Strategic Analysis of Tui Travel - Essay Example

STRATEGY AND BUSINESS REPORT: TUI Travel, PLC BY YOU YOUR ACADEMIC ORGANISATION HERE HERE HERE CONTENTS Introduction…………………………………………………………………….. 3 Internal Analysis………………………………………………………………… 3 Strategic Direction………………………………………………………………. 6 Conclusion………………………………………………………………………. 10 BIBLIOGRAPHY Strategy Report: TUI Travel, Plc. Introduction As a company with a wide variety of brands, TUI Travel has been recently experiencing measurable increases in both sales revenues and per-share value for shareholders. This suggests an organisation which is succeeding in its current business strategy. TUI owns several brands, including First Choice Holidays, its own airline fleet, and a major container shipping operation (Hoovers.com, 2008). This report highlights the successes at TUI as well as offering recommendations for how to improve corporate strategy. Internal analysis Financially, TUI has experienced a significant increase in revenues, up 53 percent since 2007 (Hoovers.com, 2008). Additionally, while other companies in similar marketplaces are experiencing drops in share value, based on the current economic crisis across the globe, TUI Travel, Plc. has witnessed a 42 percent increase in share value (TUI Travel, 2009). What this suggests is an organisation which is satisfying stakeholder expectations and is reaping the profit of having a very solid business model and diverse line of company brand names. Perhaps this high share value can be attributed to having a business model which recognises opportunities for improvement and looks continuously for methods to make the business even stronger. For example, in 2009, TUI Travel entered a strategic alliance with Air Berlin and will now own almost 20 percent of Air Berlin (Done and Wiesmann, 2009). This new strategic alliance will give TUI Travel a multitude of new opportunities for customer air travel and give the firm more destinations to provide to their many customers. Even though TUI is not invested into this alliance for a long-term, ownership agreement, TUI is actively looking for opportunities to expand its brand presence and keep the TUI name both flexible and financially-strong in the minds of its customers and investors. TUI also seems to have a very high cash availability, which is something that many companies in today’s economic climate cannot say. Cash increased by a considerable margin from 2007 to 2008, suggesting that TUI has the financial capabilities to consider many different alliances or acquisitions in the pursuit of giving the company a stronger brand image and more options for holiday for its many travel customers. There are many strengths under TUI’s current business model, one of which is the external environment which is prompting many positive changes to how the business performs internally. Arends and Niththyananthan (2009) suggest that TUI is now facing much lower fuel prices, lower international interest rates, and less-expensive food bills which gives the firm many opportunities for satisfying customers. Lower fuel rates provides the ability for the company to reserve its cash balances, lower interest rates makes the company’s long-term debt less substantial as loan payments are not as high, and less expensive food gives airline customers more for their money, thus pleasing consumers in the process. This company has also decided not to utilise the Internet heavily for promoting the company’s brand, but has taken a bricks-and-mortar philosophy in the art of travel procurement. TUI Travel (2008) offers that it has established 3,500 retail travel outlets all across Europe, a significant increase in availability of travel stores for consumers in just two years. The company’s mission is to “be the first stop on a leisure traveler’s journey” (TUI Travel, 2008). However, in order to accomplish this mission, there is evidence that the company should consider new marketing alternatives to build even more brand loyalty (and brand recognition) than what already exists at the company. These recommendations will be described later in this report. There is not a great deal of information published about the human resources strengths and/or weaknesses which are being experienced at TUI Travel, therefore little can be offered regarding their approaches to managing people and executing human capital strategies. This could be because TUI has not yet built a successful HR model or, because the firm is engaged in a multitude of changing business scenarios (such as the aforementioned strategic alliance) that they have not yet been able to adopt a multi-national, streamlined HR focus. However, the company’s Annual Report (2008) identifies a series of internal change policies related to HR which suggest that the firm is a people-oriented organisation which works toward achieving a unified, positive organisational culture. No further research information regarding the current human resources functions at TUI Travel could be identified. In terms of operations, the company has experienced a recent decline in operating revenues, however these declines are being offset by rising consumer demand for travel services (Arends and Niththyananthan). The increase in sales revenues has prevented TUI Travel from having to report losses to its shareholders, therefore the stock value has continuously increased. It seems that TUI recognises when internal divisions are experiencing sales declines (or losses through operations) and quickly changes internal processes to combat these internal failures. The company’s Annual Report (2008) identifies that TUI currently has an unparalleled management group which has a proven track record of delivering positive strategy for growth