Overview of the UK head to operating industry
WHERE Will THE TOUR OPERATOR FIT IN?
Using a 'Chain of Syndication' example: Developer farmer with the corn. Intermediaries Mr Kellogg's who requires the corn, steps it and transmits it to the shop then retailer Mr Tesco puts it on his shelf
Consumer Mrs Shopper purchases it
Can store this product but with travel and tourism there are demanding times set up. Seating on the plane only continues on specific times.
Need a Travel and leisure String Of Distribution
Principal's transfer & accommodation
Tour providers will buy them in volume to put together. Mixes a package deal. Brochures it
Travel agent offers it to make commission
Consumer will buy it
Role OF THIS Tour Operator
Remember the process of a package. Nowadays there's a pattern is more towards immediate sell.
What is a travel circulation channel?
It is the communication's process that a company uses to deliver its products/service to the marketplace.
Can be done in 2 ways:
DIRECT - from the principal to the consumer e. g. Direct Holidays, Uk Airways
THROUGH INTERMEDIARIES - sellers who become a web link in the chain of distribution
E. g. Primary to the tour operator to the customer
Principal to the tour operator to the travel agent to the customer
Principal to the travel agent to the consumer
Integration - What is it?
Over the years there's been a steady process of integration between the industries of the travel and leisure industry. (Also known as the 'March of the Multiples')
We can identify this integration as being either Horizontal or Vertical.
Airtours (My Travel group) have integrated vertically - both forwards and backward, and horizontally - acquiring ASPRO to increase its head to working brands.
When 2 companies merge - such as Getaway Respite buying Explore Worldwide When 2 companies merge equally or the larger one takes over the smaller one
Can be applied to 2 airlines
2 hotels - Consortia - small hotels under one advert
Occasionally they combine or interact e. g. Virgin Atlantic code posting with Air India on some routes, KLM code writing with China Southern Airlines.
Advantages of Horizontal Integration
Main purpose of HI is the fact that economies of scale may be accomplished by producing and retailing more of a product/service if the company reduces the machine cost of each product, since the set costs incurred over a big number of products e. g. aeroplanes car seats of hotel bedrooms. This allows customers to purchase services at lower prices, which in turn attracts more customers/consumers and boosts profitability. In addition, it enables a firm to gain a greater market power minimizing competition and conditioning buying power.
With pax carriage and travel services HI brings better use of fleets, by showing where fleets have different use peaks or can be jointly taken care of.
It also allows greatly increased travel-route combos to be offered to the marketplace and the exploitation of large computer reservation services in syndication.
When a business purchases at one level in the chain that unites with another.
Backward Integration - away from the customer
Forward Integration - to the customer
Tour operator buying Move is backward integration.
Cheaper to move forward than backward.
Using TUI for example of Vertical Integration
As competition has increased in the travel operating market, head to operators have wanted alliances and mergers to increase market talk about and maximise profitability
TUI - Own Britannia - AIRLINE
Own Thomson Holiday seasons (among many more) - Travel OPERATOR
Own Lunn Poly - TRAVEL AGENCY
Advantages of Vertical Integration
Provides economies of size through the linking of complementary activities, investment in new technology and improved management know-how is say forex deals, forecasting and marketing. By expanding the number of devices they operate the multiples reap the benefits of economies of scale. The beginning of a new branch or the takeover of a preexisting chain will add little to the overhead costs of central administration and accounting. Only a few extra personnel may be asked to cope with the extra paperwork. The larger you will be the less your costs.
Increase in belongings - whenever a takeover takes place, the newly extended company needs only 1 head office and so it can close the head office of the business which includes been bought out. This benefits the business financially in 2 ways - sale of the premises raises cash for investment and by employing fewer hq staff, overheads are reduced.
Addition of expertise - whenever a takeover or merger occurs the buyer acquires the prevailing expertise of the company which is taken over. May gain the buying company if they're weak in a specific market section. Takeover also needs to enable conditioning of older and local management. E. g. , merged company having 2 regional managers in each region - as only one is necessary; the new owners may then choose the best person on merit.
Reduction in competition - takeovers reduce competition, boost the market share, raise turnover, and could help to increase profits. New owner may have more than one office in a town which is therefore confronted with the choice of retaining all the properties if not of selling a number of of these so minimizing competition.
