in the fact that 8921 tour operators’ offers associated with 693 hotels were analysed, while 713 hotels is the official number of registered hotels in the Balearic Islands. Furtehrmore, the fact that nearly 90% of hotel rooms are contracted by tour operators in the Balearic Islands allow us the inference of the results to the industry.

ANALYSIS OF THE PACKAGE TOUR PRICES

Our first hypothesis to contrast is if there are differences in price due to tour operators and thus, not associated with the characteristics of the offer. The second hypothesis is to analyse the role that hotel chains play in the determination of package tour prices .We first realize a descriptive analysis, to carry on with an analysis of variance. Thus, allow us to isolate the effect that tour operators and hotel chains have on prices, estimating if there are differences and the kind of differences.

Descriptive analysis
Tour operators
The variability of the prices of the packages offered are due to several factors, some of them associated to the characteristics of the offer and some related to the tour operator that organise the package tour. To analyse our first hypothesis we have to isolate the tour operator effect by homogenising the offer. We can only compare prices between tour operators if the offers are homogenous. Hotel star rating, type of board and beds in room are expected to be, in a first approximation, the main causes of price variability. So, the offers that we consider are in a double room with half board in a three stars hotel. Figure 1 and 2 present the box-plots of the price in this market segment for each tour operator for each nationality[vii]. In figure 1, it can be seen that, Niag Reisen’s, FTI’s and Club Blaues Meer’s median price is in a range clear above the rest, while SLR and Öger Tours, and TUI and C&N present similar distributions. Insert Figure 1 about here

In the case of British tour operators, figure 2 shows that the positions of the price distributions have a clear order: Airtours’ price distribution is above the rest, then go Thomas Cook and Virgin and finally, Cosmos, First Choice and Thomson are third in the ranking. Insert Figure 2 about here

A careful reading of this information allows the inference of factors other than hotel star rating, type of board and number of beds in a room in price determination. Although other factors determining price are considered in the analysis of variance, these results point to a differential effect associated with the tour operator. Once we have highlighted the differentiation effect of tour operators, we carry on with its analysis. We don’t have to forget that tour operators are intermediaries between the hotel industry and the holiday’s consumers. Its control capacity of the market in a zone or in a demand segment could be reflected both in hotels, through a low price negotiation, and with customs, offering higher prices in the brochures. The first one, regrettably, can be estimated trough the data, but we can explain the possibilities that tour operators have when they establish the package tour price. If they have market power in destinations (we assume that large ones have) will obtain lower prices per room. At this point, in general terms, tour operators have two alternatives. First, they
can establish lower prices in the brochures, so its mark-up will not benefit, but consumers; on the other hand, tour operators can raise mark-up and get beneficiated. The first choice will show market power with respect to hoteliers, whilst the second will state market power with respect to hoteliers and clients. To focus on its control capacity and its influence on prices, we have created a new variable: product concentration degree that measures the importance of each tour operators’ offer by nationalities in each market segment, according to star rating and type of board. It has been calculated as the percentage of the number of offers that each tour operator realise in each hotel star rating and in a specific type of board, regarding the total number of offers in this segment. A 10.9% value for this variable to Neckermann’s three stars hotel and half board offers, mean that the 10.9% of the package tour’s offers in three stars hotels and half board are realise by this tour operator. A dispersion graph between this variable and the mean price by hotel star rating and type of board are shown in figure 3 for British tour operators and in figure 4 for German. Insert Figure 3 about here

The dispersion graph shows a positive relation between Product concentration degree and the average price by star rating and type of board of British tour operators’ offers. The Pearson coefficient (0.384) confirms that the relation is significantive and positive. Insert Figure 4 about here

The same results are obtained with German tour operators, with a Pearson coefficient of 0.293, but although the coefficient is significative and positive, the general picture is not so clear. So, the general conclusion for both nationalities is that as the Product concentration degree increases the average price by star rating and type of board is higher. Our first preliminary conclusions of this descriptive analysis of tour operators are two: 1) There are differences in price among international companies. 2) As the control of a market segment by a tour operator increases, it can fix higher prices. Hotel chains

