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Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
Developing International Strategic Capabilities – TUI Group Travel
Financial, Strategic and Future Position in the market
Abstract – This report provides a summary of the current financial and strategic position of TUI
Travel. The report provides a comprehensive market analysis of TUI Groups’ strategy and its ability to
change in the current travel industry environment.
I will evaluate and carry out a complete analysis of the company, its finances, its strategic position
and its ability to change to the environment. The outcome will provide an assessment of future
scenarios based on the information captured and whether the TUI Group is deemed a good
investment.
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
 Travel Operators Environment…………………………………………………………………………………………........3
 Key Stake Holders……..…………………………………………………………………………….………………………………6
 SWOT Analyses………………………………………………………………………………………………….…………….……10
 PESTLE Analyses…………………………………………………………………………………………………………………….12
 Market Forces (Porters 5 Forces)……………………………………………….……………………………….…………12
 Companies Over View And Trading……………………………………………………………………………………….14
 Competitive Position…………………………………………………………………………………………………………..…15
 Companies Elasticity…………………………………………………………………………………………………….……….19
 Finance Assessment……………………………………………………………………………………………………….……..20
 Managing Change, Change Management and Change Leadership……………………………….………..26
 Methodology………………………………………………………………………………………………………………………...32
 Result…………………………………………………………………………………………………………………………………….32
 Analyses and Discussion…………………………………………………………………………………………………..……37
 Methodology…………………………………………………………………………………………………………………………39
 Scenario…………………………………………………………………………………………………………………………………40
 Conclusion…………………………………………………………………………………………………………………………….41
 Appreciation and Thanks……………………………………………………………………………………………………….43
 References…………………………………………………………………………………………………………………………….44
 Appendix………………………………………………………………………………………………………………………..……..53
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
Travel Operators Environment
Before we can commence evaluation of the TUI Group, we must first evaluate the current
environment. I will begin by looking at a smaller section of the industry to understand where the
market is heading and what specialists are stating about the industry.
Over the last twelve months of 2014, consumer confidence and spending has been mixed due to the
economy. This has resulted in irregular trading and, despite a strong start to the holiday season, this
has then tailed off resulting in a decline from 83% to 80% in 2013. This has been the lowest since
2010 (Tanzer, M. 2014 & ABTA Travel Trends Report, 2015).
However, consumer confidence showed resurgence with more consumers speeding more money the
following year (Tanzer, M. 2014). The reason for the slowdown is due to the financial squeeze. Even
though Britons are traveling abroad more, 16% of people are taking at least three holidays abroad
during the year compared with 14% in 2013 (Tanzer, M. 2014). As a result of the financial squeeze,
the package holiday is more desirable and has seen real growth with more than half the population
(51%) booking an overseas package holiday in the last 12 months (2014) compared to 37% in 2010
(Tanzer, M. 2014).
The reason for this is that it provides the best value having everything taken care of and value option
for the price (ABTA Travel Trends 2015). A third of consumers questioned (34%) also stated that they
booked a package because they wanted an all-inclusive holiday (Tanzer, M. 2014). This is evident
from ABTA consumer survey Figure 1.
The most popular types of holiday continues to be city breaks and beach holidays. However there has
been a slight decline in beach holidays from 38% in 2014 compared to 41% in 2013. This has seen city
breaks overtake beach holidays for the first time as shown in Figure 2 (Tanzer, M. 2014).
When consumers look to book their holidays, the most important factor is security and safety of
accommodation with 50% of consumers seeing this as the primary factor, while another 36% feel it is
important. Other important factors are financial protection (ATOL protection, membership of ABTA)
and knowledgeable staff. This has not changed from 2013 as shown by Figure 3 (Tanzer, M. 2014).
The trend in booking holidays is now moving to a more digital platform, with consumers using the
internet across all channels as illustrated in ‘Who Have Holidays Been Booked With 2014.’ This is both
at a micro level and a macro level (Figure 4)(Tanzer, M. 2014).
Consumers have different ways of formulating research, and they often use a diverse range of
sources – print, online and face-to-face – for holiday ideas and information. Travel company websites
come relatively low down the list of sources for inspiration and information: on average, 15% of
people use them for ideas/inspiration (rising to 17% among 16-24 year olds). Travel professionals
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
score slightly higher: 17% of consumers use them for ideas/inspiration (rising to 25% among 16-24
year olds) according to Figure 5 (Tanzer, M. 2014).
The most popular way to book holidays is still the computer, with 93% of consumers using this in
2014. However, there has been a significant increase in the use of tablets with 18% of people using
them to book holidays, compared to 10% in 2013. The digital environment for booking holidays is
also on the increase with mobile phone seeing a rise from 13% to 17%. The reason why PC’s are still
the most common for booking holidays, however, this is due to security - whereas tablets are seen as
a way saving time, mobile phones are often used purely for research as they are less secure (Tanzer,
M. 2014, Bremner, 2014 & WTM Global trends report, 2014).
Consumer attitudes towards travel professionals is also key, as part of booking their holiday is due to
sharing insight and knowledge. The key areas are expertise, knowledge, experience in travel and
travel arrangements. The experience is of particularly great importance for travel agents (online, on
the telephone or the high street) or staff of holiday providers/tour operators, as 51% of consumers
directly share this sentiment, and 46% state it saves them time as illustrated in Figure 6 (Tanzer, M.
2014). In 2015 consumers are looking to spend more on holidays with 20% (versus 19% in 2013)
stating they will spend more and 15% (compared to 16% in 2013) stating they would spend less, The
optimism is set to continue form in the coming year (Tanzer, M. 2014). This may be driven by the
average spend rising before going on holiday (for overseas holiday) from 2013 to 2014 with the
average shifting from £206 to £224 respectively (Tanzer, M. 2014). We have seen 35% of consumers
assert that they will take a holiday to a new country (quite likely or practically certain) in 2015, and
48% of consumers are quite likely or practically certain to visit a new resort or city (Tanzer, M. 2014).
