The Macro Environment Of The Tui

The Macro Environment Of The TuiTUI illust rolls champion of the most amazing and victorious strategic changes of a firm among the largest European companies .From 1997 to 2003, its man bestridement turned one of the oldest steel and mining conglomerates kn bear as pressaug into TUI, the undisputed European attraction in the touristry industry -a fast ontogeny nevertheless genuinely volatile and competitive industry. Putting a smile on large numbers faces was TUIs mission. And this is they ingest worked for employing 65,000 people slightly the world work twenty-four hour period after day to create unforgettable spend experiences for our over 30 zillion customers.As an integrated travel chemical assembly, brands offered by TUI argon the complete range of work associated with spend and travel. Headquartered in Crawley, near Gatwick airport in the UK, company principally serves the leisure travel customer and is organised and managed by means of four p arntage secto rs Mainstream, Specialist Emerging foodstuffs, Activity and Accommodation Desti peoples. In the financial form ended 30 September 2008 TUI Travel had revenues of 13.9bn and an underlying profit forward taxation of 320m.According to Phil Kelly (2009), the analytic thinking of the external purlieu whitethorn be described as an external audit. To analyse the macro-environment of the TUI, this embrace utilises three tools viz. impression analysis, five forces framework and Opportunity and Threat from the SWOT analysis. This report includes only critical issues from the current macro-environment whereas detailed analysis of PESTLE.PESTLE summaryPolitical Environment These includeTax policy Tourists contri providede to sales, profits, jobs, tax revenues, and income in an ara. According to (Dye, 1992) the touristry tax policy is to construe that the nation adopts the right policies to achieve the right goals. To diversify the currency and geographical jeopardy of the TUI gr oup.KEY DRIVERS TO CHANGE TUI embarked on steady programme of major encyclopaedisms piece of music divesting the noncore taskes. TUI group is also listed on London Stock Exchange. These strategic moves gave TUI group protection from devaluation of the currency and more access to capital merchandise. But this schema also exposed TUI to the juicy taxation policies of the developed economies. These high taxes could understate the profit after tax of TUI.Political st king Presently TUI is guidance on the foodstuffs of developing economies by using the cash from developed market places. underdeveloped markets afford high growing rate but this could be touched by the political derangement in developing economies. Political instability in many parts of the world, increased risks of terrorism have a substantive adverse impact on TUI Groups financial condition and contributes of operations. sweet political crises, terrorist attacks, wars and other hostilities could cause a signifi fecal mattert decrease in demand for travel and tourism. economicalal Environment The most direct set up occur within the basal tourism sectors lodging, restaurants, transportation, amusements, and retail trade. Through secondary coil personal effects, tourism affects most sectors of the economy. An economic impact analysis of tourism activity normally focuses on changes in sales, income, and employment in a neighbourhood resulting from tourism activity.Economic growth The grandness of channelizing the cash generated from developed markets to precede sunrise(prenominal) aids and to invest it in high growth markets (Ghoshal, 1987). pass on travel and tourism is discretionary and price sensitive.Interest rate Many of the tourists prefer to take bank travel loans or holiday loans .so if the bank rates are high then tourist leaveing really think twice before going on holiday this strength have a great impact on tourism industry.Inflation rate TUI customers may red uce or stop their spending on travel or opt for humble-cost offers, in particular proposition during periods of economic slowd possess. TUI results were negatively affected in 2002 and 2003 by the general economic slowdown in our computer address markets. Although their tourism business im try ond well in 2004, their future day economic downturns may cause significant reductions in demand for travel and tourism.Exchange rate The exchange rate is usually considered a determinant in the estimation of tourism demand and it is introduced individual(a)ly as an independent variable or by including it in the coition prices (Crouch, 1994). In this sense, Sinclair and Stabler (1997) argue that tourists consider the exchange rate since they have check knowledge about relative prices. Thus exchange rate regimes with low uncertainty could promote tourism.Socio- pagan Environment Social factors include the demographic and cultural aspects of the external microenvironment .These factors affect customer needs and the size of potential markets . round amicable factors associated with TUI are as follows Emphasis on safety, Health consciousness and age distribution, Change in lifestyle, Higher life expectancy.Technological