Tour Operations Sector in the UK - Essay Example

? Topic- Tourism operations management in UK Hassan Munir Khan  No E10186  BTEC Higher National Diploma in Hospitality Management  The College, University House, 55 East Road, London N1 6AH Introduction In the United Kingdom travel and tourism is a major industry apart from its financial and other industries. Tour operators are the groups who perform the task of assembling the different components in a tour package like food, accommodation, facilities, and transportation charges. Outbound operators, domestic operators, incoming operators, specialist operators, direct sell operators are some of the type of tour operators found in UK. Task 1(L01) Tour operations sector In travel and tourism, tour operators are the ones which combine two or more businesses in a package which is ultimately offered to the consumer as a holiday package. In UK there are two kinds of tour operators- mainstream tour operators and specialist tour operators (Meyers, n.d, pp.8-9). Mainstream tour operators are the ones who sell mainstream tour packages like air, sea, sand sun to the customers while the niche tour operators serve highly specified tour packages like beaches but of a lower standard. The major mainstream companies in UK are Thompson or Thompson Holidays, Thomas Cook, Airtours and First Choice. The products offered by them are the beaches in locations like the Caribbean, Thailand and Malaysia. A number of specialist tour companies have also come up in UK as there is little competition among the specialist tour operators. Major tour operators- introduction Thompson or Thompson Holidays is a part of TUI travel PLC (Cruiseship ratings and reviews all cruises with operator Thompson Holidays, n.d). The company known originally as Thompson Tour Operations was renamed as Thompson Holidays in 1997. It was floated in the London stock exchanges in 1998. Thomas Cook was started in 1841 by a person named Thomas Cook. He floated his company commercially in 1845 for the first time. A travel brochure was also provided by it for the first time (Thomas Cook history, n.d). Airtours is well known for providing innovative tour packages to its customers according to the changing lifestyles. It targets the cheap or lower budget market but because of the high level of innovation and ideas it has become one of the top market leaders in UK. (Airtours, n.d). First Choice is the fourth largest tour operator in UK. It was established in the beginning of the 1970s when two companies named Continental Air Brokers and Economy World Travel decided to merge and form Owners Abroad (Wholesale) Ltd. in 1973. Later, the company decided to change its corporate name and in 1994 the company was renamed as First Choice Holidays (First Choice Holidays PLC History, n.d). Since mid-1997, these four players occupy 53% of the holiday market in UK in 2000 (Pender, Sharpleyfirst, n.d, pp.48). Market Segmentation UK travel and tourism market is more oligopolistic in nature because of the presence of only four major players. The process of dividing the consumer base on the basis of common needs is known as market segmentation. The British travel market is divided into the following five segments. These five segments are categorized on the level of experience they have in traveling and the attitude and comforts they seek from the travel experiences. • Self-Challengers • Comfort Adventurers • Cocoon Travelers • Pushing Boundaries • Taste & Try Self-Challengers are the groups who are more affluent economically and are highly educated. They are most likely to be unmarried and between 18 to 75 years of age. Australia seems to be the favorite holiday destination amongst the self challengers. They are the travelers who go to holidays with a learning quest. Comfort Adventurers are the ones who have the curiosity to visit the places before they are visited by the local market. They do not compromise with safety and comforts. Cocoon Travelers are the ones who take inspiration from newspapers and experiences of others. They are basically married, having fairly good income and take more interest in health and fitness programmes. Pushing Boundaries are the group of travelers who develop the curiosity to visit places. They like to travel with the experienced travelers, are between 25 to 34 years and have less income. Taste & Try are the young generation travelers below 24 years age. They have less knowledge and depend on other for information. For them having fun, sightseeing and relaxation are important while deciding on a tourist destination (The UK Traveler Segmentation of the UK market, n.d, pp. 4-15). Horizontal and vertical integration Any form of industry is structured by its horizontal