There have been a number of issues affecting the tourism industry in the United Kingdom, with a
number of holiday destinations being affected by political, social and economic unrest in 2014. The
Foreign Office advised against all but essential travel to key areas of Kenya, as well as Thailand
coming into the spotlight due both to protests taking place in Bangkok and the high profile murder of
two tourists on the island of Kao Tao. The Ebola outbreak caused widespread global concern and has
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
had an impact on West Africa and other African destinations. Unrest in Syria and the Middle East led
the Foreign & Commonwealth Office to advise British nationals of potential threats globally. The
disappearance of Malaysian Flight MH370 and, shortly afterwards, the shooting down of MH17 raised
questions over the safety of flying over certain areas (ABTA Travel Trends, 2015). Discretionary leave
led to debate over school holiday pricing with ABTA and how it affects the travel industry.
Despite this, desire for authentic experiences and the perception of lower prices are driving the
growth of this sector. A strong pound in 2014 meant that expenses for British holidaymakers came
down in many favourite destinations, and it is predicted that this will boost visitor numbers as we
enter 2015 within Europe, the USA and Japan (ABTA Travel Trends 2015).
We will now begin to look at a macro level and consumer trends. The consumer trend in the use of
digital is following suite as micro. As consumers are more pressed for time, they tend to make
purchases on their smartphones. An increase in “omnichannel” (Wikipedia, 2014) creates a seamless
link between virtual and “real world” shops with wide consumer appeal. The consumer interest in
convenience is also amplified on holiday, from the outward journey onwards (Kasriel-Alexander, 2015
& Sandberg, 2015).
Consumers are now also sharing and posting content and news they find interesting from blogs,
brands and retailers online before they purchase holidays. Due to post-recession circumstances, the
consumer is generally a more cautious spender. They tend to learn about purchase experience and
aftersales service (or lack thereof) from other consumers who have already bought the product
(Kasriel-Alexander, 2015).
The travel and tourism industry continues to grow globally, with arrivals reaching a record 1.1 billion
in 2013 which is up by 5.1%. The year 2014 is forecast to see a further increase, estimated at 4.7%.
Similarly, inbound receipts are also expected to grow, with Asian middle and affluent classes being
identified as the biggest spenders when travelling overseas (WTM Global trends report 2014). This is
supported by the trend for consumers who are looking to take holidays for shopping (classified as
“shopping tourism”) as part of their holiday. More consumers are looking to downsize to cheaper
holiday accommodation to free up cash for product shopping (Kasriel-Alexander 2015 & Sandberg
2015).
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
The China Outbound Tourism Research Institute have highlighted that 27% of Chinese tourists abroad
spend more on shopping than on anything else. A total of 82% of Chinese tourists said shopping was
a priority while traveling (Kasriel-Alexander, 2015). The reason for this growth in this area is that the
Monetary Fund predicts global Gross Domestic Product growth of 3.4% for 2014, up from 3% in 2013,
with China, India and the Association of South East Asian Nations driving this growth (WTM Global
trends report, 2014). We can associate GDP with the growth of travel retailers in emerging markets
(please see table below):
Key Stake Holders
We now have to look at the key influencers in the industry through key stake holder analysis.
Following this, I feel it is imperative to draw attention to the stake holders that all have an in-tester,
Key Performance Indicators 2013-2015
% growth 2013 2014 2015
Real GDP Growth 3.2 3.9 4.8
Travel Retail Value (US$) 7.1 9.3 9.7
Real GDP Growth 5.1 5.1 5.5
Travel Retail Value (US$) -0.6 2.8 3.4
Real GDP Growth 5.4 5.3 5.6
Travel Retail Value (US$) 4.4 5.00 4.6
Real GDP Growth 5.1 5.4 6.4
Travel Retail Value (US$) 3.9 9.50 9.2
Source WTM® Global Trends Report 2015
Key: Green highights growth, Red highlights decline
Middle East
Africa
Asia
Indian
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
and to quantify their objectives. According to Freeman (1984), a stakeholder is “any group or
individual who can affect or is affected by the achievement of the organisation’s objectives”.
The success of tourism is based on its stakeholders and the development and sustainability of
tourism. However not all stakeholder have the same interest - these are categorised into two areas;
internal stakeholders to the business and external stakeholders who are influencers (as illustrated
below in Company Stakeholders).
The stakeholders of an organization (internal) can be divided into primary stakeholders and
secondary stakeholders, subject to their relationship between their interests and the company. The
white stakeholders are those that the company need to focus on as a priority, with the grey being
those that can be involved later in the process subject to market and conditions as illustrated below
(Zhao, 2006).
Company Stakeholders
(Selin, Yilmaz & Ozgur, Devrim, Gunel, 2008)
To support the Company stakeholder’s map, please find below stake holders and their key focuses.
Internal stake holders (classified as internal and important to business prime)
Owners shareholders- Tourism development makes a positive contribution to all aspects of
sustainable development, as far as possible in any given space and time (James 2008). Investors also
want the interpretation of the brand to be strong (Merrilees, B., Miller, D. & Herington, C., 2012)
Employees- Brand values by employees could be linked to driving relationship with wider
stakeholders e.g. customers (Merrilees, B., Miller, D. & Herington, C., 2012)
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
Financial communities- To provide investment in infrastructure and support. To provide better living
standards so that economic growth can be achieved. In addition the reductions of corruptions and
tax invasion (Cárdenas-García & Pulido-Fernández, 2014).
Intermediaries- Local stakeholders developing entry to market, in addition to educating locals,
marketing activities, the importance of quality to consumers (Tuohino, A. & Konu H., 2014).
Customers- Connecting consumers to the brand and destination (García, J. A., Gómez, M. & Molina
A., 2012).
Government- Decides tourism laws. Also to create revenue from local business from Tax (Gough, G. &
Duncan, C., 2008)(Sustainable Tourism Online, 2010)(Vijayanand, S., 2015) Satisfy the demands of
tourists and the tourism industry, and continue to attract them in order to meet there needs (James,
2008). The focus on Suppliers due to Business changing economic circumstances both country and
company growth (Zhang, 2003).
