This report is part of the management report to be written during the module strategic hospitality management at Stenden University. It deals with the external environment of TUI. First a PESTEL analysis is executed in order to get an overview about the macro environment. From there the key drivers of change for TUI are identified and further opportunities and threats are extended. After the macro environment the industry is analyzed with the help of Porter’s Five Forces. The impact of the different forces and a life cycle show what TUI’s industry is like. Furthermore opportunities and threats from the industry are evaluated. Finally the analysis of the markets and competitors is presented with the help of a strategic map and a competitive profile matrix and then evaluates on the findings. The overall opportunities and threats weight up which factors are most important for TUI based on the previous findings from the macro environment, the industry and the competitive market. The external factor evaluation rates the different factors in order to see which ones have the most impact on TUI. The theory for the models is based on Johnson, Scholes and Whittington (2011).
Analysis of the Macro Environment (PESTEL analysis)
Terrorist attacks and political instability
Taxation policies and subsidies
Increasing connectivity, Wi-Fi
Social media, transparency of companies
Technology being more environmental friendly
Best emerging markets: China, South Korea, Malaysia
Oil prices: price remains still till 2020, rises by 45% by 2035 Post-recession: increased intervention of government
Sustainability: less energy/water usage, pollution
Economical friendly ways of transportation
Diseases and natural disasters
Brand consciousness (brand loyalty)
Mood of seriousness and responsibility: attitudes towards safety and environment
People are more spontaneous, flexible and want to be individual
Demand for simplicity
Discretionary thrift: dissatisfaction with excessive consumption; more focused on low costs
Regulations for acquiring and merging
Trade laws: EU and USA debating about reducing trade barriers Restrictions, rules and regulations concerning labor, environmental, health/safety
Key drivers for Change
Key drivers in TUI’s macro environment are mainly the emerging markets, issues related to environmental consciousness, changing consumer behavior and technological developments. The most increasing emerging markets are China, South Korea and Malaysia (Bloomberg, 2014), which offers TUI possibilities to increase business in those countries, because people have greater intentions to travel abroad from these countries due to higher income. Furthermore the oil prices will increase after 2020 till 2035 by 45% (World Oil Outlook, 2013) which puts TUI into the position to investigate on more fuel-efficiency and more environmental friendly ways of transportation, where also new technology comes into play. Moreover customers have a changing behavior in the post-recession (Flatters & Willmott, 2009). They become more serious and responsible and choose for safety and environmental friendly products. This is also in line with the discretionary thrift of customers, because they are dissatisfied with excessive consumption and therefore demand for simplicity, since they are facing a bulk of choices when looking for a product or service.
This behavior is mirrored in customers focusing more on low costs and value for money, therefore on simple products. They don’t need all extras and specials any more, only products and features which satisfy their needs, since money is tight after recession and consumers slowly trust companies again. Apart from that one can observe that people become more spontaneous and flexible in their booking behavior and want to be individual and not part from mass tourism (ITB World Travel Trends Report, 2013). This offers many possibilities for TUI since they were mainly known for family package and all-inclusive holidays. On the other hand customers also become more brand loyal, which is firstly because of the huge choice and sticking to one brand which is satisfying their needs is easier then facing the huge choice again, and secondly people trust in brands which didn’t dissatisfy them in the recession. Automation will erase 2 billion jobs by 2030. “Machines can become our greatest asset or our greatest liability.” (efti.eu, 2014). TUI seems to be a human business and not only focusing on making money, therefore it will be an ethical question whether to replace jobs by machines. It seems to be more likely that jobs will be made easier through technology and when customers ask for it (e.g. mobile booking).
