Strategic Management for Travel and Tourism: of MyTravel plc - Case Study Example

Strategic Management for Travel and Tourism: A Critical Report Table of Contents 1.1 Executive Summary---------------------------------------------------------------------------3 1.2 Introduction------------------------------------------------------------------------------------4 1.3 Growth of travel and tourism companies--------------------------------------------------4 1.4 Problem Analysis------------------------------------------------------------------------------5 1.4.1 Management problems-------------------------------------------------------------------5 1.4.2 Legal disputes and litigations-----------------------------------------------------------6 1.4.3 Untimely and wrong decisions---------------------------------------------------------7 1.4.4 Change in dealings with customers----------------------------------------------------8 1.4.5 Effects of terrorist attacks---------------------------------------------------------------8 1.4.6 Loss and removal of talented and committed personnel----------------------------9 1.5 Recommendations----------------------------------------------------------------------------9 1.6 Conclusion------------------------------------------------------------------------------------11 1.7 References-------------------------------------------------------------------------------------12 1.8 Appendix--------------------------------------------------------------------------------------13 1.1 Executive Summary: This critical report aims to analyze the case study provided in ‘Strategic Management for Travel and Tourism’. It discusses the growth and development strategies adopted by MyTravel plc (formally Airtours) to rise gradually from a two people company to one of the biggest travel and tourism organization of the day. The report also investigates the problems, encountered by such big business magnates while treading on the path of success, due to poor management, legal disputes, and wrong decisions, besides other factors. Apart from dealing with the problems, the report also studies the problems critically and offers recommendations for their solution. The report has been divided into different sections, with each section dealing with a particular aspect of the critical case study. Section 1.2, the introduction gives brief background knowledge about the highly competitive travel and tourism industry which is dominated today by few large companies. It also provides an overview of the reasons behind the struggle of power and domination among few travel and tourism companies. Section 1.3 discusses about the rise of a small travel agency in the 1970s to a large-scale international travel and tourism company. Section 1.4 analyzes the different problems which have plagued MyTravel plc from the late 1990s. Section 1.5 provides some recommendations, while section 1.6 effectively concludes the whole report. 1.2 Introduction Travel and tourism industry, dominated today in the European and International countries by a handful of business magnates, encompasses within it a struggle for power, position, and domination. And in this interplay of intellects and brains, few rise to the zenith. Among the few, there are fewer individuals who have the mastermind to start from a two-member travel agency and with time, to expand it to one of the largest travel and tourism company, and become one of richest in the world too. MyTravel plc is one of those companies which rose from scratch by the dedicated efforts of a man called David Crossland. Reaching the acme is, however, not the only issue or goal of ambitious and dedicated travel and tourism companies; continual expansion or growth with the maintenance of the position at the pinnacle is what constitutes the real reason driving the power play among them. And in this power play, constant vigilance and strategic management are a must, without which, as discussed in this report, there are bound to be problems and huge losses. 1.3 Growth of travel and tourism company The era of 1970s saw the rise of a travel and tourism company that would later become one of the leading travel and touring company; a company which is today known as MyTravel plc. The company had started with ‘a low cost package holidays to Malta’ which had been very popular in north-west England. Today, MyTravel plc has distribution, tour operations, aviation, and cruise and hotel homes in countries which include United Kingdom, Scandinavia, Germany, and North America. With numerous brands under it, the company effectively transformed itself from being a purely UK based company to an international group, favoured and trusted by many. 1.4 Problem Analysis: With business expansion and progression, a company has to face problems of different kinds in order to sustain its niche in the travel and tourism industry. So also has been the case with MyTravel plc. After floatation, as stated by Nigel Evans, MyTravel plc, then Airtours, plc, ‘had to deliver satisfaction to customers, shareholders, and bankers, and balancing these competing demands was not always easy’ (p.362). 