Suppliers- Interest in the growth and prosperity of the business (Riley, J., 2012)
Media- To build trust with consumers and build trust with online services (Gregori, N., Daniele, R. &
Altinay, L., 2014). Also the use of social media and adjust marketing messages to consumers and
adjust measurement (Martin, D., Rosenbaum, M. & Hamc, S., 2015).
Competitors- Improves knowledge’s sharing which has an impact on community relationships,
employee relationships, diversity issues, product issues, and environment issues (Ayuso, S.,
Rodríguez, M. A., García-Castro, R. & Ariño, M.A, 2012).
External stake holders (classified as external/secondary impact on business)
Local Government- Make tourism run smoothly by building and making tourism facilities and
infrastructure. Running tourist information centres & tourist attractions. Helping local business by
training, administration & finical advice. To work with local business so that tourist needs are met
(Gough, G. & Duncan, C., 2008)(McBride, 2010)(Sustainable Tourism Online, 2010)(Vijayanand, S.,
2015)(TUI Stakeholders, 2015).
Travel agencies- Transport organisations, hotels, restaurants and shopping centres with all the same
objective; sustainable business income, market promotions and services, plan for services, support
communities and solve problems, provide jobs and training (Gough, G. & Duncan, C.,
2008)(Sustainable Tourism Online, 2010)(Vijayanand, S., 2015).
Local Communities- So that tourist can be informed of local traditions and how to care for the
environment. Also that the local communities understand the value of tourism and the associated
problems with tourism. By local communities supporting tourism this helps solve problems. They can
plan new tourism activities and destinations, promote the area and make tourism safe, and provide
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
funds for training to sustain tourism (Gough, G. & Duncan, C., 2008)(Sustainable Tourism Online,
2010)(Vijayanand, S., 2015).
NGO’s- Focusing on improve living conditions, support education, protect nature and the
environment, and preserve biodiversity - improvement of living conditions, the preservation of
biological diversity and environmental and climate protection. (Futouris, 2015).
Unions- Tour operator association - European Travel Agents and Tour Operators’ Association (ECTAA)
to provide guidance on dealing with and cooperating with European Union institutions and
international organizations to ensure that their interests and special requirements are taken into
consideration (About ECCTA, 2015).
Tour Operators’ Initiative (TOI)- Work closely with UNWTO and UNEP to promote best practice in
sustainable development among tour operators including guidance of tours. Provide management
tools or experience to design and conduct tours that minimise their negative environmental, social
and economic impacts while optimising their benefits (Tour Operators Initiative, 2015).
Association of British Travel Agents (ABTA)- To raise standards of and health and safety. The welfare
of animals in tourism. To work with Members, Destinations and hotels and accommodations to
ensure a sustainable future for our holidays (ABTA Working with Industry, 2015).
Universities- In assistance of economic contributions through patenting, licensing, spin-off formation
and technology transfer (Benneworth, P. & Jongbloed, B. W., 2009).
Political groups- Meet the needs and wants of the local host community in terms of improved living
standards and quality of life (James, 2008).
Activist groups- Safeguard the environmental resource base for tourism, encompassing natural, built
and cultural components, in order to achieve both of the preceding aims (James, 2008).
Customer advocate groups- Customer needs need to be addressed or power by the company will
cease long term (Allen, R., 2008).
Sustainability organisations- To provide integrate sustainable tourism in local business, to protect the
environment, create opportunities for local people in tourism destinations including training of local
people to develop tourism skills, Conservation projects e.g. resource efficiency in hotels,
environmental protection (Travel Foundation, 2015). To also provide a level of standard in
sustainability (Global Sustainable Tourism Council, 2015)(Overseas Development Institute,
2015)(Global Sustainable Tourism Council, 2015).
Trade associations- Tourismdevelopment makes a positive contribution to all aspects of sustainable
development, as far as possible in any given space and time & Economic health, well-being of locals;
Unspoilt nature, protection of resources; Healthy culture; Optimum satisfaction of guest
requirements (James, 2008).
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
External stakeholders – Below outlines external stakeholders and drivers in greater detail.
Source: Local Government Pathways to Sustainable Tourism, Sustainable Tourism Cooperative
Research Centre, 2009
SWOT
After reviewing the environment, we can now understand the industry and its strengths, weakness,
opportunities and threats (SWOT). A comprehensive SWOT analysis has been carried out from the
perspective of TUI and the environment.
 Strengths - TUI is a strong market leader in Europe with a well-recognised brand. TUI has a
wide portfolio brand allowing them to both tailor to and address customer demand across a
diverse spectrum (Travel and Tourism TUI AG Worldwide, 2014).
 Weakness - A considerable amount of antiquated IT and back office systems that drive high
costs. Change in integration can remove costs and the business could, in turn, become more
efficient (Annual report of accounts and notice 2014 annual general meeting). Customer
numbers have dropped by 3% (2012-2013) due to lack of catering for individual needs, a
vulnerable Eurozone with weak economies and stagnations (Travel and Tourism TUI AG
Worldwide, 2014). The ability to be agile and deal with demand beyond capacity is needed
from emerging markets (Curran, E. 2015).
 Opportunity - New markets and online accommodation is where future growth lies (Annual
report of accounts and notice 2014 annual general meeting). TUI is actively developing
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
emerging markets like Russia and Brazil with the acquisition of Malaprinota and OTA’s with
the addition of the German market for cruises to offer premium services (Travel and Tourism
TUI AG Worldwide 2014). Travel and tourism is growing at a rate of 1.2% per annum through
until 2022. In addition, the growth attracts foreign investment which could have a direct
impact in investors making an investment in Travel companies.
 Developing and emerging economies may entice travel operators to provide services and
package holidays as this drives the economy and jobs making it easier to enter into new
markets. Countries that have National Tourism Organization (NTOs) status can work in
partnership with TUI to promote their countries and reduce marketing costs, especially in
emerging markets (Turner, R., 2012). TUI digital strategy and online services can take
advantage of the 30% of online travel bookings growth predicted by 2017, and as a result can
accelerate purchasing decisions (Saunders, L., 2015).