Nevertheless dying travel agencies in mature European markets is unavoidable. TUI needs to target their business towards their segments, e.g. younger travelers will be more likely to book online than first time travelers from emerging markets, who still need personal support in their bookings from travel agencies. Finally increasing connectivity through internet, mobiles and social media are on the run. People want to stay connected at all possible times and all places, which in turn means for TUI to ensure this throughout their business units, for example on cruises and airplanes. Not completely new, but still very popular with increasing impact on companies are social media. Companies need to use it in so many ways, for example not only marketing but also customer service. They become transparent when everybody can leave comments open to read to all consumers and therefore companies need to find effective ways of managing their social media for their own benefit.
Evaluation of Opportunities and Threats
Apart from the key drivers, which effect TUI mainly, there are also other factors in the macro-environment which eventually also affect TUI. In the political environment one can see that terrorist attacks and political instability heavily affect tourism, especially nowadays with increasing media involved. It will “discourage tourists from choosing that destination” (Reimann, 2013). This means for TUI for example as can be currently seen in Ukraine, that they have to find ways to deal with travelers going to destinations in Ukraine. They need to evaluate the danger towards tourism, if there is any towards tourist who are actually not involved, but could be a target. However for TUI it is easy to send their customers to another destination offering similar features or inform them at least about these issues and leave it up to them what to do with their booking. Same accounts for threats form diseases and natural disasters. TUI needs to have crisis plans in order to perform correctly when these kind of situations will occur, not only because travelers play a crucial part when it comes to spread of bacteria (Carpenter & Wynam, 2008).
Furthermore new taxation policies, or regulations for acquiring and merging, trade laws or other regulations concerning labor, environment or health and safety naturally will have consequences on a company like TUI. However currently there are no big issues arising, except for the investment talks between the EU and the USA on reducing trade barriers, which is going on since June 2013 (European Commission, 2014). Next to that there are subsidies offered towards companies engaging for example in economic development in the Mediterranean (Welcomeurope.com, 2014), what TUI could make use of when investing in business in these areas. Moreover the post-recession will bring more intervention from governments (Flatters & Willmott, 2009), which probably won’t have a big impact on TUI since the black sheep were the banks during the recent recession.
Five Competitive Forces
Threat of entry – Low
There is a big threat due to scale and experience in the industry. To enter the market of tourism there is a high capital required which makes it hard for new entrants. Moreover 70 % of the market is controlled by ten leading companies (UNWTO, 2005). Through economy of scale companies can also reduce their costs and therefore new companies are struggling to compete. The top ten companies are also a step ahead of the new entrants with differentiation because of the brand awareness. All of these factors also show that expected retaliation will be high, because it won’t be easy to compete against the ‘big ones’. Further, access to supply and distribution channels might appear easy however TUI already has a well-established network through its asset-heavy business model, which is not easy to copy.
Threat of substitutes – Relatively low
As one of the leading companies, TUI AG is offering a broad range of products, including cruises, accommodation and travel arrangements. Although technology is improving and customers can experience virtual journeys in other countries it cannot be compared to the real experience and is not substituting original travel offers. There are no substitutes with a comparable price/performance ratio. However aircraft can be substituted by land transportation, which is increasing lately because consumers care less about the time they spent on travel, but more on prices, which results in heavy price wars in the airline industry to compete, e.g. new intercity connections are bought, which are even cheaper than the train. Nevertheless, this is less a threat for international flights. Apart from that business customers use video conferencing more and more instead of meetings in person.
Suppliers – Moderate
The market share of TUI AG is that high that suppliers have low negotiating powers. One of TUIfly’s suppliers is Boeing, which is the main company providing the airplanes however looking at TUI’s demand and the fact that airplanes have a certain lifetime, the negotiation power of Boeing decreases. In addition to that TUI is also cooperating with AirBerlin to meet its capacity (Tuitravelplc.com, 2014). Same accounts for the cruises and building of ships. On the other hand there are often a few main suppliers at the airports, e.g. BP for the fuel or the catering companies. In that case TUI has lower negotiating powers. On the other hand looking at cruises, hotels and resorts, TUI owns all those resources so that they have full power and are not dependent on external suppliers. That gives a great advantage to those companies who are rather asset-light.
