The Macro Environment of the Travel and Tourism Industry in the UK - Research Paper Example

Introduction Tourism in the United Kingdom continues to grow at a fast rate due to the high quality and affordable tourism environment as explained by Whittingdale (2008). In the contemporary world tourism companies need to keep abreast with innovation trends by their competitors and apply proper strategic management tools to survive. Thomas Cook is one of the largest travel and tourism companies globally offering a wide range of services to its customers as stated by Middletton (2009). The company’s success can be attributed to proper strategic management including the formation of mergers, change management, outsourcing, partnering and engineering. Strategic planning is one of the core business roles that contribute to an organization’s corporate strategy and Thomas Cook uses it to balance generation of sales revenue and customer satisfaction. Company’s overview Thomas Cook Group Plc is among the leading leisure groups globally. The company has approximately 22.1 million customers recording annual sales amounting to 9.3 billion Euros (Thomas Cook Group Plc, 2010). The organization has over 31000 employees, a fleet of 95 aircrafts and a network of around 3400 franchised and owned stores (Thomas Cook Group Plc, 2010). The group is composed of four brands including Direct Holidays, Neilson, Thomas Cook and Club 1830. The company’s management acknowledges the significance of applying quality corporate governance and makes all the key policies affecting the entity. The overall strategic management focuses on strengthening business and investing in areas of future growth, mainly independent travel and taking opportunities through mergers, partnerships and acquisitions. The vision of the company is to work together to deliver the 4 tenets of their strategy. These are to become a leading independent travel provider, to promote growth and value through mergers acquisitions and partnerships, to maximize the value of mainstream and to become an important travel services provider internationally. Thomas Cook AG merged with MyTravel Group Plc to form Thomas Cook Group Plc on 19 June 2007 and this led to the expansion in its activities (Thomas Cook Group Plc, 2010). The company’s strategy (Thomas Cook Group Plc, 2010) Market Environment Analysis It is mandatory for Thomas Cook to analyze the internal and external environments. This enables a company to make strategic planning and to proactively adapt to any changes in the market. A market analysis enhances the success of an organization and enables it to acquire competitive advantage in the market as asserted by Williamson, Cooke and Jenkins (2003). There are three key perspectives on the market environment which are; the micro environment, the internal environment and the macro environment. The marketing environment (Marketing teacher.com, 2010) The internal environment The internal environment in an organization includes all the factors affecting the operations from within. According to Marketing (2010), they are commonly audited by use of the 5 Ms, namely Men (Staff), Money, Machinery, Materials and Markets. The internal environment is equally important for managing any change as the external environment. This process is referred to as managing internal change which is essentially used as a support to change management and communication. The micro environment This has a direct control on the operations of the organization. This includes consumers, suppliers and other stakeholders. It describes the association between firms and the driving forces controlling this relationship. The macro environment The macro environment is composed of the factors that affect the operations of the organization, but it cannot control them. This is what can be analyzed using the SWOT and PEST analysis. The macro environment is constantly changing and organizations need to put measures in place to adapt (Robinson, 2009). Some of the driving forces in the macro environment include globalization and the aggressive competition especially in the tourism industry. Globalization has led to intensified competition in the market as it poses a challenge to organizations as there is always the threat of new entrants or substitute to products. The general environment is dynamic and organizations need to consider any changes in the political, economical, social-cultural and technology factors (PEST analysis). Political (legal) factors The political arena and the legal system have a huge impact on the rules and regulations in an organization. It mainly includes the legal issues and the government rules and regulates under which businesses should operate. Political activities including terrorism and war have had undesirable effects on tourism and generally the travel industry globally (BTEC National Travel& Tourism, 2007). This is predominantly the case for the destinations that are heavily reliant on tourism and have no other chief economic activities. Changes in the global currency exchange rates have devastating effects on the tourism industry and are capable of wiping out a company’s profit margins overnight. Increases in the prices of oil and natural resources have an impact on the costs in the organization leading to a decrease in profitability. The political environment in the UK can be described as stable which impacts positively on the organization. The expansion of the EU (European Union) has affected the political stability which has had impacts on the business. There has been increasing awareness on the environmental impacts of businesses and the government has laid down policies to ensure that companies are responsible environmentally. There have been proposals for VAT on air tickets and emerging tax on aviation fuel. Thomas Cook deals with travel in the tourism industry and this will have adverse effects on its operations