 Threats - Not addressing consumer preference & desires plays an important part in selecting
their holiday, including providing the access that customers want and not responding quickly
enough to consumer preferences. Market pressure can result in lower short and median term
rates and therefore reduce the resulting margin. Cross board trading also has a direct impact
on currency fluctuations, exchange rates and tax laws, which then have a direct impact on
airplane fuel and operating costs.
 Spending on travel and tourism tends to be discretionary from consumers who are very price
sensitive as a result of the economy. Attracting talent and retaining key management
positions are paramount as they are seen as valuable due to their ability to provide great
travel experiences. Impact from international incidents like terrorism, civil war and natural
disaster can have a direct impact on operations, leading to cancellations and reductions in
consumer demand and an impact on the regulatory environment. Protecting consumer’s
aviation and the environment.
 Internal systems that fail to control or protect aviation and the environment can have an
impact on brands and result in lower revenues (Annual report of accounts and notice 2014
annual general meeting).
 Instability in specific countries like Egypt and other key winter sun destinations due to security
issues has been reduced. This is also compounded by stiff competition in the online market
which has been slowly taking their global market share (Travel and Tourism TUI AG
Worldwide, 2014).
 The economic slowdown can impact emerging markets through changes in exchange rates
and consumer confidence. A lack of skills in emerging markets to provide good customer
experience, such as language skills, can impact tourism negatively (Poltavchenko, G.S. 2012).
 Lack of national transport infrastructure and the shortage of hotels across countries can
impact consumer confidence in new markets. In addition, slow investment from governments
can delay revenue streams on investments made in these countries (BMI Brazil Tourism
Report, 2015). Market penetration in emerging markets with poor access to consumers can
sometimes be weak due to lack of internet access based on TUI digital strategies. There is also
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
notably no formal or direct strategy on customer loyalty (TUI Sustainability Annual Accounts,
2013).
 Exchange rates and consumer from the UK can benefit through exchange rates e.g. Russia
(Travel and Tourism in Russia 2014). Large wave of Chinese outbound to UK can see huge
revenues with only 5% of Chinese holding a passport from the 1.3billion population (Curran.E,
2015).
PESTLE
We can now start to plot the PESTLE analyses from the data captured in a PESTLE table. Please see
table in Fig 7.
Market Forces - Porters 5 Forces
We can now draw upon Porters 5 forces to understand the power of the TUI Group in their market
(Porter, M., 1980). Below is TUI’s position in the marketplace based on the information collected
within this report.
New Market Entrants (Medium Entrance)
• Entry ease/barriers – (Medium) E-Commerce suppliers can bring package holidays together
with no overheads. However, legal and political barriers make entrance challenging (ABTA &
Government).
• Geographical factors – (High) Can see MNC entering into Europe market but need large
investment to build brand, credibility and access to partners e.g. flight paths, hotels etc.
• Incumbent’s resistance – Too many competitors, both niche tour operators and TUI being
leaders that need to keep up with consumer demands and squeezed margins due to value
holidays.
Supplier Power: (Low Power) _
• Brand reputation – (Medium) TUI are well positioned being the largest travel operator in
Europe, controlling a lot of power in terms of scale. However, BRIC countries may not recognise
the brand and this will take time to establish partnerships, but this is balanced with tourism
generating revenue and jobs for emerging markets.
• Geographical coverage – Current suppliers of TUI in Europe are being squeezed more due to
the economic down turn and consumers looking for more value (e.g. all-inclusive). Also, suppliers
are at the mercy of their economies and political environment; if the economy or instability of
politics/terrorism has an impact on tourism then TUI has the power to reduce package holidays to
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
designated areas/countries. TUI’s scale also allows them to negotiate hard and obtain the best
value.
• Product/service level quality – Suppliers need to conform to high levels of service and security
(safety). Europe is well established however emerging markets will take time to develop tourist
attractions and bring businesses up to date with tourism needs.
• Relationships with customers – Customer experience is key at destinations as customers can
now build package holidays online allowing them to shop for better offers and service. Contacts
with suppliers from TUI will have specific guidelines around engagement with consumers.
• Bidding processes/capabilities – Suppliers will compete with others in the procurement
process. Current established markets will be able to compete, however new emerging markets
may have issues around the capability to bid for contracts due to the lack of training and
capability.
Competitive Rivalry (High)
• Number and size of firms – There are only a small amount of travel companies competing in
Europe. However there is a growing trend with online package holidays and travel operators.
Competition may grow as TUI starts to target BRIC’s emerging market with new travel providers
competing.
• Industry size and trends – The market continues to grow year-on-year. The race to penetrate
BRIC countries will intensify over the coming years and margins will be squeezed to provide value
for money. TUI will need to continue its focus on managing its costs effectively to compete well
and to keep market position.
• Fixed vs. variable cost bases – This is very hard to control with the cost of fuel and tax playing
a large part in controlling internal costs. In addition, government taxes vary from country to
country. In addition, fluctuating exchange rate have an impact on costs.
• Product/service ranges – TUI has a vast product and service range, from all inclusive to
tailored holidays. This also includes cruises and activity holidays.
• Differentiation, strategy – TUI are well positioned with their digital strategy compared to
other competitors like Thomas Cook. They are more advanced in both retail stores and online in
terms of customer experience (Lansell, 2015).
Buyer Power (High)
• Buyer choice – Consumers are more in-tune and have access to the internet to shop around
for the best value-for-money offers. Subject to the weather, they may need to be enticed to take
a holiday if the resonating country has good weather.
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
• Buyers size/number – The market continues to grow between 3-4% annually. Therefore
buyer’s power is strong as TUI needs to maintain growth and position number one in Europe.
• Change cost/frequency – Consumers are sensitive to the economy and therefore put pressure
on the travel industry to reduce cost if there is less disposable income. The market needs to
actively monitor consumer behaviours to adjust pricing and offers.
• Product/service importance – Consumers are now moving to more tailored package holidays
or are building their own package holidays with online suppliers providing access and more
control to consumers.
• Volumes, JIT scheduling – Low as consumers tend to go on more than 2-3 holidays a year.
Their loyalty is low to existing travel companies including TUI.
Product and Technology Development
• Alternatives price/quality – High; consumers can stay in their own country and take holidays
there. Can use train or car to travel to destinations. Can also seek to package their own holidays.
