Online Travel Agencies in the UK - Example

Online Travel Agencies in the UK Student’s Name Professor Subject University/Institution 6th May, 2012. Executive summary This report sets out to give offer an analysis of the UK online travel agencies. In doing so, the report will start with offering a brief overview of the UK online travel industry. This section will be closely followed by a PESTEL analysis of the industry. The pestle analysis will cover the political, social, environmental, economic, legal as well as social factor that affects the industry. The pestle analysis will be followed by porters five forces model of the industry and there will be a brief conclusion of the whole report. Figures will be used to support the analysis data in the report. Contents Executive summary 1 This report sets out to give offer an analysis of the UK online travel agencies. In doing so, the report will start with offering a brief overview of the UK online travel industry. This section will be closely followed by a PESTEL analysis of the industry. The pestle analysis will cover the political, social, environmental, economic, legal as well as social factor that affects the industry. The pestle analysis will be followed by porters five forces model of the industry and there will be a brief conclusion of the whole report. Figures will be used to support the analysis data in the report. 1 Contents 2 5 Introduction 6 UK online travel agency (overview) 6 PESTLE Analysis 7 Political and legal factors 8 Social factors 8 Environmental factors 9 Technological factors 10 Economic factors 11 Five Porter Model 11 Threat of substitutes 11 Buyer power 12 Barriers to entry & exit 12 Rivalry 12 Supplier power 13 Going forward 13 Appendices 14 Appendix 7: Travel agencies in the UK 18 Travel agencies 18 Monthly visitors 18 Travelocity 18 1.263 million 18 Expedia 18 1.258 million 18 Priceline 18 1.2 million 18 Orbitz 18 1.12 million 18 Delta Airlines 18 995,000 18 American Airlines 18 982,000 18 Southwest Airlines 18 956,000 18 Hotels.com 18 725,000 18 Continental Airlines 18 669,000 18 United Airlines 18 554,000 18 Data retrieved from Travelmole, January 2010. 18 The table above shows the number of visitors that used various travel agencies in the UK. Travelocity seems to be the leading one with 1.263 million. With the high number of visitors the industry seems to be booming in the near future. 18 References 19 Introduction The UK online travel agency is termed as one of the largest in the world as well as the most dynamic this is in terms of the market share it occupies. There are a number of online travel agencies in the UK thus making competition stiff. With each of the online travel agency trying to offer the best services as compared to their competitors. This report will identify the political, economic, environmental, social, technological as well as the legislative factors affecting UK online travel agency. The report will also present a five porters model of the online travel agency. UK online travel agency (overview) It is a decade now since the first UK companies began to use the internet as a tool for the sale of their travel activities this is mainly attributed to globalization. The UK online travel agency accounts for a considerable percentage of the market share, with globalization a large number of individuals tend to travel to various parts of the world for business activities as well as for adventure thus leading growth in the online travelling agencies (Kim, Kim & Han 2007, pp. 600). The UK online travel agency industry can be grouped under the travel industry, the travel industry in UK is competitive and there is intense rivalry amongst the major players in the industry. Being a differentiated service, the company mainly competes based on the services offered to the customer, thus each will be striving to offer the best services so as to retain the existing customers and at the same time attract new ones. One of the major online traveling agencies is Expedia, which has revenue of $ 3,348.1 million in the 2010. Another major company operating in this sector is eBookers and going places. Travelocity dominates the industry and it has large market share as compared to its competitors this is clearly shown in appendix 7. Globalisation has had a lot of impact to the online travel agency, one of the major importance is of globalization is that it has helped they industry a lot since they have a large customer base from all over the world thus making the industry more profitable. Globalisation has also helped the industry in that with the development of computers a large number of people are able to surf through the internet hence they tend to get lot information related to the online travel agencies since the travel agencies advertise their companies through the internet. Most businesses as well as individuals are involved in global travel and the online travel agencies seem to be their most preferred way to travel. Globalisation has also enhanced the industry in that travelers can be able to search for information related to their preferred destination even before they travel this is readily made available by most online travel agencies. The online travel industry sites, computer and internet enormously shrink the distance between them and tourists. Available data shows that internet makes potential tourists increase by about 10%. PESTLE Analysis Pestle analysis of an industry sets to examine the major factors that may have an effect to the industry as well as those factors that may influence the organizations operating in the sector. Pestle is an acronym of political, social, technological, environmental, and legal as well as the economic factors. It is usually used as a tool to scrutinize the forces that a core to the industry and how the factors can have an influence on the industry (Cadle, Paul & Yeates 2010, pp. 40). The six elements of the pestle analysis are depicted in by a diagram in the appendix section (appendix 2). Political and legal factors Political and legal factors have a major impact on the operations of most businesses. This is mainly