Travel Agency Sector in the United Kingdom - Essay Example

Travel Agency Sector in the United Kingdom Introduction to Travel Agency Sector Travel agencies have become the backbone of the tourism industry because they play a crucial role in the promotion of tourism. In 1841, Thomas Cook became the first person to set up a travel agency when he accidentally discovered that packaging of travel services could be a profitable business (Ghosh 2010, p. 102). Since then, the travel agency sector has grown in leaps and bounds. The United Kingdom Travel Agency sector dominates the European Union market employing 23 percent of the total EU workforce (Page 2011, p. 181). The travel agency sector is one of the fastest growing service sectors in the United Kingdom generating revenue of £28 billion, and realising an annual growth of 2.9 percent (IBIS World 2015). The barriers to market entry in the travel agency sector are low, therefore, increasing the intensity of the competition. Most travel agents are shifting their marketing to online bookings in order to remain competitive. In 2013, the penetration of in-store bookings fell from 25 percent to 18 percent from the previous year (www.store.mintel.com). The agencies are facing numerous challenges due to an increase in mobile internet penetration. Major Competitors and their recent performances The two leading travel agencies in the UK are TUI Travel plc and Thomas Cook Group plc. Thomas Cook travel agency is one of the leading UK-based travel agencies, and it is also listed on the London Stock Exchange. The agency owns a number of tour operators and charter airlines in the United Kingdom. The agency also extends its presence to Belgium and the Scandinavian countries. It is also the owner of Condor (scheduled airline) and Hotels4u (booking website). Currently, Thomas Cook has a customer base of 19.1 million and 32,722 employees making it the second largest travel agency in Europe and the UK. Thomas Cook ranks second after TUI UK Limited, which has 4,644,025 passengers licensed (CAA 2015). This Group attributes its growth to the introduction of new products and its winter sun initiatives (Thomas Cook 2015, p. 1). Table 1 shows the overall performance of Thomas Cook for the two-year period. Income Statement 30/09/2014 (millions) 30/09/2013 (millions) Revenue 8,588 9,315 Total Assets 5,794 6,285 Total Liabilities 5,509 5,737 Net Assets 285 548 Total Equity 285 548 Table 1 Financial Performance of Thomas Cook for the two-year period TUI Travel plc TUI Travel plc is the leading travel services provider in the United Kingdom. The Group offers high-quality travel services to its 30 million customers in 31 major source markets. These services include flight bookings and the entire holiday services (TUI Travel plc 2014). Income Statement 30/09/2014 (millions) 30/09/2013 (millions) Revenue 14,619 15,051 Total Assets 2,928 3,252 Total Liabilities (7,503) (8,038) Net Assets 1,644 1,491 Total Equity 1,644 1,491 Table 1 Financial Performance of TUI Travel plc for the two-year period Despite the high competition in travel industry, TUI Travel plc recorded an underlying operating growth profit of 11 percent at constant current rates (TUI Travel plc 2014, p. 1). The TUI Travel Group attributes its growth to its combination of market leadership position and increasing online presence Service challenges using five service characteristics There are five characteristics of service namely intangibility, perishability, variability, lack of ownership, and the inseparability. On the other hand, the service marketing triangle incorporates three tangible elements namely; enabling the promise, making the promise, and delivering the promise (McCabe 2010, p. 122). The main enabler of the promise is the link between the management of the agency and the employees. It is the managements role to train its employees on the nature of services it wishes to provide to its customers. McCabe (2010, p. 122) insists that employees are the ones who play the most critical role in the production of service. The nature of service quality is a reflection of internal communication between the management and the employees. In order for the service agency to deliver quality services, it has to lay down good strategic and tactical decisions in relation to human resources, marketing, and operations. The services marketing triangle shows the linkage between those groups responsible for developing, promoting and delivering the service. Customers make one of the most important stakeholder groups in any organisation; therefore, their satisfaction should be a priority of the management. In order to realise success in service delivery, there has to be an interaction between service providers and their customers. Excellent quality service is dependent on the behaviour of service employees. In the information age, the customers have become more educated and knowledgeable. As a result, the demand quality products as well as high-level accompanying services. In ‘making the promise’, the management engages in the external marketing efforts in order to communicate a brand that is consistent with the internal marketing. Through this process, the service providers meet the expectations of the customers. The external communications link the customers to the management. On the base of the triangle is the “delivery of the service” (Wilson et al. 2008). The delivery must match the promises made through the external marketing. The promises made are intangible, and this poses a challenge to travel agents. Due to the lack of physical attributes of services, it becomes difficult to display services easily to customers. Customers have the difficulty of grasping the service performance without tangible evidence. There is a presence of difficulties in cost calculation leading to price setting inadequacies for service providers. The products offered by travel agencies are special, and their content is intangible. These products lack technology content; thus they can be easily imitated. Industrial change over time Since 1841, travel agency sector has evolved to become one of the most successful sectors in the service industry. However, recent reports indicate that the industry has been on the downturn. The travel agency business was boosted by the introduction of air travel because travel by air became cheaper than travel by sea. Ghosh (2010, p. 103) observes that the number of travel agencies in the world increased from 3,000 in 1950s to 55,000 in 1991. However, this increase was followed by a decline. Travel Weekly (2013) has noted that the number of travel agencies has dwindled to 13,000 from a peak witnessed in 1980s and 1990s. This change can be attributed to increased customers’ knowledge that has been made possible by technology. Customers of travel services in the UK have become more prone to shopping online because they have a perception that traditional channels are inconvenient for them. Failure of travel agencies to make a timely shift from traditional channels to technology-enabled channels has cost them a lot of business opportunities. There is continuous interaction