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Thomas Cook Strategic Analysis

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Thomas Cook Strategic Analysis

 Introduction

The global tourism and travel market has been growing since 2010 at a rate of 4.5 percent since the recovery from the 2008 recession (Thomas Cook, 2016). One of the key segments in the industry represents an increased demand for international travel that accounts for approximately 30% of Thomas Cook’s revenues with the domestic UK and Ireland as the largest segment at 35% (Thomas Cook, 2016).

This report seeks to analyse the company’s business and revenue segments, industry sector and provide a competitive analysis of the company. It will also delve into its travel offer segments and competitive analysis using key tools such as PESTEL, Porter’s 5 Forces, a SWOT Analysis, Boston Matrix and Strategy Clock. These tools, which are contained in the Appendix, will be referred to herein to provide an understanding of key points. The above will form the basis to determine varied understandings regarding the company and industry sector. As the findings segment represents the key aspect of this report, it will serve to aid in drawing preliminary conclusions and if more information is needed.

The deductions section will synthesize what has been uncovered in the findings segment in order to arrive at what has been uncovered and the completeness of the findings research process. This also represented the opportunity to discuss areas that might warrant additional research or investigation. The findings and deductions will form the basis for summarisation in the conclusion which will discuss any potential research limitations.

This report will seek to offer varied suggestions for possible actions or considerations the company might undertake as directions or paths to enhance marketing reach and revenue generation. The analysis will look at the UK and European markets as well as trends and activities globally to provide an understanding of the strategies and direction of the overall industry.

The methodology will utilise secondary research represented by journals, newspaper articles, industry trade journals, and the Internet as sources. This wide variety of sources offers a means to gather a broad range of information and views to add balance and objectivity. Qualitative and quantitative methods will be used in combination to strengthen the research process by providing different perspectives (Bernard, 2011). Qualitative research aids in gaining an understanding of varied underlying reasons and motivations that have lead to or are a part of business decisions that have been made (Bernard, 2011). This helped to provide insight concerning varied industry strategies that were used to compare with what Thomas Cook has and is doing.

Quantitative research looks at and considers data and statistics as a means to assess what has and is occurring (Ostlund et al, 2011). It is also helpful in uncovering aspects that might lead to further research that can refer to data and statistics as well as areas of exploration (Ostlund et al, 2011). These two methods aided in approaching this analysis of the travel sector from contrasting yet mutually supportive viewpoints.

Findings

The UK travel agency segment has increasingly been taken over by online services that now account for slightly more than 50 percent of the its revenue. The UK’s online travel sector is one of Europe’s largest, and it is ahead of both Germany and France (IBIS World, 2016). Despite having a 175 year history that makes it the oldest operating travel agency, Thomas Cook is besieged by rivals in this fierce field to the point where it almost collapsed in 2010 (Martin, 2015), The UK travel agency leadership now resides with TUI, the German-based company, that acquired Thomsons and First Choice in its growth through acquisition strategy which aided it in becoming the UK’s largest agency (Canocchi, 2015).

In looking at the huge number of competitors and the ease of market entry provided by the Internet (please refer to the SWOT and Porter’s 5 Forces analyses), and an aggressive growth by acquisition is the strategy the industry has adopted to increase market share and revenues. The ease of entry in the sector means that the number of potential firms could increase dramatically in the future thus fueling heightened competition and more acquisitions of mainline and niche firms that deal in adventure and environmental tourism (Middleton et al, 2009). A key business defence and offence is to use growth that includes name recognition and exposure as a countermeasure (Middleton et al, 2009).

The company has the expertise, service, and products to match the largest travel agencies internationally, but lacks public name recognition in varied important international markets where homegrown travel companies dominate and thus ultimately threaten Thomas Cook as they grow larger and seek to expand into its European stronghold (Andreu et al, 2010). An assessment that used the Boston Matrix and strategy Clock pointed out the strengths of the company that provided background to support the above.

The company has a weakness in revenue generation due to its regional dependence (meaning Europe) that needs to be expanded to the America’s, Asia, and the Middle East:

The above reveals the limited market revenue generation of the company that is shown by another method below:

The above aspect has been looked at as it represents a weakness in the company’s strategy. This regional revenue concentration limits the reach and exposure of Thomas Cook’s services (Thomas Cook, 2016). As mentioned, the company’s 175-year existence and reputation are brand advantages that can be utilised to build growth in other markets. The research looked at a number of aspects in terms of this and the tools contained in the Appendix (PESTEL, Porter 5 forces, SWOT, Boston (BCG) Matrix and Strategy Clock). These tools aided in gathering information and insights on the company from a number of perspectives.

