Strategic analysis of TUI Travel PLC

1. Introduction

TUI Travel PLC is one of the leading providers of leisure services in Europe. The company operates in more than 180 countries with Europe being its main market (TUI Travel, 2013). The company thrives on a strong brand identity, financial strength and its highly qualified pool of human resources. It’s however faced with intense direct and indirect competition (TUI Travel, 2014). This report discusses the resources, competencies, and environmental factors relevant to the company and provides recommendations on the appropriate strategic direction to be taken.

2. Strategic capabilities of TUI Travel

2.1 Human and physical resources  

Through its expansion into over 180 countries, the company has developed a wide range of infrastructure including fleets of vehicles, hotel and restaurant facilities, 141 aircrafts and offices which are utilised to help serve the market effectively (Johnson, Whittington and Scholes, 2011; TUI Travel, 2013). In 2009, TUI Travel was ranked 11 globally in terms of hotel facilities and bed capacity (Johnson, Whittington and Scholes, 2011). The company also maintains elaborate information systems that make it easy for them to transact online with customers, provide online travel guides, and provide investment information to customers. These are intangible resources, with the main one being the brand with the company owning over 240 brands each of which has a niche in the market (TUI Travel, 2013). It also has strong relationships with suppliers and strategic partners such as airlines enabling them to cut costs while enriching customer experience.  TUI Travel employees a large number of employees (54,000 employees) who are from diverse backgrounds and there are keen efforts to ensure that gender parity is reflected across all levels of management.

2.2 Financial resources        

The financial performance of TUI Travel has been impressive and indicative of an organisation that is likely to grow steadily into the future. One of the main ratios used to gauge the financial performance of an organisation is ROIC – Return on Investment Capital. The 2012 ROIC was 12.2%, up from 11.3% in 2011 and 9.7% in 2010 (TUI Travel, 2013). This is indicative of a company that is improving in its performance. Improvement in the company’s operational excellence contributed to it saving £42m.

The good financial performance of the company is further reflected in the improvement of the underlying earnings per share (EPS) where the 2012 EPS was 9% above the 2011 figure to reach 25.8p (TUI Travel, 2013). The statutory earnings per share on the other hand rose by 62% above the 2011 figures to reach 12.5p. The operating profit rose by 4% in 2012 to £490m.

A comparative analysis reinforces the fact that TUI Travel’s financial performance is impressive. Its closest competitor Thomas Cook realised a 3% loss in revenues as opposed to TUI’s 2% loss (Thomas Cook, 2013; TUI Travel, 2013). The fact that there was a reduction in revenues is however indicative of the need for improvement in business strategy.

2.3 Strengths and weaknesses         

Assessing the strengths and weaknesses of the organisation helps in creating a strategic framework that can be exploited to promote organisational performance. These are as follows:

2.31 Strengths

Financial strength: the company’s strong financial performance equips it with the financial resources that it requires to launch aggressive marketing campaigns and expand their business portfolio. The financial performance also helps in attracting investors.

Diversity in human resource: The Company’s 54,000 employees are drawn from different cultures hence creating a culture of dynamism and diversity within the organisation (TUI Travel, 2014). This could enable the company to serve a wide range of customers from around the world.

Mastery of modern technology: Through the use of modern technology, the company is able to facilitate online enquiries, booking and financial transactions with customers. This helps in provision of satisfactory services.

Engagement in strategic partnerships: TUI Travel is involved in a number of strategic alliances with suppliers and other partners enabling them to improve their services. For instance, its partnership with Intrepid Travel in Australia strengthens its brand in touring arid lands and deserts (Eleftheriou-Smith, 2011).

2.32 Weaknesses

Weakening in revenue growth trends: In its 2012 annual report, TUI Travel recorded a 2% decrease in revenues (TUI Travel, 2013). This trend was despite the progressive recovery in the global economy since the global recession and the Euro debt crisis.