and vertical integrations. Horizontal integration is seen when producers merge their companies to reduce competition. Horizontal integration in the UK market rose considerably since 1995 when its top 5 companies controlled 61.5% of the market (Meyers, n.d, pp. 29-32). Vertical integration means when a company controls other companies at different levels of the production and distribution chain for a product /service. There have been mergers and acquisition in the UK tour markets like Britannia Airways that is a part of Thompson Travels now. In UK there is strong vertical integration between the four key tour operators (Meyers, n.d, pp. 29-32). Market share and scale (no. of passengers carried) The UK tour operating market is made of only four major players and a large number of specialist players (Meyers, n.d, pp. 28). Market share and scale (no. of passengers carried) Market share of the top four companies in UK in 2002 Company name Market share Thompson 24% Air tours 21% Thomas Cook 18% First Choice 13% Others 24% Source: Keynote 2001 The number of passengers carried by the four major players as per ATOL license in Dec 2001 License holder Dec 2001 Dec2000 % changes Thompson Holidays Ltd 4050000 3907245 4 Air tour PLC 4019853 3591050 12 JMC holidays Ltd 2850055 2836191 1 First Choice Holidays and Flight Ltd 2098790 1888008 11 Unijet Travel Ltd 1092712 1000435 9 Source: CAA ATOL Turnover of the four major tour companies The annual turnover of the four major tour companies in the UK Company name Annual turnover TUI AG 23.8 billion € MyTravel PLC 8.2 billion € (UK only) Thomas Cook AG 8 billion € First Choice3. 8 billion € Source: Keynote 2001 The UK market is estimated to be around ?7billion Holidays packages provided by the tour operators in UK A list of special holiday packages offered by Thomas Cook are- Marina Torrenova- It is a 7 nights package with all inclusive. It is available from 2/5/2012 from Birmingham. The price is fixed at ?387 per person. The price has been lowered at ?774 after discount. Creta Marine Beach Resort- It is in Greece and the price per person is fixed at ?497. It is a 7 nights tour with all inclusive. It is available from 15/10/2012 from Gatwick. After discounting the price stands at ?994. Hotel Playa Pesquero – It is a 7 nights package with all inclusive. The price per person is fixed at ?713. It is available from 12/12/2012. It is in Cuba, Playa Pesquero. After discount the price stands at ?713. H10 Salauris Palace- It is a 7 nights package. It is available from 7/10/2012 from Gatwick. The price is fixed at ?342 per person. The price has been fixed at ?684 after discount. It is in Spain, Salou. Sentido Rosa Beach Thalasso & Spa - It is a 7 nights package with all inclusive. It is available from 9/12/2012 from Gatwick. The price is fixed at ?280 per person. The price now stands at ?560. It is in Tunisia, Skanes. Marmaris Park - It is a 7 nights package with all inclusive. It is available from 15/10/2012 from Gatwick. The price is fixed at ?280 per person. The price has been lowered at ?560 after discount. It is in Tunisia, Skanes. Suite Hotel Atlantis Fueteventura Resort - It is a 7 nights package with all inclusive. It is available from 12/12/2012 from Manchester. The price is fixed at ?441 per person. After discount the price stands at ?882. It is in Spain, Corralejo. Grand Sirenis Riviera Maya Resory & Spa - It is a 7 nights package with all inclusive. It is available from 30/9/2012 from Gatwick. The price is fixed at ?740 per person. The price has been reduced to ?1480 after discount. It is in Mexico, Riviera Maya. Bahia Principe Tenerife - It is a 7 nights package with all inclusive. It is available from 14/12/2012 from Birmingham. The price is fixed at ?517 per person. After discounting the price stands at ?1034. It is in Spain, Costa Adeje, nr Playa Paraiso. Sunrise Royal Makadi resort - It is a 7 nights package with all inclusive. It is available from 11/12/2012 from Manchester. The price is fixed at ?464 per person. After discounting the price has been reduced to ?928. It is in Egypt, Makadi Bay (Thomas Cook, n.d). Role of different trade bodies in the UK tourism industry It became important to provide protection to the tour operators in case of any financial mishap in order to avoid insolvency. This protection was provided to the British tour operators by the Association of British Travel Agents (ABTA). They collected an initial fund from 50% subscriptions of its members. In 1972, the civil aviation authority laid down the policy for any tour operator to get themselves licensed under Air Travel Organizer’s License (ATOL). In addition to this, the package travel regulations also say that the tour operators must be able to refund