Contents

PART -1 .................................................................................................................................................... 2 1.1 EUROPEAN TOUR OPERATORS PESTEL ANALYSIS ................................................... 2

POLITICAL ANALYSIS ........................................................................................................................ 2 2. VOLATILE FUEL PRICES (POLITICAL/ECONOMIC) (THREAT .......................................................... 2 ECONOMIC AL ANALYSIS ................................................................................................................. 2 SOCIAL ANALYSIS............................................................................................................................. 4 TECHNOLOGICAL ANALYSIS ............................................................................................................ 4 LEGAL ANALYSIS .............................................................................................................................. 4 1.2 KEY FACTORS ................................................................................................................................. 7 1.2.1 STABILTY ............................................................................................................................ 7 1.2.2 VOLATILE FUEL PRICES .................................................................................................. 7 PART-2 ..................................................................................................................................................... 8 2.1 EUROPEAN TOUR OPERATOR PORTERS FIVE FORCE ANALYSIS ............................... 8 2.1.1 THREAT OF NEW ENTRANTS (LOW) ............................................................................. 8 2.1.2 THREAT OF SUBSITITUTES (LOW)................................................................................. 8 2.1.3 BARGAINING POWER OF BUYERS (HIGH) ............................................................ 8

2.1.4 BARGAINING POWER OF SUPPLIERS (MODERATE) .................................................. 8 2.1.4 RIVALARY (HIGH) ...................................................................................................... 8

INDUSRTY ATTRACTIVENESS ............................................................................................................. 10 REFRENCES ............................................................................................................................................ 11

PART -1 1.1 EUROPEAN TOUR OPERATORS PESTEL ANALYSIS

POLITICAL ANALYSIS

1. STABILITY (POLITICAL) (OPPURTUNITY) Stability is one of the major factors that affect a consumers destination choice. Following financial year 2011/11 in which demand for Tunisia and Egypt was strongly affected by the political unrest in these countries, demand for these destinations recovered again in the financial year under review. In financial year 2011/12, by contrast, media coverage about the financial and economic crisis in Greece adversely affected demand for trips to this destination. [TUI, Risk report, 2012] Similarly, in the Middle East, where civil unrest and violence in some countries continues, (example: Syria) fall in tourism is expected, as the political situation worsens and increasing concerns over security arises. This instability can be cashed as opportunity by Euro tour operators, by attracting the consumers of these markets as well as promoting internal regional tourism.
2. VOLATILE FUEL PRICES (POLITICAL/ECONOMIC) (THREAT)

Preceding research has indicated that higher oil prices exert a negative impact on tourism (Becken, 2011; Becken & Lennox, 2012; Yeoman et al., 2007). In testament to that, the current global economic turbulence and political events in the Middle East have created uncertainty in commodity markets and oil prices are expected to peak in the following years. The United Nations World Tourism Organisation (UNWTO) has also expressed its concern regarding the negative effects of oil prices on tourism (WTO, 2011). In addition, the UNWTO has concluded that high oil prices are affecting certain tourism industry segments (e.g. airlines, cruise lines, etc.) disproportionately more than others. Slightly over half of all travellers arrived at their destination by air (52%) in 2012, while the remainder travelled by surface transport (48%) whether by road (40%), rail (2%) or over water (6%). Over time, the trend has been for air transport to grow at a somewhat faster pace than surface transport, so the share of air transport is gradually increasing. [UNTWO, 2013] Civil unrest in Middle East has caused oil prices to rise and places cost pressures on tourism operators that are subject to high fuel prices. This directly affects the overall mobility options of the consumers. If the situation continues for the long term, consumers will need to absorb higher travel tickets, which as high chances of hindering the ability of travellers to make international trips.