Inadequate focus on strengthening a common brand: TUI operates under 240 brands. This could weaken the company’s position in relation to the relatively smaller industry players whose singular brands could be stronger than the individual sub-brands of TUI Travel.

2.4 Value chain         

The company’s value chain can be summarised using the basic value chain model shown below:

Source: Johnson, Whittington and Scholes, 2011

2.41 Primary activities

Inbound logistics: These are materials and supplies that are used to deliver value to customers. Supplies such as office equipment and technological systems installed within the company are mostly outsourced (Johnson, 2012; TUI Travel, 2013; Wembridge and Jack, 2013). To some degree, transportation services are also outsourced.

Operations and outbound logistics: One characteristic of services is that production and consumption takes place at the same place (Johnson, Whittington and Scholes, 2011). The distribution network is therefore designed to ensure that services are produced and enjoyed at the point where customers are having their leisure time. The hotel therefore maintains an infrastructure to facilitate timely provision of transportation, restaurant, accommodation, tour guide and other services promptly and to the satisfaction of their customers.

Marketing and sales: The Company maintains websites and digital platforms through which customers can obtain information about their services (Wembridge and Jack, 2013). Provision of online travel guides and online advertisements are combined to help attract customers.

2.42 Support activities

TUI maintains a dynamic organisational structure that enables each of the brands to effectively structure services and deliver to expectation. Its diversified pool of employees makes it possible for them to serve a wide range of customers effectively and satisfactorily. In its operations, the company uses modern technology to facilitate communication and transaction. Online payment infrastructure is facilitated while customers from all over the world can access the company online to obtain any information they need (Johnson, 2012). Investors are also able to use modified iTunes applications to know about the company’s investment record (TUI Travel, 2014).

2.5 Core competencies         

The VRIN framework can be applied to determine which organisational competencies can generate a competitive advantage for the organisation. The framework has been applied to TUI Travel’s competencies as follows:

Competence	Valuable	Rare	Inimitable	Non-substitutable	Competitive outcome
Strong financial capability	Yes	No	Yes	Yes	Competitive parity
Operational excellence	Yes	Yes	No	Yes	Temporary competitive advantage
Mastery of communication technology	Yes	No	Yes	Yes	Competitive parity
Creation of a unique and diversified culture using its large pool of employees	Yes	Yes	Yes	Yes	Sustainable competitive advantage
Ability to create meaningful service delivery partnerships	Yes	Yes	Yes	Yes	Sustainable competitive advantage
Creation and maintenance of strong brands	Yes	Yes	Yes	Yes	Sustainable competitive advantage

From this analysis, the competencies that can be exploited to create a competitive advantage for the company are:

-          Creation of a unique and diversified culture using its large pool of employees

-          Ability to create meaningful service delivery partnerships

-          Creation and maintenance of strong brands

3. SWOT Matrix      

The SWOT Matrix for the organisation is as below:

Strengths -          Financial strength -          Diversity in human resource -          Mastery of modern technology -          Engagement in strategic partnerships	Weaknesses -          Weakening in revenue growth trends -          Inadequate focus on strengthening a common brand
Threats -          Sensitivity to health issues is a threat to profitability as tourists could keep away -          Concerns over environmental sustainability could give rise to restrictive laws inhibiting industry growth -          Strong competition among industry players threatening market share and profitability	Opportunities -          Concerted efforts across the EU countries could promote increased demand -          Economic recovery could trigger increased demand -          Major developments in communication technology ease marketing, enquiries and online transactions.