1.4.1 Management problems Management problems are the problems faced by all companies once they expand and progress, employing more than million people and having multitudes of brands and branches. According to Nigel Evans, ‘from 1985, Crossland, recognizing that the development of the business required professional inputs from others, started to draw around him a strong management team to help him build the business’. Although after floatation (when ‘the company became a public limited company [plc], making it one of a very small number of tour operators to have a full stock market listing at that time’), MyTravel plc realised the problem of ‘balancing competing demands’ due to tremendous growth in the company, it also ‘imposed financial disciplines on the management team’ (Evans, p. 362). Close analysis reveals that although MyTravel plc was aware of the demands that would arise after the expansion of the business, it could not address the problems that arose from improper management within the vast business. As Nigel Evans observes, ‘the transition from its single business core of tour operating into an integrated international travel business was rapid, and this placed considerable demands on management, staff and systems’ (p.367). To maintain its position, MyTravel plc had to further spend more on ‘staff recruitment, management training and the procurement of the necessary computer hardware and software’ (Evans, p.367). Rapid expansion of its travel and tourism business of MyTravel plc with its failure to manage its business properly was even met with severe criticism by the media and ‘poor ratings by reports from The Consumers’ Association’ (Evans, p.367). Such ratings by The Consumers’ Association in the 1990s put great pressure on MyTravel plc which later had to make ‘strenuous efforts to ensure that customers knew what they got what they promised’. However, in spite of its efforts, it has been observed that MyTravel plc could not boost up its image completely as ‘there was a marked reduction in the proportion of complaints relative to the holidays sold’ (Evans, p.367). 1.4.2 Legal disputes and litigations Legal disputes and litigations create additional problems for all organisations, making them incur heavy losses and tensions in case of failure. MyTravel plc has also suffered from legal disputes and litigations. As stated by Nigel Evans, ‘management clashes led to a series of high profile departures from Airtours… subsequently sacked five directors of Going Places’. Legal cases were initiated against MyTravel plc in the High Court by those sacked directors who wanted to recover their money. Another important legal case which cost MyTravel plc defeat and loss of ‘some £9 million’ was ‘fought over several months and widely reported by the media’. The main reason behind it was the ‘take-over bid for Owners Abroad’ which is another large tour operator (Evans, p. 364). 1.4.3 Untimely and wrong decisions A couple of wrong decisions made by MyTravel during 1990 led to the first losses of the company. The creation of ‘The Cottage Directory’ which were ‘product selling UK country cottages was not met with much success. As Evans has observed, ‘the sales achieved were lower than forecast and the product proved operationally difficult, involving as it did close liaison with a large number of individual property owners and a comparatively low value of sales per brochure page’ (p. 363). The only solution to the loss incurred was to accept an offer for the business, due to which MyTravel incurred a relatively ‘limited loss overall’ (Evans, p.363). Apart from the loss of ‘The Cottage Directory’, MyTravel was hit hard by the purchase of a minority stake in Frosch Touristik International (FTI), which was Germany’s fourth ranked tour operating group. This happened in the year 1998. In 2000, MyTravel was convinced that such a decision had brought trouble upon it. It ‘discovered… that the 2000 season produced losses of some £100 million for the FTI, which resulted in taking full control of the company in late 2000’ (Evans, p.366). The main reasons behind such a loss were seen as ‘overestimation of capacity requirements for the summer season and being left with unfilled allocations’ (Evans, p.366). Serious problems started for MyTravel when it bought Travelworld in 1999, which was a ‘120 strong Yorkshire based travel agency’, to meet the growing competition in the travel and tourism industry. According to Nigel Evans, ‘… Travelworld’s financial position was less robust than it had been hoped at the time of the purchase and this raised questions about Airtours’ management’s astuteness in making the deal’ (p. 366). David Crossland, himself believes that, ‘a key mistake was made in 1999 when the company thought it was taking a low-risk route by only buying 30% of FTI but it actually turned out to be worse’. The main reason behind such a mistake was lack of control in that year (Evans, p. 369). 1.4.4 Change in dealings with customers Another change which reflected a reduction in profits was the reliance by MyTravel on online booking. It is evident that ‘consumer purchasing behaviour was deeply embedded and slow to change…Going to buy the holiday was associated with the excitement of the holiday itself and so the change to online booking was not expected to be fast growing’ (Evans, p.368). Hence, Internet booking in 2002 attracted people for package holidays which accounted for only 1% of business. 1.4.5 Effects of terrorist attacks The effect of terrorist attacks on the travel and tourism industry was evident, especially after the incident of 11 September. It exposed the ‘vulnerability of the industry to external shocks’ (Evans, p.371). Tour operators usually face much problem in the wake of terrorist attacks. According to Business Editor Andrew Calvert, ‘as part of an industry still reeling from the aftermath of September 11, the Iraqi war… MyTravel has been hit harder than most holiday groups’ (This is Lancashire). As Nigel holds, the Centre for Economic Business Research studied the probable effects of terrorist attacks on touring industry and concluded that ‘the impact of 11 September and subsequent conflicts suggested that a 5% reduction in demand for overseas holiday was likely, which means the industry’s capacity cuts more than compensate’ (Evans, p.371). 