TUI Group Environmental - Essay Example

TUI Group Environmental Summary The study involves analysis of the company’s macroenvironment using porter’s five forces and PESTSEL models. VRIO and SWOT analysis were used to analyse the company’s microenvironment. TUI is a market leader in the tourism industry having operations in more than 180 regions of the world. The company has many resources that have given the company a competitive edge. Also, the company has diversified its portfolio thus increasing its market share and revenue. However, environmental regulations, technology, political and economic challenges continue to pose much threat to the company’s operations. The main TUI competitors include Thomas Cook, Rewe Touristik, First Choice Holidays and My Travel Group. The study concludes that TUI can focus on its core competencies and take advantage of available opportunities such as investing in low-cost airlines while minimizing threats and weaknesses to increase its market share and revenue. Introduction This study examines both macro and microenvironment of TUI Group of Companies and unveils its growth strategies. Established in 1997 the company has expanded its operations in tourism to emerge as the market leader globally (TUI AG, 2015). The company has invested in three business portfolio; TUI Hotels and Resorts, TUI travel and the cruise ship venture. TUI has strong portfolio comprising of over 1,800 travel agencies, 300 Hotels, 13 cruise liners, 130 aircrafts, six airlines, etc. The company recorded turnover of €18.7 billion in 2013/1014 financial year (TUI AG, 2015). TUI operates in more than 180 regions with over 30 million clients. The company’s shares trade on London Stock Exchange (FTSE) and in Frankfurt Stock Market. TUI experience strong competition from Thomas Cook, First Choice Holidays, Rewe Touristik and My Travel Group. TUI’s growth strategy is to increase the number of hotels by opening more 60 hotels and purchase four new ships (Evans, 2015). Porters Five Forces Analysis Porter’s five forces analysis promotes the understanding of sources of sources of external challenges facing the industry (Porter, 2008). The threat of new entrants: The tourism industry requires high capital and is controlled by a few market leaders (Porter, 2008, 7; (Evans, 2015, 264). However, the possibility of entrants of low-cost airlines offers price threat to TUI. Developing of efficient rails and customers preferences for personal vehicles can have adverse effects on the company. Substitutes: The social media, TV and other social activities pose some threats of substitutes though not a perfect replacement of tourism. Also, tourism is highly undifferentiated thus there is low threat of substitute. Suppliers: The tourism industry is controlled by a few players hence the TUI enjoys backward integration hence suppliers have less power. Buyers: Customers have high bargaining powers because of low switching cost and emergence of online sales. Therefore, TUI has to conduct massive marketing to maintain their customers. Competitive Rivalry: TUI experiences strong rivalry in many areas including low-cost airlines. Thomas Cook, First Choice Holidays, Rewe Touristik and My Travel Group are TuI’s main rivals. This has been the cause of high diversification to increase its market share (Evans, 2015, p.264). VRIO Analysis VRIO model seeks to answer questions of Value, Rarity, Imitability and organization of the company’s resources. Value: TUI has physical resources. It has over 1,800 travel agencies, 300 Hotels, 13 cruise liners, 130 aircrafts, six airlines, etc. TUI operates in more than 180 regions with over 30 million clients (TUI AG, 2015). TUI has strong intangible resources such as huge resource base including intellectual capital, a huge database of clients, advanced integrated business system and human resources. Rare: Though TUI’s resources are not they require huge capital to acquire and expertise to manage. Therefore, other companies may not have the capacity to integrate all these resources competitively (Riezebos & Grinten, 2012). Imitate: Tourism industry is highly undifferentiated and can be easily imitated. TUI focuses on effective marketing strategies to keep its brand relevant in the market (Riezebos & Grinten, 2012). Organization: TUI has the efficient management of its resources that has enabled it to diversify into three specific areas effectively. This has enabled them to enjoy economies of scale and expand market share (Riezebos & Grinten, 2012). PESTEL Analysis The PESTEL analysis provides an overview of the external factors influencing the business and establishes the drivers of change (Evans et al., 2012). It classifies various environmental conditions are classified as political, economic, social-cultural, technological, environmental and legal factors (Riezebos & Grinten, 2012). Political Various nations have different taxation policies that affect tourism. In countries where the government offer tax