European Tour Operators Essay

Custom Student Mr. Teacher ENG 1001-04 11 June 2016

European Tour Operators


The macro-environment looks at broad trends shaping the national and international environment. An analysis of the macro environment is crucial in determining the factors which have a direct impact and/or might influence the strategic direction of an organisation. The macro-environment is difficult for organisations to influence and changes can be far-reaching. The media is usually rich source of both information and speculation and as such cannot be a reliable source of reference. There are available tools for analysing the macro-environment in an attempt to identify those factors, which might have an impact upon the organisation, both in terms of being a threat or an opportunity and these include:

* The PESTEL framework
* Key drivers
* Scenarios
The PESTEL framework: categorises environmental influences into six main types:
* Political
* Economic
* Social
* Technological
* Environmental
* Legal

The PESTEL analysis evaluates the broad societal trends that affect many industries. It identifies current and future developments that will shape the micro-environments of each industry sector. Key drivers for change: are environmental factors that are likely to have a high impact on the success or failure of a business strategy. Scenarios: are detailed and plausible views of how the business environment of an organisation might develop in the future based on key drivers for change about which there is a high level of uncertainty.

Question 1: Key drivers of change

Using the PESTEL framework, which helps us understand the key drivers of change and external influences on the organization, we can identify the underlying forces in the macro-environment driving the competitive forces as follows;

1.1) POLITICAL: Terrorist attacks that resulted in tight security measures and strict immigration laws. Following these attacks many countries put some destination off-limits, travel insurers would refuse to cover tourists if they went there despite the government ban or warnings against such travels. Tourism also suffered when prolonged tourist abductions began to affect tourist perceptions.

1.2) ECONOMICAL: the economic crisis can positively and negatively impact tourism industry. Economic crisis became the major threat which results in the collapse of some major players in the industry, for example the closing down of ‘XL Leisure Group’. Given that the UNWTO’s Tourism 2020 Vision had forecast that international arrivals are expected to reach nearly 1.6 billion by the year 2020; this implied that more opportunities and more competition was to be expected in the coming years. Hence the assertion that recession can have positive impacts. It therefore was an opportunity for the survivors as they get more market space and more consumers to absorb in.

Moreover, a post-recession boom could be expected and taking into consideration that tourism contributes 10.6% of world GDP they always get their stake from the disposable income. 1.3) TECHNOLOGICAL: Customers relying on internet and online sales were increasing. Statistics show a mere 72% of UK households had access to internet in 2008 and is increasing compared to previous years. Even though online sales make it easier for customers and cut costs by reducing staff and intermediaries, it also possesses a threat to companies. Internet has a low barrier for entry (Porter, 2001) and newcomers can easily pop into the competition.

Question 2: Porter’s analysis structure:
Michael Porter (HBR, 1989) says awareness of the five forces “can help a company understand the structure of its industry and stake out a position that is more profitable and less vulnerable to attack”.

Five force framework helps identifies the sources of competition in the industry (Johnson et al., 2005). Five forces which are not independent of each other, draws a connection between competitive forces and the key drivers in the macro-environment.

The forces reveal the most significant aspects of the competitive environment. They also provide a baseline for sizing up a company’s strengths and weaknesses: Where does the company stand versus buyers, suppliers, entrants, rivals, and substitutes? Most importantly, an understanding of industry structure guides managers toward fruitful possibilities for strategic action, which may include any or all of the following: positioning the company to better cope with the current competitive forces; anticipating and exploiting shifts in the forces; and shaping the balance of forces to create a new industry structure that is more favourable to the company. The best strategies exploit more than one of these possibilities.

2.1Competitive rivalry: There is a moderate competitive rivalry in the industry. High fixed cost largely favours the incumbents. And there is a significant 5% difference in market share between the top two market leaders (TUI 18.6% and Thomas Cook 13.9% in 2008). These huge variations of market shares of incumbents lessen the competition in the industry.

2.2The threats of substitutes: Even though TV, games or other social activities can act as substitutes, they will never be same as travelling. Moreover, there is a low differentiation of products and together there is low threat of substitutes.

