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PEST Analysis for a Company in the Tourism Industry Essay

The Tourism industry is one of the fastest growing industries in theworld. The World Travel and Tourism Council estimates that in 2004

Travel and tourism is expected to generate* US$ 5,490.4 billion of economic activity* 10.4% of total GDP* 214,697,000 jobs or 8.1% of total employment* 12.2% of total exports [1]My task is to conduct a PEST analysis for a company within the Tourismindustry.

Within the tourism industry, I have to select one area of interestlike transportation, accommodation and transportation etc. and thenone company doing business with these sectors related with thetourism.

According to Leiper ?Transportation is the only link between thetourist-generating region and destination region?[2]So, transportationwas a more interesting sector to discuss in the report but I tried tofind a company which is related with all these main sub-sectorsdiscussed above in the report.

I have decided to look in the U.K market for such company because?Tourism is one of the largest industries in U.K, worth approximately75.9 £ Billion to the U.K economy in 2002 and supporting around 2.1million jobs.? [3]During my research on internet I found many companies offeringservices in the tourism of U.K but I have decided to choose ?SimplyTravel? because of its variety of services offering related with theaccommodation, transportation and attractions.

1.2 Problem FormulationIn the problem formulation part of my report I would describe theoverall situation of the U.K Tourism industry. The service concept of?Simply Travel? will give us information about the services providedby the company. I will find out about the customers, competitors ofthe company. I will find out what political, economical, social andtechnological factors affecting the company and its demand situation.

1.3 LimitationsThe biggest limitation for writing this report is time and the pagesto write. It is a broad topic and it could be better presented ifavailable more time and space to write about, but still I have triedto highlight some main points raised during my finding. My knowledgeabout the company ?Simply Travel? is internet-based and I could notable to contact the company for further information. Due to the lackof information about the company I will only describe one component ofthe Service Management System. I will be describing only the OT partof the SWOT analysis.

1.4 MethodologyBeing inspired from the Service Management System I will describe theservice concept of the company .I will conduct a P.E.S.T analysis tofind out the political, economical, social and Technological factorsaffecting the company. From SWOT analysis, I was conducting OTanalysis to find opportunities for the ?Simply travel? in future.

1.5 DataI will use Secondary data collected from different industry reportsavailable on internet for my report. Data provided in conductingP.E.S.T analysis has been taken from www.statistics.gov.uk.

Chapter 22.1 Simply Travel?s Service Concept[4]Established in 1978, Simply Travel has been providing travel solutionssince 26 years for the discerning travels who want more from theirholiday than just a decent tan. Not through the aggressive marketingtactics, but by providing an attractive alternative to mass-marketpackage holidays has lead ?Simply travel? to gain a big loyalty poolamong the holiday travellers.

Mentioning about the core services provided by the, company provideshand- picked properties to meet the individual needs of its customers.

Ski holidays, winter sun, Family holidays (special locations forfamily holidays with child care) helpful staff, peace of mind andsafety during the whole travel are the core services provided by thecompany.

Unparalleled service, late availability, nannies for kids , pleasantexperiences for its customers are the peripheral services provided bythe company.

2.2 Service PackageService package provided by the company for different holiday travelsincludes all airport taxes, flights and transfers, accommodationincluding breakfast and meals and the service of its representatives.

Chapter 33.1 CustomersHolidaymaking is the main reason that UK residents travel abroad. Asthe company deals with the both inbound and outbound tourism I willhave a brief look on the inbound and outbound market. Number ofoverseas visits by UK residents increased to 59.3 million in2002.Expenditures by these visitors, excluding international fares£27.07 billion-slightly higher than the total for the domestic market(which includes fares).

Describing about the demographics of the customers, most of thecustomers are families with children and older people but latest trendhas been seen in the youth to take holidays.

3.1.1 Customers? Buying BehaviourContinued concerns over safety and security while travelling are foundin the customers for holiday travels. Tourists are increasingly buyingexperiences rather than a usual routine holiday. They try to find aparticular activity.