The above information uncovered that the similar service offerings of travel and online agencies did not represent major distinguishing factors in terms of overall strategy development. As shown by the growth of TUI in the UK, rapid expansion by acquisition was and is a key to success (Thomas, 2014). This is a highly important finding that represents an area for additional exploration as researching potential targets for acquisition in growth markets is where this approach would produce the greatest results.

In terms of what was uncovered, growth by acquisition seems to represent the most important finding. It helps to explain why a relatively new entrant to the UK travel sector (TUI) managed to supplant the oldest travel agency in the world, and market leader in the UK in less than a decade (Thomas, 2014). The fact that Thomas Cook had only engaged in modest acquisition activity adds credence to this (Thomas Cook, 2016).

Deductions

In researching the company and competitors, it became apparent that the services it offers are easily copied. Whilst Thomas Cook has developed a cultivated reputation of service quality over decades, the services it offers can easily be adopted by competitors and in many cases, this has already been the case (Lawton and Weaver, 2009). The name of the company, plus its 175-year history are key brand values that need to be exploited further in order to gain heightened public awareness outside of the UK market as an underpinning for expansion and growth.

What has been learned from the research in the findings is that the company has been suffering from competitive inroads (such as TUI). The rapid growth of TUI was not based on expertise or service, but rather one of exposure and availability to consumers and businesses through acquisitions that increased its customer and business base (TUI Group, 2015). In looking at activity in the global travel agency sector, an important aspect that was uncovered is that in the United States just four companies (Carson Cos., American Express, Expedia, and Priceline) control 75 percent of the market (Jainchill, 2012). This was the most recent date that could be obtained on this aspect which seems to indicate that the percentage these firms control today could be considerably larger. This indicates that industry consolidation has been and continues to be a prime source of growth. Whilst the above used the example of the United States, the growth of TUI in the UK points to growth by acquisition as a viable strategy.

The regional nature of Thomas Cook’s revenues is surprising considering the company operates in an Internet environment where this represents the bulk of its communication with customers and business clients. Expanding the company’s digital footprint to lucrative markets such as the Middle East, and Asia represents the use of an acquisition strategy as the tastes, preferences, languages, customs and traditions differ and thus require local first-hand knowledge. China’s vast market has proven to be a conundrum for Western companies as Internet-based businesses can easily be copied locally and the barriers faced in terms of restrictions, customers, regulations and other areas are considerable (Romero and Tejada, 2011).

The United States is a natural fit for the company due to a common language, similar traditions, and customs as well as Europe representing the number one travel destination for Americans (Nasr, 2015). It would seem that in planning a trip to a European destination, one would be inclined to seek information and advice from a company with 175 years of experience in that region. These factors represent additional research aspects worthy of further exploration and development.

Conclusions

This report has uncovered that the travel agency segment is a digitally based industry where physical offices represent a convenience for some segments of the population, but the preponderance of arrangements are made over the Internet. This is an important underpinning where understanding the nuances of consumers and businesses, as well as destination markets and how to promote them along with the ease of online and in-person interface, are key aspects.

Despite this, TUI’s rapid growth in the UK has proved that growth by acquisition provides a means to acquire information, systems, and expertise that can be put to immediate use. Whilst growth by acquisition is an old and well-known business technique, its use in the European travel sector had been modest until TUI used it extensively. This caught Thomas Cook by surprise and resulted in it losing its position of leadership in its own market. This represents a key failing of the company along with its limited regional footprint where approximately 75 percent of revenues are derived from the UK and Europe. This limits the company in terms of new customers from a broad number of highly travelled destinations in the Middle East and Asia. These regions are where a growth by acquisition approach would provide the company with important regional and local travel information such as preferences, cultural nuances, customs, and other areas.

Recommendations

The growth by acquisition strategy of TUI that permitted it to gain the leadership position in the UK market from Thomas Cook is a lesson that provides a critical recommendation. A large number of online and physical travel sites based in the UK as well as those in operation in the United States where Priceline, Orbitz and Travelocity service global markets and dwarf Thomas Cook in size and revenues are examples (Forbes, 2014). The company’s 175-year-old brand name is a considerable asset because of its reputation, however, it will need to increase its footprint in not only the European sector but the United States, the Middle East and Asia as well. The company’s acquisition strategy thus far has been distinctively modest compared to TUI. Thomas Cook’s acquisition of Jet Tours of France and Manny Fontenla-Novoa of Canada have been steps in that direction (Toursitik & Business Travel, 2008). The company’s acquisition of India’s Kuoni travel agency in 2015 represented a notable international move to gain a footing in Asia (Business Standard, 2015).

