The Current Market Trends in the Tourism and Tour Operating Sectors - Case Study Example

TOUR AND TRAVEL OPERATORS CASE STUDY – THOMAS COOK INTRODUCTION GLOBAL TOURISM INDUSTRY Globally, tourism has become on e of the most important industry with international arrivals expected to reach 1.6 billion by year 2020 and the expenditure on tourism is expected to hit US$ 2 trillion mark. (WTO 1998) The international tourism is concentrated mostly within the developed countries of the world. And most of the travel is generally intra-regional. In fact, in year 2000, seven out of the top ten tourism spending countries were also part of the top ten tourist destinations in the world. This phenomena was called as the distance decay factor (Mill and Morrison ,1992) and this is a normal happening as people are restricted by financial and temporal reason to travel to the closest destinations. It has also been seen that the destinations which are the most popular usually have better accessibility and infrastructure arrangements. UK TOURISM The UK is in the fourth spot after US, Germany and Japan in the list of most important tourist market in the world. As per Mintel report (2001c), the UK travel market has grown substantially more than the other developed countries in terms of the numbers of travelers as well as the expenditure. The Britons travel mostly to and within the European region. But now the long haul travel has also become popular due to more information available for other countries and decrease in cost of air travel. In fact, the percentage of holidays taken to long-haul destinations have risen from 15% in 1995 to 20% in 2000. (Mintel, 2001c). And with this the british tourists are using the services of tour operators more when traveling to long haul destinations. Another important feature of UK tourism is the rise of ethical considerations by people when choosing their holiday destinations and tour operators. According to one of the studies, 27% of respondents gave high importance to the ethical standing of a tourism company and said that they would pay 5% more for a holiday that fulfils ethical criteria (Tearfund 2000). But Mintel research has shown that though the travelers are aware of this, they are more concerned about the budget in general (Mintel 2001b). And this is evident from the response of tour operators who view the ethical considerations as a luxury and cost, rather than long term investment (Krippendorf 1991). Moreover, they also felt that consumers were not willing to pay for the cost of ethical issues or the responsible tourism (Weeden, 2001) TOUR OPERATORS IN UK The tour operators can be defined as the people who combine two or more travel services such as accommodation, transport, catering , sightseeing etc., in their businesses and provide a combined package to the consumers. This is what is known as the Package tour. Burns and Holden (1995) and Cooper et al.(1998) described a tour operator as an intermediary between the customers and providers of services. As per them this provides them the power to influence both the demand and the supply side of the travel as per their interests. Generally, a tour operator offers a package to the customer which includes the transport, accommodation and other services. And this is offered at a lower price than the price which the customer has to pay when buying the services individually. Thus the main role or work of tour operator is to package, price, market and sell the holiday products to customers. Customers buy this “product” from the operators because they are able to get a convenient, secure and somewhat cheaper holiday product. There are two types of tour operators in UK : a) mainstream or mass-market tour-operators b) niche or specialist tour-operators The mainstream tour operators sell a mainstream product such as the sea, sand and sun --- 3S product to a large customer base and this provides them the maximum revenue. On the other hand, the Niche market tour operators provide services to a very small customer base and cater to specific and uncommon destinations. And therefore they are always on a lookout for specialized or exotic locations to remain competitive in the market. In UK, the tour operating sector is divided into Niche operators – who are very large in numbers but cater to a very small segment of customers and Mainstream operators – who are very small in number but cater to a large segment of customers. In fact, the Mainstream operators in UK are dominated by main four tour operators known as the Big Four -- Thomson Holidays, Airtours, Thomas Cook and First Choice who together control over 75% of all outbound package tours. And there are the 12 more companies who are members of the FTO (Federation of Tour Operators) and these together with the big four control over 90% of the market. And the rest 10% is catered to by about 1,500 niche operators (Middleton 1998). See figure 1 below for the Market share of top 4 UK tour operators in 2000 Thus we see that Thomas