• Market distribution changes – IT systems can have an impact on consumer spending. Political
and economic unrest can change consumer behaviours. Natural disasters can impact by causing
cancelations or a change in the destination of holiday consumers.
• Fashion and trends – Changing needs of consumers can impact on the operations of TUI. The
digital environment and competitiveness can impact consumers by influencing where they spend
their money.
• Legislative effects – Tax implications have an impact on emerging market access.
Governments and stake holders can impose operating costs to become compliant and to impact
costs.
Companies Over view & Trading
To be able to provide a greater understanding of the leadership of TUI Group and its current success,
we need to understand from the company’s report how they feel they have been trading. By doing
so, we can analyse its positions and compare it to the data collected and the evidence from the
analyses.
The approach is to understand if there is any credibility in their statement, or if there are underlying
issues which can be highlighted. We will look to review and extract information from their
performance plan to understand their trading, and compile an analysis with the data collected to
enable greater understanding of their future. Fig 8 provides highlights and challenges in the form of a
summary.
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
There was no formal format from year-on-year of the terms of reviewing the previous year’s
weakness and strengths. However, a high level dashboard providing the year’s performance is listed
as illustrated in Fig 9.
Planning for fuel and currency was also reported on and was constant in terms of reporting. Fig 10
shows the percentage of TUI’s forecast requirement for currency and fuel for the seasons in 2013/14
and 2014/15 (Operation and Financial Highlights 2014 & Current Trading Outlook, 2013).
When comparing this to Thomas Cook, the aforementioned states that there is a focus to reduce fuel
costs. Their focus is wider, and Group Airlines have endeavoured to make a 12% improvement in
efficiency from 2008-2020 and have achieved a 6% improvement up to 2013. The focus from Thomas
Cook has been very much on operational cost savings. An example of this is their intent to reduce
energy consumption by 20% which they are on track to accomplish, with overall reduction at 10%
across their offices and retail networks and a 17% year-on-year in 2013.
There is a focus on customer service to achieve an average score of very good/excellent from
customer feedback questionnaires. They have achieved 92% rated in this area as rated
good/excellent (Our Performance, 2013). Thomas Cook’s 2014 annual reports provide real clarity in
comparison to TUI Group, with clear tables outlining year-on-year comparisons in virtually all sections
as illustrated in Fig 9. This has been a transformation from the 2013 annual accounts reporting which
had been split between countries as shown in Fig 9.
Competitive Position
Now that a comprehensive scan of the market has been completed, we need to evaluate the current
position of TUI Group and its position in the market, including its rival company Thomas Cook. A
review of the last three will provide an overview of any recovery, market gain, holding position or
loss. This will in turn provide evidence to support what the future may hold and provide some insight
into its strategic position and financial standing. To be able to analyse this correctly, we will review
the period in order of year from 2012 to 2015.
We will begin with year 2012/13 to see how the company is performing and move to subsequent
years so that we can understand its relation to strategy and how it has performed to be able to carry
out a final assessment later.
In 2013 we saw TUI performing strongly with an 11% increase from the previous year, while its rival
Thomas Cook was trying to recover lost ground due to financial issues which, as a result, kept TUI as
the biggest holiday company in Europe (Bridge 2011& TUI Annual Accounts 2013). The issue for
Thomas Cook was trying to be a cost leader back in 2011 when it was also sustaining heavy financial
losses, and as a result has had a direct impact on consumer confidence and investors. As a result
Thomas Cook have moved away from focusing on being cost leaders and are now focusing on
becoming differentiators instead (Riley 2011).
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
Thomas Cook have kept their market position as the second largest European travel company in 2012
after a cost cutting exercise and having sold off its Indian business (for £113M) to remove the need
for further funding requests and, as a result, stem losses (Reuters 2012 & Scuffham, M., 2012). In
December 2011, Thomas Cook took market share of TUI and this has happened once again in January
2012 due to TUI promotions which really demonstrates how sensitive the market is in regards to
promotions.
At this point Thomas Cook lost 90% of their share value and had 3 profit warnings (Scuffham, M.,
2012).
Whilst Thomas Cook has been trying to recover from its profits warnings, TUI has been expanding
into the BRIC countries. In 2012, TUI created TUI Russia from Moscow Domodedovo as a joint venture
with Russian carrier Kolavia. This was to provide flight and holiday packages, giving it a potential
advantage in the Russian leisure market. TUI spent 1 million USD on rebranding the airline with 11
charter routes across Eastern Europe, Western Europe and North Africa.
The approach to this expansion has been different from normal business practice as it is a virtual
airline model rather than one which operates its own aircraft. Their intention is to expand to long
haul in 2013, although this will require long body air crafts to accommodate the expansion and move
into flights to Asia; specifically to Thailand due to the growing market (averaging 15% year-on-year).
The new strict guidelines & regulations from the Russian government means that TUI can benefit
them as necessary funds are needed to protect consumers from the operator going bust. TUI is well
positioned as 13 of 14 Russian tour operators cannot fulfil this and may lose their federal registration
(Capa 2012).
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
It is not all gloom for Thomas Cook as their new CEO has already made an improvement of 15%
(£151.7M) on its losses by the end of 2012 and approximately £60M by 2013. Industry outsider
Harriet Green (CEO of Thomas Cook) also slashed its debt with the sale of its Indian business and
several Spanish hotels. At this point TUI had already grown by 9% of its summer bookings.
TUI has also seen benefits from sales of unique holidays (differentiated and exclusive product
combined) as they were up 3% compared same position last year (2013). Online sales for TUI
continue to grow, accounting for 46% of winter holidays. TUI still has challenges with 12% increases
in its loss before tax to a total of £178m in the last quarter of 2012. This was partly due to sales in
Germany and France going down, and partly due to reductions in capacity to Egypt and a number of
long-haul destinations.
The economic down turn is not affecting business as disposable income is still used by consumers for
holidays according to Nick Hood, business analyst for Company Watch (Thomas, 2013). In 2014
trading the groups of mainstream holiday division saw underlying profits rise by 13% to £581 million.