exemptions to tourists, the company can have better returns. In the current economy, terrorism has become a global threat. This has adversely affected tourism because some people are unwilling to visit some countries considered to be the hotbed of terrorism or their governments prohibits the citizens from visiting certain countries (Riezebos & Grinten, 2012). Additionally, the insurers companies are unwilling to provide insurance cover to travellers due to high risk of terrorism. Political volatility in some countries has undermined tourism in such countries and also in the neighbouring countries. Economical Globalisation has increased business opportunities in some ways (Porter, 2008, 7; (Evans, 2015, 264). As a tourist company, TUI enjoys international clients, better technologies, etc. However, increasing customer demand for quality services and global competition is a challenge the organisations are facing. Furthermore, the unstable economic conditions leading to the recession have adverse effects on tourism. The variation in currency exchange has also affected the tourism business. For instance, the UK British Pound is very strong compared to Euro of the dollar (Leslie, 2014). The company’s cost of operating business in other countries varies significantly across the nations with negative consequences. Sociocultural There is an increasing environmental awareness that influence customer’s attitudes towards the organisations. As a tourism company, TUI has to demonstrate their environmental concern to remain attractive to their customers. Lifestyle is another factor affecting tourism industry (Riezebos & Grinten, 2012). TUI offer customised services to their clients and online booking services to satisfy customer expectations. Technological Technology has benefits and adverse effects on tourism. The use of online booking services offered by TUI and other tourism companies is increasing the number of bookings and reservations due to increased efficiency (TUI AG, 2015). The increasing technological advancement has adverse effects on tourism. Television and the internet are substituting physical travels because clients can view most of tourist attractions online or in the TV resulting in reduced clientele. Environmental The increasing environmental concerns are hampering air travel services especially as the UK government suggests a reduction of air flights to cut down on emissions of carbon dioxide. Natural disasters also affect tourism business adversely (Evans et al., 2012). Legal TUI operates in many countries having a different legal regime. Therefore, they must adjust their operations to the regulations of various countries (Evans, 2015, 268). Also, the UK government proposes strengthening of Aviation Safety Regulation, and such changes can potentially affect tourism industry adversely. SWOT Analysis Strength: TUI has over 200 strong and well-recognised brand, strong financial capital, efficient management team and good marketing skills such as online marketing (TUI AG, 2015). Weakness: TUI faces potential risk because it is highly dependent on technology that may disrupt business in case of faulty. Also, there is the high cost of financing diverse portfolio (Leslie, 2014). Opportunities: There is chance to increase revenue by investments in low-cost airlines and focusing on target marketing such as medical tourism and ecotourism (Riezebos & Grinten, 2012) Threat: TUI continues to experience various threats such as volatility of various currencies, declining market share and changing prices of jet fuels, intensifying campaign for climate change can reduce airline travels, political instability and global terrorism, natural disasters, etc. can affect business operations (Riezebos & Grinten, 2012). Conclusion TUI is a stable tourism company with operation in more than 180 countries. The analysis of the company’s macroenvironment using PESTEL and Porters Five Forces has established the company has many competitive advantages over its rivals. The microenvironment analysis carried out using VRIO and SWOT analysis has also established strengths and weaknesses of the company in the industry. TUI should capitalise on its core-competencies and take advantage of the available opportunities while minimising weaknesses to advance its business across the globe. Bibliography Evans, N. 2015, Strategic Management for Tourism, Hospitality and Events. Routledge, 264- 468. Evans, N., Stonehouse, G. & Campbell, D. 2012, Strategic Management for Travel and Tourism. Taylor & Francis. Pp. 1-420. Leslie, D.2014, Tourism Enterprise: hDevelopments, Management and Sustainability. CABI. Pp.64-65 Porter, M. E. 2008, Competitive Strategy: Techniques for Analyzing Industries and Competitors. Simon and Schuster, Reprint. Pp. 1-432. Riezebos, R & Grinten, J 2012, Positioning the Brand: An Inside-Out Approach. Routledge. Pp.19- 34. TUI AG, 2015, TUI Group, Available at http://www.tuigroup.com/en-en/about-us/at-a-glance. November 12, 2015. Read More