European Tour Operators have Managed to Achieve a Strong Position in the Tourism: Strategic Management and Leadership Assignment, SMU, Singapore

CASE STUDY

European Tour Operators: confronting competition in the tourism industry

European tour operators have managed to achieve a strong position in the tourism industry. Most notably the two biggest ones, TUI Travel and Thomas Cook have a large market share. However, in the latter part of the decade (2007–10), the industry has experienced a downturn because of the turbulent environment which has created new threats and modified the competitive forces.

The tourism industry since 2000

At the end of 2008, the tourism industry was a major industry. Worldwide it generated US$5474 billion (x4023bn or £3665bn) of economic activity, represented 9.4 percent of total world GDP, and provided 219.8 million jobs (7.6 percent) of total employment.

The second half of the twentieth century had seen a constant growth in the tourism industry. If the business had slowed in 2001– 03 following terrorist attacks in New York, Djerba, and Bali, it had bounced back. In 2007, for the first time ever, the number of international tourist arrivals recorded worldwide exceeded 900 million, according to the World Tourism Organisation (UNWTO), a specialized agency of the United Nations (UN) for tourism policy, as illustrated in Figure 1.

Figure 1 International tourist arrivals

Competition: a continuing consolidation in the European tourism industry

Over the 10 years from 1998 to 2008, the competitive landscape of the tour operator industry changed dramatically as the market experienced a continuing concentration of the players.

The trend had been accelerated in 2007 with the acquisition of MyTravel, the number 3 European Tour Operator by Thomas Cook, the number 2, in February 2007. One month later TUI announced its acquisition and merger with First Choice, the fifth-biggest tour operator and number 2 in the UK.

TUI Travel Plc

In 2009, TUI Travel Plc was the biggest tour operator in Europe. A tour operator (also named tour wholesaler) offered packaged or ‘all-inclusive’ prepaid and preplanned holidays to its customers, usually through travel agents. It was a pre-assembly of basic travel components sold for a fixed price. A standard package was composed of air transportation (outbound and return), hotel accommodation, transfers from the airport to the hotel and back, as well as optional items such as insurance, meals, excursions, etc.

Assignment Questions:

1. What underlying forces in the macro-environment drive the competitive forces?

2. Using Porter’s analysis structure, identify the relative importance of:

• Competitive rivalry
• The threats of substitutes
• The bargaining power of the buyers
• The bargaining power of the suppliers
• The threats of new entrants.

3. How might these five forces change in the future and how might this impact on TUI Travel?