Greater bargaining power with principals - large organisations generally have more buying and negotiating ability tan the small organisations. In the retail travel trade, principals such as airlines and head to operators tend to be willing to discuss bargains such as payment overrides or 50/50 advertising campaigns, if the larger organisation is able to meet higher sales targets. Principals wanting to make their products available through large branch sites and are therefore prepared to accept conditions which are more favourable to the multiples.
Enhanced public awareness of the business - heightened general population awareness of the multiple companies, and strengthened their particular brand images. Travel multiples such as Thomas Cook, First Choice and Lunn Poly are actually household titles. Their brand image is mirrored in their shop design and marketing campaign resulting in higher sales, increased turnover and increased income.
Geographical pass on - needed for a multiple to use retail products in as much trading centres as it can be, so helping to spread its overhead costs. Being able to disseminate throughout the country is therefore another explanatory factor behind the 'march of the multiples'. When it took over Callers Pegasus Travel Service, Lunn Poly strengthened its occurrence in the north east of Great britain where it experienced previously been vulnerable.
Quality - there may be control at every stage of development thus standards can be managed at a high level.
Brand support - constantly enabling known the name of the provider
Priority racking at the travel agent - predominant placement of in-house travels/holidays
Differentiation - have such buying power that they are able to produce products for each and every area of the market, from the young to the old
New technology - investment in CRS systems - Sabre, Amadeus and Galileo. New reservations systems often designed specifically for the company
Consultants - can choose consultants with specialist knowledge in a position to sell the holidays. They are able to protect market position by guaranteeing retail outlets on prime traditional sites, comments from customers is quicker and product knowledge by assistants offering customers should be better.
Marketing and distribution advantages are main reason for the travel and tourism industry for vertical integration.
Airlines or travel operators may buy or become associated with hotels in towns which it will serve in order to ensure that customers/travellers have accommodation available to reinforce their air travel purchasing decision.
They could also acquire a bus company in order to control earth transfers and provide excursions and develop travel and leisure attractions to bolster the visitors need to travel e. g. , Walt Disney Company functions hotels, ground transportation in Florida; Thomson's are highly included - almost 'total travel and leisure' providers.
Vertical integration also really helps to secure sources of supply and stores in the market place - this is particularly effective e. g. , when demand for air seating is high - control of travel supply ensures providers can satisfy demand.
By being able to control costs and quality of benchmarks under the umbrella of one organisation, can lower out the middleman.
Although sales are down in a single channel they can be pulled through by another giving an overall revenue.
As with all Horizontal Integration, Vertical Integration secures suppliers and increases buying vitality.
Central driving push behind the 'march of the multiples' has been the desire to maximise the success of travel companies and their mother or father organisations. Businesses are present to produce a profit and an effective business will seek to increase hoping to improve its success.
Despite the growth of the multiples, increased revenue have not necessarily followed. While parent companies may have expected good income each year, intense competition between the multiples (relating to the release of low deposits and the practice of discounting) and the costs involved in a rapid expansion of the number of branches, has in simple fact, reduced profits for a few of the multiples.
Disadvantages of Integration
Restricts consumers choice by
Dictating the marketplace - transition sales to spots that are usually more profitable. Less choice for clients
They produce an unfair benefit in negotiations with suppliers and marketers and the tiny independents are being squeezed out - the multiples are allowed credit agreements whereas the independents have to pay cash for deals.
Control circulation - adjustments prices meaning the customers may need to pay inflated prices - duopoly
Creates available warfare producing competitive activities that could be against open public interest e. g. , Pickfords in 1993 created 3 per trip incentive bonus for staff to sell packages of its Airtours father or mother. Lunn Poly adopted suit giving motivation bonus products on sales of Thomson's.
Integration is a way growth, enabling a firm to increase its market show and simultaneously reduce the degree of competition it encounters by forcing less successful companies out of business.
However, a mass market focuses on low price which usually means poor and therefore less class of individuals, the small independents must therefore specialise in quality, high class of the marketplace where there will be a growth in long term, customized travel arrangements. There is certainly scope for market markets and the only path the small independents will make it through is to create a consortium or join a franchise procedure by offering all the great things about an integrated multiple procedure.
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