Thomas Cook PESTEL Analysis

This report is going to analyse and evaluate the strategic fit of Thomas Cook plc and its critical success factors using analytical tools. The PESTEL Analysis is used to evaluate conditions in the Travel and Tourism market environment and how these conditions affect Thomas Cook plc and its competitors now and in the future. A porter’s five forces analysis will also be used to determine the competitive intensity and therefore attractiveness of the travel and tourism industry.

Introduction

Thomas Cook Travel Company was first started by its namesake in June of 1841 and has since become the world’s most recognisable name in the travel industry. The merger of Thomas Cook AG and My Travel Group plc on June 19th of 2007 produced Thomas Cook plc, making Thomas Cook the second largest leisure travel group in the UK behind TUI Travel plc its major competitor. Thomas Cook specialises in providing a wide range of package holidays to destinations. (Thomascook.com)

INDUSTRY ENVIRONMENT ANALYSIS (Task A)

PESTEL ANALYSIS

The PESTEL frame work categorises environmental influences into six main types which are political, economical, social, technological, environmental and legal (see appendix A). The PESTEL framework helps managers understand the key drivers of change and also the differential impact of these external influences and drivers on the industry, markets and individual organisations. (Johnson, Gerry, 2005).

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Political factors – According to CIPD, coalition government’s spending cuts are going to result in 0.7million job losses in the public sector. The travel and tourism industry is in the public sector; therefore their employees are faced with fears of redundancy. Announcement of redundancies will invariably have an adverse impact on morale, motivation and productivity of remaining employees. The negative effects can be reduced by sensitive handling of redundant employees and those remaining and to be as honest as possible with the remaining staff to gain back their trust and confidence. (cipd.co.uk)

Economic factors are of concern to travel and tourism, because they may influence demand, costs, prices and profits. Package holidays are an income elastic business, as income decreases or rises; it can have a significant effect on the demand. Therefore looking ahead, public sector cuts are likely to have a major consequence on the travel and tourism industry.

Social Factors – Redundancies and other government cuts will potentially result in limited disposable income for consumers. According to Mintel, some 12% of consumers are spending nothing on non-essentials, with 35% describing themselves as ‘very cautious’, 30% as ‘quite cautious’, and only 5% as ‘not at all cautious’. This is because of the decrease in disposable income. If income decreases, then spending will become more cautious, especially on income elastic items such as package holidays, therefore reducing profit margins for the travel industry. With all the package holidays in the UK, supply will remain very high as demand decreases forcing companies to reduce their prices.

The spending cuts will mean that business executives will have to cut their budgets and most likely use low-cost travel planes such as Easy Jet and Rynair. Video conferencing is improving all the time, and the price has fallen to zero using online systems such as yahoo messenger, business may be forced to use this method to communicate to reduce their costs. This going to affect the travel industry a lot, executives provide business anytime of the year whilst holidays are seasonal. This will reduce customers. If classy seats are either vacant or earning less revenue, this means less departures or soaring economy class fares. Companies will also be forced to provide bargains for leisure travelers willing to upgrade to business class.

Technological Factors – The most powerful example technology is the emergence and improvement of the internet, which led to reduced costs and increased operational efficiency within the tourism agencies and airports. Because the internet is becoming better every day, it’s causing intimacy between tour operators and clients and improving contentment for both parties. Aside the internet, other major technologies that support the continuous growth of the tourism industry are those implemented by transportation, which is becoming safer, quicker and more pleasing. The technological implementations within tourism operations have led to changes in working behaviour and will also result an increase of demand for labour force, implying as such that educational institutions place more emphasis on teaching tourism.

Environmental Factors – Protecting the environment is one of the most talked about and sensitive matters today, making environmental responsibility part of the factors that determine a tour operator’s success. According to global warming 2020, ‘aviation which ferries hundreds of thousands of tourists across the globe is of great concern to those seeking to protect the environment. A major concern for the industry is greenhouse gas emissions and their implication for climate change. Aviation produces at least two percent of emissions. One way the aviation industry is working on this problem is by rolling out newer planes that have fuel efficient engines which means less carbon emissions. However not all airlines especially in the poorer countries can afford buying new aircraft’.

PORTER’S FIVE FORCES ANALYSIS

Porter’s five forces analysis (see appendix B) was developed to as a way of assessing the attractiveness of different industries. The five forces constitute an industry’s ‘structure’. (Johnson, Gerry, 2008)

Threats of substitutes

The lack of disposable income and the effect of coalition government spending cuts are likely to change consumer spending habits, as a result with a significant shift in demand from luxury goods to inferior goods which are much more affordable, consumers are likely to shift to local and cheaper holidays and may choose to use trains (eurostar) or their cars to local holidays. Terrorism has affected the mentality of travellers and has made travelling more difficult and uncomfortable. People have to think about security issues from when they start packing to when they reach their destination, this will convince more travellers to use trains or holiday locally. This is however a moderate threat because customers usually prefer airlines because they are much quicker.

Competitive Rivalry

The Travel and tourism industry occupies a big segment of the business market and therefore provides many opportunities for tour operators; however it’s a very competitive industry. To be successful a package holiday company needs to discover the best fit between their individual skills, competencies and resources and external market characteristics to make sure that they stay on top of their game. Brand recognition and strength also determine the success of a company against its competitors, especially if times are tough in the economy.

Negotiating powers of buyers

Demand in package holiday industry is extremely elastic; this means that buyers will not just accept a given price by a package holiday company. Customers will use any information sources available to them such as the internet to look for better and exclusive deals available around, and with so many package holidays available in the UK, they are likely to find one and use a different company. As discussed above about the effect of economy on the travel industry, the powers of buyers are that they have a huge influence on the setting of prices in accordance with the prices which are around in the market.

CRITICAL SUCCESS FACTORS

Critical success factors are used to identify key factors that a business needs to focus on to ensure that their business is successful.

To survive and prosper, all industry participants must use an emergent strategy. Emergent strategy is a way of action that develops over time in an industry without a specific mission, goals or long-term plans. Emergent approaches should be thoroughly analysed in the context of an increasingly active, highly competitive and global business market. Influential external forces mentioned in the PESTEL analysis are pushing companies to reduce costs, improve processes and identify new opportunities for growth and an emergent strategy will help companies cope with these factors.

An emergent approach leads to more creative and responsive strategy making which is well suited to the hyper-competitive and unpredictable environments such as the package holiday industry. It is more suited to instigating positive, transformational organisational change such as diversification or restructuring. It also has the added benefit of helping to reduce resistance to change as it allows time to build employee support while the strategy is taking shape. (powerfulwords.co.uk)