Strategic Analysis of Thomas Crown Package Holidays in UK - Essay Example

Strategic Analysis of Thomas Crown Package Holidays in UK Table of Contents Introduction 3 Market Environmental Analysis 4 Industry Analysis 4 PESTLE Analysis 5 Political 5 Economic 6 Social 7 Technological 7 Legal 8 Environmental 8 Porter’s Five Forces Analysis 9 Bargaining Power of Buyers 9 Bargaining Power of Suppliers 9 Threat of Substitutes 10 Threats of New Entrants 10 Intensity of Rivalry 10 Critical Success Factors 10 Package Holiday Company Strategic Analysis 11 SWOT Analysis 11 Strengths 11 Weaknesses 11 Opportunities 12 Threats 12 Company’s Resources 13 Core Competency 13 Strategic Fit Analysis 14 Bibliography 16 Introduction One big name in package holiday industry of the UK is that of Thomas Cook Company. Thomas Cook is an international best-known holiday package company. The company started its operations back in 1841 from Leicester to Loughborough (Thomas Cook, n.d.) and today it is one of the successful international package holiday companies in the world. According to information provided on official website of the company, Thomas Cook a 32-year old cabinet maker while attending a temperance meeting in Leicester realised that social problems could be reduced through increasing employment in railways and locomotion for social reforms. During meeting he recommended that to carry the temperance supporters of meeting for around four weeks a train can be arranges from Leicester to Loughborough and his proposal was accepted. Next summers the number of trips increased and in this way the business of Thomas Cook expanded. Today, the company is having various brands which are all operating under the umbrella of Thomas Cook. The aim of this report is to conduct a strategic analysis of Thomas Cook in UK. Through PESTLE, Porter Five Forces, BCG Matrix, Industry Analysis, SWOT Analysis, internal analysis and strategic fit analysis, the strategic position of the company has been analysed in the UK market. Market Environmental Analysis Industry Analysis In 1980s cheap package holidays in the UK stimulated UK holiday industry however, a significant impact on UK mass market holiday business results in fall in guests because of which the ways through which UK holidays were marketed were also changed (Potters). The types of demand pattern prominent in the UK package holiday industry have been highlighted by a survey report. According to the report, in terms of trip preferences, 71 percent respondents had booked up to 5 holidays in 2008 and 4 percent booked up more than five trips; for short haul trips 42 percent booked package deals and for long haul 20 percent choose package deals and in the UK 18 percent chose packaged trips and 29 percent selected bespoke getaways (RightNow, 2009). Today various large and small companies are operating in Holiday package industry however; in 1999 four dominant leaders include Thomson, Airtours, First Choice and Thomas Cook. The authorities in the UK and Europe were continuously challenging the dominance of these companies because these companies were controlling distribution chain and accounted 78 percent of package holidays (Keynote Publications Ltd, 1999). Although these companies are still very dominant in the market and various new names have entered into the list however, the competition has increased in the industry. In order to analyse where Thomas Cook stands in the industry, BCG matrix analysis has been used. Thomson Cook can be categorised in the first quadrant as a ‘Star’ because company has relatively high market shares in the industry and high business growth rate whereas, most of the other companies are at facing huge challenges in the UK market. The business growth of the company is evident from the increasing revenues, sales and financial performance of the company. Thomas Cook growth momentum is expected to sustain in 2010 and company has showed 30 percent increase in its performance as compared to previous year (MoneyControl Website, 2010). Although recent market shares figures for Thomas Cook and other holiday package companies are not available however, the recent merger of Thomas Crook and Co-Op and related discussions highlight the market position of company in the UK. The merger of Thomas Cook and Co-Operative Group has created the UK’s largest chain of travel agent (Telegraph, 2010). BCG Matrix High Business Growth rate Low Star Question Cow Dog High Low Relative Position (Market Share) The crisis of the airlines directly affects the operations of package holiday companies in the UK. Nowadays, package holiday companies in the UK are facing various challenges. Failure of Birmingham based Sun4U affected 1200 holidaymakers stranded abroad and failure of Goldtrail influenced travel plans of 50,000 people. The failure of Goldtrail resulted in a loss of £20 million on Air Travel Trust’s Insurance and failure of XL put a dent of £27 million. The report also highlights that regulators are shocked because Goldtrail had 3 percent shares in this industry (Boles & Vickers, 2010). PESTLE Analysis Political After the collapse of third largest package holiday company XL in the UK, Chief Executive Wyatt suggested that increasing oil prices enhanced the costs year-by-year by more than $80 million. He suggested that UK government should take important steps to ensure that holiday package companies operating in the UK belong to ATOL scheme as it gives package holiday markets a strong financial protection (BBC News, 2008). UK Government has made it compulsory for package holiday companies to get associated with ATOL. ATOL is a financial protection scheme for the holidaymakers, which ensures the customers that if an ATOL holder tour operator fails, the customer will not lose the money (Civil Aviation Authority). Government can influence the operations of package holiday companies in UK for example, the poor economic outlook and failure of many package holiday companies insisted UK Labour Government to increase £1 levy on package holidays to £2.50 and it is