ECONOMIC AL ANALYSIS 1.FOREIGN CURRENCY EXCHANGE RATE (OPPOURTUNITY)

With a manifest deficiency of aggregate demand, too many countries are relying on currency depreciation. Currency exchange rates have a large impact on the market for international travel and tourism. When you travel to a foreign country, you must buy that country's currency in order to use at restaurants, hotels, and other attractions. Continued weakening of the euro against major currencies may have positive impact attracting high spending North

Americans. Travel from the US has increased for over 80% of destinations in Europe during 2011. [ European Tourism: Trends & Prospects 2011]
2. RISE OF OTHER MARKETS (THREAT)

In percentage growth terms, Asia, Latin America and Sub-Saharan Africa were amongst the fastest growing destination markets in 2012. [UNTWO, ONLINE ACESSED: 10/11 2013] Asia and the Pacific recorded the fastest growth across all UNWTO regions, with a 7% increase in international arrivals, or 16 million more. Africa saw an increase of 6%, equivalent to 3 million more tourists, reaching 50 million for the first time ever. The Americas also experienced sustained growth with 5% more arrivals, or an increase of 7 million. Growth is expected to continue in 2013 at +3% to +4%, only slightly below the 2012 level and in line with UNWTO's long-term forecast. By UNWTO region, prospects for 2013 are strongest for Asia and the Pacific (+5% to +6%), followed by Africa (+4%to +6%), the Americas (+3% to +4%), Europe (+2% to +3%) and the Middle East (0% to +5%).This data provided by UNTWO clearly shows that Europes tourism industry is in good health but in the long term faces a decline in market share as emerging markets pose a growing threat to its pre-eminence in attracting international travellers, which possess a threat to Euro tour operators industry.
3. RISE OF EMERGING ECONOMIES (OPPOURTUNITY)

According to UNTWO report 2012, the highest growth rates in expenditure on travel abroad came from emerging economies. Newly released data by Euro-monitor International confirms that, Croatia experienced 93% growth in arrivals from China and 40% from Brazil in 2012. Cyprus recorded 42% growth in arrivals from Russia, while arrivals from India to the Netherlands increased by 18%. China and Russia followed by Brazil and India are emerging economies showing an impressive advance in recent years along with strong expenditure on international tourism. With high number of people having a significant spending power, the tour operator industry can hugely benefit. Being able to tap this market would be favourable for European tour operators industry.
4. VALUE EQUATION (THREAT)

Increasing consumer awareness has resulted in a culture focused on value equation. Increasingly consumers across all levels of wealth are concerned about the value a product or service gives -does the price I pay for a product or service justify the benefit or feeling that I enjoy? The rise of the internet is one of the major factors that gives the consumers power over the industry. With internet consumers today have transparency, speed, convenience and a wide range of choice and flexibility in the market place. Transparency enables buyers to increase their bargaining power by facilitating price comparisons and access to instant, inexpensive and accurate information.

SOCIAL ANALYSIS 1. DOMESTIC TOURISM (OPPOURTUNITY)

According to tourism link, analyzing the tourism sector using a within-Europe perspective sheds light on some interesting facts. The data available for 2009 indicates that a large part of European tourism is domestic tourism; 84% of the arrivals in European countries are due to EU citizens. On average in the European Union, more than 3 out of 4 holiday trips (i.e. trips with at least one overnight stay) made by residents of the EU Member States had a destination within their own Country of residence. For nearly all Member States, more than half of the holiday trips were spent within the country borders. [Eurostat, 2011]
TECHNOLOGICAL ANALYSIS INTERNET (OPPOURTUNITY)