the advance payments made by its subscribers by providing evidences. It should also have measures to repatriate the travelers in case the company goes insolvent (Pender, Sharpleyfirst, n.d, pp. 152-153). Role of e-commerce in UK tour operations To curtail the additional cost of compliance tour operators have come up with the idea of dynamic packaging also known as Contract Splitting. This method is used because of the boom in e- commerce i.e. the usage of internet in business communications. In dynamic packaging, individual travel agents together with the dot.com companies purchase different components of a travel package (like car facility, accommodation). This Split Contract method enables the travel agents and tour operator to sell the package without involving themselves completely in the deal. Lastminute.com had offered a dynamic package known as Breakbuilder to its customers. The company was able to generate almost ?1million revenue within 1 month of its offer (Pender, Sharpleyfirst, n.d, pp. 153-154). Recent trends and developments in the UK tour industry The UK tour market has seen many trends since the last decade. There have been mergers and acquisitions, new areas being explored, Europe becoming the major tourist attraction, introducing mass market products, scheduled airlines. Due to the merger between Thomas Cook and My Players the number of operators in UK has come down to three. Mass market products like beach holidays or biking to the Himalayan Mountains are increasing. Scheduled airlines provide the individual travelers with low cost air tickets (UK Overseas Package Holiday Market Assessment, 1999). Task 2 (L02) Stages of developing a tour package Market research – The tour operator needs to conduct extensive market research and decide on the type of package it can offer to the consumers. Planning and scheduling – Then planning and scheduling will help the tour operator to decide on its cost, resources, and suppliers. Pricing will depend on the various stages of market like in competitive or penetrative situations. Forecasting - Forecasting should be done by the analysts before any tour package is launched. Forecasting will enable the tour operator to project his future sales, margin levels and also devise strategies in case the sale figure goes below the expected level. Channels of distribution- After forecasting, the tour operator needs to decide on his channels of distributions that would help the company to achieve its revenues. Market share of the four major players In terms of market share the major players are Thomson Travel Group Ltd, Airtours, First Choice Ltd, Carlson Leisure U.K and others (maximum 1% each). Market share of top four tour operators (Thomson, Airtours, Thomas Cook/JMC, and First Choice) expressed as planned capacity (year Oct-Sept) As at January 2000 1999 1998 1997 Market share (%) 57 53 44 43 (Chandler, 2000) Turnover of the four major players The four major tour companies in UK according to their annual turnover Company name Annual turnover TUI AG 23.8 billion € MyTravel PLC 8.2 billion € (UK only) Thomas Cook AG 8 billion € First Choice3. 8 billion € (Chandler, 2000) Cost analysis In UK the packaged holiday market is a highly consolidated market with only four market players (Pender, Sharpleyfirst, n.d, p.60). UK tour operators mostly follow the low cost pricings. Packaged holidays combine the different costs of accommodation, flight, comforts into a single cost that is paid by the consumer. There are four features associated with tourism products. They are perishability, intangibility, variability and inseparability. This makes for a high fixed cost like the cost of the airline seats, the accommodation facilities, catering and a relatively low variable cost (Pender, Sharpleyfirst, n.d, pp. 104). From the time the idea of a tourist product is generated till its disappearance, its pricing strategy goes on changing. The four stages involved in the product life cycle are introduction, growth, maturity and decline. In the context of developing a tourism product the four stages are exploration, involvement, development and consolidation (Pender, Sharpleyfirst, n.d, pp. 61, 126). The pricing of the packaged holiday will be highest in the introductory phase and will reduce towards its declining phase. Pricing strategies While pricing a packaged holiday the tour operators follow certain strategies like the competitive strategy and skimming. In competitive pricing the tour operators try to make their package appear more lucrative by offering it at prices lower than its competitor. This is usually done in the maturity phase of the product life cycle. Skimming is the pricing strategy that is adopted by the tour operators usually