expected that if the current wave of failures persists then levy on package holidays will further increase (Boles & Vickers, 2010). The increasing global terrorism concerns have increased the concerns for the UK government as well and strict security practices have been adopted. Such practices have also enhanced the security measures for the package holiday companies. Economic Currency devaluation negatively influences the operations of package holiday companies. Impact of currency devaluation is not new for package holiday companies but these companies have been always remained the victims of currency devaluation especially during economic crisis. In early 1990s the recession and decline of pound against other European currencies made continental travel more expensive thereby, reducing travel demand (Barrett, 1992). The increasing fuel costs directly impact the operations of airlines which put huge pressures on holiday package companies. For example, the collapse of XL in the UK appeared as an enormous collapse because XL was not only an airline but it was a basic link in the holiday package industry of Britain (BBC News, 2008). In addition, high inflation rates in the UK and rising costs of other natural resources also influence the operational costs of package holiday companies. The economic slump directly influences the operations of package holiday companies because these companies belong to discretionary spending-reliant sectors and when the consumer confidence is badly influenced in slump, it influences these companies (Boles & Vickers, 2010). The revenues of package holiday companies decline during economic slump because the number of holiday bookings decline (DTF Gov, 2009). Holiday companies in the UK have adopted a number of mechanisms to protect themselves from economic crisis such as they usually make advance payments for commodities and if travel costs increases they pass extra costs on to travellers. However; the complete protection from economic risks can never be achieved. Social Package holiday companies in the UK have to be very proactive to adapt their services and offerings in consideration to the changing social needs of the people. The significant social changes such as increasing single parents, increasing women workforce, changing working methods, changing living standards and various other such factors impact the products and services of package holiday companies. Changes in life styles of people during the last 15 years have affected the way people choose to book and take their holidays. Increasing divorce rate and couples getting children much later in their life have changed the social needs of people in the UK. Moreover, working adults have access to leisure holidays and they want to feel more relaxed on their holidays, which directly affect the products and services of package holiday companies (Potters). In a survey the attitudes of consumers towards researching and online booking of travel products were analysed. The survey findings highlighted that a number of factors can influence the decision making process of holidaymakers and two biggest areas of frustration for customers are lack of information about destinations and lack of transparency on travelling related costs (RightNow, 2009). Technological Technological developments are very much visible in tourism industry therefore, all of the package holiday companies are selling their products and services online. The consumers have access to information and they can easily compare the rates of different package holiday companies because of which companies have kept their rates competitive. Moreover, dynamic packaging and the online computerised reservation systems have further enhanced the efficient operations of package holiday companies. Legal The package and holiday companies have to follow the rules and laws of ‘The Package Travel, Package Holidays and Package Tours Regulations 1992’ (DTF Gov, 2009). Package Travel Regulations 1992 have been set out by travel organisers and all big or small companies in the UK, which come under the set criteria of package Holiday Company has to comply with these regulations (BIS, 2008). According to a recently published report of European Commission, Package Travel Regulations have not been reviewed therefore, BIS has to identify possible areas where reforms are required. Therefore, it is also expected that package holiday companies will face new reforms in the regulations (ABTA, 2010). The package holiday companies in the UK have to hold the licence issued by Air Travel Organisers Licence and they are also required to contribute £1 per passenger to ATOL Protection Contribution so that refunding and repatriation costs can be met (DTF Gov, 2009). Environmental Package holiday companies are actively increasing their environmental sustainable programs. A research study of Ryan studied British Package Holiday Industry for the period 1990-2000 and the most notable finding of the study was lack of concerns of package holiday companies over environmental problems (Ryan, 1991). The social and environmental responsibility and image of package Holiday Company largely influences its operations. In 1999, Tearfund conducted a survey to analyse the behaviour of consumers towards the ethical practices of such companies both at national and international level. About 27 percent of the respondents had never been to international holidays whereas, 45 percent of the participants argued that they would more likely to avail the services of the company which would have a guaranteed code of good working conditions, environmental protection programs and support for charities (Goodwin, 2001). To encourage environmental related practices by package holiday companies, British Travel also announces environmental champion awards. According to awards announced for 2010, the top four environmentally and socially responsible package holiday companies in the UK include Exodus Travel, First Choice, Nomadic Thoughts and Tribes Travel (British Travel Awards, 2010). Therefore, the PESTLE