in terms of the regulation placed by the government as well as other legislative powers in regard to how businesses should operate. The political and legal factors are comprised of the government regulations as well as legal issues that govern the operations of business or under which all business enterprises ought to operate. The political environment in the UK is quite stable thus making it a probable place for most businesses to operate (Voas 1995, pp. 40). The political factors that have an influence on the online travel agency in the UK are security concerns this has ultimately led to failure of some online travel agencies in the UK. Another political factor is the loss of the anticipated growth in the industry. This is mainly attributed to the fact that there is a challenge of protecting travelers. These factors may change in the future if all governments collaborated and ensured that there is a global response to the possible risk that may face travelers who have used online travelling agencies. Social factors In the UK there is a trend of having internet connect as well as the aspect of buying online and according to statistics a large number of households that were online were recorded. With the high rate of usage of internet in most UK homes, most families tend to use online services when travelling since they have the knowledge required this is clearly shown by the appendix 5 and 6.the two appendices show the most preferred method that most UK population use when searching for place to adventure. Appendix 3 clearly shows that the amount of money spent in the UK for travel has been increasing steadily. Most individuals in the UK are more concerned with the safety and security in instances when they want to travel thus making them to require the services offered by the online travel agencies. The key elements of culture and society have a significant impact and influence on the online travel industry. And over time this trend may change (Voas 1995, pp. 40). Environmental factors With the advent of online travelling agencies, travelers may opt to visit certain parts or sceneries at the same time. The visitors may surpass the carrying ability of a site this may ultimately lead to destruction as well as degradation of the environment which may in turn lead to soil erosion in the area (Andereck 1993, pp. 30). Online travel has also led to the building of hotels as well as high building poses a lot of problems to the landscape. These changes may tend to change in the foreseeable future if the visitors are directed to certain places at a moderated rate this will reduce the possibility of degradation of land as well as soil erosion. The trips organized by the online travel agencies also cause pollution to the environment (Holden 2000, pp. 99). Technological factors There have been numerous developments in relation to technology and this has really affected almost all businesses in the UK as well as in the world. The numerous changes in technology have all of a sudden changed how businesses operate. With the advancement in technology there has been a need to respond quickly in most businesses so as to remain competitive, this has ultimately led to the development of online travel agencies in the UK and also all over the world so as to offer the most innovative services as their competitors are doing. In relation to this the travel agency have not been left behind there have been the advancement in booking for tickets as well as for holidays (Kim & Ham 2007, pp. 150). Technology in itself have improved communication, travel as well as safety measures in this industry. Therefore changes in technology have really affected how travel agencies cooperate and it leads to greater numbers of customers since most of their operations are online. With the constant advancement in technology, the sectors will seem to benefit a lot since most individuals are aware of the online travel agencies and over time it is be the most preferred way to book an adventure in almost all parts of the world. Thus technology has been a major benefit to the industry. The future of most online travelling agencies despite been seen as promising is face by some difficulties. This includes aspects such as fear of fraud while at the same time some customers find the sites too complicated. A larger number of customers also fear that any financial and personal data may be stored so as to be used by online travel shop outlets; this aspect is slowing the possible growth that can occur (Kim & Ham 2007, pp. 150). Economic factors In most cases economic factors are said to affect the purchasing power of most customers both the current as well as the potential customers. The economic factors also affect the products been offered by a company in the market. With the current low inflation rate, the UK economy is benefiting. The unemployment rates in the UK are low and according to the labor statistics the unemployment rate tend to be falling but it is widely believed that over time this will change. According to the latest predictions made, the UK economy will be the strongest economy up to the year 2010 this means that the country will have low unemployment rate, low inflation and a reasonable economic growth. After that the trend will seem to change thus making the number of unemployed people to be on the rise. In the UK there is wide differences in terms of wealth this is commonly based on the location since some parts are more wealthier than the others and the levels of deficit will tend to be wider this will have a direct impact on the demand of online travel agencies (Schulz 1994, pp. 47). Five Porter Model Appendix 1 shows the five elements of the porters five forces model Threat of substitutes In the UK there are a lot of possible substitutes this is mainly attributed to the fact that travel has moved up and it is termed as one of the major household priorities. UK is currently experiencing a lot of growth in flexibility spending this is mainly attributed the salary increments thus people will tend to spend more (Porter 1998, pp. 50). Buyer power It is highly acknowledged