The fuel blockades at U.K petrol stations, the events of 11thSeptember 2001, the foot and mouth outbreak, SARS and Iraqi war hashad continuous affect on the buying behaviour of UK market customers.

Consumers are showing a continuing search for value for money fromtheir holiday choices. Consumers expect more choice, individuality andvariety.

3.2 CompetitorsAggressive marketing by low cost airlines and internet bookingagencies present a big challenge for the holiday market. Airlines likeBritish Airways are offering customers to make their own travel plansthrough internet. Travel agents compete in variety of ways i.e. price,quality and the package itself. Companies offer special discountedpackages and also compete on branding. As there are hundreds oftravel agents in the U.K market so, it?s difficult to specify thecompetitors in the market. Travel select, Expedia, Travelocity, Ebookers and Thomas cook etc. are the big names in the market andoccupy the bigger part of holiday sales for the U.K customers.

3.3 MarketI can say that market is in a state of perfect competition and noindividual consumer and travel agent is in position to affect themarket.

Key success factors for ?Simply Travel? are* Effectively segmented and targeted adventure travellers marketwithin the larger travel market.

* Successfully positioned as travel specialists.

* Personal interaction, media and marketing.

* Repetition of customers, Loyalty pool3.4 PEST analysisTo assess the market for the business of ?Simply Travel? I willconduct PEST analysis to find out about the Political, Economic,Social and Technological factors in the external macro-environment.

3.4.1 Political FactorsPolitical arena has a huge influence upon the regulation of businesses.It includes government regulations and legal issues under whichbusinesses should operate.

According to the findings, political environment of U.K. is quitestable.

Issues like enlargement of European Union and war against terror havehad an effect on the political stability of the government.

In result of growing awareness of the environmental consequences, U.KGovernment is planning actions to ensure aviation reflects itsenvironmental impacts. Proposals are emerging for a tax on aviationfuel and VAT on air tickets.

Government?s taxation policies and decision about the increasing thepetrol prices have affected the buying power of the individuals inU.K.

The political decision as to whether a UK sign up to single Europeancurrency is again having an effect on the businesses.

3.4.2 Economic Factors Economic factors affect the purchasing power of potential customersand also affect the individual company’s offerings.

U.K economy is benefiting form gradual low inflation rate. Inflationrate Inflation rate fell to 1.3% in February 2004.

In U.K, unemployment is low. According to labour market statistics inJanuary 2004 fell down to 4.8 per cent. Job confidence is high andbecause of this confidence spending by consumer is also high.

Predictions point to continuing GDP growth over the period averagingaround 2.4% a year (GDP rose by 0.9% in fourth quarter of 2003), withreal household disposable income rising at a somewhat faster rate.

Household expenditures rose to 0.9 per cent with the increase indisposable income.

The UK?s deficit on trade in goods and services in February 2004 stoodat £3.2 billion ?compared with the revised deficit for January of £4.4billion.

Continued sales growth has been observed during the past few months inthe UK economy.

Exchange rates are favourable for UK residents for travelling abroaddue to strong position of British Pound against the other foreigncurrencies. ?Euro? used as a single currency in many Europeancountries, is also stable against the other foreign currencies.

Latest predictions for the UK economy suggest that it will remain oneof the strongest economies in the world over the next five years, withlow inflation (inflation fell to 1.3% during February 2004), lowunemployment and reasonable economic growth.

The downside is that disparities between the wealthier parts of thecountry, not all in the south east of England, and pockets ofdeprivation, will get wider, with implications for travel demand.

These are likely to influence the growth of the UK resident travelmarket.

3.4.3 Social FactorsA trend of getting internet access at home and buying online isdeveloping in the UK. According to statistics in September 2003, 11.9million households online were recorded.

Listening to music or radio is a popular choice among the UKresidents.92% of people content to spend their evenings and weekendswatching TV or hired videos. To socialize, most people think toentertain family and friends at home rather than going out (79%).