analysis shows that package holiday companies operating in the UK are exposed to various kinds of political, social, economic, legal, technological and environmental risks. In order to analyse the attractiveness of these companies, Porter’s five forces analysis has been conducted. Porter’s Five Forces Analysis Bargaining Power of Buyers The bargaining power of buyers in Package Holiday Industry in the UK is significantly higher because of various reasons. First, buyers are huge in number and usually have various package options to select from. Second, the number suppliers available in the market is also significantly high such as airlines, hotels etc. Third, buyers have become price sensitive because of the availability of price comparisons and information on service comparisons. Bargaining Power of Suppliers Bargaining power of suppliers is significantly higher because of various reasons. First, although there are various suppliers operating in this industry however, some are operating at local level and some international level which creates a huge difference in their offerings. Second, consumers prefer relaxing and leisure travelling especially for holiday packages and the offerings and services of two suppliers can never be same in this industry. Third, the switching cost is very high as the backward and forward integration in this industry is not very easy. Threat of Substitutes Threat of substitutes is significantly higher because a number of airline companies, hotel services and other companies in tourism industry in UK are entering into package holiday services. Threats of New Entrants Threats of new entrants are significantly higher in this industry because of the increasing online services. However, new entrants have to follow the strict environmental regulations because of increasing environmental concerns in the UK. Moreover, there are no barriers to entry or exist which further boosts the threats of new entrants. Intensity of Rivalry The intensity of competitiveness is increasing because of increasing number of package holiday companies. Moreover, the opportunities created by London Olympics 2012 are further contributing to increasing competition. As the degree of differentiation is very high therefore, large companies are not facing much competition however, companies operating at small scale are facing significant failures. Therefore, Porter’s Five Forces Analysis show that UK Package holiday industry is very attractive however, PESTLE analysis shows that various factors impact the operations of the company because of which failures and unprofitable operations are coming in front. Critical Success Factors The market environment critical success factors that have been identified after the environmental analysis include: Full package services offered by the company such as an airline offering packaging holidays as it increases quality of services Green practices because of increasing environmental concerns Customised holiday packages with variety of options because of changing needs of people Market dominance as it increases the attention of people and make the company more attractive Package Holiday Company Strategic Analysis SWOT Analysis Strengths Thomas Cook has significant market shares in package holiday industry and since 1999 company is positioned among the top leaders in the industry (Keynote Publications Ltd, 1999) The company has built a strong image in the UK and at international level Thomas Cook has been able to create high level of awareness in its target customers Company has strong resistance against economic shocks such as in the recent global financial crisis, Thomas Cook remained able to maintain its profitable and image Thomas Cook is very active in acknowledging the needs and experience of customers With a large number of distribution channel, Thomas Cook has been able to remain competitive in the industry Company is offering huge range of product packages to its customers relative to its competitors Weaknesses Lack of focus on Holiday package services because of airline services The capital expenses incurred by company in the UK market are significantly high Many of the package holiday companies are offering exclusively online services which have reduced their fixed costs however, Thomas Cook has high fixed cost because of traditional offices Because of the huge variety of product packages and complexity of products, various products of the company remained unidentified Opportunities Thomas Cook airline is already performing very good and company can concentrate on Package holiday side to increase profitability The environmental sustainable practices can be increased to become among the top socially and environmentally responsible package holiday companies in the UK As recently various small package holiday companies have wrapped up their operations in the UK market, therefore, Thomas Cook can find this opportunity to further increase its market shares The demand of cheaper holidays with flexible product offerings is increasing and company can develop new strategy to enter into cheap holiday market Thomas Cook can divest from its fixed investments by focusing more on online means to reach its customers thereby, reducing its fixed costs Threats The other large dominant leaders in the industry and the companies which are being recognised as socially and environmentally responsible companies can threaten the company Decreasing consumer confidence because of economic down turn can negatively influence demand in the industry Threats of global terrorism create security challenges for the company Marketing techniques in the UK markets appear as challenge for Thomas Cook and aggressive marketing strategies of other industry leaders threatens the integrity of Thomas Cook Company’s Resources The resources of the company that appear as inputs in the services include strong financial resources of Thomas Cook in UK and huge distribution chain throughout UK. In addition, the intangible resources company owns include technology which has facilitated