Cook has the third largest market share amongst the UK tour operators. We will be choosing this company as our case study. THOMAS COOK BACKGROUND Thomas Cook Group is one of the largest travel companies in the world with offices all over the globe. It has a large network of about 3000 travel offices which are either owned or are franchised. The company was started by Thomas Cook in 1841 and his first commercial venture was a trip to Liverpool organized in 1845. In 1924, the company was incorporated as Thomas Cook & Son Ltd. By 1965, the company had announced a net profit exceeding £1 million, but with increasing competition, the company began to falter. And by 1972 Thomas Cook & Son Ltd became private again. Today, Thomas Cook is wholly owned by Thomas Cook AG (formerly C&N Touristic AG), which acquired it in March 2001. The Thomas Cook AG group is the second largest travel group in Europe and the third largest in the world. This group has a fleet of 100 aircrafts (Thomas Cook Airlines) which caters mostly to the European market. It operates under the Airtours, Direct Holidays, Going Places, Manos, Panorama, Sunset, and Thomas Cook brands. It acquired a European travel services provider MyTravel Group for around $5.5 billion in 2007 as part of its objective to be the number one in travel and tour services. Its mission is to perfect the personal leisure experience for its customers and they want to be the world’s most preferred leisure travel and leisure-time partner for their customers. MARKETING STRATEGY The main strategies followed by the tour operators are the economies of scale and vertical integration. By following them the tour-operators can exercise buying power and control over the supply and distribution of their products. Thomas Cook has also used the strategy of integration quite well. Actually integration could be Vertical, Horizontal and Diagonal in nature. In Horizontal Integration, two or more man stream operators may join hands together to weed out other competition and capture the market. For example, in 1995, Thomas Cook used this strategy to take over Sunworld. And then again in 1998, they further consolidated their position in market by announcing their merger with Carlson. In Vertical integration, the businesses combine or merge their supply or distribution channels to become more cost effective. The tour operators such as Thomas cook , thus invests into either suppliers (backward integration) in. accommodation and transport or distributors ( forward integration) in travel agents. This gives them control over quality, availability, access and price. Take a look at the Figure 2 below for the Forward and backward vertical integration of the top four UK tour operators Figure 2 Thus , the purchase and mergers done by Thomas Cook of Sunworld and its airline and Airworld and Time Off in 1996 are the results of the Integration strategy followed by the company to attain the status of world’s largest travel organization. Besides this, the company has started to follow he branding strategy since 2002 and they are capitalizing on the brand Thomas Cook for their marketing. MARKETING MIX Since tourism is a service based industry, the principal products provided by the industry is intangible in nature and are basically the recreational experiences and hospitality. Thus these intangible products are more difficult to market and measure against performance. Moreover, the product is not delivered to the customer but the customer needs to travel to the product Thus the product or the service deliverable includes many components such as transportation, accommodations, food and beverage services, shops, entertainment etc. Thus the marketing mix in tourism needs to be considered with utmost care. The 4 P’s or the marketing mix consists of Product, Place, Promotion and Price. Let us examine them for the THOMAS COOK organization. PRODUCT : Thomas cook provides holiday packages to 100 destinations and all these are combined with the offers of accommodation and traveling options. They carry over 4 million customers a year. The focus is on boosting demand. This was done using both long term and short term options such as special offers, early booking discounts, reduced prices for children, and additional sales promotion measures PLACE: The Thomas cook has a large network of more than 3000 travel offices and agents who work 24 hours to provide best of the information and guidance to customers. They also have online booking facility and all information is available through internet or telephone as well. PRICE : As one of the big four mainstream operators in UK, there is not much to differentiate between them except service standards and pricing. Thus the pricing strategies are crucial for both the mainstream the niche travel operators in the tourism sector. And therefore the price of the tour package is one of the most crucial aspect of sales and marketing strategy. (Mounser, 1996). The tour operators have to offer lots of discounts and