Buyers – High
Due to low switching costs buyers can choose from many different operators within the tourism market. Further, the possibilities of online booking increased enormously over the last years, therefore there is backward vertical integration because buyers are very independent and also able to compare prices easily online and don’t need travel agencies any more to find the cheapest hotel, flight, etc.
Competitive rivalry – Moderate
Due to the fact that only a few large companies are controlling most of the market, the competitiveness is rather moderate. In comparison, TUI, as a leading operator possesses 21%, the second largest company, Thomas Cook is with 13% clearly behind. This finally results in a high competitiveness for entry or small companies, however has low impact on key players of the industry. Furthermore the cruise industry is growing steadily but the market is dominated mainly only by 3 corporations and TUIcruises are part of the second largest corporation (Royal Carribean). Nevertheless the market of tour operators, hotels and resorts is of course highly competitive, since their main product is more or less the same, however TUI is with its brand very outstanding and makes their customers less price-sensitive.
After analyzing the five-forces it can be stated that the tourism industry life cycle is on a shake-out stage, because there are still possibilities for growing markets, e.g. young travelers. However it is not growing as fast any more as it used to when for example airplanes came into play. Increasing rivalry leads to some exits. Managerial and financial strength is the key success which also applies for TUI. Another indicator can be drawn from TUI’s new business strategy as they strive to eliminate all debts and operate very lean.
Evaluation of Opportunities and Threats
Apart from the Five Forces also trends have an impact on TUI’s business. The ITB World Travel Trends Report (2013) revealed a few, giving opportunities and threats to TUI. Firstly there is increasing outbound travel from the BRIC countries, especially Russia with a growth rate of 12%. Also the spending on holiday increased since 2009 by 25% and the amount of city trips increased by 47%, while city and tour trips came increasingly from emerging countries. Sun and beach and tour holidays came increasingly from Eastern European countries. These give TUI opportunities to focus more on the markets of Eastern Europe and target their sun and beach and tour holidays towards them. Also the increasing number of city trips opens new markets for TUI. Furthermore the number of traditional business travelers is decreasing and local MICE markets increasing, which also opens new possibilities to TUI, however would change their holiday image.
Another omnipresent trend is increase of online bookings, which already makes up 70% of the bookings in mature European markets. On the other hand in emerging countries with many first time travelers, travel agencies are popping up again, because these travelers still seek for the assistance of agencies. Therefore TUI should investigate in booking behavior in different countries and make it suitable to the local customer. Finally there is a huge growing market of young travelers. Especially from China, increasing disposable income makes it possible for many young people to travel more. These customers seek for individual experiences and head for new horizons. Youth travelers went from backpackers to flashpackers, they have a higher standard and seek for quality. As for the Generation Y one can see that they want to take adventures and try out new sleeping arrangements like couch-surfing. These could be a new target group TUI can focus on to offer them distinctive products targeted on their needs and wants.
Analysis of the Markets and Competitors
Market Segments & Strategic Group
The table below shows the identified main competitors of TUI with reasons mentioned to justify this decision. The Strategic Group in which TUI is settled is built up by the scope of activities of their company.
Table : Strategic Group by Characteristics
Scope of activities
Extent of product/service diversity
Charter and scheduled passenger airlines, package holidays, cruise lines, hotels and resorts Charter and scheduled passenger airlines, package holidays, cruise lines, hotels and resorts Charter and scheduled passenger airlines, package holidays, cruise lines, hotels and resorts, tailor-made holidays
Number of market segments served
Distribution Channels used
Proprietary website, online distribution websites, travel agencies
Proprietary website, online distribution websites, travel agencies
Proprietary website, online distribution websites, travel agencies
Number of brands
TUI card, Mein Tuifly
Size of organzations
3300 travel agencies
3 cruise ships
3000 travel stores
Number of hotels
As can be seen in table 1 the scope of activity of TUI and its competitors is very similar, however the resource commitment varies much more. TUI has much more brands than its competitors however in the size of the organization it looks like Thomas cook has the same size as TUI. Nevertheless Thomas Cook’s travel stores for example are franchised and not owned by the company.