and revenues. The government policies on increasing global fuel prices also have affected the organization and resulted to an increase in travel charges affecting the customers’ ability to pay for the service. Thomas Cook can take precautionary measures to minimize the impacts of these situations including paying for foreign commodities and currency in advance when the rates are favorable. They can pass the extra costs in form of taxes and duties to their customers at times in the form of aircraft fuel surcharge or holiday supplement. Economic factors These affect the purchasing power of the current and prospective customers and also impact on the individual organization’s performance. The economy is enjoying a gradually low inflation rate. Unemployment is low in the UK as there is a high job confidence since customer spending is also going up. The current predictions show a continuing GDP over the years and there has been an increase in the disposable income. However, in the recent past the industry has been undergoing a recession; the travel and tourism economy GDP growth slowed by 1% in 2008, contracted by 3% in 2009 and is expected to expand only by 0.3% in 2010; the World Travel and Tourism Council (WTTC) predicts tourism industry to resume its leading, dynamic role in global growth (WTTC, 2009). There has been an increase in the sales in the tourism sector. Exchange rates are encouraging for the UK residents travelling abroad as their currency against other currencies has a strong position (Gallego, 2007). The Euro which is the single currency in the EU is also stable as compared to other currencies. These are the factors likely to influence the tourism and travel industry in the UK. Social- cultural factors With the emergence of the internet, there has been online buying and booking of tickets. Watching movies and listening to music have become popular forms of entertainment in the UK. The residents prefer to socialize with their friends and family rather than travelling and this has a negative effect on the tourism industry. The population has developed a growing interest in healthy living, good diet and fitness issues as stipulated by Whittingdale (2008). This has led to the demand of organic food and fitness clubs and Thomas Cook should incorporate them in their packages. Dynamic packaging and computerised reservations systems (CRS) are the recent trends being used by travel agents and have resulted to changes in the tour operations. Technological factors There has been immense development in the world of technology affecting businesses in the UK and globally. These changes have transitioned the way businesses operate and for the case of Thomas Cook there has been an online booking for tickets and holidays. This has led to the need to react quickly to the changes in order to maintain the competitive environment by providing the same high-tech services which their competitors are offering. Technological factors also include budget airlines, maintaining of a market share, trends towards independent travel, dynamic packaging and distribution channels and integration (BTEC National Travel& Tourism, 2007). SWOT analysis The SWOT analysis takes into account the internal and external aspects of the business. It is an important tool in decision making as it helps the management to identify the relevant information affecting the entity. The strength of the organization lies in appropriate strategic management tools, market capitalization and investments. The opportunities include diversifying the tourist packages more, including packages concerning health and fitness matters and expanding their travel destinations. The threats faced include terrorism, cheap airlines, latest trends in home entertainment and the government’s decision to increase taxes on aviation fuel and air tickets. Package Holiday Company Strategic Analysis Direct Holidays is a brand of Thomas Cook Group Plc that offers quality and affordable holiday packages to its customers. It was founded in 1991 and had a subsequent launch of the business from the Prestwick and Glasgow airports and later expanded to other airports. The parent company was rebranded in 2003 to MyTravel Plc which later merged with Thomas Cook Group in 2007 as stated by Mennen (2010). The company is registered under the trading name of Thomas Cook Tour Operations Limited. Direct Holidays were among the pioneers of the direct- sell philosophy and were among the first to offer fully booked online packages. It is among the fastest growing holiday companies in the UK and a leading travel company on the web (Direct Holidays, 2010). The online booking service saves cost for both the customers and the organization. This is because it eliminates the role of a travel agent and all of their commission as explained by Porter (2001). Online booking of tickets is faster and more convenient since it is done at the comfort of one’s home and then the documents are sent to the client as stipulated by Pender and Sharpley, (2005). The flights are done at local airports saving the clients a long journey to the major airports. Their staff offers the best service to their customers as they strongly believe that product experience is quite important. Their representatives are a considerable part of the team that ensure smooth running of the entire holiday. The brand targets customers from different walks of life and aims to provide quality and affordable service. There are factors that could lead a decline in the demand for holiday packages including the PEST analysis as discussed earlier. Other contributing factors that may negatively affect the demand may include the increase in cheap European flights, changing attitudes within the EU, people’s lifestyle, a more affluent UK population and change in demographics (Foundation Degree South West, 2010). There are opportunities that the company can exploit by