1.4.6 Loss of talented and committed personnel As evident from the case study by Nigel Evans, much damage was also suffered by MyTravel plc when there was defection of some and retirement of long-standing members. ‘Harry Coe and Hugh Collinson’, who were considered as ‘right-hand men’ of David Crossland retired, which proved to be damaging for the company. In addition, as Nigel maintains, ‘perhaps the most damaging… was the defection of two senior executives during 2001 to arch-rival Thomson’ (p.367). 1.5 Recommendations MyTravel has always been ‘the darling of the City – a travel company that was professionally run and which reported steadily increasing turnover and profits’ (Evans, p. 365). However, with time, ‘a series of problems beset the company over 2000 and 2001. Europe-wide consolidation of the sector led to the emergence of powerful new competitive groupings, while its own deals largely failed to impress’ (Evans, p.365). A close reading of the report shows that MyTravel plc has to address the problems effectively with great care. Reviewing and restructuring of the business is essential for the company to regain its success and sustain its position. Business Editor Andrew Calvert opines that such restructuring has already been started by the company after ‘a decade of aggressive expansion’ (This is Lancashire). According to 2001 Airtours reports and accounts, there has been a consolidation of major UK tour operator into a single site and additionally, there has been a ‘reorganization of a Scandinavian businesses from a brand based to a country based organization’ (Evans, p.370). Management problems which have plagued MyTravel plc have also to a considerable extent been taken care of, as evident from the 2001 reports and accounts of Airtours—‘a new management team was put in place and the complete organization led to significant reductions in the German workforce as efficiencies were identified’ (Evans, p.370). The report also includes attempts made for introducing ‘operational flexibility’ which is badly needed for MyTravel plc, and which will help it to bridge its losses. Reviewing and restructuring of the company should also include refinancing with their banks. According to a leading travel industry analyst, ‘clearly, given the size of the group's losses at the interim stage, that will not happen this year with MyTravel. But what is significant is that the group has agreed a refinancing with its banks that will run until 2006 which will give it the breathing space necessary to restructure the business’ (This is Lancashire). He believes that if the company can resolve its position over ‘convertible bonds’, it can have the stability to regain the business and turn around again. Chief executive Peter McHugh of MyTravel states, after seeing a good recovery in bookings since the end of conflict in Iraq, that ‘we believe the business will be profitable next year and going forward,’ (This is Lancashire). Problems with the internet bookings associated with slow servers and other factors should also be solved. To some extent, this internet bookings problem is also being taken care of MyTravel plc. Pontus Wallin, who is at MyTravel plc, Sweden, revealed that before there were four different archives, but now, ‘three different archives’ have been moved to ‘one centralised archive, to which co-workers in all 200 destinations worldwide have access. This alone counts for annual savings of more than Euro 50,000’ (Fotoware, 2006). Increasing problems which further arose by improper understanding of international markets and wrong decisions should also be addressed with proper planning and discretion. MyTravel plc has realised the need for such a measure as it states in its 1996 reports and accounts that ‘for future growth we shall seek to develop or acquire businesses operating in the markets which we understand, where we can add value and where the acquired business has high quality management or alternatively can be integrated into our existing management infrastructures’ (Evans, p.370). 1.6 Conclusion An analysis of the report reveals that the travel and touring operator business, ‘MyTravel’, which was in words of Business Editor Andrew Calvert, ‘a once-mighty operation’, has indeed faced grave problems which need to be addressed seriously by its management team. However, the travel and touring giant, MyTravel plc, still has confidence, loyalty, dedication, and determination to overcome its problems and restructure its organization and lead itself to success. As stated by Business Editor Andrew Calvert, ‘Despite its troubles, MyTravel plc is still one of the world's largest holiday companies. From its humble beginnings at Pendle Travel in Burnley in 1972, it now employs 25,000 people in the UK, North America, Germany and Scandinavia’ (This is Lancashire). Large companies ‘are like a juggernaut - it is not easy to turn them around,’ says Paul Astley, managing director of Blackburn-based PA Travel; however, with proper management and planning, large companies can change their course and return once again to their former glory. 