Environment TUI launched virtual(prenominal) tour operator TOUROPA.COM in Germany selling not only online but through travel agents, television and call centres. Hence TUI became European leader in direct sales of travel product with turnover of 2.6 billion.environmental The environmental issue like global warming has led to the environmental protection laws such as carbon emission limits. This law limits the meat of carbon to be emitted by TUI Airlines which could affect the overall customer service in a particular region/country.Legal Environment In the European countries in which TUI airlines operate, an air carrier is permitted to operate airline function only if it is majority owned, and effectively controlled, by member states of the Euro pean Economic Area (EEA) or their nationals. The carrier must be able to prove this at any time. Failure to do so may result in withdrawal of, or a refusal to issue, the carriers operating license or road licenses. Accordingly, TUI must remain majority owned and effectively controlled by EEA member states or their nationals in order for their airlines to give their operating and route licenses. In addition, thither may be national ownership restrictions relevant to the grant of route licenses to TUI airlines.PORTER FIVE FORCES FRAMEWORK (also diagram delight refer Appendix 3)Threat of new entrants Low-cost airlines compete successfully on many routes against TUI charter airlines. For example, established low-cost airlines have gained significant market luck on certain flight routes, in particular, routes surrounded by the United state and Spain. In response, TUI had introduced low-cost airline Hapag-Lloyd limited in Germany in December 2002 and introduced TUI low-cost airli ne Thomsonfly in the United Kingdom in April 2004. If TUI is unable to maintain a competitive cost social organisation for their airlines as compared to low-cost carriers, their airline and hotel utilization rates could decrease.Threat of substitutes The creation of new players in the tourism industry is of very minimal threat to the market share of TUI Group. In developed market these new players are not highly preferred by the customers hence addressing this issue is of least strategic splendour for the TUI.Competitive rivalry for TUI There is high argument in tourism industry. This competition is fierce not only in developed market but also in developing market where TUI had a started a new cost cutting programme targeting a yearly saving of around 260 zillion and 100 m for 2004. The signification is to diversify in the world market and in new work to compensate the down trend in developed markets (Dickson, P. Ginter, J, 1987).Buyers Due to high competition in tourism in dustry, the customers in tourism industry have high bargaining supply. High bargaining power of buyer raises the importance of the marketing for TUI to create customer loyalty and price inelasticity in consumers to maintain high margin of its brands (Miller, D. 1988).Suppliers The bargaining power of suppliers is very low because TUI enjoys the social welfare of backward consolidation.StrengthsTUI already acquired established playersTUI has well established distribution channels.TUI took some(prenominal) measures to break customer servicesTUI offers wide range of products.Backward integration because TUI has its own suppliers.Economies of scale benefitsWeaknessTU I has 900 million share pallbearer loans.TUI has no cheap accommodationsGENERIC STRATEGY Cost LeadershipTUIs primary goals is to expand tourism business, grow their container shipping business, complete divestment program and improve financial risk profile.The business strategy for TUIs tourism division includes the following(a) key elementsExpand tourism business.TUI intends to capitalize on strong brands and market positions to expand tourism business, both in absolute terms and in terms of market share. TUIs growth strategy reflects belief that the quality of products, the vividness of business model and ability to react to new market trends at early stages of development both in breathing European source markets and in selected new source markets, such as the emerging markets of east Europe, including Russia, Hungary, Slovenia and Slovakia, and Asia, including China and India. As part of the same strategy, we may divest assets or business units where appropriate returns cannot be earned in the foreseeable future. form synergies and cost efficiencies across markets and products.TUI intend to take usefulness of remaining synergy and efficiency opportunities to further optimize operational procedures and integrate tourism businesses at each stage of the value compass. TUI has started to integrate and optimize their maintenance, administration, IT network prudence and purchasing functions and have completed this process for their airlines by establishing a centralise airline worry to ensure maximum utilization of airlines capacities.Continue to leverage the benefits of integrated business model and wide distribution network.TUI intend to bear to develop fully integrated business model to take advantage of new developments in the tourism industry