The current market position from consumers echoes the performance from the two rivals where TUI
Group and its sub-brands are mentioned in social media as better performing, whilst Thomas Cook
have the lowest customer experience (please see tables below)(Jaume, 2013).
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
When looking at a micro level in the UK where both operators have their largest business in Europe,
neither company came up top. Instead, Trailfinders picked up “Best British Tour Operator” awards,
with TUI sub-brands and Thomas Cook coming in the bottom range. First Choice scored less than
70%, while Thomas Cook scored less than 60%, neither of which were in the top ten (Smith, 2013).
This is echoed by The Guardian naming Trailfinders 4th with no mention of TUI or the Thomas Cook
sub-brands (Guardian, 2013).
Market analysts have seen both TUI and Thomas Cook making steady performance increases over the
year, with Thomas Cook showing the most potential due to coming back from the verge of
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
bankruptcy (Baird, 2013 & Harris-Doughty, 2013). TUI Travel still seems to be nudging ahead based
on its shares and performance due to growth from TUI and struggling recovery from Thomas Cook,
but both have had issues with Egypt due to political unrest (Guardian, 2013 & Craik, 2013). Despite
TUI’s steady performance, Thomas Cook has managed to secure Europe's Leading Tour Operator
2013, therefore demonstrating its fight-back. They also managed to secure the award again in 2014
(Travel Awards, 2013). This is supported by their online sales growth for 2012 & 2013, with Thomas
Cook leaping in online sales (Fig 11).
The competition is becoming fiercer, with online retailers impacting the market with new entrances
(Read, 2014).
The future for TUI and Thomas Cook is still bleak, with both forecasting a loss in 2014 (Clarke, 2014).
As we move into 2015, it is reported that TUI revenue has dropped by 1.8% compared to Thomas
Cook, which has seen a 1.3% increase, suggesting that the small rivals are catching up with the two
leaders (FVW Dossier, 2014).
Thomas Cook’s troubles are still far from resolved with the CEO Harriet Green leaving the business
back in 2014 and the company being unable to provide a sense of direction (Ficenec, 2015). The
replacement Thomas Cook CEO Peter Fanhauser has already started to change the business around
by going into a partnership with Fosun, who have purchased a 5% share which will increase to 10%.
This will give Thomas Cook a cash injection of £91.8M and access to the Chinese market, which will
boost visitors to Russia and Europe giving Thomas Cook a new opportunity. Thomas Cook strategy
seems a lot clearer now with a focus on online, and its services, and more customer-focused retail
stores (The Hindu Business Line, 2015 & Selig, D., 2015 & Rigby, C., 2015). Thomas Cook, however,
still need to develop their mobile application when compared to TUI’s established mobile application
with 180,000 downloads (Rossi, 2014).
Companies Elasticity
One of the Key factors in analysing the competitor’s position is to understand the elasticity of
consumers in their markets. By reviewing the current data and researching the environment, we can
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
understand TUI’s position and how Thomas Cook and other companies serving the industry are
maintaining and growing their customer base. By maintaining customers, this provides a secure
financial position resulting in greater flexibility to invest in its strategy. Based on current information,
the focus has been on clearly developing access of services to consumers by using the digital
environment. From the environmental scan we can identify that the digital providers are gaining
market share.
TUI and Thomas Cook have been benefiting from the 3-4% organic growth in the market which
provides little evidence of elasticity. There is little evidence to support any approach to elasticity,
however specific service around unique hotels seems to drive the highest customer retentions from
TUI Travel. TUI has identified that customer retention is a high risk area in the current market. In
2014 TUI’s focus remained on unique holidays as this accounts for 71% of their mainstream sales, the
business benefits of which include higher average selling prices, higher rates of retention and earlier
bookings. This is just what TUI seems to believe and there is a direct correlation between unique
holidays and customer service questionnaire scores that lead to increased customer retention (TUI
Travel PLC Annual Report & Accounts, 2014).
By comparison, Thomas Cook 2013 & 2014 had no correlation between customer retention at all.
There are elements of indirect elasticity through combination of the Thomas Cook market leadership
position, scale, the focus on unique holidays, increasingly online presence and their relationship with
the customer throughout their whole holiday experience. It continues to provide a strong basis for
sustainable, profitable growth (Barnes, 2014).
When comparing Expedia it is clear that the key focus is hiring directors of customer loyalty (Simply
Hired, 2015). In addition, online competitors are making a move to acquire loyalty programs. Priceline
has made a pre-emptive move to acquire Rocketmiles, which offers air miles for bookings of hotels
and travel through its website. Expedia have a similar model but with points not air miles (Cuff,
2015).
Finance Assessment
We have now carried out both a strategic and market analysis, and therefore we now need to focus
on a financial analysis. There are a number of areas that can be used for financial analysis, however
to provide a comparison the areas of financial analysis needs to be comparable. TUI Groups travel
operation is different to its competitors Thomas Cook in that there are elements and markets which
are different.
For example, TUI Group has a portfolio of online hotel companies, and that investment into BRIC’s
has been different with TUI having a joint venture whereas Thomas Cook has invested directly into
these markets. The main focus of the financial investment will be around the share price, and the
impacts of debt around the share price. The reason for this as a focal point is that TUI’s rival Thomas
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
Cook nearly went bankrupt back in 2009 and TUI’s future may change if its main rival was to
disappear from Europe.
The ability of TUI Travel to manage it finances has a direct impact on the confidence of investors to
invest long term. In addition surplus cash can be invested into new markets and services to grow and
protect future profits and revenue so that TUI can achieve its objectives. The financial management
goes hand in hand with strategy, as the profitability of the company is underpinned by its strategy
and the outcome is more profits (as illustrated below).
We will look to compare and contrast TUI to Thomas Cook. We will commence by looking at the share
prices over the last 4 years and the changes TUI and Thomas Cook have gone through.
To be able to establish the risk of TUI’s shares, we need to carry out an analysis of the last 4 years.
