This assignment is based on the European Tour Operators (tourism industry). You will need to access further (and more current) information on the industry.
1. Analyse the external environment of the industry using appropriate strategy tools (PESTEL). Identify the main opportunities and threats arising from environmental change and assess key drivers for change for the industry).
PESTEL analysis (35 marks)
Opportunities and Threats (10 marks)
Key drivers for change (5 marks)
(Total 50 marks)
Using Porter’s Five Forces Model Analyze the competitive environment for the Industry. Explain how these forces might be expected to drive the industry’s profitability (attractiveness).
5 Forces (40 marks)
Industry attractiveness (10 marks)
(Total 50 marks)
You can use any relevant sources providing all sources are properly referenced. Of particular relevance are sources like Keynotes, Mintel and the FT.
Your assignment should not exceed 2000 words (excluding appendices).
The main purpose of the assignment is to demonstrate your understanding and application of the concepts used in the module.
Tourism is one of the world’s best earning sectors. It is hence approached with a lot of caution considering its fragile nature. European Tour Operators is one of the biggest tourism industry globally. The best tour operators are based in Europe and this acts as an indicator of how valuable this industry really is in Europe. Among the best in include are TUI and Thomas cook. Combined, the two control a large share of the European tourism industry. Tourism industry is very wide as it consists of different activities. It is also very competitive as a result of the high returns earned from it. It is viewed by many as a way to relax, experience adventure and most of all have fun. The way people in the 21xt century experience fun is different from people in the early 20th century. This is as a result of a change in lifestyle, culture and habits. With a changing society, tourism is also forced to change to meet the new demand of the current generation (Hall et al., 2006). The business environment can be analyzed using a number of tools. This paper aims at analyzing the European Tour Operators business environment by use of PESTLE, Porter’s five forces and a look at the threats and opportunities facing the industry as well as the driving forces of change in the industry.
PESTLE analysis a guide used in detecting the causes of change affecting the business environment in a particular industry. Below is the PESTEL analysis of European Tour Operators:
Political: terrorism is a global phenomenon that affects even the mighty nations. Europe is hence not an exception. Incidences of terrorism elsewhere, for example, USA, force strict measures to be taken in Europe to ensure safety and hence protect tourism industry. Governments all over Europe responds to terrorism attacks by issuing strict laws dealing with immigration. Governments are also forced to come up with restrictions to certain areas that are vulnerable to these attacks (Hall et al., 2006). By so doing, tourists are given a bad impression of their safety and hence some may not to go on vacation or change their vacation destination to other areas such as in Africa or the Americas.
Taxation policy is another factor that has a huge impact on the tour operators. Taxation on commodities such food as well as that in lodging industry has effects that are felt in the tourism industry. High taxes results to expensive holiday packages for the tourists. The cost incurred is of critical importance to tourists as they would prefer destinations with good services that come at low rates.
Economic: tourists having their destination in Europe come from different region. Some of these include neighboring countries as well as tourists from other continents. As such, the currency to be used is different and this affects tourism. A good example is the gap between the sterling pound and Euro (Council of Europe, 2000). As the gap decreases, it influences the buying power of tourists which in turn affects the tour operators across Europe.
The Euro crisis is another factor that dealt the tour operators a major blow. As the Euro lost its stability, tourists were affected as well. The Euro crisis resulted in holiday packages becoming more expensive as well as other tourist related services. The global recession also has an influence on European Tour Operators. This is so because tourists visiting Europe come from different regions. With recession, people are forced to cut on expenses. As such, most people decide to cut on the holiday tours as they are normally luxurious in nature.
Social cultural: the secret to success in business is understanding the clients and their preferences. The tour operators have interacted with their clients to a point they have clearly understood what their clients want. Tourists in Europe value safety and a particular lifestyle. The tour operators have customized their services to packages that will suit their customers. They have also ensured that they create good brand names as clients look for brand names that will make them feel secure when moving from one country to another.
Technological: the speed at which people exchange information has increased as a result of advancement in technology. This has had a huge impact on tour operations in Europe. Due to easy access to internet, most tours have resulted to online bookings. There are several agents such as hotels.com or exopedia.com whose work is give packages to customers. Customers can also make their own packages in consultation with these booking companies. Technology has reduced cost of operation in the tourism sector. This is in terms of transportation cost saved by avoiding making physical contact with the companies to make a booking. The tour operators also cut on cost as bookings done online are easy to manage and hence few people are needed to handle it.
Environmental: it is the concern of every country to conserve the environment. European governments have not been left behind towards environmental conservation. They have suggested the introduction of green holidays such as farm holidays (Richards, 2001). Other ways of dealing with pollution such as Carbon Dioxide produced by airplanes are also been thought of. In cases where outbreaks of diseases such as swine flu is detected, governments are swift to restrict the inflow of people from such areas.
