Collapse of SME in Tourism and Hospitality - Research Paper Example

Collapse of SME in Tourism and Hospitality Table of Contents Introduction 2 Small and Medium Enterprises 3 Flyglobespan 5 Key Issues 7 Reasons of Failure 10 Recommendations 13 Conclusion 14 References 15 Bibliography 18 Executive Summary The report deals with the collapse of a small and medium sized company within the industry of tourism and hospitality. The report commences with a deep insight of the present trends of tourism and the definitions of small and medium sized industries. It comprises of a dedicated section dealing with the crisis that the deceased company, Flyglobespan faced. It has certain important issues that should be addressed by the tourism organizations to ensure sustainable development. The reasons of failure and the recommendations are also part of the vital sections of the report. It also comprises of a dedicated concluding chapter. Introduction It is rightly presumed that the only constant thing in this world in the world of today is the word ‘change’ itself. With the huge advancements in the areas of information technology and communication process, the terms of trade have experienced major shift. The increasing effects of globalization have made the world much smaller and the geographical borders have almost perished. The world has become a global village, truly transnational in character. The reach of the public in general and the consumers have increased greatly and the entire world is within the few clicks of the mouse. These factors have affected almost all of the industries and sectors and tourism is one of the most affected ones. Tourism, in fact has been also one of the most beneficial industries too because of the globalization and the developments in the fields of information technology. With better and transparent communication processes, the tourists and the travelers could gather all the information about the prospective place of visit sitting at home and also could book the facilities like accommodation and transport. Along with the reputed companies catering to the industry of tourism, which are basically the international operators, there are also many small and medium sized companies. As it happens in the industry of tourism that no one company or organization (as the case may be) caters to the entire scheme of things and there are several organizations that work hand in hand to make a tour successful. As with the changing times, the regional and rural markets within the industry of tourism, have grown considerably, the share of the small and medium enterprises (also known as the SMEs) have increased considerably. But as it happens in case of the small and medium enterprises that such companies often runs the increasing risk of collapse in the face of increasing competition with the big names of the industry. Small and Medium Enterprises The definition of the very term, ‘small and medium enterprises’ is not beyond debate. In fact, the definition and the technical meaning of the term have often varied from country to country. Generally, the term SME has referred to such a company or organization that has its employee strength within the limit of 250. But again, as discussed earlier that such a definition depends upon the country and also upon the industry to which the organization caters. There have been instances that the definition of small and medium enterprises varied among manufacturing industries and other industries. The small and medium enterprises hold utmost importance because these organisations comprise almost 95% of the economy in many of the countries. Also these, enterprises have the attributing of employing majority of the population in the developing countries. The SMEs are often regarded as the drivers of economic growth as well as innovations along with the breeding grounds for the entrepreneurs. Also, the role of SMEs toward the sustainable development and poverty reduction through employment generation and the wealth creation are the highly acclaimed areas. According to a survey in 2006, there were around 140 million small and medium enterprises in 130 countries and the sector employed 65 % of the total labor force (Kotelnikov, 2007). Flyglobespan With the corporate slogan of ‘Award Winning Airline’, this British airline company collapsed on the 16th of December, 2009. The fact that the company would become defunct was a matter of shock as many of the passengers and tourists that the company pledged to serve were stranded in the middle of their tour. Globespan Airways Limited, with the trading name of Flyglobespan, has been a low-cost based airline company based in Edinburgh of Scotland. The airline travel agency had its prime bases in the airports of Glasgow (Glasgow International Airport), Edinburgh (Edinburgh Airport) and Aberdeen (Aberdeen Airport). Though the particular unit of the Flyglobespan was regarded as the offshoot for the Globespan group, yet the fact is that the group had considerable experience of around 30 years in tour operating. The various services of the company included providing services of transportation to its esteemed and valued customers like that of charter flights, railway travelogues, car rentals and cruise travels. The company also provided accommodation facilities in select few countries of Canada, Spain and the United States. The services of the company in the area of airlines commenced in the year of 2003. The fleets and the crew, the two essential elements of the airline service were provided by Channel Express. Initially, the flights were offered irregularly to the popular tourist destinations of Europe. But with the initial success that the company enjoyed, it increased the frequencies of the flights. By the end of March 2005, the company had more than 12 destinations in its route and the fleet size of around 9. The passenger size of the company also increased many fold crossing one and half million annually. With such success, the company ventured in the domestic services in the month of May of the same year between the routes of Glasgow to London and Edinburgh to London. Though the company initially registered success in the year but the domestic services did not reach the expected levels as the route was already loaded with the players like Jet with its