We will begin by calculating beta for TUI. As part of this analysis we will also carry out the same
assessment for Thomas Cook. Beta is used to measure the difference between the average market
return and the return on an individual stock - in other words the profit from shares if an investment is
made. The beta of the market equals one, so stock betas close to one will emulate the market's
average return. Beta measures the risk, and higher betas imply higher returns with higher risk
profiles.
In addition to this we will look at CAPM (Capital Asset Pricing Model). The CAPM says that the
expected return of a security or a portfolio equals the rate on a risk-free security, plus a risk
premium. If this expected return does not meet or beat the required return, then the investment
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
should not be undertaken. The security market line plots the results of the CAPM for all different risks
(betas).
In each country the government calculates the risk return based on the position of the economy.
Therefore, for this exercise we will use the London Stock Exchange (TCG THOMAS COOK GROUP PLC
ORD EUR0.01, 2015) for Thomas Cook for its historic share price and the London Stock Exchange
(Current market rate, 2015) market rate in which Thomas Cook is benchmarked on as constant. This
will be compared to the UK Governments Risk Free Market Rate (Barr, D., Bush, O., & Pienkowski, A.,
2014). TUI’s data will be collected in the same format but form the DMAX stock exchange in which
TUI’s trades in (TUI Historic Data, 2015) with the market rate (BORSE Frankfurt, 2015).
The German economy is different in the sense of its GDP and therefore the Risk Free Market Rate
(German Risk Free Rate, 2014) will be different. By comparing them both, we can understand TUI’s
position to its competitor and its ability to manage its financial matters. As an example model by
using the CAPM model and the following assumptions, we can calculate the expected return of a
stock in this CAPM example. If the risk-free rate is 3%, the beta (risk measure) of the stock is 2 and
the expected market return over the period is 10%, the stock is expected to return 17% (3%+2(10%-
3%)).
The calculations for Beta and CAPM are shown below for both TUI and Thomas Cook (full data
available in appendices Fig 15).
Calculate Stock Beta with Excel
Daily Standard deviation 2014
Stocks Prices
(Adjusted
Close) % Returns
Stock
Beta Daliy Variance
Date Thomas Cook LSE.L Thomas Cook LSE.L Method 1 0.232262 COVARIANCE.P(E8:E108,F8:F108)/VAR.P(F8:F108)
29/09/2014 119.3 1874.52 Method 2 0.232262 SLOPE(E8:E216,F8:F216) Number of trading days of the yea
26/09/2014 117.8 1876.5 -0.012573345 0.001057
25/09/2014 119.2 1874.52 0.01188455 -0.00106 Annualized Variance
24/09/2014 117.1 1893.35 -0.01761745 0.010043
23/09/2014 119 1891.36 0.016225448 -0.00105 Annualized Standard Deviation
22/09/2014 119.5 1879.48 0.004201681 -0.00629
19/09/2014 122.9 1874.52 0.028451883 -0.00264
18/09/2014 122 1852.73 -0.007323027 -0.01163
17/09/2014 120.5 1846.78 -0.012295082 -0.00321
16/09/2014 122 1819.04 0.012448133 -0.01502
15/09/2014 130 1841.83 0.06557377 0.012527
12/09/2014 135 1851.73 0.038461538 0.005379
11/09/2014 131.5 1849.75 -0.025925926 -0.00107 avgerage market return =
10/09/2014 133.9 1869.99 0.018250951 0.010943 free risk return =
09/09/2014 136.7 1891.9 0.020911128 0.011714 Market risk premium (Rm- Rf)
08/09/2014 135 1871.82 -0.012435991 -0.01061
05/09/2014 136.2 1861.78 0.008888889 -0.00536
04/09/2014 134.6 1902.85 -0.01174743 0.022058
03/09/2014 130.1 1880.03 -0.033432392 -0.01199
02/09/2014 127.6 1890.07 -0.019215988 0.005338
01/09/2014 125.5 1878.21 -0.01645768 -0.00627
29/08/2014 124.8 1864.52 -0.005577689 -0.00729
28/08/2014 128.8 1856.3 0.032051282 -0.00441
27/08/2014 130.2 1880.94 0.010869565 0.013274
26/08/2014 128.7 1858.12 -0.011520737 -0.01213
25/08/2014 125.2 1851.74 -0.027195027 -0.00343
22/08/2014 125.2 1851.74 0 0
21/08/2014 121 1829.84 -0.033546326 -0.01183
y = 0.2323x + 0.0027
-0.04
0.46
0.96
1.46
1.96
2.46
2.96
3.46
-0.03 -0.01 0.01 0.03 0.05 0.07 0.09 0.11
StockReturn
Market Return
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
Beta is normally calculated weekly for share price and market rate, however due to the DMAX
German market in which TUI is registered, data is only available in daily format and therefore
calculations have been calculated in daily to provide a direct comparison.
We can see from the results that both the UK London Stock Exchange and German Market have
different risk-free returns. 'risk-free return' is the theoretical rate of return attributed to an
investment with zero risk. The risk-free rate represents the interest on an investor's money that he or
she would expect from an absolutely risk-free investment over a specified period of time.