and margin improvement. This management group operates in over 180 countries and services over 30 million customers in the process, in all brand divisions (Annual Report). Having such a well-diversified family of brands and the management leadership able to make such sizeable increases to share value and overall sales revenues speaks volumes of the success of the management models currently in use at TUI. The company continuously reinforces its “flexible business model” which monitors internal supply in order to keep it in-line with consumer and customer demand (Annual Report). Therefore, the company is actively pursuing ways to reduce costs associated with its supply chain and ensure that it is developed based on trends in consumer demand. This is a positive business model, especially in terms of reducing costs and satisfying clients, in a time where other companies are not experiencing similar success. Clearly, TUI Travel, Plc. is doing something correctly. Marketing, however, appears to be the area of business where the company excels the least, which is based on the lack of available research literature which spotlights TUI Travel’s efforts at building a strong consumer brand as well as no information on how the firm handles its business-to-business marketing (B2B). The company’s mission is to make the firm the first name on the consumers’ lips when thinking of travel. However, there is no evidence that the firm has taken on any aggressive marketing strategies in order to make this happen. The company’s logo is underdeveloped and very forgettable and there does not seem to be a sophisticated customer relationship management model in use at the firm. In terms of market penetration and market development, using contemporary marketing tools, TUI is average at best. Strategic direction The recent alliance with Air Berlin allows TUI to expand its vacation packages to a whole new group of consumers by being able to utilise their new stake in Air Berlin, and its fleet, to give customers different packages in new locations. The company’s acquisition of more airplanes, to reinforce its existing fleet of over 150 aircraft, also shows that TUI Travel is very focused on long-term strategy and business development. These are the fundamentals of an air travel business of this type and fall in-line with expectations for companies in similar industries looking to remain strong during difficult economic times. Outside of these previously mentioned strategic ventures, TUI Travel does not seem to be properly focused on its non-consumer businesses under its container shipping brands. This is a B2B function which should include support for brand expansion, customer relationship management, and overall company growth through alliance or simply the establishment of quality relationship-building. TUI describes the difficulties of different tariff problems or international legislation in their container shipping businesses, however there is no mention of extended, multi-national discussions about how to expand further or how to procure contracts with other businesses in need of low-cost, efficient container shipping. This might suggest that in terms of strategic direction, the company remains mostly focused on its consumer-related brands, related to travel, and are not putting the same energies into creating extended, long-term value for its brands in different non-consumer divisions. Despite the previously-mentioned weakness in regards to its container shipping business, the company is consistently creating new products under its development model, and offering these products and services to clients to keep the TUI name fresh and flexible in the minds of consumers. Updating existing services, such as offering new destinations in Germany, gives TUI a strategic focus in the consumer business segments and satisfies its plans for growth in this business segment. Recommendations Using Ansoff’s Matrix as a tool for discussion, TUI Travel, Plc. should seriously consider readjusting its marketing focus to include a stronger brand presence in the container shipping division and also in terms of building stronger brand loyalty in its travel divisions. TUI seems to be a company which has positioned itself as a form of caring, traditional travel service with all of the proverbial sweets and sugars which are used to build connection with family-oriented customers. Even the company’s 2008 Annual Report displays a young child in a sort of fantasy environment, which suggests that TUI is strategically-focused on building connection with consumers from a family point of view. It is recommended that TUI quickly consider repositioning the company to create new connections with existing and potential customers in order to connect properly with changing contemporary social values. The current positioning strategy at TUI is one which is focused on the end user, offering marketing which emphasises the value of clients and their lifestyles. Instead, TUI should focus on quality, redesign its forgettable logo in the process, and make the company stand out as a leader in value and quality. Boone (2007) offers that repositioning a company, even when the brand is already recognised by many clients, can give the business a fresh look, increase word-of-mouth advertising positively, and create new connections with people who have not yet used the service. However, in order to accomplish this successfully, the business will require heavier concentration on initial promotional efforts, perhaps by offering a small incentive to online clients looking for travel arrangements, and reinforce that the company is no longer your mother’s travel agency. This new slogan, accompanied by a new, modernised logo, could