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Need help? 0115 966 7955 TUI a leading international leisure travel group which has over 200 different tourism brands around the world. The business activities of the TUI Group were attributed to the tourism, logistics and the former industry divisions. Objective of this report is to analyse the strategic position of TUI by applying various tools such as PESTLE, Five forces framework, SWOT and analyse and predict the future implications of its strategic capabilities using Generic strategy and Ansoffs matrix to the case study. Limitations of the tool applied are discussed with the analysis.
2.0 BACKGROUND
TUI group earlier known as Hapag Touristik Union of Preussag launched itself in tourism market at the end of 1997 with the purchase of Hapag-Lloyd AG. TUI expended its business using the expansion strategy through acquisition, mergers, and investment through joint ventures all over Europe. TUI AG was spread in three sectors TUI Travel (tour operating, airlines and incoming agencies), TUI Hotels & Resorts and the cruise ship business form the World of TUI. TUI AG holds, in addition, a financial investment in the container shipping industry. TUI in 2005 was the tour leaders with 3500 travel agencies in 17 countries with 37 incoming agencies. TUI owned more than 100 aircrafts and was the largest Hotelier in Europe with 285 hotels (Case study). Currently, the group owns 43,3 percent stake in Hapag-Lloyd AG. In the 2008 financial year TUI AG returned a revenue of 24.9 billion with total earnings (underlying EBITA) of 759 million. As at 31 December 2008 the Group had 70,200 employees (TUI group, company profile).
3.1(b) ECONOMICAL
Tourism is one of the growing industries, fuelling the growth and employment and has become a critical component of the world of economy. Due to Recession, a downward momentum was seen because most of the tourism operators were handicapped by the high level of fixed assets and less able to manage their airlines and hotel industry(case study). Fluctuations in fuel costs, Exchange rates and currency fluctuations, The Growth of low cost airlines has lead to economic risk in tourism industry.
3.1(c) SOCIO-CULTURE:
Change in lifestyle has changed the demands of consumer; they have become more price sensitive and has increased its demand for new experiences. Consumer has developed a new attitude of WAIT AND SEE ATTITUDE (Reisinger 2009) facilitated by last minute purchase resulting in late bookings. As tourism involve movement of people to different locations which calls for cultural clashes. Tourism has also Led to commercialization of local culture, standardization of destinations and adaptation to tourist demands (coastlearn.org)
3.1(d) TECHNOLOGY
Use of information technology gave a boost to tourism business for reservations and administrative operations. With the advent of the internet, tour operators can now spread out their activities and make available appropriate information, conquering new customers (Wyner, 2000). With launch of touropa.com in Germany, TUI captured a top position in European market in 2005 with a turnover of 2.6bn euro (Case study). Similarly in Island locations high-tech venue networking was adopted to attract new visitors and to communicate to tourists (The Daily Business Buzz, Nov. 2/09)
3.1(f) LEGAL
Air Travel Organizers License ATOL Regulations were imposed on any person who advertises or sells airinclusive holidays in the United Kingdom,granted by the Civil Aviation Authority. A number of TUIs businesses operating in the United Kingdom, including Thomson Holidays and Lunn Poly, hold ATOLs. There were many European and national restrictions on airline ownership which could loss of airline operating and route licenses and cause other adverse effects on tourism business. TUIs hotels and destination agencies are subject to a variety of laws and regulations in the countries in which they operate and, on a periodic basis, must obtain various licenses and permits. They are subject to a broad range of labour, environmental and health and safety regulations in each jurisdiction in which they operate (Listing Memorandum, TUI group).