The creation and accessibility of the Internet have fundamentally changed how travellers access information, the way they plan for and book trips, and the way they share their travel experiences (Buhalis & Law, 2008; Senecal & Nantel, 2004; Xiang & Gretzel,2010). The circulation of new technologies has radically changed how both industry and consumers behave. Its impacts on consumer behaviour, company development and product marketing are striking. Social media are changing the way society consumes and contributes to the creation of information. Technology now allows individuals to easily contribute their thoughts, opinions and creations to the Internet. This has radically altered the way in which information is created and disseminated (Buhalis & Law, 2008; Gretzel et al., 2000; Senecal & Nantel, 2004;Xiang & Gretzel, 2010). The internet breaks down the national barriers, making it easier to reach international customers. The massive shift to online shopping and the use of technology to target and market to consumers is fundamentally changing the high street. It also hugely benefits tour operators by helping them add value to their services by reducing the involvement of intermediaries, communicate directly with both their buyers and suppliers and achieve instant distribution of their product through real time representation.
LEGAL ANALYSIS 1. TAXATION (THREAT)

Tourist tax is defined as, taxes specifically levied on tourists generally through businesses that deal with tourists. These can be entry taxes, hotel taxes or other specific tourism industry-based tax (Pearson Education, 2005). This definition encompasses a variety of monetary-based schemes in which various governments, businesses and individuals earn vital funding. Tourism has been an industry that has been taxed from its very beginning in order to raise revenues and compensate for negative externalities (Shubert, 2010). Tourism taxation can be disadvantageous for Tour operators as they offer packages combining several inputs. When these goods and services (for instance, a package including accommodations, tour guiding, tour brokerage, and transport) are treated differently under the VAT, the risk of taxpayer evasion increases and significant cost and complexity are added to the compliance and monitoring process. In short, multiple rates complicate administration and compliance, creating opportunities for abuse and corruption. [ Corthay, Loeprick, 2010].

2. VISA CONTROL (THREAT)

Large travellers to the Schengen area are from six target markets: China, India, the Russian Federation, Saudi Arabia, South Africa and Ukraine. Together, travellers from these six markets comprised almost two thirds of the visa travellers to the Schengen area in 2012, adding up to, in total, 9.3 million visitors from the target markets. Furthermore, these countries are foreseen as strong growth markets for international outbound tourism, with Chinese and Russian travellers, in particular, already among the top five tourism spenders globally. [European commission, 2013] European commission study has ascertained that the current Schengen visa regime has had a clear impact on the travelling to the Schengen area since its implementation in 2010. While it has certainly contributed to more harmonised visa procedures, it also has an impact in terms of deterring or constricting access for both tourists and business travellers to the Schengen area, as any visa system does. According to European Commission estimations, in 2012, a total of 6.6 million potential travellers from the six target markets were lost due to the Schengen area visa regime.

POLITICAL STABILITY VOLATILE FUEL PRICES

ECONOMICAL SOCIAL DOMESTIC TOURISM FOREIGN CURRENCY EXCHANGE RATE RISE OF OTHER MARKETS RISE OF EMERGING ECONOMIES VALUE EQUATION

LEGAL TAXATION VISA CONTROL TECHNOLOGICAL INTERNET

FIGURE 1: PESTEL ANALYSIS FOR EUROPEAN TOUR OPERATORS

1.2 KEY FACTORS

1.2.1 STABILTY Perceptions of political instability and safety are a prerequisite for tourist visitation. Violent protests, social unrest, civil war, terrorist actions, the perceived violations of human rights, or even the mere threat of these activities can all serve to cause tourists to alter their travel behavior. [Hall and OSullivan (1996, 117)] One of many examples of this would be middle east, with the ongoing civil unrest and violence the region experienced a 5% drop in arrivals due to continued tensions in some of its destinations, while its largest destination Saudi Arabia (-22%) also reported a considerable decline in arrivals as it could not consolidate its bumper increase of 2011 (+61%). [UNWTO, 2013] It would be safe to say that stability is one of the key factors affecting tourist behaviours.

1.2.2 VOLATILE FUEL PRICES According to UNTWO, In 2012 Slightly over half of all travellers arrived at their destination by air (52%) in 2012, while the remainder travelled by surface transport (48%) whether by road (40%), rail (2%) or over water (6%).Over time, the trend has been for air transport to grow at a somewhat faster pace than surface transport, so the share of air transport is gradually increasing. Current global economic turbulence and political events in the Middle East have created uncertainty in commodity markets resulting hiked oil prices, which directly affects the over all mobility of travellers.