in order to ensure the continued attractiveness of core products and to attain high utilization of own flight and hotel qualification. This strategy service of processs to maximize the utilization of own capacity at each stage of the value chain and provides considerable flexibility in making contractual arrangements for additional capacity with third parties. In addition, through TUIs multi-channel distribution network, they are able to initially funnel tourism products into their own tour operators, airlines and hote ls and only subsequently into flight and hotel capacity that they purchase from third parties.Identify new trends and exploit developments in the tourism industry.The travel and tourism industry is changing rapidly. Recent trends are not only providing travellers new options but also providing industry participants with new opportunities. Recent trends include the growing customer demand for modular products, the growth of low-cost air carriers and the change magnitude availability of tourism information over the internet. TUI intends to continue to develop business model to take advantage of new developments and to ensure the sustained sex appeal of their core product offerings.TUI also intend further to align the activities of their airlines with each other to benefit from the generally high passenger load factors in the charter flight sector and the cost advantages of some of their own airlines. TUI believes that they can promote new products more effectively and profitably th an non-integrated competitors through their social movement at each stage of the value chain.VALUE CHAIN (for diagram please refer Appendix 4)With TUIs fully integrated business model, tourism division operates at all major stages of the tourism value chainRetail sales. TUI is the largest distributor of package holidays in Europe found on number of travel agencies, with 3,399 travel agencies in source markets. They also trade products through independent travel agencies and direct sales channels, such as internet sites and travel television.Tour operators. TUI tour operators in Europe interchange approximately 18.4 million travel packages in 2004, approximately seven million of which were sold through their own distribution channels and approximately 11 million through third-party distribution channels.Air transportation. In 2004, TUI own airlines flew 22.6 million passengers (based on one-way trips) who had purchased one of their tour packages or flight-only products. TUI flew approximately 65% of package holiday customers on their own airlines, with the remainder flying on third-party airlines. Based on total passenger kilometres flown, their combined aircraft fleet was the ordinal largest airline in Europe and the fifteenth largest worldwide (Source Airline blood, terrific 2005. The Airline Rankings, Passenger Analysis).Destination services. TUI destination services are provided by 41 incoming agencies at major destination areas in 25 countries.Hotels. TUI owned, leased or managed a portfolio of 285 hotels and 162,800 beds worldwide as of September 30, 2005. At the end of 2004, TUI was the 12th largest hotel chain in the world based on number of hotels and bed capacity. (Source Hotels Magazine, Industry Survey, July 2005).Future implications of the changing business environmentGeneral economic and political conditions affecting the tourism industry.Adverse effects on TUIs business arising from terrorist attacks or the threat of. terrorism, outbreak o f Diseases and natural catastrophes.TUIs ability to remain competitive in the markets for their products and services.Changes in international legal, tax, administrative, regulatory or economic conditions.Risks associated with TUIs structure, the Bonds and their other indebtedness.The impact of exchange rate fluctuations.The impact of TUIs science of CP Ships Limited and the cerebrate acquisition financing.OpportunitiesCustomer needs are changingTUI has flexible travel experience with wide range of experienceExpanding the group and creating values through acquisitionThreatsEconomic conditionsRestricted capacity managementOwn very few budget hotels.Lower job security.ANSOFF matrixMarket penetration strategy is the least hazardous since it leverages many of TUIs existing resources and capabilities. In a growing market, simply maintaining market share will result in growth and exists opportunities to dominate the market if competitors reach capacity limits. However, it has limits, and once the market approaches the saturation stage, another strategy must be pursued to continue expansion.Consolidation Consolidation means focussing on current market and current products. There is also mention in the annual report of 2005 to focus on consolidation rather than acquisition and geographic diversification in order to defending market share and downsizing.Market development options include the pursuit of additional market segments or geographical regions. new-made market developments for a product may seem to be a good strategy if TUIs core competencies are related more to the specific product than to its experience with a specific market segment. This