A great trend has been seen in U.K population about diet and healthissues in the recent years. This trend leads towards the need of morefitness clubs and organic food for the people from U.K Changes in thestructure of the population because of the immigrants from Europe,Asia and Africa etc. will also affect the supply and demands of goodswithin the U.K economy.

Continued concerns over safety and security while travelling are foundin the U.K residents.

Lifestyle changes have also been affecting the U.K travel market for anumber of years. Postponing the start of the family and an increase inthe number of households consisting of couples with two incomes arethe main trends toward the changing life style. Changing fashions,which are difficult to predict also have an affect on the market.

3.4.4 Technological FactorsThe rapid development of technology is affecting the businesses in UKand all over the world. Changes in the technology have changed the waybusinesses operate i.e. Internet booking for tickets and holidays.

Faster changing development in technology creates a need to reactquickly for different businesses in order they want to maintain thecompetitive environment by providing the same innovative services,which their competitors are offering.

Distribution of products by the use of technologies e.g. marketinginformation systems, customer relationship management are also commonpractices with different businesses for effective services to theircustomers.

Chapter 44.1 Impacts on demand situationFindings from the PEST analysis will enable me to comment on theimpacts on the demand situation of the customers of the ?SimplyTravel?.

ElasticitiesChanges in the quantity demanded due to change in price and income arevery important for the tourism industry. Rising disposable incomeamong the UK residents is the positive indication for the ?SimplyTravel? that people will have enough money to buy company?s products.

However, Government?s fiscal policies for tax on aviation fuel and VATon air tickets will impact the company?s supply of services at thesame rate. Higher prices of the tour packages will lead to lesserdemand among the UK residents.

Cross-Price ElasticitiesNot only a price change in the UK due to taxes is important but alsothe price of the facilities in other destinations where company servesis also important. For example rising prices in Italy, Spain etc. fordifferent tourism related products will also make supply of productsexpensive for the tourists.

TrendsLatest trends of home- entertainment and more awareness about the dietand health-issues does also have an impact on the demand of thetourist. Company will have to compile the Supplies of servicespackages with variety of facilities available according toindividual?s choice, so it can make supply of the products a bitexpensive for the customers.

Purchasing methodGrowing direct purchases of holiday packages from airlines will impactthe demand situation .Buying the package direct from suppliers i.e.

Hotels, air lines will decrease the demand of the tourists.

Moreover, low inflation rate and high employment rate and favourableexchange rate will increase the buying power of the tourists so itwill increase the demand in British holiday travellers for the holidaytravels abroad.

4.2 OT analysisTo find opportunities and threats from the external environment forthe ?Simply Travel?, I will conduct the OT analysis.

4.2.1 OpportunitiesOpportunities exist for ?Simply Travel? in expanding the servicepackage according to the latest trends such as* Packages with individual concerned Diet and health matters* Adding particular activities for the tourists, providingexperiences* Providing more choice, individuality and variety.

And providing the real value for the money of the tourists.

4.2.1 ThreatsCheap airlines adding facilities for the travellers to make their owntravel plan is the biggest threat for the company.

Government?s decision to add taxes on aviation fuel and VAT for airlines are
also a main threat for the company.

Latest trends of home entertainment i.e. listening radio, watching TV,Inviting family and friends are also threatening the company.

Terrorist attacks like 9/11 is also a big threat for the company.

Chapter 5ConclusionI conclude my report by saying that the Holiday Travel market in UK isin a state of perfect competition. Though there are positive signs inthe economy for present and near future and buying power of theindividuals is increasing day by day but still ?Simply Travel ? is in need to expand its service package according to the latest trends.

———————————————————————[1] http://www.wttc.org/2004tsa/frameset2a.htm[2] Tourism, principles and practices,2nd edition,pp5[3] www.staruk.org.uk[4] The information used in describing the service concept and servicepackage of ?Simply travel? are obtained from www.simply-travel.com.

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