spell the difference between long-term gain and falling out of importance with existing clients. The key for TUI Travel is to not only create an internal flexibility, but show this flexibility to external customers in the process. Letting consumers know that this new, modern travel business is looking for opportunities to make their travel experiences more enjoyable, and then devoting a higher marketing budget for these promotional efforts, will bring them more sufficient growth in the short-term. Also under Ansoff’s Matrix, the company’s current diversification strategies are not sufficient for its growth expectations. Yes, the firm currently has many travel brands, a container shipping industry, and its own fleet of aircraft which is growing each year. However, TUI may wish to consider reinvesting its heavy, strong cash availability into its own chain of hotels which would give the company a stronger asset collection and the ability to completely reinvent the TUI name as a well-diversified company. This type of real estate investment, at a time where consumer travel demand is moving upward, could create a new diversified brand name TUI Resorts and also provide the firm the opportunity to create a wholly-different experience for travelling clients. Imagine being able to book your vacation with TUI, a trusted leader in this area, and also ensure that accommodations are being monitored by the same company leadership. This would not only provide for discounted packages, under a new TUI Holiday Packages offering, but also give customers the assurance that any problems with accommodations can all be resolved through TUI customer support help. Under the new repositioning strategy for quality, the new real estate development (hotels) would give TUI the opportunity to show clients that it intends to remain in the long-term and can provide excellence in not only service procurement but in service delivery in the process. At a time where competition is growing yearly and it becomes more and more difficult to differentiate one travel product from another, the development of TUI Resorts would give them a competitive advantage by allowing TUI to transform properties into a unique resort which clearly identifies the new TUI logo. Perhaps these businesses could further diversify by offering lower-class accommodations to business travellers and providing in-house spa treatments to help them relax as part of the traveller’s package. This could be easily marketed, and be relatively low-cost, by promoting the quality of packages for a wide variety of travellers across the globe. Additionally, having a new foot-hold in global travel marketplaces could give TUI a chance to work out partnerships with foreign leadership to build a stronger brand name. Finally, as part of this new recommended business model, TUI should also establish new market development opportunities by marketing existing products a whole new audience of customers. There are likely niche market travellers, with specific lifestyle interests, who might be interested in using the TUI Travel options. The company could develop a low-cost niche market promotional campaign, such as the development of an online travel preferences guide, giving the business a new viral marketing focus. This new guide would allow niche travellers to enter key activities or services they might require and be provided with a series of travel itineraries to select from, all under the new TUI brand name. If they are delighted with the accommodations provided and the itinerary, they need only contact TUI support help to book the accommodations, perhaps even with a 10 percent discount for using the online services. This niche strategy will allow existing services to remain as they are, as a cost-reduction effort, and also market them to a wholly-different audience in the process. In terms of diversifying the company’s brand, TUI has many, many opportunities to build brand recognition and eventual consumer brand loyalty. Conclusion Since TUI Travel, Plc. does not actively promote its internal human resources efforts and its organisational culture, no recommendations could be made in this area. However, being able to convincingly-state that its profits are up, its share value is up, and that its management team has brought significant revenue increases clearly speaks to an efficient organisation with well-trained organisational staff members. The company’s largest failures are in its approaches to marketing and the methods by which TUI attempts to diversify brands and existing services. The business needs a new, modern image and should utilise its strong cash position and high share value to expand TUI into new real estate and marketing opportunities in order to remain strong well into the next decade. Bibliography Arends, H. and Niththyananthan, K. (2009). “Earnings: TUI sees operating loss in 2009”. Wall Street Journal, New York, NY. 26 Mar, B.7. Annual Report. (2008). “TUI Travel Plc”. http://www.tuitravelplc.com/tui/uploads/financialreports/TUIAnnualReportandAccounts08.pdf (accessed 7 Apr 2009). Boone, Louis. (2007). Contemporary Marketing, 12th ed. United Kingdom: Thomson South- Western. Done, Kevin and Wiesmann, Gerrit. (2009). “TUI and ESAS bolster Air Berlin”. Financial Times, London. 30 Mar, 16. Hoovers.com. (2008). “TUI Travel Company Description”. http://www.hoovers.com/tui-travel/--ID__91383--/free-co-profile.xhtml. (accessed 9 Apr 2009). Johnson et al. (2008). Exploring Corporate Strategy, 8th ed. London. Lynch, R. (2006). Corporate Strategy, 4th ed. London: Prentice Hall. TUI Travel. (2009). “A World of Experiences”. TUI Travel Plc. http://ara2008.tuitravelplc.com/tui-ar2008/pages/home. (accessed 7 Apr 2009). Read More