Contents

1) INTRODUCTION...................................................................................................2
2) ENVIRONMENTAL ANALYSIS OF THE TOURISM INDUSTRY....................................2
2.1) PESTEL ANALYSIS:........................................................................................2
2.1.1) POLITICAL:..............................................................................................2
2.1.2) ECONOMICAL:..........................................................................................3
2.1.3) SOCIOCULTURAL:....................................................................................3
2.1.4) TECHNOLOGICAL:....................................................................................4
2.1.5) ENVIRONMENTAL:...................................................................................4
2.1.6) LEGAL:....................................................................................................4
2.2) PORTER’S FIVE FORCES ANALYSIS.................................................................4
2.2.1) POTENTIAL ENTRANTS:............................................................................4
2.2.2) SUBSTITUTES:..........................................................................................5
2.2.3) SUPPLIERS:..............................................................................................5
2.2.4) BUYERS:..................................................................................................5
2.2.5) COMPETITIVE RIVALRY:...........................................................................5
3) MAINTAINING LEADERSHIP.................................................................................5
4) FUTURE IMPLICATIONS FOR TUI:.........................................................................6
5) USES AND LIMITATIONS OF TOOLS USED:............................................................7
5.1) PESTEL..........................................................................................................7
5.2) PORTER’S FIVE FORCES..................................................................................7
5.3) SWOT ANALYSIS............................................................................................8
5.4) ANSOFF MATRIX............................................................................................8
6) CONCLUSION......................................................................................................9
7) REFERENCE......................................................................................................10
8) APPENDICES.....................................................................................................13
8) APPENDICES

1) INTRODUCTION
TUI AG established in 1997, is the undisputed leader in the European tourism industry.
They operate in over 180 countries worldwide serving more than 30 million customers offering a
wide range of leisure travel experiences. They also operate around 240 hotels of which majority is
in the 4- or 5- star category. TUI travel (tour operating, online sales, high street outlets, airlines
and incoming agencies), TUI Hotels & Resorts and the cruise ship business comprises the three
sectors of TUI (TUI website). After the selling of Hapag Lloyd AG (was the container shipping
company of TUI) in March 2009, TUI has become a pure tourism oriented company.
The business environment of a company consist of the macro environment, industry (or
sectors), competitors and the company themselves. Various analytical tools such as PESTEL,
Porter’s five forces, SWOT and ANSOFF matrix are used for the analysis. The external
environmental analysis is carried out using PESTEL and Porter’s five forces. SWOT along with
the help of value chain is used to analyse the industry and to investigate on how TUI achieved and
maintained its leadership in the European tourism industry. Future implications for TUI is drawn
using ANSOFF matrix, and also taking into account of the key drivers identified from PESTEL.
Moreover, the uses and limitations of the analytical tools are also discussed in the report.
2) ENVIRONMENTAL ANALYSIS OF THE TOURISM INDUSTRY
2.1) PESTEL ANALYSIS:
The PESTEL framework categorises the environmental factors into political, economical, socio
cultural, technological, environmental and legal. PESTEL helps understand the key drivers of
change and external influences on the organisation (Johnson et al., 2005). PESTEL analysis is
shown in Appendix 4.
2.1.1) POLITICAL:
Terrorist attacks result in tight security reasons and strict immigration laws (Hirsch, 2009)
(Weissinger, 2003). If the Foreign and Commonwealth Office (FCO) put some destination off-
limits after these terrorist incidents, travel insurers would refuse to cover tourists if we went there
(Urquhart, 2006). Tourism suffers when prolonged tourist attacks affect tourist perceptions
(Sónmez, 1998)
Government toppling and political instability could adversely affect the tourism industry of
that country. Political instability not only affects the tourism of that particular country but also that
of the neighbouring countries as well (Sónmez, 1998). This is same in the case of terrorism.
Taxation policies on tourism by different countries also have a major impact on the tourism
industry. Governments often provide subsidies and tax exemptions in their countries to promote
tourism of that particular country (MENAFN, 2009)(ndTax, 2009).
2.1.2) ECONOMICAL:
Exchange Rates play a crucial role in international tourism and trade. Gallego et al. (2007)
statistically discusses the impact of exchange rate regimes on tourism and concludes that more
fixity in the exchange rate arrangements generates a positive impact on tourism. Considering the
scenario of Euro is decreasing the gap with Pound Sterling may affect the outbound tourism from
UK to other European Union Nations and this could definitely affect the tourism agents.