PART-2 2.1 EUROPEAN TOUR OPERATOR PORTERS FIVE FORCE ANALYSIS 2.1.1 THREAT OF NEW ENTRANTS (LOW) European tour operator is a highly saturated market. With major acquisitions and mergers such as acquisition of MyTravel by Thomas cook and First choice by TUI in 2007 the players in this market are radically decreased. With the majority of market share controlled by TUI, Thomas Cook and ReweTouristik, the barriers to entry rises high for new players. These players already have created and established a brand image which is difficult to compete with. Furthermore, high capital requirements reduce threat of new entrants. 2.1.2 THREAT OF SUBSITITUTES (LOW) Social media are changing the way society consumes and contributes to the creation of information. Technology now allows individuals to easily contribute their thoughts, opinions and creations to the Internet. This has radically altered the way in which information is created and disseminated (Buhalis & Law, 2008; Gretzel et al., 2000; Senecal & Nantel, 2004;Xiang & Gretzel, 2010). With the rise in global economic crisis, the easiest way to get entertained is the media. Advanced technologies have decreased the frequency of social (physical) mobility of people. Even though TV, games and other social activities can act as substitutes, they will never be same as travelling and the low product differentiation limits bargaining power of substitutes making the threat of substitute low. 2.1.3 BARGAINING POWER OF BUYERS (HIGH) With the rise of internet, buyers now have the ability to access accurate and relevant information instantly. Transparency enables buyers to increase their bargaining power by facilitating price comparisons and access to instant, inexpensive and accurate information. Due to the low switching cost for buyers the industry faces threat of high competition and backward integration. (Example buyers can buy directly from suppliers, (i.e airlines, hotels ). Moreover the Luxury segment is brand conscious to and willing to pay a premium for great experience and service quality, hence it can be said that the bargaining power of buyers is high. 2.1.4 BARGAINING POWER OF SUPPLIERS (MODERATE) Suppliers with power of Forward integration (example airlines) have high negotiation powers against the companies having a low share in the market. But in a market where the top 3 market leaders covering more than 50% of market and possessing a threat of backward integration, there will be a power balance. This implies only a moderate bargaining power for the suppliers. 2.1.4 RIVALARY (HIGH) In a highly saturated market with low product differentiation where buyers benefit from low switching cost, competitive rivalry is intense. Companies introduce new products in order to gain and retain its customers. Examples: Premium upgrades, Club memberships, airline Mileage etc. With the industry top players competing against each other buyers benefit from offers and services are much likely to switch among the existing companies.

POTENTIAL ENTRANTS (Low threat of entrants) High capital requirements reduces threat of entry Top 10 market leaders cover 70% of the industry, so expected price retaliation reduces and economies of scale is high Brand Recognition Low switching cost Backward integration (can buy directly from suppliers, i.e airlines, hotels) BUYERS (High Bargaining power)

Internet/technology

COMPETETIVE RIVALRY (HIGH) Highly saturated market. Low product diferentiation offers to attractand retain customers

SUPPLIERS
SUBSTITUTES (Low threat of substitutes) (Moderate bargaing power) Low switching cost for incumbents 50% of market share is wih top 4 players threat of backward integraion (Incumbenst like TUI and Thomas cook have their own hotels, airlines, cruises)

Technologies(TV AND GAMES) could act as substitute, but cant replace travel
Low differentitation of products limits the substitutes

INDUSRTY ATTRACTIVENESS
With High bargaining power of buyers and intense rivalry among the industry players, the magnitude and ease of making profit, in comparison with the risks involved, that tour operator industrial sector offers, based on the number of competitors, its relative strength, width of margins, and rate of growth in demand for its goods or services is Low.

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