3.1(g) ENVIRONMENTAL:
International tourism can play the role of both victim and villain when it comes to climate change(Holmes 2007 BBC news). To attain sustainability TUI is continuously improving on environmental performance, TUI focuses on ISO 14001 environmental standards. Hence TUI strongly supports the environmental protection policies like, species protection, nature protection and landscape protection. TUIs main area of concern is the efficient use of energy and climate protection. (TUI Group, environment management)
needs. TUIs five strategic priorities for sustainable development are Embedding, Climate Change, Destinations, Our People and Our Customers (TUI Travel PLC, Strategy) . Since 1998 to 2005 main focus of TUI was on achieving cost control and differentiating its product in market. This was achieved by adopting Hybrid strategy which is a combination of differentiation, price and cost control (Campbell 2002) refer to Appendix (A). TUI creates enhancing margin quality through product differentiation by creating unique travel experiences for its customers which helps them achieve brand loyalty and competitive advantage. With controlled distribution process the cost of acquisition can be reduced and flexibility is achieved. The five key elements of TUI strategy: Expand our core tourism business Exploit synergies and cost efficiencies across our markets and products Leverage the benefits of our vertically integrated tourism model and our wide distribution network Identify new trends and exploit developments in the tourism industry Continue to grow our container shipping business Over the years TUI has maintained its position as the market leaders of tourism industry by covering all the stages of tourism value chain by owning its own travel agencies, hotels, incoming agencies, airlines and cruises (Business week 2009). It has positioned itself to be its own supplies, buyers and travel services and had become a strong example of vertical integration. Vertical growth can be accomplished by forward and backward integration. Though the vertical integration does not give 100 percent success guarantee in complete value chain, TUI has successfully build its business with selection of travel agencies in European market by having Thomas cook airlines with 100 aircrafts and owning more than 3000 travel agencies (case study). Vertical integration also helps in attracting more customers, differentiate its product and gain more power in market and gain economies of scale by reducing the coordination cost and reducing the profit margins of intermediaries (Enz 2009). Other advantages and disadvantages can be referred in Appendix (B). Major strengths on which TUI had built its leadership and its weaknesses which empowered them to overcome and maintain its position.
4.1 STRENGTHS:
TUIs greatest strength is its brand recognition and fully integrated business model with wide spread distribution network to provide operational advantages. TUIs confidence is based on (i) ability to recover increases in input costs, (ii) flexible business model, (iii) delivery of merger synergies, and (iv) diversity of the Groups businesses(TUI Travel Plc, third quarter report). Appropriate strategic choices with the diverse work force and economic of scale in competitive marketing and efficient distribution has proved to be its core competence. TUIs global presence provides wide variety of holiday services and has successful container shipping business.
4.2WEAKNESS
TUI Travels existing shareholder loan amounts to approximately 900 million is the major drawback for TUI (financial times 2009). The consumers are increasingly holding off on booking holidays in order to save money in recession. Whereas limited bookings transparency (growing trend toward short-term travel bookings; uncertain earnings performance) has also effected the revenue growth of TUI. Another factor is the impact of seasonality on sustained growth and performance of nature based tourism.
have scope for consolidation by easing geopolitical tensions. Refer to Appendix (E) for more information about the opportunities and TUIs approach towards it.
THREATS
Protracted economic downturn has been a major threat to the tourism industry. Geopolitical uncertainties (terrorist attacks and natural calamities), operators relatively high debts, limited earning transparency of some companies and seasonal-led volatile earnings performances are some other setbacks for tourism industry. Less attention towards environment and global warming may cause a devastating impact on travel business.
6.3 SWOT
The SWOT analysis gives an overview of the subject but doesnt help to get the details. The categorization of some aspects as strengths or weaknesses, or as opportunities and threats is to some extent subjective. From the case study numerous strength and weaknesses were identified, but those all were a snapshot of the success and failure on TUI over all business performance. According to Mintzberg (1990) the assessment of strengths and weaknesses may be unreliable, being bound up with aspirations, biases and hopes. Moreover, Frost (2003) describes SWOTs downsides from a managers point of view as it would be difficult for a manager to identify strengths than things they see as wrong with the organization and managers tend to describe an effect as a weakness and do not get to the causes. (Zarkos et al., 2007) states, an opportunity can also be a threat for a company; hence the same problem appears in the distinction of strengths and weaknesses.
analysing the strategic path that the brand may be following, and does not essentially identify marketing options(Macmillan et al., 2000).