2.3 The bargaining power of buyers: There is a low switching cost to buyers with the emergence of internet and online sales. But the low differentiation of products and lesser number of substitutes limits the bargaining power of buyers to low.

2.4The bargaining power of suppliers: Suppliers have high negotiation powers against the companies having a low share in the market. But in a market where the top 5 market leaders covering more than 43.1% of market and possessing a threat of backward integration, there will be a power balance. This implies only a moderate bargaining power for the suppliers.

2.5The threats of new entrants: High Capital Requirement creates a high barrier of entry for newcomers. And more than 70 % of market share is controlled by the top leaders and this reduces the price retaliation and keeps the economies of scale high. Brand Recognition also acts as a barrier to new entrants. Hence, the threat of new entrants is low.

3. Five forces and the future

Porter (1987) said a company can maintain its leadership in the market only by establishing a difference that it can preserve and by keeping its structure attractive. TUI is the leading company in the concentrated market of tour operators in Europe with a staggering 21% of the market share. TUI operates in over 180 countries worldwide serving more than 30 million customers offering a wide range of leisure travel experiences. They also operate around 240 hotels of which majority are in the 4- or 5- star category. The strengths of TUI will help them to maintain their leadership in the tourism industry.

Backward Vertical Integration of TUI helped them to spread out through the value chain. This made them deliver a higher value when compared to their competitors at a cheaper price. Being their own suppliers (Airlines, Hotels etc.) helped them to attain cost leadership. Their investments on direct distribution channels act as a key driver reducing the distribution cost and increasing the margin. Their multi-channel distribution focusing on online sales made them capable of retaining their customers and gaining new customers.

Stable and management friendly shareholders supported them to incorporate better customer service along with their excellent operating service, and thus extend their presence in the value chain. Moreover, TUI had better liquidity and financial situation following the sale of Hapag-Lloyd. The acquisition of companies varying from tourism, airlines, hotels, cruises etc. all over the world help them attains differentiation.

They claim their differentiated products are integral part of their customer retention, brand building and uniqueness and thus gained them the competitive advantage in the market (Annual Report, 2008).TUI always seek to create value for their customers, investors and employees. As the number of short-haul travels increases, TUI will gain from concentrating a bit more on supporting this (can enter in road transportation facilities). Alike other leaders in tourism industry, TUI will also have to tackle their consolidated fixed assets. The level of success achieved by TUI holds some important lessons and some much needed inspiration to a business world; that could use a little of both.

However; according to the World Market Travel Industry Report (2010) the travel and tourism industry fear the long-term impact the global downturn will have on the industry, believing it will struggle to return to pre-downturn demand levels and profitability until 2016. More than half of the industry (52%) believes the global downturn’s impact on tourism demand is one of biggest issues facing the industry over the next five years. Furthermore, 49% felt the downturn’s impact on price, profit and margins is a big issue over the next five years – the two biggest percentage responses to the question: What is the biggest single issue facing your business over the next five years?

When asked what is the single biggest issue facing their business over the next five years the global downturn’s impact on demand for tourism is cited by more than three out of ten people (31%), while the downturn’s impact on price, profit and margins is cited by a quarter – again the two biggest percentage responses to the question.


1. Annual Report. (2008). TUI Annual Report. TUI AG.

2. Johnson G and Scholes K (2010) Exploring Corporate Strategy (9th ed). London: Prentice Hall. World

3. Porter, M. E. (1980). How Competitive Forces Shape Strategy. The
McKinsey Quarterly ,34-50.

4. Porter, M. E. (2001). Strategy and the Internet. Harvard Business Review, 63-79.

5. Porter, M. (1987). From Competitive Advantage to Corporate Strategy. Harvard Business Review, 43-59

6. TUI website. (n.d.).Retrieved November 6, 2009, from Case Study UNWTO. (2005). Tourism 2020 vision. Retrieved October 31, 2009, from World Tourism Organisation:

Free European Tour Operators Essay Sample


  • Subject:

  • University/College: University of Arkansas System

  • Type of paper: Thesis/Dissertation Chapter

  • Date: 11 June 2016

  • Words:

  • Pages:

Let us write you a custom essay sample on European Tour Operators

for only $16.38 $13.9/page

your testimonials