As revealed in the findings section, Thomas Cook is basically a regional travel company in a global travel environment. This is stated because almost all of the company's revenues are generated in Europe. This is a limited marketing sphere in terms of a global approach. A look at Travel Weekly’s (2016) 2016 Power List of the largest travel agencies revealed that growth through acquisition is the new industry mantra. In 2015 Expedia and Priceline were virtually tied to the number one global position as the largest travel agencies at $50.4 billion and $50.3 billion respectively (Travel Weekly, 2016). During 2015 Expedia acquired Orbitz and Travelocity to become the largest travel agency using these acquisitions as the basis (Travel Weekly, 2016)

References

IBIS World (2016) Travel Agencies in the UK: Market Research. (online) Available at <https://www.ibisworld.co.uk/market-research/travel-agencies.html> (Accessed on 4 February 2017)

Andreu, L., Aidas, J., Bigne, J., Mattila, A. (2010) An analysis of e-business adoption and its impact on relational quality in travel agency–supplier relationships. Tourism Management. 31(6). pp. 777-787.

Arkell, H. (2013) The world's friendliest countries: New map reveals Iceland is the coolest place to go on vacation (but try to avoid Bolivia). (online) Available at <http://www.dailymail.co.uk/news/article-2306868/Worlds-friendliest-country-Head-Iceland-avoid-Bolivia-costs.html> (Accessed on 4 February 2017)

Bernard, H. (2011) Research methods in anthropology: Qualitative and quantitative approaches. New York: AltaMira Press.

Business Standard (2015) Thomas Cook completes acquisition of Kuoni's India business. (online) Available at <http://www.business-standard.com/article/companies/thomas-cook-completes-acquisition-of-kuoni-s-india-business-115121700203_1.html> (Accessed on 4 February 2017)

Canocchi, C. (2015) Historic Thomson travel brand to be phased out as owner TUI loses the name made famous by package holidays. (online) Available at <http://www.thisismoney.co.uk/money/news/article-3079570/Historic-Thomson-travel-brand-phased-owner-TUI.html> (Accessed on 4 February 2017)

Conservatives (2015) Our Long-Term Economic Plan. (online) Available at <https://www.conservatives.com/plan> (Accessed on 4 February 2017)

Forbes (2014) Competitive Landscape Of The U.S. Online Travel Market Is Transforming. (online) Available at <http://www.forbes.com/sites/greatspeculations/2014/04/08/competitive-landscape-of-the-u-s-online-travel-market-is-transforming/#1c529aa7746e> (Accessed on 4 February 2017)

Granados, N., Kauffman, R., King, F. (2008) How Has Electronic Travel Distribution Been Transformed? A Test of the Theory of Newly Vulnerable Markets. Journal of Management Information Systems. 25(2). pp. 54-61.

Hares, A., Dickinson, J., Wiles, K. (2010) Climate change and the air travel decisions of UK tourists. Journal of Transport Geography. 18(3). pp. 466-473.

Jainchill, J. (2012) Four agencies account for more than 75% of market. Travel Weekly. 4 June. p 12.

Lawton, L., Weaver, D. (2009) Travel Agency Threats and Opportunities: The Perspective of Successful Owners. International Journal of Hospitality & Tourism Administration. 10(1). pp. 68-92.

Martin, B. (2015) Thomas Cook flies into profit despite terrorism fears. (online) Available at <http://www.telegraph.co.uk/finance/newsbysector/epic/tcg/12015412/Thomas-Cook-flies-into-profit-despite-terrorism-fears.html> (Accessed on 4 February 2017)

Middleton, V., Fyall, A., Morgan, M., Ranchhod, A. (2009) Marketing in travel and tourism. London: Routledge.

Nasr, R. (2015) Online travel industry is booming: Report. (online) Available at <http://www.cnbc.com/2015/07/01/online-travel-industry-is-booming-report.html> (Accessed on 4 February 2017)

Ostlund, U., Kidd, L., Wengstrom, Y., Rowa-Dewar, N. (2011) Combining qualitative and quantitative research within mixed method research designs: A methodological review. International Journal of Nursing Studies. 48(3). pp. 369-383.

Romero, I., Tejada, P., (2011) A multi-level approach to the study of production chains in the tourism sector. Tourism Management. 32(2). pp. 297-306.

Ruiz-Mo;ina, M., Gil-Saura, I., Moliner-Velazquez, B. (2010) information technology in relationships between travel agencies and their suppliers. Journal of Hospitality and Tourism Technology. 1(2). pp.144 – 162.