Figure 1 shows the price range diversification and the geographical coverage. The size of the bubble represents the size of the company. As said before one can see that the geographical coverage is for all three companies the same, however their size is different. Thomas Cook has the lowest price range diversification, after that TUI and a little above Kuoni.
Competitive Profile Matrix
Thomas Cook Group
Critical Success Factors
TUI excels compared to its competitors in advertising, product quality, customer loyalty and market share. Kuoni on the other hand excels in price competitiveness, management, financial position and global expansion. Overall TUI scores in total higher than its competitors and therefore has a competitive advantage.
TUI does a lot on advertising compared to the other two companies that offer the same services. Thomas Cook offer advertisements on travel and destinations, Kuoni advertises through the internet and their stores.
TUI has excelled in this, they have offered a good product since it launched and have continued to do so. Kuoni has stopped operating in Italy, France and Belgium as well as offering online service via octopustravel, in 2013. Thomas Cook does offer a good quality service but just not as good according to reviews compared to TUI.
Kuoni and Thomas Cook are both focusing more on traveling, and that is why these two companies are more competitive. TUI has more services to offer, so does not have to worry that much about the competitiveness from the other two companies on that part.
89% of the 40 reviews given by the employees of TUI, like the CEO (management) of the company. Overall they are very happy with the work/life balance and 69% has recommended the company to a friend. 57% of the 18 reviews given by the employees like the CEO (management) of Kuoni. The company doesn’t score that well on work/life balance and 64% recommended it towards a friend. 90% of the 33 reviews given by employees like the CEO (management) of Thomas Cook. The score overall of the company is a 3.3 out 5 and there are no friend recommendations.
TUI has financial stability, but it also has a high level of debt. Thomas Cook has a high level of debt and is not able to pay its shareholders back. Kuoni is recovering after the recession. The company has suffered from financial losses and even had to erase some of their destinations they would normally offer. Thomas cook has grown rapidly in the year 2013. According to their financial report they have generated a lot of revenue and are financially very stable.
TUI is one of the leading Tour operators in Europe and has pleased customers. Many customers mention that the service and accommodation TUI offers is always flawless. According to reviewcenter.com Thomas Cook scores an overall score of 1.6 out 5 according to the customers. Therefore the author concludes that the customers are not that loyal. For Kuoni, according to review center.com the overall reviews of customers are not quite that good. Overall they score 2.2 out of 5 and therefore conclude that the loyalty of their customers really differs.
TUI has a lot of opportunities to expand globally. They are currently expanding with cruise ships in the Asia, specifically China. Thomas Cook is already globally localized, so they have very few opportunities to expand. Kuoni has stopped offering its services in Italy, France and Belgium. It operates mainly in Europe.
TUI has great market share, but only in Europe. They might increase it by getting more satisfaction and success from other continents. Kuoni has a fairly high market share in Europe, but has decided to withdrawal from some of its destinations in Europe. Thomas Cook is well known by guests who are loyal as well.
Evaluation of Opportunities and Threats
There are no clear threats that might affect the business of TUI, since TUI is such a large company. What might happen is that the competition can raise for one of TUI’s smaller businesses, such as the cruise industry or hotel destinations. Kuoni also offers customized travels which is a threat and an opportunity at the same time. Apart from that TUI of course is in a very competitive market, however looking at their market share the competitors are far behind TUI. Overall there is also no “real” competitor for TUI AG because there is no comparable company offering the range of products like TUI.