the company to establish its online presence, strong human resources and established brand reputation. Financial Resources: Although most of the other package holiday companies were wrapping up their operations, Thomas Cook in the UK generated operating cash inflow of £157m in the first nine months. Company’s operating profits declined from £49.7m to £25.8m however, the profits were relatively better (Telegraph, 2010). Each year company ends up profitable income from its operations. Distribution Chain: Company has 1200 shop fronts in UK and a wider chain for its package distribution (May, 2010). Moreover, online presence of company has also developed strong customer base. Technological Resources: Another major advantage Thomas Cook has over its competitors is its technological resources. Company has its own airline Thomas Airlines through which it has been able to offer quality services to its customers. Human Resource: According to Phil Barnfather, “People are our differentiating factor. Our success depends absolutely on how well we recruit, develop, train and retain our people” (Roberts & Barnfather, 2008). Brand Recognition: The Company has established strong brand recognition in the UK market because of its many years of operations. Core Competency International Presence has not only increased the visibility of the company worldwide but it has also enhanced the scope of business thereby, reducing specific economic environmental risks Multi-channel proposition and wider distribution network of company also gives its advantage over the other companies which are usually having online presence Quality services and variety of products have made it possible for the customers to choose their desirable package. On the other hand, because of high dependence of holiday package companies on airlines and hotel services, they are not able to offer such attractive packages which Thomas Cook is offering. Significant market shares has also increased the market dominance of the company and shows significant loyalty of customers Strategic Fit Analysis The degree to which the resources and capabilities matches with the opportunities available to Thomas Cook in the United Kingdom are the determinant of strategic fit of the company. Resource Capability Opportunity Strength/Weakness Financial stability Complete travel package Growing demand of one-stop shop services Being a Package Holiday Company, the company is not only offering the accommodation and travel offerings but it is also dealing in foreign exchange; money transfer services; airline Green Sustainable Airport (GSA) operations; corporate travel management and leisure travel (Companies Resources). Therefore, the travellers of the company become the customers of foreign exchange services of the company and the customers of other businesses of Thomas Cook avail the package holidays. Strong image High market shares Failure of small companies and big groups like XL if further creating opportunities for company Secondly, established name of Thomas Cook in the UK for many years have built a strong reliability and confidence in the minds of the customers, which give a competitive advantage to the company over the other competitors. In addition, company has also established a high level of loyalty with its customers. Technological Resources Forward integration Increasing expansion opportunities Third most of the other holiday package companies are threatened by the failures and weaknesses of airlines as they are dependent on the external parties for such services, whereas, Thomas Cook has its own Airline. Financial Resources Increasing market share and customer base Increasing expansion opportunities Fourth, the financial resources of the company allowed it to expand its operations and in 2007, company merged with MyTravel which was one of the major competitors of Thomas Crook (Railway Britain). The merger with MyTravel further enhanced the market shares of the company and also helped the company to show its financial stability. Distribution channels Multi-channel proposition Increasing online users are reducing costs and increasing efficiency of companies Through its wider distribution chain company has been able to increase its in-house distribution of products along with expansion of its online transactions and offers multi-channel proposition. One weakness of the company is its high distribution and fixed cost, whereas, its competitors are enjoying online low cost distribution strategy. In short, highly talent workforce of the company, strong financial position, huge expansion of company in international markets, diversification of company in related or unrelated businesses, quality of its services, market shares of company and strong brand image of the company appears as the strong internal resources for the company that have enabled the company to develop unique core competencies and avail opportunities. Therefore, strategic fit analysis of company shows that resources and capabilities are fit with the strategic direction of the company. Bibliography ABTA, 2010. Package Travel Directive & Regulations. [Online] (Updated 8 Sep 1992) Available at: http://www.abta.com/about/lobbying_and_government_affairs/package_travel_directive [Accessed 27 October 2010]. Barrett, F., 1992. Travel Industry is Braced for More Collapses. 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[Online] Available at: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/leisure/8050082/Thomas-Cook-and-Co-op-merge-to-create-UKs-largest-high-street-travel-chain.html [Accessed 5 November 2010]. Telegraph Co., 2010. Thomas Cook Profits Hits as Hot Weather, Weak Pound Keep Brits at Home. [Online] Available at: http://www.telegraph.co.uk/finance/newsbysector/epic/tcg/7938329/Thomas-Cook-profits-hit-as-hot-weather-weak-pound-keep-Brits-at-home.html [Accessed 27 October 2010]. Thomas Cook Website., n.d. Thomas Cook History. [Online] Available at: http://www.thomascook.com/about-us/thomas-cook-history?intcmp=au_01_promo_history [Accessed 5 November 2010]. Read More