low fair and large carriers (EasyJet). After a few months, this service of the company was discontinued and eventually withdrawn. The company had major plans in 2010 as it vowed to have direct flights between the United States and the Wales. It planned to have weekly flights from Cardiff and Edinburgh to Orlando. But the company itself was declared to be defunct in the December 2009 and administrators were employed with Price Waterhouse Coopers taking up the role. During the days of collapse the company had a total array of 9 fleets and 4 more were ordered out of which two were to be leased from International Lease Finance Corporation. Now as the entire unit was under administration, the orders of the fleet stands cancelled (Civil Aviation Authority, 2009). Key Issues The International Society for Hospitality Consultants came up with ten issues that it thought to be crucial for the industry few years back. The organization rightly observed that if such issues are not addressed with due sincerity, the tourism or the hospitality organization is all set to bear the brunt (International Society of Hospitality Consultants, 2006). The ten such issues were as follows: Shortage of skilled and qualified work force – The tourism organizations have always suffered from the lack of skilled work force off late. The shortage of the right man at the right place and most importantly at the right time has tremendously influenced the industry. Once perceived to be very glamorous job, that of the industry of the airline has turned to be a mere job today. The staff turnover is high and also pay is not at its best (Victoria Tourism Industry Council, n.d.). The employees of the companies are not found to be loyal to the companies compared to that of the past and also the companies are reluctant to train the force as they find them highly mobile (Alberta, 2007). Increasing cost of renovation – With the changing time and the changing need of the customers and the industry, the tourism organization has to constantly upgrade and innovate. These factors often lead to increasing costs which the companies especially the mid sized organizations find it difficult to maintain. Changing demographics – The analysis of the data and particulars of the tourists all across the globe has brought forward the fact that there has been a major shift in the demographics of the tourists. The tourists that represented the generation of baby boomers till recently were now more of the Generation X. Future of profits – In the competitive industry of today, the tourism organizations as well as the hospitality players have to provide major emphasis upon maintaining the profitability of the organizations. There has to be a fine balance between the expense and the revenue. Because of the various related factors, the expenses are always found to be getting higher where as the prices of the services has to remain competitive to attract the customers. Increasing influence of branding – Branding does play pivotal role in the present day industry of tourism. It is that grey area for the small and medium enterprises where they lose a major share of the market as because a large proportion of the valuable clients prefer branded companies over the SMEs. To beat the brands, either the small and medium enterprises should strive to get bigger in size and operations and get branded or they should be able to provide services at very competitive prices. Distribution revolution in the tourism industry – The distribution has always played an important role in the marketing of the tourism organizations. With the developments of the information technology and communication processes, the factor of distribution has become quite significant. As the end customers can directly book the tickets and view other necessary details over the internet, the strata of the middle men got reduced significantly in the recent past. The tour operators or the accommodation providers and the airline companies can directly reach the end customer which reduces the cost to a considerable extent apart from increasing efficiency (Anckar, 2003). Restrictions by governments – The tourism organizations have also been affected by the restrictions of the government from time to time. With increasing shifts of the tourism in to the international market, the role played by the government has attained immense importance. For example, in case of the airline industries, the government approval is required before the commencement in a newer route even though it could be only for the purpose of tourism and not for any scheduled flights. Emerging global markets – With the increasing competition within the industry of tourism, the emerging trends of global markets have to be closely monitored by the tourism organizations and tour operators. The focus of the tourism destinations should also be analyzed and appropriate measures should be initiated to get itself aligned with the trends. For example, the shift of the tourism destinations from the Europe and the United States to the regions like Africa and South Asia should be acknowledged. Again with the success of the emerging economies like India and China, it has been observed that the citizens of those countries have increasing trend of travelling. Such analysis of the facts and timely and appropriate measures to capture the market is pivotal for the players of the industry. Availability of requisite capital – This is undoubtedly the most vital factor which has led to the failure of many tourism organizations all across the globe. The tourism organizations should be adequately funded and should have enough reserves so that it can face the increasing effects of the competition in this era of continuous change and innovation. The factor of adequate capital is particularly vital in the cases of the small and medium enterprises as they do not have strong enough banners behind them to support their activities. Reasons of Failure The failure of Flyglobespan has come up as a major shock in the airline industry of Europe especially in that of the United Kingdom. This low cost aircraft company had phenomenal experience (at least with its parent group) in to the industry of tourism. The airline also posted profits for the last accounting previous year and had certain expansion plans, both