A strategic analysis of the European tour operating industry according to the Porter business model. TO's competitiveness, strategy matrix and value chain.

1. The tour operator
industry in Europe
IULM, 09.06.14 Filippo Marongiu, Giorgio Kwiatkowski, Federica Salaroli, Mathilda Börjesson

2. The client markets
LEISURE
GROUPS
BUSINESS
• BRIC
• Adventurous
• Religious
• Student travel
• Medical travel
• Wellness &
Relaxation
• City Breaks
• Incentives
• Knowledge &
Learning
• Sustainability
• and much much
more…

3. Porters Five Forces
Industry
competitors
Competition
from Substitutes
Threat of Entry
Bargaining power
of buyers
Bargaining power
of suppliers

4. Competition from
Substitutes
Other TO’s
1. Price: the same
2. Switching cost: might exist
(for TA’s)
3. Buyers loyalty: higher
loyalty from TA’s
Online reservation
systems
1. Price: low (do-it-yourself)
2. Switching cost: probably
no/low switching cost
3. Buyers loyalty: no/low
loyalty
&
UI
PI
US
PS
=
UI
PI
UI
PI
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5. Threat of Entry
• LOW capital requirements
• Economies of scale: high! low fixed cost (group buying)
• NO/LOW cost advantages
• Product differentiation. YES & NO
• Access to channels of DISTRIBUTION
• NO governmental & legal barriers TA’s
Consumers
Low
barriers
of entry
(www &
€)

6. Bargaining powers
Buyers price sensitivity
• TA’s: are they loyal or price
sensitive?
Competition is big so they are
eager for price reduction
• Consumers: low loyalty &
price sensitive
Relative bargaining power
• Relative vertical integration
• Buyers information (TA &
consumers) easy with
internet?
• Suppliers: airlines, trains,
resorts, B&B, excursions,
hotels…
• Do these suppliers have
large bargaining power?
of buyers of suppliers

7. Industry competitors
• Crowded!
o TUI Travel Group & Thomas Cook Travel Group 66% market
share
o Small & Micro enterprises make up 99% of the market
• No high diversity of competitors
• Product differentiation
• This is what the industry is working on now to be more competitive.
Product differentiation is otherwise difficult
• Industry growth
• Cost structure: low fixed, high variable

8. Strategic group:
the parameters
• Selected parameters for assessing a consistent strategic group
in T.O.s industry will be: Products range and Degree of vertical
integration
• Tour Operators industry is a very differentiated one with a very
broad array of products and services which might easily
determine the success of a company;
• The ability of a company to internalize as many services as
possible is a peculiar factor, which might reduce costs (even
increase them depending on the nature of the service) or
create chances for incremental businesses and revenues

9. Strategic group: the competitors
TUI
T.O.
O.T.A.
Hotel Reservation
Airlines tickets
Cruises reservation
Car rental
Branded Airline
Branded resorts
Thomas Cook
T.O.
O.T.A.
Hotel Reservation
Airlines tickets
Cruises reservation
Car rental
Branded Airline
Expedia
T.O.
O.T.A.
Hotel Reservation
Airlines tickets
Cruises reservation
Car rental
KUONI
T.O.
Packages creation
Club Med
T.O.
O.T.A.
Hotel Reservation
Branded resort
Hotelplan
T.O.
Hotel reservation
Cruises reservation
Alpitour
T.O.
O.T.A.
Hotel reservation
Airlines Tickets
Branded resorts
E.F.
Niche T.O.
English Courses
FTI
T.O.
O.T.A.
Hotel reservations
Airlines tickets
Camper vacations
(German MKT)
Pegas
T.O.
O.T.A.
Hotel reservation
Airlines tickets
(Russian MKT)
Primera Group
T.O.
O.T.A.
Hotel reservation
Airlines tickets
Branded airline
(Northern Europe MKT)
AllTours
T.O.
O.T.A.
Hotel reservation
Airlines Tickets
(Northern Europe MKT)

10. Strategicgroup: the scheme
Vertical Integration
Low Average High
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Productrange

11. TUI
Strategy MatrixBroadNarrow
DifferentiationLow Cost
TUI
RED: TUI
VIOLET: Thomas Cook
GREEN: Expedia
TUI

12. The cost advantage matrix
Low High
YesNo
Acceptability
Lowestcostonthemarket
TUI
TUI
• Low costs of operations through vertical integration
• TUI introduced a new cost cutting programme strategy in 2013
• 2013 closed with positive results in sales for both winter 2013 and summer 2014
• Efficient distribution channels and good economy of scale are TUI competitive
advantages on its competitors

13. Inboundlogistic
OutboundlogisticsOperations Marketing & sales Service
• Vertical integration
• Low cost packages
• Personal packages
• Diversification
• Sustainable travel
• “being their own
supplier”/acquisition
• High economies of
scale
• Ticketless travel
• Multichannel
distribution
• Online sales
• FFP
• Research in customer
attitude (towards
sustainable
development)
• Direct sales & TA
• Expansion in Asia
• May 2012: license for
Chinese outbound
• High quality of customer
service
• Customer feedback for
retention
• “emergency line” 24/7
Infrastr.Infrastr.
R&DR&D
HRHR
SuppliersSuppliers
• London stock exchange
• 52% TUI AG, 26% S-group travel holding, 14% Private Inv., 8% Rio hotels S.A
• TUI Travel, TUI Hotels & Resorts, Cruise Ships
• Mainstream sector 80%, Acc. & Dest. 12%, Specialist & Activity 8%
• Worlds first global warfare guidance for animals in tourism
• Upgrading web front & reservations
• Modern technology
• Training & skills
• Talent management
• Collaboration with universities
• 2013: supplier code of conduct (human rights, labor laws, local commitments…)
• Training
• Environmental sustainability guidelines
VALUE
The Value Chain

14. Thank you for your
attention!!!
Any question?