Globalisation provides the world business with unlimited opportunities and it certainly
boosted up the tourism ventures such as travel agencies, travel research and consulting,
technologies, hotels and resorts and so on (Munoz, 2005). Companies have lower barriers to enter
new markets and take over other companies. Agreeing with this as an opportunity, Wahab &
Cooper (2001) points to the threat to tourism from globalisation such as increased competition,
maintaining quality of service etc. Competition will be tough when the barrier to entry become
low (Porter, 1980). The dependancy of aviation charges on Oil Prices also is an important factor in
the tourism industry.
Even though tourism industry is going through a difficult period now; travel and tourism
economy GDP growth slowed to 1% in 2008, contracted by 3% in 2009 and is expected to expand
only by 0.3% in 2010; the World Travel and Tourism Council (WTTC) predicts tourism industry
to resume its leading, dynamic role in global growth (WTTC, 2009). UNWTO’s Tourism 2020
Vision forecasts that international arrivals are expected to reach nearly 1.6 billion by the year
2020 (Appendix 1). This implies more opportunities and more competition in the tourism industry
in the coming years.
Similarly, the currentRecession can positively and negatively impact tourism industry.
Economic crisis is the major threat which results in collapse of some major players in the industry,
for example the closing down of ‘XL Leisure Group’ (Directgov, 2008). But this is an opportunity
for the survivors as they get more market space and more consumers to absorb in. Moreover, a
post-recesion boom could be expected and taking into consideration that tourism contributes
10.6% of world GDP (refer case study),they always get their stake from the disposable income.
2.1.3) SOCIOCULTURAL:
Life Style has got a major part in priorities of the customers. Tourism agencies offer
customised holiday packages (selecting packaged tours and individual travel components) and
online booking facilities to meet customer expectations (refer case study).
Brand Consciousness is another socio cultural factor. Consumers believe in the company’s
intangible guarantee projected by the brand name. Brand loyalty can be a result of past
experiences or the brand image already perceived (could be advertisements or impulse).
 Changing attitudes towards safety and environment can also play a vital role in customer
decisions. Appendix 2 shows a survey result conducted by The Boston Consultancy Group on
‘going green’ attitude of customers and it shows a significant percentage of consumers are
environment conscious and are more leaned to companies having a better environmental policy.
2.1.4) TECHNOLOGICAL:
Customers relying on internet and online sales are increasing day by day. Statistics show a
mere 70% of UK households had access to internet in 2009 (Office for National Statistics, 2009)
and is increasing compared to previous years (Appendix 3). Even though online sales make it
easier for customers and cut costs by reducing staff and intermediaries, it also possesses a threat to
companies. Internet has a low barrier for entry (Porter, 2001) and newcomers can easily pop into
the competition.
Substitutes such as television and games are also a threat to tourism. Advanced
technologies could decrease the frequency of social (physical) mobility of people (Use of video
conferencing for instance). Tourism agencies use other technological devices such as TV hotlines
and telephone (call centres) facilities for maintaining their customer relationships.
2.1.5) ENVIRONMENTAL:
Air flight rationing is proposed by UK government as a method to reduce pollution (Drury, 2009).
Tourism industry will suffer if governments decide to go on with this. Moreover, government of
UK is campaigning for greener holiday locations (Directgov, 2009). Increased emission of CO2 is
a major threat of climatic conditions in earth and aviation is a major contributor of CO2. The
government report goes on to describe the CO2 emission in rail travel is only one-third of air
travel. Even air flight companies are including carbon footprint charges in their tickets.
Health Problems is a major concern for tourism industry and tourists. Even though WHO is
not recommending travel restrictions related to the outbreak of the influenza A (H1N1) virus
(World Health Organization, 2009), they raised a worldwide pandemic alert and a number of
recommendations for travellers to the flu affected areas (CDC, 2009). Similarly, Natural Disasters
are also a major concern for tourism industry.
2.1.6) LEGAL:
Governments recommend a wide range of regulations on Aviation Safety and Regulations
(Department of Travel, 2009). This covers domestic, environmental, health and consumer issues
and aviation permits, and all these come under legal factor. Also, companies need to be aware of
the legal issues of different countries if they are acquiring or merging with other companies. Trade
Laws plays a crucial part in current world businesses.