The association of hotels in chains is seen, among other factors, as an intention to offset the European tour operators’ growing market power
(Bardolet, 1990, p.228; Doxa, 1988). Regarding to hotels chains and its capacity to offset the tour operators’ market power, we have created a dummy variable with further information called agreement with ttoo which takes three categories: 1) the hotel doesn’t belong to a hotel chain, 2) the hotel belongs to a hotel chain and it have some kind of agreement with tour operators and 3) the hotel belongs to a hotel chain and it have any agreement with tour operators. Once we have obtained the dummy, we have calculated the mean difference between each category for offers in a double room with half board in a three stars hotels. We expect to observe that offers in hotels that belong to hotel chains are more expensive than those related to offers in hotels that don’t belong to hotel chains, as they are able to negotiate higher prices with tour operators and thus, tour operators charge this higher prices to consumer. Nevertheless, the brochure price analysis reflect different results, as are showed in the following tables:

Table 1: Mean price for German package tours
|Mean price |No chain |Chain without agreement |Chain with agreement | | |(92985) |(93257) |(90827) | |No chain | |-272 |2157 | | | |(0.7) |(0.254) | |Chain without agreement | | |2430 | | | | |(0.06) |

Table 2: Mean price for British package tours
|Mean price |No chain |Chain without agreement |Chain with agreement | | |(149896) |(148909) |(139707) | |No chain | |986 |10189 | | | |(0.7)
|(0.03) | |Chain without agreement | | |9202 | | | | |(0.01) |

Tables 1 and 2 show the mean price for each category in brakets, the difference mean prices between categories and its significance in brakets. The results are very explicit and present the same pattern in both nationalities, offers in hotels that belongs to hotel chains with agreements with tour operators have lower average prices than those that don’t have agreements or don’t belong to hotel chains. The results are significantive for British offers, however, for German offers, while the price average difference between hotels with or without agreements is on the limit of the 5% significance, the price average difference between hotel with agreements and those that don’t belong to a hotel chain is not significantive. On the other hand, there are non significantive average price differences between hotels that don’t belong to hotel chains and those that belong to one without agreements. The obtained results can be interpreted as follow: hotel chains that have any kind of agreement with tour operators are more concerned in obtaining higher occupancy rates than higher prices, that can mean lower occupancy rates. Thus, if offers are cheaper in those hotels, they could have higher occupancy rates. Supporting our thesis, Dunning and McQueen (1982, p. 86) explained that: “hotels associated with tour operators will also presumably be able to plan and maintain higher occupancy rates because the parent company is in a control position in channelling tourist towards its own hotel.” The conclusions obtained with this descriptive analysis of the hotel chains were at a first glance unexpected, but relevant as the package tour prices fixed in the brochures, reveal that what involve negotiation power is not the hotel chains per se, but the association with tour operators.

Analysis of variance
The analysis of variance will allow us to compare the importance that different characteristics of the offer have on the overall price, as well as
differential effects linked to the tour operator and hotel chains. The first one was detected in preliminary works as Sinclair et al. (1990) and Aguiló et al. (2001), while the second one is a new attribution to this field. Its seems appropriate to consider, given the previous results, as determinants of the package tour price the hotel star rating, the type of board and the number of beds in the room. Although the main characteristics of the package tour are covered by this variables, the brochures specify in detailed each offer and this information is available in our data to improve the analysis. Some of this can be superfluous, in terms of its relationship to the category of the hotel or its redundancy. This is the case, for example, with a characteristic such as a satellite TV and TV in rooms or child care and playground. Nevertheless, descriptive analyses also state that the tour operator, the variable product concentration degree and the variable agreement with ttoo have something to say about the final price of a package tour. With this specification, the signification of tour operator can’t be put down to characteristics of the offer not completely covered by the hotel star rating. The variable used to analyse the differences was the price of the package tour specified in the brochure. Table 3 for British and in table 4 for German show the results of an analysis of variance of the variables that turn out to be significant.