in the introduction and growth phase of the product life cycle where the highest prices are quoted by the operators. Tour operators have to deal with foreign exchange currencies many times. Here the changes in the foreign exchange rate can affect the tour operators’ profit levels greatly. So in order to safe guard them against adverse price rate and exchange rates, the tour operators can buy foreign exchange currencies at a pre determined rate. This process is known as hedging. Through hedging the tour operator not only safe guards his profit levels but can also earn small profit margins (Meyers, n.d, p. 38). Contracting methods In order to remain in business, it is essential that the tour operators maintain contracts with its supplier’s on a regular basis. Contracting methods depend on the component of the package. Methods like allocation, commitment, using air brokers and fixed contracting can be used. For the growth of their company tour operators need to emphasize on the proper allocation of its financial and non financial resources. For example tour operators pay for only that number of beds that are used by its customers. There can be fixed contracts where the operator will pay for a fixed number of beds for the entire season. Committing to supply the resources on time by the suppliers is also a contracting method. Tour operators can also form contracts with the airlines to charter their customers and resources at a lower rate when required (Operations, n.d). Discounts Discounting is a common strategy to lure customers. Discounts are provided by the tour in the late season periods. It is similar to a stock clearance sale. Tour operators suggest the customers to buy through their retail shops offering huge discounts. Sometimes, the tour operators also provide special offers like charging no travel cost for one child (Meyers, n.d, p. 38). Horizontal and vertical integration in Thomas Cook and My Travels In 2007, Thomas Cook decided to merge with My Travels that owns Airtours in UK. This was a form of horizontal integration. The company after merger was named as Thomas Cook group. Through this merger there was an estimated savings worth ?75m annually. Customers were also benefited as the combined group provided unmatched quality and comfort for their holidays (MyTravel and Thomas Cook merging, 2007). The merger between Thomas cook and US group Carlson is a form of vertical integration for the tour industry. It was a 25 billion dollar a year deal. Under this acquisition Carlson group’s 412 travel agencies would be provided to the 385 shops of Thomas Cook in UK. Thomas Cook would be sharing its 14 fleet of aircrafts together with the 18 strong Caledonian aircrafts of Carlson. This would help to form the second largest holiday airline service in UK (Thomas Cook forms pounds 25bn travel giant, 1998). . TASK 3 (L03) Brochure guidelines A well printed brochure is essential for the success of any tour operating company. Before developing a brochure a company has to decide on three factors. It has to check the purpose behind creating the brochure, the target consumers and where the customer will be when they read the brochure. The tour operator makes a brochure to sell the tours so he has to create a brochure that will appeal to the customers. It will also provide information about the added benefits in the tour package. Then the tour operator will be required to check for which customer the brochure is being made. For example if the customer is a trade wholesaler, the brochure will have to contain more technical matters, if it is being made for a special group the brochure will contain information of their interests. Again if the customer is from the same country then the tour operator need not provide information on weather or accessibility (Tour Operators Marketing, n.d., p. 41). After knowing the purpose behind the brochure, it becomes easy for the operator to decide on the literature and space. Proper planning can help to save money and time. The tour operator should check the printing machine, the number of pages and the print or the size. After this, the designing should be done to convey the idea of the tour company. Decisions on paper are important. A glossy paper would mean that the tour package is expensive and modern while a matt paper would indicate an expensive but natural package. It also depends on the situation like a matt leaflet would do for a fishing trip while a thick matt paper for a Himalayan trip (Tour Operators Marketing, n.d., p. 43). Color also needs to be determined carefully like a blue background for a monsoon trip. The photos should be vibrant and portray the tour destination. Lastly, the tour operator should make sure that no information