Sources: Alegre, Mateo and Pou, 2013; European Commission, 2013; TUI Travel, 2013

4. Recommended strategic direction

The strategic options available for TUI Travel can be understood using the Ansoff Matrix shown below:

Source: Johnson, Whittington and Scholes, 2011

The two strategic approaches advisable for the company are: product development and market penetration. The product development strategy involves introducing new products in existing markets while market penetration involves increasing of market share by marketing existing products in existing markets (Ahlstrom and Bruton, 2010).  The threat of changing social preferences and environmental concerns makes it necessary to introduce products that could turn the threat into an opportunity. Creating products/services that are environmentally friendly would ensure that customers that are concerned about the environment are attracted and retained. Besides, it would be an avenue through which the intense competition could be overcome. The new products can then be marketed online to stimulate demand.

Market penetration is designed to exploit opportunities in the external environment (Adler and Gundersen, 2008). Prospects of increasing demand means that better performance can still be realised in the current markets. Besides, greater exploitation of communication technology to enhance marketing can be done to stimulate interest in the existing products being offered to the market. Market penetration can further be done through mergers and acquisitions where the market shares of the smaller players are taken over. 

The organisation can therefore realise its growth objectives through market penetration and product development.

References

Adler, N.J. and Gundersen, A., 2008. International Dimensions of Organizational Behavior 5th Ed. Mason, USA: Thomson South-Western.

Ahlstrom, D. and Bruton, G.D., 2010. International Management: Strategy and Culture in the Emerging World. Mason, OH, USA: South-Western, Cengage Learning.

Alegre, J., Mateo, S. and Pou, L., 2013. Tourism Participation and Eby Spanish Households: The Effects of the Economic Crisis and Unemployment. Tourism Management, 39, pp. 37-49.

Berne, C., Garcia-Gonzalez, M. and Migica, J., 2012. How ICT Shifts the Power Balance of Tourism Distribution Channels. Tourism Management, 33(1), pp. 205-214.

Blanke, J. and Chiesa, T., 2011. The Travel & Tourism Competitiveness Index 2011: Assessing Industry Drivers in the Wake of the Crisis. World Economic Forum, Chapter 1.1, pp. 3-33.

Eleftheriou-Smith, L., 2011. TUI Travel signs deal with Intrepid Travel. (Online) Available at: http://www.marketingmagazine.co.uk/article/1055442/tui-travel-signs-deal-intrepid-travel (Accessed 4 January 2014).

European Commission, 2013. Tourism Trends. (Online) Available at:

http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Tourism_trends (Accessed 4 January 2014)

Johnson, B., 2012. TUI Travel sees technology unlocking growth. Marketing Week. (Online) Available at: http://www.marketingweek.co.uk/news/tui-travel-sees-technology-unlocking-growth/4004253.article (Accessed 4 January 2014).

Johnson, G., Scholes, J. and Whittington, K., 2011. Exploring Strategy. 9^th Ed. Harlow: Prenctice Hall

Thomas Cook, 2013.  Thomas Cook Group plc: Annual Report & Accounts 2012. (Online) Available at: http://ara2012.thomascookgroup.com/pdf/Thomas_Cook_Annual_Report_2012.pdf (Accessed 4 January 2014).

TUI Travel PLC, 2013. Annual Report & Accounts for the year ended 30 September 2012: Positioned for growth. (Online) Available at: http://www.tuitravelplc.com/investors-media/reports-results-presentations#.UsgG3fsYRJQ (Accessed 4 January 2014).

TUI Travel, 2014. About Us. (Online) Available at: http://www.tuitravelplc.com/about-us#.UsepMfsYRJQ (Accessed 4 January 2014).

Wembridge, M. and Jack, A., 2013. Tui orders up to 150 Boeing aircraft to freshen ageing fleet. Financial Times. (Online) Available at: http://www.ft.com/intl/cms/s/1cfc96c2-c9c1-11e2-af47-00144feab7de,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F1cfc96c2-c9c1-11e2-af47-00144feab7de.html%3Fsiteedition%3Dintl&siteedition=intl&_i_referer=http%3A%2F%2Fwww.ft.com%2Fintl%2Ftopics%2Forganisations%2FTUI_Travel_PLC#axzz2pP5szkkv (Accessed 4 January 2014).