European Tour Operators analysis

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Strategic Management
MS60005E
Anabela Soares

London
November 2014

Contents
Intoduction............................................................................................................................................3
PESTLE................................................................................................................................................4
P.E.S.T.L.E. analysis.........................................................................................................................4
Opportunities and threats..................................................................................................................4
Key drivers for change......................................................................................................................6
Porter Five Forses.................................................................................................................................6
5 Forces.............................................................................................................................................6
Industry attractiveness......................................................................................................................7
References............................................................................................................................................8

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Intoduction
The tourism industry is always changing, trying to make the most of todays innovation and
resources that customers are willing to pay for. This report is an external environment
analysis of the European Tour operators to understand the current situation and where it is
heading. For analysis PESTLE has been used, outlaying the opportunities and threats,
and pinpointing the key drivers for change. The second technique used is Porters Five
Forces analysis, showing how these forces drive the industries profitability.

The

information in this report is collected from various data bases, internet sources, text books
and journal articles.
External environment Conditions, entities, events, and factors surrounding an
organization that influence its activities and choices (Business Dictionary, 2014).
European Tour Operator a person, company or organisation who is organising paid
travel arrangements and places to stay (package holidays) in Europe (Cambridge
Dictionary, 2014). Even though there are others outside Europe whose business it is to
send tourists to Europe, this report focuses on Europe based operators and Europe
destinations only for more specific purposes.

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PESTLE
PESTLE analysis is a tool to scan the industries or organisations external environment by
focusing on the changes in its components (Pardey, 2007). It is widely used for marketing
purposes.
P.E.S.T.L.E. analysis
While customers, suppliers and competitors make the specific environment, the variable
parts of the general environment include:
Political

Unrests in some parts of Europe.

Economical

Recovering from previous recession.

Rising fuel prices.
High competition.
Currency exchange rate.
Level of disposable income.

Socio-cultural

Social networks.
Globally aware.

Technological

The advancement of internet.

New technology in booking and managing holidays.
New developments in transport carriers.

Legal

Complying with government laws about CO2 emissions.

Travellers safety.
Visa requirements.
Import taxes.

Environmental

Air pollution.
CO2 emissions
Deforestation.

Opportunities and threats

Opportunities and threats are positive and negative changes or trends in the external
environment that can improve or hinder industrys performance (Coulter, 2010). External
analysis can help identify them.
Political

Opportunities: The freedom to travel in EU is getting more attractive.

With lower restrictions it does not require visa
arrangements. With EU expanding the number of

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member states rises, giving it an opportunity to

expand.
Threats: The political situation is not stable in some areas at the
moment and tour operators are not booking any
holidays in those former popular areas like Eastern
Economical

Ukraine. This results in loss of revenue.

Opportunities: As the economy is picking up again after the recession
in 2008, people do use tour operators for holidays,
together with a rising disposable income.
Threats: The recession had also an impact on tourism but not
as significant as in other industries.
Tour operators are more concerned about filling the
seats while customers tend to buy tickets in the last

Socio-cultural

minute - making customer behaviour unpredictable.

Opportunities: Tour operators predict customer choices according to
the past statistics and future trends, and try to offer
tailored packages to their market segment.
Europe has a wide range of cultural and entertainment
attractions. Investment in the cultural heritage could

Technological

help to develop the tourism sector.

Threats: None found.
Opportunities: The increased access to internet is making the industry
more automated, helping customers easily book, buy
and manage their holidays online. The latest trend is
having a boarding pass on a mobile phone.
Newer, comfortable and fuel efficient transport carriers

Legal

are becoming more affordable and not just designs.

Threats: None found.
Opportunities: The EU has issued strict CO2 emission regulations,
making the old carriers to be exchanged.
The health and safety standards and laws are being
widely adapted to protect the consumer. Tour operators
advertise themselves using compliance in the field.
Threats: Terrorism is still a reality and often airports and train

Environmental

stations are the potential targets.

Opportunities: Europe has a unique tourism combination of nature
Threats:

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and culture.
None found.

The changes in PESTLE variables do not necessarily mean they are opportunities or
threats. In many cases it may not make any difference or affects one part of the industry
more than the other.
Key drivers for change

People change and their lifestyle changes. This means new demands in tailored
holiday packages. As the population ages the seniors are common customers to the

industry and tour operators have to adapt the change.

With the help of internet and technology the customers try out new ways of
choosing their holiday plans in detail. Keeping up with the innovation requires
investment into new equipment. Nowadays being online and having a website is a

must for a tour operator.