1.7 References This is Lancashire, 2003, ‘MyTravel plc Looking to Bright Horizons’, Available at http://archive.thisislancashire.co.uk/2003/6/11/547953.html This is Travel, 2003, ‘More Woes for MyTravel plc’, Available at http://www.thisistravel.co.uk/travel/news/More-woes-forMyTravel plc_article.html?in_article_id=34758&in_page_id=1 This is Travel, 2003, ‘MyTravel plc aborts flight three times’, Available at http://www.thisistravel.co.uk/travel/news/article.html?in_article_id=34746 Poulter, Sean, 2002, ‘Fears for tour giant as £50m 'black hole' is uncovered’, This is Travel, http://www.thisistravel.co.uk/travel/home/Fears-for-tour-giantasmblackholeisuncovered-article.html?in_article_id=25614 Fotoware, 2006, ‘MyTravel plc’, Available at http://www.fotoware.com/Solutions/Corporate/CaseStudies/CS_MyTravel plc.aspx Evans, Nigel, 2002, ‘Case 4: MyTravel plc (formerly Airtours): Competing in the Travel Industry Big League’, Strategic Management for Travel and Tourism, pp. 362-374, Butterworth-Heinemann Ltd. 1.8 Appendix 1.8.1 ‘Fears for tour giant as £50m 'black hole' is uncovered’ by Sean Poulter, Daily Mail The future of Britain' s biggest package holiday company was in doubt last night after a 'black hole' of up to £50million was found in its accounts. MyTravel, formerly Airtours, which sends six million Britons abroad each year, issued its third profits warning this year as details were made public. The announcement included previously unreported losses of £20 million - £12million because of a downturn in UK holiday sales last year and another £8million linked to problems in reconciling spending and receipts in its books. On top of that was another £ 15million to £30million of what MyTravel called 'potential revisions to accounting estimates'. None of these problems was revealed when MyTravel issued a statement to the City and shareholders three weeks ago. Profits this year are now expected to be around £40million, some £100million less than forecast just 12 months ago. Shares in the Manchester-based company plunged by almost 73 per cent in early trading yesterday, wiping £40million of its market value. They closed at 281/2p, down 47p. The collapse in the share price means the value of the company has plummeted by around £1billion since the start of the year. The problems at MyTravel also provoked fears that Britain was seeing its first example of the accountancy fraud uncovered at U.S. corporate giants Enron and Worldcom. The accountancy firm responsible for auditing the MyTravel accounts was Arthur Andersen, the one used by the U.S. corporations. The Financial Services Authority immediately began an investigation into whether the holiday company had kept shareholders and the City in the dark about the state of its books. The financial crisis shook the industry, and the Lunn Poly chain immediately stopped selling MyTravel holidays, citing 'uncertainty'. There was no immediate threat to the tens of thousands of people who have already booked holidays with MyTravel for next summer. However, City experts believe MyTravel could become a takeover target for rival First Choice or German giant, TUI, which owns Thomson. MyTravel's problems appear to date back to the September 11 terror attacks in the U.S.and their impact on holiday sales last year. The company refused to cut the number of holidays it had for sale, and at the beginning of the summer left with more than a million to sell. The revelations led to the departure of chief executive Tim Byrne last month. The new management was alerted to the accountancy issues by Deloitte & Touche, who took over Andersen's UK operations. MyTravel employs 27,900 staff worldwide, with 14,000 in the UK, and owns the Panorama, JetSet and Going Places brands. It recently launched a cut-price airline, MyTravelLite. 1.8.2. ‘More Woes for MyTravel plc’ by This is Travel [online] Hundreds of holidaymakers were stranded for up to 43 hours after two charter flights suffered massive delays. Some customers slept on airport tables and baggage carousels after a series of mechanical problems grounded their planes. One flight, from Fuerteventura to Manchester, was delayed for almost two days while another, from Ibiza to Leeds-Bradford, was held up for 37 hours. The airline in both cases was MyTravel. The Mail reported yesterday that a pilot on one of the firm's flights from Menorca asked passengers to raise their hands if they were willing to board his plane after it had technical problems. Fourteen refused. And problems on the same Boeing 757 were behind the fresh delays at Ibiza airport. More than 200 passengers were set for take-off at 3.10am on Saturday but did not leave the Spanish island until 4.30pm on Sunday. Many said they were angry that they had been scheduled on a plane which had caused problems already. Sue Fairley, a 36-year-old sales representative from Loughborough, Leicestershire, was held up in Ibiza with partner Tony Tayler, a 39-year-old engineer. 'The last day completely ruined the holiday for us,' she said. 'It was horrendous.' The Fuerteventura to Manchester flight on Sunday at 1.20am was initially delayed when a door jammed. Then, halfway down the runway, take-off was aborted because of a 'lack of power' in one engine. The pilot finally decided the plane was not fit to fly after the air conditioning broke down. Around 70 of the 363 passengers spent a night at the airport and a second night crammed into hotels before a replacement jet could be found. They arrived home at 8.05pm on Monday - 43 hours late. Leslie and Sandra Superson, from Chorlton, Manchester, were among those who slept on a carousel. 'It was a total nightmare,' said Leslie, 52, a production engineer. 'On the plane it was well over 100 degrees and everybody was sweating. In the airport there was one shower between 70 of us. The lack of communication really annoyed us.' Passengers were given £100 in cash and a written apology. A MyTravel spokesman said the Boeing 757 had been hit by two separate faults and the delays were necessary to ensure passenger safety was not compromised. Read More