2.2) PORTER’S FIVE FORCES ANALYSIS
Five force framework (illustrated in Appendix 5) helps identifies the sources of
competition in the industry (Johnson et al., 2005). Five forces which are not independent of each
other, draws a connection between competitive forces and the key drivers in the macro-
environment.
2.2.1) POTENTIAL ENTRANTS:
High Capital Requirement creates a high barrier of entry for newcomers. And more than 70
% of market share is controlled by the top 10 leaders (Appendix 6) and thisred u ces the price
retaliation and keeps the economies of scale high. Brand Recognition also acts as a barrier to new
entrants. Hence, the threat of new entrants islow .
2.2.2) SUBSTITUTES:
Even though TV, games or other social activities can act as substitutes, they will never be
same as travelling. Moreover, there is a low differentiation of products and together there islow
threat of substitutes.
2.2.3) SUPPLIERS:
 Suppliers have high negotiation powers against the companies having a low share in the
market. But in a market where the top 4 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.
2.2.4) BUYERS:
There is a low switching cost to buyers with the emergence of internet and online sales. But
the low differentiation of products and lesser number of substitutes limits the bargaining power of
buyers to low.
2.2.5) COMPETITIVE RIVALRY:
There is a moderate competitive rivalry in the industry. High fixed cost largely favours the
incumbents. And there is a significant 8% difference in market share between the top two market
leaders (TUI 21% and Thomas Cook 13% - Appendix 6). These huge variations of market shares
of incumbents lessen the competition in the industry.
3) MAINTAINING LEADERSHIP
A company can maintain its leadership in the market only by establishing a difference that
it can preserve (Porter, 2006) and by keeping its structure attractive (Porter, 1987). TUI is the
leading company in the concentrated market of tour operators in Europe with a staggering 21% of
the market share (Appendix 6). TUI operate in over 180 countries worldwide serving more than
30 million customers offering a wide range of leisure travel experiences. They also operate around
240 hotels of which majority is in the 4- or 5- star category.
A SWOT analysis of TUI is illustrtaed in Appendix 7. The strengths of TUI which helped
them to attain and maintain their leadership in the tourism industry is listed in the same. Backward
Vertical Integration of TUI helped them to spread out through the value chain (Appendix 8). This
made them deliver a higher value when compared to their competitors at a cheaper price. Being
their own suppliers (Airlines, Hotels etc) helped them to attain cost leadership. Their investments
on direct distribution channels act as a key driver reducing the distribution cost and increasing the
margin. Theirmulti-channel distribution focusing on online sales made them capable of retaining
their customers and gaining new customers. Stable and management friendly share holders (refer
case study) supported them to incorporate better customer service along with thier excellent
operating service, and thus extend their presence in the value chain. Moreover, TUI have better
liquidity and financial situation following the sale of Hapag-Lloyd. The acquisiton of companies
varying from tourism, airlines, hotels, cruises etc all over the world help them attaindiffere
ntiation. They claim their differentiated products are integral part of their customer retention,
brand building and uniqueness and thus gained them the competitive advantage in the market
(Annual Report, 2008).
TUI always seek to create value for their customers, investors and employees. TUI
understands the fundamentals of sustainable economic success is the right balance between
economic goals and social and ecological needs (TUI website). Resources and capabilities are the
base of strategy, direction and profitability (Grant, 1991). They kept their capacity management
(combination of flexible lease profiles and uncommited bed stock resources) on alert to respond
according to the changes in the trading environment. Moreover, they are well prepared to adapt to
a changing environment using their unique breadth and depth of experience along with innovative
enterpreuneurs (Annual Report, 2008). And TUI’s acquisition (resources) policy aid them to gain
a competitve edge over their market rivals. This made them acheive a high economy of scale
which is difficult for their competitors to attain. In addition to all this, there is a factor of causal
ambiguity(Barney, 1991) as irms in the same industry will be curious about its competitors and
will be trying to adapt and learn from each other. Thus, TUI acheived competitive advantage by
implementing their value creating aspects (differentiated products, cost leadership, acquisition of
companies – Porter’s Generic Strategy) and was not simultaneously being implemented by any of
their potential competitors (Barney, 1991).
4) FUTURE IMPLICATIONS FOR TUI
The macro environmental and micro environmental analysis of TUI is done in the previous
sections of this report. ANSOFF matrix (Appendix 9) is used to show the developmental
directions for TUI. They had already penetrated to the European markets and is one of the leading
market holders of tourism industry all over the world. Depending on the findings (key drivers) on
the previous analyses along with ANSOFF matrix the future implications of TUI is listed below:
• The air flight boom just before recession was fuelled by short-haul travels (Mintel
Reports, 2009). Low cost airlines gained from it, but the recession changed the picture completely.