Globalisation brings in new workforce and knowledge. This increases global
competition and drives the prices down. As customers are looking for value for
money they can compare prices and select the most suitable ones, sometimes even

dropping the loyalty scheme. The industry has to cope with price fluctuations.
Important driver for change is a political conflict. Europe is mostly safe and trusted
destination to travel but unrests in certain parts of it may suspend the destination. A
sudden suspension may end up with abandoning holidays or even cancelling long
term contracts altogether.

Porter Five Forses

The best way to analyse specific environment in tourism industry is using Porters Five
Forces model. It is a framework to determine competitive intensity that shapes the industry
(McGrath and Bates, 2013).
5 Forces
1. Competition in the industry. High. According to the 2009 study on Competitiveness
of the EU tourism industry there are about 78000 enterprises involved (Eurostat,
2009) ranging from individuals to multi-billion pound corporations.
2. Potential of new entrants into industry. Medium. It is relatively easy to start
operating in tourism with low cost and with little effort. Location has more potential
than resourses. The industry consists of over 80% of micro size operators. But the
number of individual operators is declining (OECD, 2008). This is due to the
reduction of commissions from airlines and accommodation suppliers because they
increasingly market directly to customers by cutting out the middleman.
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Furthermore, the industry is increasingly concentrated and 70% of the market is

dominated by few large corporations like Thomas Cook and TUI Travel (Eurostat,
2009).
3. Power of suppliers. Low to high. The tourism is largely driven by seasonal offers,
making the suppliers more flexible in low demand periods and have greater powers
in peak seasons. This is especially visible with beach holidays. Tour operators are
not restricted to one accomodation or one airline but have contracts with multiple
suppliers.
4. Power of customers. High. Customers are becoming more price-contious. The
number channels purchasing the desired deal is growing. This makes prices fall and
small enterprises either cut their profit or lose some quality in standards.
5. Threat of substitute products. High. Travel agents advise customers with different
products available and administer bookings from suppliers. These do not come in
packages and customers have more options compared to tour operators. Also,
customers are using a wide range of transportation options and these can be easily
arranged by the customers themselves.
Industry attractiveness
The profitability of the tourism industry in Europe is low (near 5%) compared to services or
manufacturing (Eurostat, 2009). It has better potential in more developed countries like
Germany or UK where customers are prepared to spend more money on their holidays but
in return expect more comfort. To overcome the low profitability ratio it is important to serve
in larger volumes. Another option is to offer differentiation, higher quality service or product
meaning higher prices and profits. But as there are last minute deals and offers available
these quality services are not that prosperous. The industry involves 1 in 7 companies with
the connections to accommodation, transport, catering etc. (Eurostat, 2013). These
sectors are closely linked with economic wealth and therefore tourism is largely dependent
on economics. This has been seen in the tourism decline during the recession in 2008 and
onwards (Keynote, 2014; ONS, 2014). To overcome the low profits tour operators try to
buy in bulk and in advance. To reduce risk tour operators negotiate better deals.

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References
Bowden, R. (2007) Tourism: our impact on the planet. London: Wayland.
Business Dictionary. (2014) External Environment. [Online] Available at:
http://www.businessdictionary.com/definition/external-environment.html [Accessed 16 November 2014].
Coulter, M.K. (2010) Strategic management in Action. 5th Edition. NJ: Pearson Education.
Eurostat (2009) Study on the Competitiveness of the EU tourism industry. [Online] Available at:
http://ec.europa.eu/enterprise/sectors/tourism/files/studies/competitiveness/study_on_tourism_competitiv
eness_2009_en.pdf [Accessed 16 November 2014].
Eurostat (2013) Tourism industries - economic analysis. [Online] Available at:
http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Tourism_industries_-_economic_analysis
[Accessed 16 November 2014].
Keynote (2014) Tour Operator Activities Market Digest 2014. [Online] Available at:
https://www.keynote.co.uk/market-intelligence/view/product/11359/tour-operator-activities?
utm_source=kn.reports.browse [Accessed 16 November 2014].
McGrath, J. and Bates, B. (2013) Little book of big management theories and how to use them. Harlow:
Pearson.
Mintel (2011) Holiday market all packaged up - half of Brits prefer package holidays. [Online] Available at:
http://www.mintel.com/press-centre/leisure/holiday-market-all-packaged-up-half-of-brits-prefer-packageholidays [Accessed 16 November 2014].
Novelli, M. (2011) Tourism and political change. Annals of Tourism Research. Vol 38(2), p.731733
OECD (2008) Tourism in OECD Countries 2008: Trends and Policies
ONS (2014) Overseas Travel and Tourism, Provisional Results for September 2014. [Online] Available at:
http://www.ons.gov.uk/ons/dcp171778_384247.pdf [Accessed 16 November 2014].
Pardey, D. (2007) Introducing leadership. London: Butterworth-Heinemann.

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