that most when buyers in the travel industry are fragmented due to the presence of both diverse retail buyer as well as corporate profiles they will tend to possess a higher buying power. Also most customers on the industry to not have high switching costs form one agency to another thus making brand loyalty is low thus they tend to move easily form one agency to another. Also based on the buyer power a large number of UK population are brand conscious and at most instance they are more than willing to pay a premium price for a great experience as well as quality service (Porter 1998, pp. 50). Barriers to entry & exit The UK there exist low levels of proprietary online travel knowledge as well as asset specialty. This gives way for new entrants to enter the online travel industry and thus there is no aggressive rivalry from the already established players in the industry. Due to the nature minimum efficient level small startups are made though they require significant amounts of money so as to bargain profitable deals. Most travel agencies find it hard to access the distribution channels due to their fragmented market (Porter 1998, pp. 50). Rivalry There is a lot of industry rivalry this is mainly attributed to low switching cost and there exist low differentiation levels among the competitors. The industry is also said to be highly fragmented with the presence of both metro as well as mini metros. Most towns in the UK has high Supplier power Some suppliers such as airlines are able to integrate and tend to sell directly to the customer. Adverse attempts by the suppliers to sell out complex routes and packages in most instances are not successful. Whereas most suppliers are more in areas such as the domestic airlines, most online travel agencies are fragmented. Online travel agencies are therefore finding it had to takeover suppliers such as the airlines since they are more concentrated and have the ability to sell directly to the customers (Bush 1989, pp. 27). Going forward With the advancement of technology the industry seems to have potential and thus there will be a number of competitors within the industry, the online travel agencies will strive to offer differentiated services so as to gain a larger market share. Online travel agencies have become over time been the most preferred as compared to the traditional forms of booking services and the industry is set to increase over time. Appendices Appendix 1: Porter’s five forces model This figure depicts the elements that make up the porters five forces model. The elements includes: the suppliers, potential entrants, buyers, substitutes and the industry competitors. Appendix 2: Elements of the pestle analysis This figure clearly shows all the components that affcets macro enviroment of a business. This ellemnts are broadly grouped into six categories that is the politcal, economic, social, technological, legislative and enviromental factors. Appendix 3: Amount of money spent on travel $bn Europe N. America U.K 2000 2.4 6.4 0.8 2001 5.8 11.0 1.8 2002 12.7 18.7 3.7 Source: Data monitor The table above shows the amount of money spent on travel in the UK, N. America and Europe between the year 2000 and 2002. Form the table it is evident that the amount of money spent on travel in the UK has been on the rise. Appendix 4: online leisure/ unmanaged business travel sales in the UK The bar chart above depicts the travel sales made in the UK between the year 2006 and the year 2011. From the bar chart it is evident that the sales have been on the rise since 2006. It is evident that with the increase in travel sales the relevance of UK online agencies is becoming more and more with time. Appendix 5: Internet as the most preferred method of gaining travel information The above bar chart shows the methods used to obtain travel information. The web site is seen as the mostly preferred method of getting travel information. The web search is closely followed by personal recommendation with news paper having the smallest percentage. Appendix 6: number of users using online booking services Data from: Nielsen/Net Ratings study on holiday bookings The pie chart shows the various methods used to book holidays in the UK. From the pie chart it is evident that internet booking have the largest percentage. This shows that a large number of people prefer using the internet to book their holidays. From the pie chart the teletext has the smallest percentage. Appendix 7: Travel agencies in the UK Travel agencies Monthly visitors Travelocity 1.263 million Expedia 1.258 million Priceline 1.2 million Orbitz 1.12 million Delta Airlines 995,000 American Airlines 982,000 Southwest Airlines 956,000 Hotels.com 725,000 Continental Airlines 669,000 United Airlines 554,000 Data retrieved from Travelmole, January 2010. The table above shows the number of visitors that used various travel agencies in the UK. Travelocity seems to be the leading one with 1.263 million. With the high number of visitors the industry seems to be booming in the near future. References Andereck, K. 1993. The Impacts of Tourism on Natural Resources. Parks and Recreation, volume 28issue 6, pp 26-32. Bush, M. 1989. Panel analyzes trends in the evolving agent-hotelier relationship. Travel weekly, Volume 48 issue 47, pp 25-30. Cadle, J., Paul, D., & Yeates, D 2010. Business analysis, British Informatics Society Ltd, UK. Holden, A., 2000, Environment and Tourism, Routledge, London, England. Kim, D. J., Kim, W. G., & Han, J. 2007. A Perceptual Mapping of Online Travel Agencies and Preference Attributes, Tourism Management, volume 28 issue 2, pp 591-603. Kim, W. G., & Ham, S. 2007. The Impact of Information Technology Implementation on Service Quality in the Hotel Industry, Information Technology in Hospitality, volume 4 issue 4, pp 143-151. Porter, M. 1998. Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free press, New York. Schulz, C. 1994. Hotels and travel agents: the new partnership. The Cornell hotel and restaurant, Administration quarterly, volume 35 issue 2, pp 45-50. Voas, R. 1995, Tourism: The Human perspective, Litho link ltd, UK. Read More