Overall Opportunities and Threats
Based on the previous sections an overview of the opportunities and threats for TUI AG are given. The first opportunity which can have much influence on TUI is the expected growth in different markets, like the BRIC countries, for example Russia which grew with 12 % last year. A second opportunity which TUI AG could focus on is the cruise industry. The cruise industry is a booming business, with an annual growth of more than 7 % (CLIA, 2014). Furthermore, the customer behavior is changing. One trend in the tourism industry is the increase of 47% in city trips, which became more and more popular the last years, especially from emerging countries.
Also changing in terms of behavior is the booking behavior. Online bookings reach already 70% in mature European markets, however in the emerging markets there is still the need of the support of travel agencies for the first time travelers. Also changing in the booking behavior is that people want simplicity and be individual, therefore this might be a threat for TUI is package business. Additionally there is an increase of young travelers, for example exchange students or flashpackers, especially from China. Not something new but still important for TUI is, to focus on improvement environmental friendly way of transportation. Technology is also still an opportunity for TUI. Even though the use of technology increased much the last decade, there is still room for improvement.
Customers want to stay connected at all times. An example is the cruise ships of TUI, which still cannot offer Wi-Fi. Also technology can lead to more efficiency. Moreover there is on one side a threat from the business segment, because the number of business travelers is decreasing, since company’s want less travels and increasingly use video conferencing instead. On the other hand therefore the MICE market is gaining more popularity instead, which is an opportunity.
On the contrary the changing customer behavior can as well be a threat. Because the post-recession consumer tends to discretionary thrift, meaning that they focus on low-cost holiday and thinking “less is more”. This could be something for TUI to keep an eye on. Another threat is the increasing oil prices, which influences the operations of TUI AG substantial. On the other hand this threat can be combined again with the changing customer behavior, since customers are more environmental-friendly, TUI can look for other options instead of using the oil. Another threat, which is not that large yet, is the threat for substitutes. This again is based on the changing customer behavior.
It becomes slightly more popular to use alternatives to go to a holiday destination such as the car of the trains. This will probably never substitute the whole variety that TUI is offering but it can have an influence. But this opens new opportunities to go for land transportation. From the competitors one can see that another opportunity could be to offer more customized travel. Looking at technology innovations there are not only opportunities but also threats like increased transparency of companies via the internet.
External Factor Evaluation (EFE)
The external factor evaluation (David, 2005) analyses the previously outlined opportunities and threats which are most important for TUI. For the weight each factor was graded according to its importance in the industry and the rating showed how much TUI’s current strategies reflect the factors. The calculated weighted average shows the most important factors to look at for TUI, which is firstly environmental friendly transportation. Also the change in booking behavior is very important for the opportunities, as are the growing BRIC markets, the changing booking behavior, the booming cruise industry, the increase of young travelers and the technology. For the threats the discretionary thrift, customized travel, oil prices and transparency in the internet stand out. The total score of TUI is 2,17. The average is 2,5. This shows that TUI is not responding a lot to its external environment.
However since TUI is so big and diverse there are of course many opportunities and threats impacting the company, but which they don’t necessarily have to act upon. The outcome shows that TUI is not responding well to the factors which this reports analysis revealed, however it could be worse. One thing is for example the cruise industry which is a booming market and they also do use this in their strategy, by expanding their fleet, or also being environmental friendly is an opportunity and TUI use it in their current strategy already.
Table : External Factor Evaluation
Key external factors
Growing markets: BRIC countries; Russia 12%
47% grow in city trips, increasingly from emerging countries 0,05
Environmental friendly transportation
Changing booking behavior; online bookings mature European markets 70%; emerging countries still a lot of travel agencies 0,05
Booming cruise industry
Increase of young travelers, especially from China
Technology; being connected
Customer behavior: discretionary thrift
Competitor offer customized travel
Decreasing number of business travelers
Changing booking behavior; less/no packages
Substitutes: land transport instead of airplanes
In this report the external environment of TUI was analyzed first the macro environment, then the industry and then competitive market and from there on opportunities and threats were derived and evaluated. The outcome of this is summarized in the EFE, which basically presents the outcome of the external analysis and what TUI can do with it.
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