provided in the brochure is false and misleading as in can attract legal actions. Distribution of brochures The brochure needs to be promoted and made available to its target group. There are several methods of doing it. The travel operator can exploit the local travel agents as well as take help of the local media for its propagation. They can mail their brochures to prospective customers and also take the help of specialist carriers. Brochures can also be provided electronically through the internet or by using cds, DVDs and other formats. Distribution methods adopted. Distribution channels are the external agencies that are hired to manage the distribution objectives of the management. Traditionally travel agents were the primary source of distribution in the tourism industry. However, with advancing technology, there are many choices available to the tour operators now for their distribution purposes. Development of call centers, digital TV, internet and teletext have opened wide scopes in the distribution network for the tour operators. UK occupied 30% of the online travel market in 2002 in Europe. Also, the online bookings stood at ?455m in the same year. The online bookings for travel packages are next only to the bookings for accommodation in UK. Teletext is another mode of distribution and it is readily accepted in UK where 65% of the households have teletext facility. A report in UK suggested that it has a strong network of digital cables i.e. it is highly digitalized. This facilitates digital TV to be used as a mode of distribution and selling of the tour packages as is done by Thomas Cook and My Travels. Mobile phones with WAP application can also help to sell holiday packages in future. This facility presently is being used by Thomas Cook with Orange, Vodafone and BT Genie. New methods have made it possible for the consumer to interact directly with the suppliers and the intermediary bodies which helps to maintain the interest level of the customer in the tour operating company (Meyer, 2003, pp. 22-24). TASK 4 (L04) Strategic and tactical decisions Strategic decisions are the ones that are taken to decide on business objectives while tactical decisions are taken to execute those objectives. Strategic decisions are taken after forming alliances with companies having common business objectives and benefits and to explore their respective strengths. Strategic decisions The tour operators can conduct SWOT analysis of their company to evaluate their strengths and weaknesses. A typical SWOT matrix for a tourism company would be of the following type: Internal( capability)analysis Strengths weakness Resource . . Product . . External environment analysis . . Competition . . Political . . Economic . . Socio cultural . . Political . . Fig. 8.2 SWOT matrix Source: (Pender and Sharpleyfirst, n.d, pp. 127) This analysis will help the tour operators to identify their common needs. Strategic decision can also be in the form of position strategy which will help the tour operators to position their brand in the market. A hybrid strategy can also be followed by the tour operators by providing better packages in terms of comforts and luxury at a lower price. This strategy will only force the initial costs of development to go high. But can create competitive advantage for the tour company. Pricing strategy would try to create a competitive advantage for the company by offering its products at a cheaper price than its competitors. This is done to retain its old customers as well as attract new customer base for the tour company. (Pender, Sharpleyfirst, n.d, pp. 126 -127). Also decisions on volume of the products will have to be decided by the tour operators. Tactical decisions Tactical decisions are made on the basis of the overall business strategy. Tactical decisions in the form of e-commerce, teletext, distribution of brochures or pamphlets and propagation by the retail shops as explained in the above sections can be adopted by the tour operators to address different situations. It also depends on the prevailing market conditions. Conclusion With increasing pressure and competition, people seek to look for vacations and holidays. UK can be a good tourist destination in this aspect. The efficiency of the tour operators together with its subscribers can help this industry to scale new heights. The industry can also contribute in the employment scenario of UK as it incorporates almost two dozen sub industries for its operation. In short, tourism industry is a multi tasking industry in UK as it provides relaxation, comfort, employment and revenue almost simultaneously to different sections of the society. References 1. 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