expanding their services globally and reaching to the residents who do not wish to travel abroad. Strategic Fit Analysis Strategic planning in the company provides a framework to conduct business in the rapidly changing and competitive global market and provides a vision for the future. Large companies like Thomas Cook have more products in the market and the greater is the need to have an effective planning process and to understand any future fluctuations in the market. The recent years of growth in the travel and tourism industry obscure the perceived need for strategic planning, though the unpredicted economic recessions and discontinuities in the market have brought the matters of planning into focus. The recent developments surrounding mergers, strategic alliances, globalization and investments have also heightened the focus into strategic planning (Middleton et al., 2009). The strategic decisions should focus on long run decisions that involve the development of new technology and major investments. This is because Thomas Cook has multiple markets and requires strategic planning to attain effective allocation of resources between all components of the business and efficient relationships. Strategic planning is an effective part of the process through which organizations convince the stakeholders and investors about the vision of the business and the direction they wish to take. It comprises of a statement of objectives and goals, a program activity to attain the goals and an outline of resources needed. Middleton et al. (2009) stipulate that it requires market research and analysis and programs undertaken are analyzed and constantly monitored to assess how well targets are being achieved. It is conducted on the assumption that the effort in resources and time is required to produce quantifiable results and an increasing recognition that future development must be considered. Effective strategic planning involves an analysis of the industry and the current market position occupied by the company, the emerging opportunities in the dynamic world, future prospects of the organization and the measures to be undertaken to achieve set goals and objectives. This basically leads to the idea of the position or place in the market considering perceptions of their customers and the position it occupies in the market in comparison with competitors. This results in the concept of corporate planning which entails strategies, objectives and plans as stipulated by Middleton et al., (2009). Strategic planning involves the process of analyzing the strengths and weaknesses of an organization in the marketing process as asserted by Williamson, Cooke and Jenkins (2003). Strategic management is proactive since it defines the future of the organization. It enables the organization to respond to changing trends in the industry in future, diverse consumer needs and changes in patterns of other market conditions. It should be founded in the mission and vision of the organization. The group strategy is to empower their core mainstream business and investing in sectors of future growth. The organization also aims to strengthen their independent travel and opportunities through mergers, partnerships and acquisitions and other travel related services (Thomas Cook Group Plc, 2010). The merger with MyTravel Group in 2007 placed the company in second position in the European tourism market as stated by Page (2009). The company should question the reason for its existence and for a tourism and travel company like Thomas Cook it is to provide services to their consumers in sectors including flights, historical sites and cruises. The strategic plan should ensure that the company sticks to their belief. The plan should ensure that the company is in a competitive position and has distinctive competence as stated Middleton et al., (2009). The policies in the organization emphasize the distinctive competence and value system. The management should analyze the factors in the external (macro) environment, the micro environment and global factors that affect the organization. Conclusion As much as tourism and travel industry has been enjoying immense growth in the recent past, Thomas Cook Group Plc needs to capitalize on the disposable income of their customers specifically through the Direct Holidays brand. The case study analyses the macro environment of the travel and tourism industry in the UK. Further, we investigate how the organization has achieved sustainable competitive advantage over its competitors by studying the SWOT and PEST analysis. The company’s strategy is to strengthen business and invest in areas of future growth, mainly independent travel and taking opportunities through mergers, partnerships and acquisitions. The strategy has worked for the company and others should follow the lead by incorporating strategic management analysis in their operations. The success achieved by Thomas Cook Group Plc offers crucial lessons and the much needed inspiration in the business world and should continue applying the same strategic management tools to retain its position in the global market. References BTEC 2007, BTEC National travel and tourism, viewed 13 December, 2010, . Direct Holidays 2010, Direct Holidays is the UK and Irelands leading direct sell tour operator, viewed 13 December, 2010, . Foster Degree South West 2010, The marketing environment and objective setting, viewed 13 December, 2010, . Gallego et al. 2007, On the impact of exchange rate regimes on tourism. Gillian, D & Oliver, H 2005, BTEC national travel & tourism, Heinemann. Marketing Teacher.com, The marketing environment, viewed 13 December, 2010, . Mennen, M 2010, An analysis of Ryanair’s corporate strategy, GRIN Verlag. Middleton, VC, Fyall, A, Morgan, M & Ranchnod, A 2009, Marketing in travel and tourism, 4th edn, Butterworth-Heinemann. 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