Customers find cheaper options in rail, buses and ferries; even though these transport options take
more time, they provide a different experience. 90% of TUI’s travel options are through airlines
(TUI website). This could be an opportunity for TUI to extend its differentiation by providing land
transportation and thus milk the emerging trend of short-haul travels.
• Even though potential entrants need a high capital to barge into tourism industry, internet
alters the whole context. It provides a low barrier for entry to new comers. Moreover companies
like lastminute.com and expedia.co.uk made their mark in the online tourism industry. A Mintel
survey report shows travel as the main spend category through online (Mintel Survey, 2008). TUI
need to take necessary measures to ensure their strong presence in online services and again, this
could help them to differentiate further.
Fuel Price fluctuations is having a major impact on world business. TUI can negotiate
prices (hedging) for a specific period of time with the oil companies to stabilise the variations. But
they have to understand that this could be a risk as it may sometime prove to be a loss
• TUI has to take in to account of the environmental factors that could have a serious
impact on the business from the near future. Carbon emission problems and carbon footprint
charges had already made their presence in airline fares. Moreover, they could expect a rationing
of holiday air flights proposed by UK government. These all implies to the important of ‘going
green’. As more and more customers are preferring companies who are aware of environment.
• TUI is the marketing leader in the tourism industry in Europe. So this give them an
opportunity to expand their market shares in Asian (concentrating on India and China) and
Russian markets; while maintaining their market share in Europe. Moreover they can expect a
post-recession boom similar to what happened in early 90’s to capitalise on and strengthen their
position in European markets.
5) USES AND LIMITATIONS OF TOOLS USED
There are several analytical tools used in the report. Most of them are subjective as there is
no specific ways to carry out these analyses. The uses and limitations of these tools are discussed
below:
5.1) PESTEL
Uses
• To analyse the macro environment of the industry
• To anticipate the future threats
• To identify the key factors affecting the strategy Limitations
• Does not provide any solutions
• Difficult to identify the level of uncertainty
• Practically difficult to analyse the limitless macro environment completely
• Is not descriptive
5.2) PORTER’S FIVE FORCES
Uses
 • To identify drivers of competitive behaviour
• To analyse the profitability and competitiveness of the industry
To determine the attractiveness of the industry
• To analyse the dynamics of industry
Limitations
• Need to be constantly reviewed as the environment is constantly saving
• Analysing the industry as a whole; is not considering segments
• Does not consider the complementary products
• Ignores major factors such as human resource, culture and management skills
• Industrial environment is only a small factor of profitability
5.3) SWOT ANALYSIS
Uses
• Both internal and external aspects of business is taken into account
• To understand what attributes to be focused on
• To help in the purpose of decision making
• To identify the relevant information addressing the key issues
Limitations
• As it presents the situation in a manageable format, SWOT analysis is prone to
skipping some of the important factors
• Even though it identifies the strength, there is no suggestion of how to utilise it for an
advantage
• Analysis is subjective
5.4) ANSOFF MATRIX
Uses
• To enable the organisation to explore the strategic corporate growth
• To evaluate the options and choose the best situation
Limitations
• Focus only on market share and market growth and is not considering other factors
• Is an over-simplified 2 x 2 matrix to analyse the strategic analysis of the organisation.
6) CONCLUSION
As credit crunch is expected to be reaching an end, TUI needs to capitalise on the
disposable income of customers. This report analyse the macro environment of the tourism
industry using PESTEL and Porter’s five forces and managed to find out some key drivers of
change. Then, the report further investigates on how TUI achieved its sustainable competitive
advantage by identifying the strengths from SWOT analysis and by analysing how they extended
their reach in value chain (also referring to cost leadership and differentiation). ANSOFF matrix is
used to draw future directions to TUI. As the number of short-haul travels is increasing these days,
TUI will gain from concentrating a bit more on supporting this (can enter in road transportation
facilities). Alike other leaders in tourism industry, TUI will also have to tackle their consolidated
fixed assets. Moreover, the uses and limitations of the analytical tools are also listed. The level of
success achieved by TUI holds some important lessons and some much needed inspiration to a
business world; that could use a little of both right now.