Table 3: Analysis of variance of the variable price of British package tour. |Dependent Variable: price | | | | |Source |DF |F-ratio |Pr>F | | | | | | |Model |44 |281.67 |0.000 | |Residual |2297 | | | |Total |2341 | | | | | |R square=0.841 | | | | | | |Variables |DF |F-ratio |Pr>F | | | | | | |Intercept |1 |5157.82 |0.000 | |Beds in room |2 |291.38 |0.000 | |Hotel star rating |4 |210.05 |0.000 | |Type of board |3
|118.78 |0.000 | |Tour operator |14 |89.09 |0.000 | |Zone |10 |35.64 |0.000 | |Product concentration degree |1 |20.61 |0.000 | |Number of floors |1 |8.79 |0.003 | |Room sea view |1 |21.98 |0.000 | |Mini bar |1 |102.02 |0.000 | |Air condition |1 |19.67 |0.000 | |Playground |1 |15.66 |0.000 | |Picturesque surroundings |1 |258.13 |0.000 | |Proximity to a natural area |1 |44.20 |0.000 | |Swimming pool |1 |37.23 |0.000 | |Sauna |1 |64.95 |0.000 | |Golf |1 |18.98 |0.000 |

Table 4: Analysis of variance of the variable price of German package tour. |Dependent Variable: price | | | | |Source |DF |F-ratio |Pr>F | | | | | | |Model |58 |323.94 |0.000 | |Residual |6467 | | | |Total |6525 | | | | | |R square=0.742 | | | | | | |Variables |DF |F-ratio |Pr>F | | | | | | |Intersección |1 |5892.90 |0.000 | |Beds in room |3 |418.40 |0.000 | |Hotel star rating |4 |991.06 |0.000 | |Type of board |3 |79.31 |0.000 | |Tour operator |22 |21.89 |0.000 | |Zone |14 |42.70 |0.000 | |Product concentration degree |1 |100.21 |0.000 | |Agreement with ttoo |2 |6.57 |0.001 | |Number of floors |1 |30.51 |0.000 |
|Room sea view |1 |187.33 |0.000 | |Air condition |1 |10.82 |0.001 | |Mini bar |1 |78.96 |0.000 | |Sat |1 |51.88 |0.000 | |Playground |1 |55.09 |0.000 | |No smoking areas |1 |9.26 |0.002 | |Proximity to a natural area |1 |71.38 |0.000 | |Swimming pool |1 |5.40 |0.020 |

As can be observed in the above tables the variable agreement with ttoo appears only significantive for German package tours. However, the variable product concentration degree appears significantive and positive for both nationalities. This result show that the great control of a market segment by a tour operator in the Balearic Islands allow it to exert a great market power fixing higher prices and thus, reveal the oligopolistic features of this market. The identity of tour operator appears for both nationalities significantive. Aguiló et al. (2001) explained this results in two ways. First, it is possible that there are characteristics not observable in brochures, which would be associated with the level of quality of the services offered by the tour operator. The second explanation points to the monopolistic nature of competition in this type of market. Sinclair et al. (1990) attribute the differences in price to the greater effectiveness of certain advertising campaigns or the inability of smaller companies to take advantage of the economies of scale that the large ones enjoy. The first explanation of Aguiló et al. (2001) refers to variables as flight schedules, degree of attention, and so on. In our sample this factors has been taken into account. So, the rest of explanations given by authors to this fact reveal, in a wide range, an oligopolistic feature of this market, especially among large tour operators, that permit them to have different strategies one another. Obviously the specific strategy of each tour operator is unknown, but the analysis of the parameters estimated (table 5) offer us an overall strategy, that has been contrasted by the companies portfolios.