strategy posseses more risk than the market penetration strategy as TUI expands into a new market. It seems appropriate to adopt this development strategy as it relates TUIs strengths to its specific customers rather than to the specific product itself.Diversification is the most risky of all the growth strategies si nce it requires both product and market development activities and may be outside the core competencies of TUI. Diversification may be a reasonable choice if the high risk is compensated by the encounter of a high rate of return. As from the case study in TUI group started a new cost cutting programme targeting around 260 m in 2003 and around 100 m for 2004.Then in april 2004 TUI open(a) its first low cost travel agency in hamburg germany with Touristik Express to sell low cost holidays. The optimal bases on which segment the market depend on the particular situation are determined by marketing research, market trends, and managerial judgmentLimitations to ANSOFF matrixAnsoff matrix, particularly focuses on growth which may not be appropriate in some circumstances.Uses and Limitations of Tools AppliedThis analysis is useful in understanding the market growth or decline, business position and direction for TUI (Kotler, P., 1990). The result of the PESTLE analysis can be used to tak e advantage of the opportunities and to make plans to face the threats. It also ensures that TUIs performance is aligned positively with the powerful forces of change (Byars, L., 1992).Uses of PESTEL1 Identifying past trend in the macroeconomic variables based on which future trends can be identified.2 Identify the key scenarios affecting the strategy.3 Identification of key scenarios help in taking right and cognizant decision.4 Effective policy formulation.However, one of the disadvantages of this analysis arises from the issues of reliability, validity and relevancy of the information from the secondary sources. Also the past data and past events has to be checked and be applied to the current business conditions. While considering the disadvantages of the PESTLE analysis, managers should understand that it is just a strategic starting point hence conclusions and findings of this analysis should be tested against the reality.Limitations to PESTEL1 The variables in this model ar e highly speculative so analysis of past may not be the indication for future.2 The analysis will be based on predictions so it may not be accurate.3 It is a lot difficult to analyse unlimited macro-economic factors.4 It is difficult to identify the take of uncertainty.Limitations to Porters Five ForcesThe assumption that the organizations own interest comes first for some sympathetic institutions and government bodies may be incorrect. It assumes that buyers have no greater importance than any other aspect of the micro-environment. But the customer is more alpha than other aspects of strategy development and is not to be treated as an equal aspect of any analysis. It considers suppliers and buyers as threats to be tackled by the organisations, but some companies such as TUI found it useful to engage in closer co-operation with suppliers such a strategy may be excluded if they regarded stringently as threats. It ignores human resource aspects of strategy that might connect peop le to their own and other organisations.Uses of Porters Five Force Analyses1 It helps to analyse the dynamics of industries or sector.2 It helps to analyse the profitability of the industry as a whole. The high level of these forces denotes that industry is highly competitive and may not be attractive to compete in as hyper competition might prevail in the industry.Limitations of Porters Five Force Analyses1 Five forces helps in identifying the industry structure but it may not remain fixed, as different strategies might change the structure. The acquisition of competitor might help to reduce the hyper competition and that might in turn increase power over buyers and suppliers.2 Five force analyses takes into consideration industry as a whole but it does not segregate different segments. The individual analysis of each of the segment can be of much avail than industry as a whole.ConclusionThis period of recession and peoples incomes are curtailed .though there is a setback in the g rowth and profitability there is a tremendous potential in the tourism industry.ReferencesAnsoff, H. (1990), Implanting Strategic trouble, second ed., Prentice HallByars, L. (1991), Strategic Management Formulation and Implementation, third ed., New York Harper CollinsBBC. (2004, september 17). Natural disasters on the rise. Retrieved November 2, 2009, from www.bbc.co.uk http//news.bbc.co.uk/1/hi/3666474.stmCrouch, G.I. (1994) The study of international tourism demand A review ofFindings. daybook of Travel Research, summer, pp. 12-23.Daily Mail. 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TUI AG.http//www.accessmylibrary.com/archive/410295-airline-business/august-2005.html accessed on 3rd November 2009.http//www.hotelsmag.com/article/CA6485150.html accessed on 3rd November 2009.http//www.ise.ie/debt_documents/3118.pdf accessed on 3rd November 2009Appendix 1