other sops to lure customers as most of their destinations are similar. Thus they provide special offer customers who want a ‘no frills’ holiday at greatly reduced prices. PROMOTION: They have developed package tours on a demand-oriented basis, differentiating the offers according to the needs of their customers. They are now offering the quality-conscious customer premium products with both diverse as well as individual services. They have always believed in direct marketing strategies such as Database marketing, Internet marketing, Affiliate marketing, Joint marketing portals and Repeat business and word of mouth Thus the business model of Thomas Cook AG is based on four centralized management processes: customer care, capacity planning, brand strategy and product management. They have successfully negotiated the decrease in travel demand after September 11 attacks in US by following an extensive cost cutting plan called the Triple T. This plan comprised of more than 400 separate measures to cut costs. And this plan was so successful that the company was able to reduce its expenses by a total of € 540 million (Thomas cook, 2002) In the tour-operating sector, companies generally go for short-term goals as against a single long-term profit maximization strategy. Actually, the industry is such that maximizing sales becomes more important than maximizing profit. (Baumol, 1977) Thus more effort is focused on getting higher number of tourists or passengers and thereby increasing the market share. Thomas cook has also done the same. By acquiring companies and strategic alliances, they have managed to capture a large amount of market share. They are part of the Big Four your operators in UK and the third largest travel group in the world. As part of their policy to provide responsible tourism to the world, the company is committed to working towards developing and operating a sustainable business strategy such that it makes a positive contribution to the natural and cultural environment and benefits the communities in which the company operates and is not against the future livelihoods of the people in those communities. FUTURE STRATEGY The current market trends seen in the tourism and tour operating sectors are the price sensitivity of the customers due to large number of players in the market with similar kinds of products, short-term booking, introduction and the popularity of the no-frills airlines and the high rates of increase in e-commerce business. In order to respond positively to these developments, the Thomas Cook needs to modify its marketing strategy. They should make changes to their travel products based on customer demands and should provide discounts for early bookings as against last minute fillings. They must also try to use the internet or the online portals optimally. These days the customers want to work and book though the comforts of their offices or homes. Thus the internet services should be expanded and made easier to navigate and understand. They should continue their strategies of forward and backward integrations in the supply and demand side. In addition, the seat only business of the group’s airlines can be increased by using the same strategy as the low cost and no frills airline to ward off their competition. But they should not compromise on the quality as that would affect its brand strategy and positioning in the market. These measures should be accompanied by the refinement of products and processes which are changed to meet customer satisfaction. REFERENCES Baumol, W. J. (1977) Economic Theory and Operations Analysis, (4th edition), Englewood Cliffs, NJ: Prentice Hall Burns, P. and Holden, A. (1995) Tourism: A New Perspective, Englewood Cliffs, NJ: Prentice Hall Cooper, C., Fletcher, J., Gilbert, D. and Wanhill, S. (1998) Tourism Principles and Practice (2nd Edition), Harlow: Longman Key Note (2001) ‘Holiday Purchasing Patterns Market Assessment’, Key Note Krippendorf, J. (1991) ‘Towards New Tourism Policies’ in Medlik, S. (ed.) Managing Tourism, Oxford: Butterworth-Heinemann Middleton (1998) Sustainable Tourism: A Marketing Perspective, Oxford: Butterworth-Heinemann Mill, R.C. and Morrison, A. (1992) The Tourism System: An Introductory Text (2nd Edition), Prentice Hall Mintel (2001b) ‘Ethical Tourism’, Mintel International Group Ltd, October Mintel (2001c) ‘Long-haul Holidays’, Mintel International Group Ltd, February Mounser (1996) ‘Key issues surrounding price-based marketing of breaks and holidays in the UK travel sector.’ Journal of Vacation Marketing, Vol. 2, No 4, pp.367-372 Tearfund (2000) ‘Tourism – an ethical issue’, Market Research Report, January, London: Tearfund Thomas cook – The Company 2001/2002 Thomas Cook AG Retreived from ::www.thomascook.info Weeden, C. (2001) ‘Ethical Tourism: An Opportunity for Competitive Advantages?’, Journal of Vacation Marketing, Vol. 8(2), pp 141-153 World Tourism Organization (WTO) (1998) Tourism: 2020 Vision, Madrid: World Tourism Organization Read More