Table 5: Tour operators estimated parameters
|Phoenix |-10370 |Thomson
|-21473 | |LTU |-6340 |First Choice |-14170 | |ITS |-5504 |Cosmos |-11381 | |Alltours |-5196 |Thomas Cook |-4879 | |Dertour |-5193 |Virgin |0 | |C&N |-2571 |Airtous |18065 | |SLR |-334 | | | |TUI |0 | | | |Club Blaues Meer |1166 | | | |Frosch Touristik |5070 | | | |Niag Reisen |6346 | | | |Öger Tours |9518 | | |

German data is richer in terms of size of tour operators than British data, and so, we can observe large tour operators: TUI, C&N and LTU; medium: Dertour, FTI and ITS; and small: Alltours, Club Blaues Meer, Niag, Öger, Phoenix and SLR. However, British data is composed by large tour operators: Thomson, Airtours, Thomas Cook and First Choice; and medium: Cosmos and Virgin. Although the mark up of each package tour sold is not so high, the total number of packages sold determine its benefits. Therefore, rather than benefits, market shares are the objective of tour operators. Generally speaking, small German tour operators fix higher prices, except Phoenix and Alltours. This fact is due to its lower capacity of negotiating prices with the supply side, and the relative exclusive distribution system created by large tour operators. When the tour operator is unable to reduce its costs due to its size, must fix higher prices and have lower market share. By the way, TUI is the German and European tour operator with great market share and is, among large tour operators, the one that fix the highest prices. Its growing strategy through expanding in other markets, allow TUI to increase its market share without reducing prices. That is, TUI can fix higher prices without losing market share.

The rest two large tour operators: C&N and LTU fix prices lower than TUI. C&N could follow a lower prices strategy to rise its market share and challenge TUI leadership. On the other hand, LTU has
been acquired by REWE in January 2001, so the low prices in summer 2000 can be interpreted as an attempt to gain clients and rise its market share (LTU has reduce its market share dramatically from 1994 to 1999). Finally, we have the medium tour operators: Dertour, ITS and FTI. The first two fix lower prices in an attempt to rise its market share. Medium tour operators don’t have the great negotiation power that large ones have, and so, don’t obtain low prices in the negotiation with the supply side, but if they want to become large they have to obtain clients and then fix in the brochures low prices. The last one, FTI, has during the last years internal problems that conduce to its acquisition by Airtours. This problems can be associated with the high price fix in summer 2000. Alltours, despite its classification as a small tour operator, is among the small ones, the one that have the greatest market share, and we can put its strategy on an equal foot with ITS and Dertour. On the other hand, Airtours is among large British tour operators the one that fix the highest prices. This tour operator is the second in terms of market share both in the British and in the European market. Just like TUI, Airtours has grown through the expansion to other countries and the product diversification. This two facts allow Airtours to fix higher prices without losing market share. Although, Airtours is not the market leader in Great Britain (place hold by Thomson), it behave as it was. The acquisition of Thomson by TUI in 2000 due to financial problems can explain the low prices of the British leader. To sum up, except the small tour operators, the three tourist groups that control the European market fix the highest prices. So, although they have market power with the supply side and obtain the lowest prices in the negotiation, these prices are not diverted into low package tour prices. Therefore, large tour operators have market power both in origin an in the Balearic Islands. We can reflect our thesis with a more general model that show the implications of the price elasticity on mark up. The theory stars with the premise that profit maximizing firms with market power set price (P) as a mark up over marginal cost (MC), which mark up depends on the elasticity of demand ((), where ( is defined to be positive. Thus:

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At this point, we consider that the introduction of an aggregate measure of the competitive conduct in the tour operator industry is a great deal (See Papatheodorou, 2001), but we go further arguing that tour operators perform in two related but different scenarios: destination and origin countries. In the Balearics Islands tour operators are the demand side and the hoteliers are the supply side. Tour operators are price sensitive, so its demand is quite elastic, and thus the hoteliers’ mark up is lower. So, hoteliers are concerned in occupancy rates. On the other hand, in the origin countries: Germany and UK, tour operators are the agents that supply the package tour to the consumers, so they operate as the supply side and the consumers are the demand side. Consumers behave in to different ways when decide where to expend their holidays: 1) Type 1 consumers don’t have any special destination to go and will go to the cheapest one. 2) Type 2 consumers want to go to the Balearics. Type 1 consumers are very price sensitive, its demand is elastic and so, tour operators’ mark up will be lower; contrary, type 2 consumers are less sensitive to price, so tour operators’ mark up rises. This second type of consumers are more attractive both for tour operators and hoteliers; the first ones can rise its mark up, whilst the second ones obtain a loyal tourism. Although, the mass market tour operators’ industry as a whole is characterised by small margins, this differentiation between consumers highlights the impact of loyal consumers on margins and question the statement that tour operators put destination-based business (above all hoteliers) at a bargaining disadvantage because they have obtained the initiative in persuading their clients which destination to visit. ¿Which type of tourism have the Balearic Islands? Cladera (2002) shows that both German and British tourists repeat its holidays in the Balearic Islands (67.65% and 78.11% respectively in 2000). This figures point out that the Islands are a destination that tourists claim and can drive us to tell that the Islands have a type 2 consumers, but we can be in front of a type 1 consumer if the reason of visiting the Balearics is the price, so we have to carry on investigating the reasons for the visits. Aguiló et al. (2002) observe that the main reasons for choosing the Balearics as their holidays destination for German tourist are: clime (20% of answers), beaches (15.9%), environment and hotel quality (13.4%), transfer facilities (7.4%) and price (6.7%).

British tourist give more importance to price (11% of answers), but the most relevant reason is still the clime (21.2%). Environment and hotel quality represent 12.1% of answers, whilst beaches are only a 10%. This figures can be observed by another perspective, specifically, by the number of people who have marked each of the reasons. Doing that we can observe that clime is the main reason, marked by 80.2% of Germans and 84.6% of British. While the 63.6% of Germans showed beaches as a coming reason, only a 40% of British consider beaches as a reason. Price is influent in the decision for only the 26.9% of Germans, while British are more concern about prices, 45.3%. Environment and hotel quality is marked by 53.9% of Germans and by 48.3% of British. Transfer facilities (29.7%) and night atmosphere (22.5%) is more important for Germans than for British people (12.6% and 15.5% respectively). Furthermore, Cladera (2002) analyses the number of tourist who have selected the price as a reason for choosing the Balearics differentiating by first-time tourists and loyal ones. Cladera conclude that the 34.6% of first-time German tourists and the 45.5% of first-time British tourists consider the price one of the reasons of visiting the Islands, whilst only a 20.2% of loyal German tourist and the 43.1% of loyal British tourist. This figures show the relative less importance of price as a reason of spending the holidays in the Balearic Islands as much the Islands are visited. After this analysis we are able to answer the question: tourist who visit the Islands are mostly loyal tourists and the main reason for choosing the Islands is not the price, although British people are more sensitive to prices than German people.

CONCLUSIONS

This paper has had two main objectives: 1) Examine the influence on the package tour prices of the identity of the tour operator. 2) Determine the role that hotel chains play on the determination of the prices. These have been studied through the price structure of tourist packages in the Balearic Islands offered by a representative sample of German and British tour operators. The conclusions reach after the analysis permit us to state in connection with hypothesis 1 that: 1) the differences in price between tour operators are due to the different strategies that tour operators follow to
gain market share, 2) large tour operators have market power both in origins and in the Balearic Islands and 3) The type of tourist who visit the Island succeed in increasing mark up both to tour operators and hoteliers. We really believe that large European tour operators have market power both in origin and in destination markets, although the strategies of each tourist group can make the market seem competitive. Debbage (1990) also consider this when argued that the suppliers are potentially able to reap the advantages of their oligopolistic and oligopsonistic power to the detriment of consumers and destinations. Relative to hypothesis 2 we can conclude that the fact that a hotel belongs or not to a hotel chain is not appreciared by fixing higher prices in the brochures, that could show a great negotiation power towards tour operator. However, the obtained results reveal that offers in hotels that have any kind of agreement with the tour operator are in mean cheaper. That results permit us to conclude that hotel chains are more concerned in high occupancy rates than in high prices per room. It could be interesting in future research to complement or contrast the methodology used here with alternative approaches to confirm the results reported in this paper.

