Thomas Cook Strategic Analysis
The travel and tourism segment is one of the more highly competitive industry sectors due to the huge number of international, regional and domestic companies that all have access to similar packages in terms of destination offers. Pricing, in most instances, represents the key concern of consumers and businesses with specialised adventure and environmental tourism along with tourism packages as growth segments. Whilst the last two areas (adventure and environmental tourism and tourism packages) are strengths of Thomas Cook, the company’s limited revenue footprint that is concentrated on the UK, and continental Europe was discovered to be a weakness. It seems that the company has not been exposed to or marketing to a larger travel and tourism segment as the above two areas represent approximately 75 percent of revenues.
In looking at competitive factors, the company is of moderate size when compared to industry leaders such as Expedia, Travelocity, and American Express. Growth by acquisition was found to be the key method employed by these companies, along with German-based TUI that has taken over the domestic leadership position in the UK from Thomas Cook in just over a decade. In contrast, Thomas Cook has not pursued this strategy as well as a broader travel and tourism destination footprint which seems to be limiting its growth and industry positioning. With a brand name that offers a 175-year travel history, Thomas Cook has the reputation to pursue and accomplish more aggressive growth through acquisition and marketing awareness to compete with competitors and broaden its market positioning and increase revenues.
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.
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:
Figure 1 - Thomas Cook Revenue Segments
(Thomas Cook, 2016, p. 4)
The above reveals the limited market revenue generation of the company that is shown by another method below:
Figure 2 - Thomas Cook Revenue Summary
(Thomas Cook, 2016, p. 34)
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).
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.
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.
Appendix 4 - Boston Matrix
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):
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).
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).
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
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