7.0 CONCLUSION
In this report the strategic analysis is carried out on TUI tourism industry using various tools. Firstly, macroenvironment was analysed to understand the possible impacts on the industry competitive strength and advantage over competitors and develop an appropriate strategy. On a corporate level hybrid strategy and vertical integration was discussed in support to TUIs success. Next segment of internal analysis described TUIs core competences and focussed on future trends of TUI. The analysis of this case study concluded high level of sustainable development which is inimitable.
http://www.cipd.co.uk, (2008), PESTLE analysis, CIPD, Accessed on 3rd Nov 2009 at 15.56pm http://www.tui-group.com/uuid/68045be7dc26a80404db1d381be42f4b TUI Group Listing Memorandum, Accessed on 1st Nov 2009 at 19.24pm http://www.scribd.com/doc/17015152/TUI-Environmental-ReportTUI TUI Group Environmental report, Accessed on 5th Nov 2009 at 12.03am
http://investing.businessweek.com/research/stocks/snapshot/snapshot_article.asp?ric=TUIGn.DE Business week 2009 , TUI AG(Consumer Directory sector, hotels restaurants and leisure) Accessed on 8th Nov 2009 at 13.33pm http://www.dailybusinessbuzz.ca/2009/11/02/pe-cutting-edge-technology-to-boost-tourism/ Daily business buzz, Cutting edge technology to boost tourism 8th Nov 2009 at 22.54pm http://www.coastlearn.org/tourism/why_socioimpacts.html Coast learn, Sustainable Tourism : Socio-Culture Impact, Accessed on 6th Nov 2009 at 16.22 pm http://www.tui-group.com/en/sustainability/env_management TUI Group , Environment management and ecological sustainability, Accessed on 29th Oct 2009 at 16.16pm http://news.bbc.co.uk/1/hi/world/7094559.stm Holmes, S., 2007 How to make tourism greener , BBC news, Accessed on 8th Nov 2009 at 23.08pm http://www.tui-group.com/en/company/profile TUI Group, company profile Accessed on 30th Oct 2009 at 09.52am www.tuitravelplc.com/tui/uploads/.../TUITravelQ3Results.pdf TUI Travel Plc, third quarter report 2008, Accessed on 25th Nov 2009 at 11.52am http://www.ft.com/cms/s/0/258da2ca-acd0-11de-91dc-00144feabdc0.html Yuk, K. P., 2009 TUI Travel takes steps to refinance loan, Accessed on 7th Nov 2009 at 22.14pm http://sd2008.tuitravelplc.com/tui-sd/pages/aboutthisreport/datamaterialityTUI Group, sustainability report 2008, Accessed on 28th Oct 2009 at 20.22pm
Cost-based Strategy Differentiation Strategy Stuck in the middle strategy Hybrid strategies
APPENDIX (B)
Advantages and Disadvantages of vertical Integration
Advantages Disadvantages
Can eliminate steps and reduce duplication 1)need for overheads to coordinate vertical integration Avoid time consuming tasks and negotiate contracts Burden of excess capacity if not at all output is used. Improve marketing or technological intelligence Obsolete process may be penetrated Can create differentiation through coordination process Reduce strategic flexibility due to being locked in a business Provide superior control of firms market environment May link to an unprofitable adjacent business Offers an increased ability to create credibility for new products. May not be potential for synergy Adopted from Enz, A. C., (2009), Hospitality Strategic Management: Concept and Cases, 2nd Edition.
ECONOMICAL
Rise in disposable income in developing countries
SOCIAL
Changing priorities of consumers Health and safety concerns Urbanisation. Disposal income in consumer level
TECHNOLOGY
Use of information technologies systems for reservations Use of internet Implementation of new sales and distribution channels Enhanced flexibility
ENVIRONMENT
Natural calamities Global warming limitation on carbon emission
Appendix D STRATEGIC DIRECTION ANSOFF MATRIX Existing Product New Product A Market Penetration Consolidation B Product Development C Market Development D
http://sd2008.tuitravelplc.com/tui-sd/pages/ourapproach/ourstrategy? whoareyou=add&student=true&submit=Submit
Threat of new Entrant Innovative ideas Wide range of holiday packages Threat of substitute Worldwide tourism attractions
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