ANNEX

Figure 1: Package tour prices for offers in a double room with half board in a three stars hotel by German tour operators

Figure 2: Package tour price for offers in a double room with half board in a three stars hotel by British tour operators

Figure 3: British tour operators’ dispersion graph by star rating and type of board

Figure 4: German tour operators’ dispersion graph by star rating and type of board

BIBLIOGRAPHY

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Documento de Sintesis”. Estudios Turísticos, vol.103, nº9, pp. 3-33. DUNNING, J. H. y McQUEEN, M. (1982) “Multinational Corporations in the International Hotel Industry”. Annals of Tourism Research, vol.9, pp. 69-90. EVANS, N.G. y M.J. STABLER (1995) “A Future for the Package Tour Operator in the 21st century?”. Tourism Economics, vol.1, 3, pp. 245-263. FITCH, A. (1987) “Tour Operators in the UK. Survey of the Industry, its markets and product diversification”. Travel and Tourism Analyst, March, pp. 29-43. FVW (anual) “Europäische Veranstalter in Zahlen, dokumentation 1993-2000”. GRATTON, C. y G. RICHARDS (1997) “Structural change in the European Package Tour Industry: UK/German comparisons”. Tourism Economics, vol.3, 3, pp. 213-226. PAPATHEODOROU, A. (2001) “Why People Travel to different places”. Annals of Tourism Research, vol. 28, nº 1, pp. 164-179. SHELDON, P.J. (1986) “The Tour Operator Industry. An Analysis”. Annals of Tourism Research, vol.13, pp. 349-365. SINCLAIR, M.T., A. CLEWER y A. PACK (1990) “Hedonic prices and the Marketing of Package Holidays: the case of Tourism resorts in Malaga”. In Marketing Tourism Places. Ashworth, G.J. and Goodall, B., eds,
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END NOTES

[i] Los tres profesores son miembros del Departament d’Economia i Empresa de la Universitat de les Illes Balears. [ii] Govern de les Illes Balears (2000) “El turisme a les Illes Balears, dades informatives, any 2000”. [iii] Terramar, Spanien und Portugal; Neckermann, Young and Sport; Neckermann, Flugreisen; Neckermann, Family; Condor Individuell; Air Marin, Spanien und Portugal; Fischer Reisen, Flugreisen; Kreutzer; Bucher Reisen; Smile anf Fly; Jahn Reisen; Maris Reisen; THR Tours, Jet and Bett; THR Tours, Urlaub Mal Anders; Tjaerborg; FTI; FTI, Preis Pardise; ITS, Spanien und Portugal; DER, Der Sonnenseiten; Alltours, Flugreisen; 1,2 Fly; TUI Schönen Ferien; TUI Schönen Ferien Free World; Öger Tours,Sommer 2000; Club Blaues Meer Reisen, Mallorca; Shauinseland Reisen, Belearen; Niag Reisen, Mallorca; Phoenix, Flugreisen Sommer 2000; Airtours, Summer Sun; Archers Direct, Summer Sun; Price Beaters; Cosmos, Summer Sun; JMC, Summer Sun; JMC, Select; JMC, Essentials; Club 18-30; Skytours; Thomson, Summer Sun; Thomson, Small and Friendly; Thomson a la Carte; Club Freestyle; Portland Direct; Just; Virgin, Summer Sun; Sovereign, Summer Sun; First Choice, Summer Sun; Eclipse, Summer Sun; 2wentys. [iv] Sinclair et al (1990) point out that hotel rating is a gut indicator of the services and facilities that the hotel offers. [v] Conselleria de Turisme (2000)

[vi] Govern de les Illes Balears (1999) “El turisme a les Illes Balears, dades informatives, any 1999”. [vii] In each of the boxes, the central line
indicates the median of the distribution, while the height of the box represents the inter-quartile range, the area is proportional to the frequency of observations. The feet extend (at most) up to 1.5 times the inter-quartile range, aiding the detection of observed extremes (marked as circles).


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