in terms of fleet as well as routes. Also, there were no such reports that the company is in to trouble because of any crucial factors which could collapse the entire set up within few hours. But the inevitable happened on 16th of December of the last year and the passengers and the tourists, those of them were on their tours especially to Spain, Portugal, Cyprus and Egypt, were informed that their flights are cancelled as the airline company has ceased to exist. The reports suggest that at least 5000 people were stranded abroad because of the sudden demise of the largest airline company of the Scotland. Also, according to certain estimates around 90,000 people could miss their Christmas holidays as they had their tickets booked with the company (Typically Spanish, 2009). The prime reason for such an untimely collapse of the airline is presumed to be liquidity failure. Though the reasons of failure is yet under investigations, both by the administrators of PwC as well as the government, but the facts that have come up in last few days, have hinted that the company was lacking enough funds to run its daily operations. From many of the concerned quarters, the credit card agency of the airline, E-Clear, is being held responsible for such an unfortunate happening as many of the experts are of the view that the credit card agency held back a considerable amount of money and it never reached the airline company. Earlier in the year, the company had declared a profit of 1.3 million GBP for the 12 months period that ended 31st October, 2009. Even a few days prior to the cessation of the operations, the management of the company put forward a brave and bright face claiming that the company was all set to strike a major financial deal with Halcyon Investments (coincidentally which is also a E-Clear controlled company). Though the Flyglobespan did not declare the exact terms and figures of the deal, yet the company had maintained that such a deal would inject enough cash flow within the system of the airline carrier which would invariably help the company to grow and prosper (Center for Asia Pacific Aviation, n.d.). The experts and the followers of the collapse of the Edinburg based aircraft carrier has estimated that at least a sum of 30 million GBP was due to the airline agency by the credit card company, E-Clear, which were never paid. According to the norms of the industry, the prices of the fairs, those purchased through credit cards, are collected by that of the credit card agency (which was E-Clear, in this case) and after deduction of the applicable charges; the rest is transferred to the airline company. But in case of the sudden demise of the Flyglobespan, it is presumed that a heavy amount of 30 million GBP was not paid to the company by E-Clear that was due, which ultimately paved the way for the collapse of the airline company (Dalton, 2009). Recommendations The failure and collapse of the midsized airline company, Flyglobespan came as a rude shock to the industry. The company was perfectly functional and had carried tourists to many of the destinations and also was under the obligations to bring back the tourists in their onward journey. Also, around 90,000 passengers and tourists had booked the tickets of the airline to enjoy the vacation of Christmas and New Year. Just a week before the declaration of being defunct the company had written off any such possibility to be affected by the economic slowdown and downturn. Therefore, there is absolutely no doubt that the appointment of PwC as the administrators came as a bolt from the blue. The company could have used another organization as the credit card agency in place other than E-Clear to avoid the fate. But also the important consideration in this aspect which holds due importance is that the agency, E-Clear, controls almost the entire market in the industry of Europe. Flyglobespan could have taken lesson from the previous failures of the other airline companies because of the non-cooperation of the same credit card agency and should have been cautious. The deceased company could have also pressed the card agency so that the expected deal between the company and the E-Clear in lieu of Halcyon Investments would have materialized. If the deal have had realized, it was certain that the company could have been saved and so would have saved the jobs of hundreds of the employees (Kaminski-Morrow, 2009). Last but not the least, even if the other previous two methods could not have been achieved, the Flyglobespan should have compelled the credit card agency to pay off its debts of 35 million GBP as it was the airline’s share of the revenue. The First Minister has exclaimed sheer astonishment over the issue as why was such a heavy amount held by E-Clear and has called for a detailed investigation. Also the present administrator of the airlines, PwC, is conducting its own investigation over the matter (The Times, 2009). Conclusion The failure of the small and mid-sized companies is almost a regular phenomenon in the present world. Yet, the importance of such companies is never ending as because such companies have the quantity and mass with them and undoubtedly are the lifeline of the industry. In the industry of tourism too, because of the increasing shares of the regional markets, such midsized companies hold tremendous importance. One might not perceive Flyglobespan as a mid-sized company as it had employee strength over the standardized norms of such companies, yet the company, was definitely not ‘big’ in the airlines industry. Therefore, at least on the basis of the industry, it fell well in to the class. The analysis of the facts and the reasons of the collapse brings out that the company solely depended upon a single credit card agency and did not initiate measure to mitigate the risk. References Alberta, 2007. Labour Market and Economic Indicators Dashboard. Tourism Industry. [Pdf] Available at: http://employment.alberta.ca/documents/WIA/WIA-ET_inform_dash_information.pdf [Accessed 31 December, 2009]. Anckar, B., 2003. E-Service Journal, Indiana University Press. Vol 2. Center for Asia Pacific Aviation, 2009. Flyglobespan flight operations ceased; 26th carrier to fail this year – CAPA. Suffering ‘Liquidity’ Issues. 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