between task and performer referring to both the consumer’s technical abilities and, in particular, his access to information. After accessing the information, there is a high tendency for the customer to self-manufacture his travel products thus depriving travel agencies business opportunities. There is a great possibility of customer imitating the travel products. Appropriate measures of service quality for the face-to-face interaction According to Page (2011, p. 213), the travel agency market in the UK is highly fragmented because ICT has established more niches. Therefore, travel agents will have to evaluate constantly how to protect their commission levels. The pressure on travel agencies in the highly competitive UK environment is set to continue; however; travel agencies can employ the new promotional tools to remain competitive. These agencies can use technology to retain face-to-face contact with their customers. Thomas Cook has been looking for new ways to reach more customers. Travel agencies have to lay down different types of generic competitive strategies as discussed by Porter’s general theory (1980). This study proposes this theory as the most appropriate tool for agencies to assess the link between their generic business strategies and their marketing communications strategies. This theory argues that clear links can often be made between the content of marketing messages and the overall positioning strategy of the organisation. Porter (1980) discussed cost leadership, differentiation and focus. Of particular interest, in this case is product differentiation strategy. Mobile and internet technology offers travel agencies a great opportunity to differentiate their products. These organisations can mediate their interaction with their customers by the help of technology. Use of the extended marketing mix (8Ps) People Thomas Cook actively engages and involves its employees in its activities by having clear objectives and reviewing their performance regularly (Thomas Cook 2012, p. 58). The Company encourages its employees to provide senior management with input and feedback through emails, surveys and face-to-face discussions. TUI Travel develops its people through e-learning and face-to-face programmes. Both organisations recognise their employees as its key differentiator in the competitive travel industry. To achieve their mission, both companies maintain open communication within their organisations. The companies also recruit the best people and develop them in order to enable them deliver high-quality services. Product The travel products offered by both companies are almost the same. Their destinations offer similar types of products in the mass package holiday market. Place Both companies offer their products through face-to-face interaction as well as through their company’s websites. Price Over the years, these companies have been engaging in price competitions. There is a need to offer competitive prices because the market is highly saturated, and almost all agencies are offering similar types of products. Process TUI Travel plc has adopted IBM Cloud solution to help it manage peak booking periods. TUI Travel PLC attributes its world-class reputation to its superb customer service and robust performance. In order to improve the value of its performance especially during peak seasons, TUI Travel plc adopted IBM Cloud solution to support its transaction-intensive IT environment (IBM 2015, p.1). At the end of financial year 2014, TUI Travel plc purchased additional computer resources in order to its processes. Performance The main aim of Thomas Cook is focused on adding value, managing key issues, and contributing to the agency’s success over the long term. According to Thomas Cook Group (2015), the first quarter results for the period ending 31st December 2014 indicated that the group has made further progress in line with their expectations. To boost its performance, TUI Travel has been working with Criteo to promote its flight portal, and this has greatly improved its marketing performance. This technology enabled TUI to realise a sales increase of 10 percent in the year 2013 to 2014 (Tui 2014). Promotion Thomas Cook has been promoting its products in the market in a timely manner. For example, the organisation introduced O2 Media campaign which was aimed at promoting its ski product in its niche skiing market. Jane Sherfield of Thomas Cook said, “we are encouraged by the results, and I consider this to be a regular input in our marketing mix (www.o2.co.uk). Since 2009, Thomas Cook has been using state-of-art software for automated catalogue production, which produces high-quality promotion materials. Thomas Cook believes that the visual presentation plays a crucial role in a customer’s decision on a service offer. Philosophy With the introduction of Lean Management philosophy, wait times at call centres has been reduced and an increase in conversion rates in stores has been witnessed. In contact centres, the capacity has increased from 10 percent to 30 percent after the introduction of standard operating procedures. The Group has a philosophy of continuous improvement in order to accommodate the needs of each customer. Travel agencies have to consider the aspects of the e-service offerings that keep the customers from booking online. Travel agencies websites must provide amusement, arouse and give an experience that better mirrors the physical travel agency. A website should also add more value to the visit, which may lead to a higher degree of brand loyalty References Ghosh, B. 2010. Tourism & Travel Management, 2E. Vikas Publishing House Pvt Ltd. IBIS World. 2015. Travel Agencies in the UK: Market Research Report. Available http://www.ibisworld.co.uk/market-research/travel-agencies.html IBM Global Technology Services. 2015. IBM Cloud solution helps TUI UK & Ireland manage peak booking periods: A Case Study. Available http://www-01.ibm.com/common/ssi/cgi-bin/ssialias?infotype=PM&subtype=AB&htmlfid=SOC03008USEN#loaded McCabe, S. 2010. Marketing Communications in Tourism and Hospitality. New York: Routledge O2. 2013. O2 Media helps Thomas Cook reach new customers with timely targeted text messages. Available http://static.o2.co.uk/www/docs/business/ourthoughts/c36_thomas_cook_o2_media_casestudy.pdf Page, S. 2011. Tourism Management: An Introduction. New York: Routledge. Porter, M. 1980. Competitive Strategy. New York: Free Press. Thomas Cook 2012. Available http://www.thomascookgroup.com/category/financial-reports-results/ Thomas Cook 2015. Available at http://www.hl.co.uk/shares/shares-search-results/t/thomas-cook-group-plc-ordinary-eur0.01/financial-statements-and-reports Travel Weekly. 2013. How Many Travel Agents are There? Available http://www.travelweekly.com/Travel-News/Travel-Agent-Issues/How-many-travel-agents-are-there-/ TUI Travel plc 2014. Available http://www.tuitravelplc.com/system/files/uploads/financialdocs/TUI-Q3-Results-Pres_0.pdf Wilson A., Zeithaml, A., Bitner, J. and Gremler, D. 2008. Services marketing: integrating customer focus across the firm. 1st European Edition. McGraw-Hill Education. Read More