Legal: competition is healthy for business. However, some competition may lead to collapse of an industry. This, for example, may happen in cases where price wars are used. To control competition and retain a healthy and financially productive sector, governments require companies to obtain legal permits before they enter the industry (Council of Europe, 2000). This ensures stability in the industry. In a bid to conserve the environment, European governments have proposed strict laws to govern the aviation industry. Other laws have been proposed to ensure that tourists are safe from any attacks including terrorist attacks.
The European market is big and has among the world’s best sites to visit. It is, therefore, the dream of many people to visit Europe and experience the adventure. As a result, there are overwhelming opportunities for the European tour operators. There is an expectation that there will be more tourists flowing into the continent from Middle Eastern countries as well as Asia pacific countries. This is as a result of the planned direct flights from these regions to Europe. The Chinese population has gained an interest in Europe as well. Considering the huge population of Chinese people, great opportunities lies in appealing to them to visit the continent for a change.
There are numerous business expansion in the continent. Farms from continents such as America are set to be established in Europe. This will introduce more people from foreign countries who will be happy to visit the different tourist destinations. Also, with business expansion, there is bound to be more money hence people will go for more expensive holiday packages.
There are many threats that face the industry today. Most people today have picked the habit of short vacations rather than long vacations. Not all countries in Europe are well developed in the tourism industry. As such, many people will choose to visit the developed countries at the expense of the undeveloped ones (Richards, 2001). The global recession has also had an influence on people. Some are still afraid to spend on activities such as holidaying. Therefore, the industry faces a threat of poor performance by failing to convince people to get over the recession. Terrorist attacks also pose a great danger to the tourism industry. With terrorism, people stop travelling as they fear for their safety. Health hazards also pose threat to the industry as it influences how often people travel as it poses a threat to the security of everyone.
Key drivers for change
Tourism sector is very dynamic. One of the drivers that lead to change is change in lifestyle among the populations. People change their taste and preference in food and kind of accommodation they prefer. As such, the industry is forced to accommodate these changes and hence the dynamic nature of the industry. The other key driver of change is government policies. The government in a bid to protect its citizens as well as foreigners, the may set certain standards that eventually lead to the change of the whole industry. Change in lifestyle and the introduction of new government policies are the key drivers driving change in tourism sector in Europe.
Porters Five Forces analysis
This particular analysis identifies the potential competitors to the industry. This comes in form of five forces which are all interlinked.
Risk of potential entrants: this particular threat is at insignificant levels. This is attributed to the fact that there is a high capital investment involved. To start a tour operating company, one has to invest huge amount of money which is not readily available to many people. The top players such as TUI and Thomas cook have already established themselves in the market creating a niche in the process (Michael, 2008). As a result, it is very difficult for new entrants to establish themselves. This situation profits the industry in that less energy is spent focusing on competition from new entrants.
Threat to substitutes: the threat of substitutes is also not very high. This can be linked to the fact that the tourism industry players have customized their packages to exactly what the customers want. Also, many people in Europe prefer travelling and holidaying and cannot substitute it to anything else. The tourist attraction in Europe are irresistible and hence tourists who visit Europe tend to come back to have a repeat of the feeling they had. Substitutes are, however, encouraged as they help in improving the quality of the main product.
Bargain power of Supplier: there is a contrast in the bargaining power of suppliers in the industry. This difference comes with the amount of shares held by companies. The bargaining power of suppliers is high to the companies holding small shares in the market. On the other hand, the bargaining power of suppliers among companies with large shareholding is low. The power is also affected by the fact that European markets own flights used in supplying tourists to their destinations (Michael, 2008).
Bargaining power of buyers: Europe is a vast market in tourism sector. As a result, there are two categories of buyers. These are the individual travelers and agencies. The agencies make packages and sell them to their customers. Among these buyers, the tour operators make a powerful group of buyers hence have more bargaining power.
Rivalry among competitors: there is no big competition among European tour operators. This is attributed to the fact that the companies contribute optimally to the market. The small companies especially do not offer significant competition. Most of competition in the industry is between TUI and Thomas cook who are the top players in the industry. TUI holds 21% of market share while Thomas cook has a 13% market share (Hall et al., 2006). Due to the large share holdings, these two companies offer significant competition to each other.
Europe has some of the best tourist attraction in the world. Some of the attractiveness in the industry include the beautiful cities. An example is Roma which has very many historic sites. The Italian cooking is irresistible and is offered in the city. Different cities also offer different holiday packages ranging from a minimum of three nights to a longer period of more than eight days. Europe is known for its beautiful mountains as well as cliffs and rivers (Richards, 2001). Europe also boasts of ancient traditions all well documented in museums that are available to the tourists. European population is very welcoming. They do not mind having visitors. However, the most attractive things of all is the security situation in the region
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