Scott, D. (2008) Climate Change and Tourism: Responding to Global Challenges. (online) Available at <http://s3.amazonaws.com/academia.edu.documents/42734903/DavosReportOverviewDanScott.pdf?AWSAccessKeyId=AKIAIWOWYYGZ2Y53UL3A&Expires=1486758998&Signature=qsRleqsr7ce5ys3ZH2aKoe2g404%3D&response-content- disposition=inline%3B%20filename%3DClimate_change_and_tourism_Responding_to.pdf> (Accessed on 4 February 2017) 

The Travel Association (2015) The economic value of outbound travel to the UK economy. (online) Available at <https://c0e31a7ad92e875f8eaa-5facf23e658215b1771a91c2df41e9fe.ssl.cf3.rackcdn.com/publications/Outbound_Travel_2015_.pdf> (Accessed on 4 February 2017)

The World Bank (2015) International tourism, number of arrivals. (online) Available at <http://data.worldbank.org/indicator/ST.INT.ARVL> (Accessed on 4 February 2017)

Thomas Cook (2016) Annual Report. (online) Available at <https://www.thomascookgroup.com/wp-content/uploads/2016/12/TCAR16.pdf> (Accessed on 4 February 2017)

Thomas, N. (2014) TUI Travel to gain £320m from proposed merger. (online) Available at <http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/leisure/10934476/TUI-Travel-to-gain-320m-from-proposed-merger.html> (Accessed on 4 February 2017)

Toursitik & Business Travel (2008) Thomas Cook: Acquisitions in France and Canada. (online) Available at < http://www.fvw.com/thomas-cook-acquisitions-in-france-and-canada/393/84607/11245> (Accessed on 4 February 2017)

Travel Weekly (2016) 2016 Power List. (online) Available at <http://www.travelweekly.com/PowerList2016> (Accessed on 4 February 2017)

TUI Group (2015) TUI Group continues its profitable growth in H1 2014/15 / Earnings guidance confirmed. (online) Available at <https://www.tuigroup.com/en-en/media/press-releases/2015/2015-05-13-tui-group-continues-its-profitable- growth-in-h1-201415-earnings-guidance> (Accessed on 4 February 2017)

Appendix

 

Stars

The largest revenue segments for the company represent tours, holiday bookings and business travel arrangements made for the UK and Ireland as well as continental Europe that account for approximately 75 percent of the company’s business (Thomas Cook, 2016):

Cash Cow

The company’s travel tour packages have become a cash cow due to the many advantages it offers (Thomas Cook, 2016). Consumers can be advised of a wide range of options that can be meshed into their travel plans to include skiing, diving, adventure, and environmental tourism (Thomas Cook, 2016). The company’s branded hotels have become a significant cash cow as it generates revenue from accommodations, meals and other activities that can be arranged in a company owned and operated environment (Thomas Cook, 2016).

Dogs

Northern Europe has declined in terms of its contribution to company earnings as it is not growing as fast as the company’s Airlines Germany subsidiary (Thomas Cook, 2016). This is due to the fact that the company competes with locally based travel competitors and that Thomas Cook is a UK company as opposed to a local one (Thomas Cook, 2016). Whilst the company has the decades of experience to operate effectively in foreign markets, nationally based and local travel companies are huge competitors as they tend to be seen as being more in turn with consumer and business travel needs, even though this is not the case (Thomas Cook, 2016).

Problem Children

The company’s Internet operation is its problem child (Thomas Cook, 2016). This is due intense competition from rival travel agencies, booking sites such as Expedia, Travelocity and others, along with airlines and ease of looking up and comparing information. The company is seeking to enhance its positioning in this area through aggressive tour package promotion and additional concentration on adventure and environmental tourism that are experiencing growth (Thomas Cook, 2016). The company’s One Web programme links travel, tour and specialised travel/tour opportunities (adventure and environmental travel) into an easily accessible Internet and mobile series of options where customer preferences can be customised to deliver more personalisation 

High Added Value

In looking at the business strategies of the company it was found it achieves a gross margin of 29 percent on operations (Thomas Cook, 2016). This is despite the company offering prices in the same range as its competitors. Value added services are included in the price of packages that represent provisions for extra luggage, room upgrades, private transfers, excursions and entertainment on the way to destinations (Thomas Cook, 2016).

These all fall in the medium price of what the company offers

Mediocre added value

Because of the medium price value offerings of the company, it does not seek to be the cost leader (Thomas Cook, 2016). Instead, Thomas Cook opts to be the value leader which translates into more services delivered per pound (Thomas Cook, 2016). This is a highly important part of the company’s strategy in the face of competition and low price options such as Internet booking where the customer has little recourse after selections have been made and paid for, 

Low added value

The high added value offered by the company eliminates this category segment as a strategic option.



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