Shares are impacted in terms of value due to the risk associated with its capital structure. Capital
structure is a mix of a company's long-term debt, specific short-term debt, common equity and
preferred equity. The capital structure is how a firm finances its overall operations and growth by
using different sources of funding. The funding/debt comes in many forms from Bond issues, long
term note payable compared to equity which is associated with common stock, preferred stock or
retained earnings. Short-term debt like working capital requirement is also considered to be capital
structure. We will look at and analyse capital structure by reviewing its short and long term debt
which will provide a ratio of debt-to-equity ratio. This will provide insight into the how risky TUI is as a
business and also compare this to Thomas Cook (please see review TUI and Thomas Cook Ratio
calculations in Fig 16). We can see from TUI that there has been a clear focus on reducing its debit-to-
Calculate Stock Beta with Excel
Daily Standard deviation 2014
Stocks
Prices
(Adjusted
Close)
%
Returns Stock Beta Daliy Variance
Date TUI DMAX TUI DMAX Method 1 0.89770565 COVARIANCE.P(E8:E108,F8:F108)/VAR.P(F8:F108)
29/09/2014 7.36 358.40 Method 2 0.89770565 SLOPE(E8:E196,F8:F196) Number of trading days of the yea
26/09/2014 7.24 428.27 -0.0163 0.19495
25/09/2014 15.19 459.5 1.098066 0.072921 Annualized Variance
24/09/2014 17.5 368.87 0.152074 -0.19724
23/09/2014 8.97 395.63 -0.48743 0.072546 Annualized Standard Deviation
22/09/2014 13.66 360.46 0.522854 -0.0889
19/09/2014 28.58 759.44 1.09224 1.106863
18/09/2014 25.23 404.2 -0.11721 -0.46777
17/09/2014 13.48 325.46 -0.46572 -0.1948
16/09/2014 11.42 346.22 -0.15282 0.063787
15/09/2014 21.87 301.64 0.915061 -0.12876
12/09/2014 7.07 306.55 -0.67673 0.016278
11/09/2014 9.02 323.56 0.275813 0.055489 avgerage market return =
10/09/2014 9.2 304.62 0.019956 -0.05854 free risk return =
09/09/2014 6.36 297.69 -0.3087 -0.02275 Market risk premium (Rm- Rf)
08/09/2014 11.31 305.45 0.778302 0.026067
05/09/2014 11.18 394.47 -0.01149 0.291439
04/09/2014 8.11 492.59 -0.2746 0.248739
03/09/2014 11 491.63 0.35635 -0.00195
02/09/2014 6.95 283.35 -0.36818 -0.42365
01/09/2014 4.08 226.26 -0.41295 -0.20148
29/08/2014 8.08 361.94 0.980392 0.599664
28/08/2014 6.24 358.98 -0.22772 -0.00818
27/08/2014 8.79 309.57 0.408654 -0.13764
26/08/2014 7.52 339.39 -0.14448 0.096327
25/08/2014 3.87 204.35 -0.48537 -0.39789
22/08/2014 7.55 320.81 0.950904 0.569905
21/08/2014 8.75 377.67 0.15894 0.177239
y = 0.2368x + 0.0028
-0.04
0.46
0.96
1.46
1.96
2.46
2.96
3.46
-0.03 -0.01 0.01 0.03 0.05 0.07 0.09 0.11
StockReturn
Market Return
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
equity over the past 4 years with debt being reduced from 56% in 2011 to 15.9% in 2014. This is
echoed by TUI’s gearing ratio also going from 35.9% in 2011 to 13.8% in 2014.
Gearing measures a company’s financial leverage and shows the extent to which its operations are
funded by lenders versus shareholders. The term “gearing” also refers to the ratio between a
company’s stock price and the price of its warrants. Any travel company with high gearing ratio may
be more exposed to economic downturns due to the interest payments on its debt through cash
flows. Thomas Cook’s comparison debt-equity-ratio went from 81.8% in 2011 to 250.9% in 2014.
Thomas Cook has been loading its debt onto the company. The gearing from Thomas Cook tells the
same story with a gearing at unprecedented levels from 2011 at 45%, followed by 250.9% in 2014.
There are many sources of capital such as ordinary shares, preference shares, bonds, convertibles
and bank borrowings. Each source of capital come with different costs associated with them
(interest). As TUI has a number of sub companies like Thomas Cook, we can look at them as a parent
company and compare the borrowings, as shown in Fig 17.
It has been very difficult to extract the comparing data as TUI’s format is clear in the type of bonds it
has accumulated and also in the detail around its borrowing compared to Thomas Cook. TUI has been
focused on repaying its debt since 2011 as the difference year-on-year on its bonds has dramatically
changed. From 2011 to 2012, cash outflow from financing activities amounted to €894.2M and was
down from the previous year - a decrease of €1,355M versus the year prior. This was due to the
lower repayments of debt.
TUI AG spent a total of €437.5m for the early redemption of bonds (paying of bonds early and its
charges) and liabilities to banks (Bonds 2012 -1,087.1, 2011 - 1,300.6, Variance - 16.4) (TUI Annual
Accounts 2012). As a result credit reference agencies Standard & Poor’s and Moody’s. In February
2012, Moody’s lifted its outlook for TUI’s corporate rating from “stable” to “positive”. In November
2012, Standard & Poor's also lifted its credit rating from “stable” to “positive”.
The importance of credit rating is associated with the Interest TUI pays on its bonds and therefore
has a direct impact on operating profit for shareholders resulting in disposable monies for
shareholder funds. The payment of its debt has continued with (Bonds 2013 - £1,333.5, 2012 -
£1,551.1, Variance - 14.0) the remaining outstanding amount of €233.0m of TUI AG’s bonds maturing
in December 2012 (“senior fixed rate note” from 2012 Fig 17). There were small areas of bond
exchange for shares to reduce liabilities. The volume of finance leases increased though as four new
aircrafts was refinanced. Other loans newly taken out and other loan redemptions only accounted
for minor amounts.
Moving into 2013, TUI continued to reduce its liabilities by converting a five year bond (maturing in
2014) at 5.5% interest to shares (199 bonds = 10 shares each). This has resulted in decreases to
around €215m at the end of the reporting period. In addition, TUI again issues a convertible bonds
value of 339M, maturing in 2016 with a coupon of 2.75% being converted into ten shares over the
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
financial year of 2012/13. The 2013 balance sheet bondholders held conversion rights for a total of
66,812,720 at TUI.
Convertible bonds allow the bond holder to exchange the bond for a predetermined number of
shares in the issuing company (TUI). Because convertibles can be changed into stock and thus benefit
from a rise in the price of the underlying stock, this provides a short term security blanket for
investors that may want to participate in uncertain growth of TUI. By investing in converts you are
limiting your downside risk at the expense of limiting your upside potential. As a result there is an
element of confidence from bondholders in TUI in converting these bonds.
When comparing this to its competitor Thomas Cook, there is a completely different picture. Thomas
Cook’s liabilities are unclear both in format and data provided from 2011-2014. Since Thomas Cook
neared collapse in 2010, Thomas Cook has been in a state of recovery. Since 2011 Thomas Cook has
had higher interest of debit (£122M in 2011) which is higher than average (Thomas Cook Annual
accounts, 2011) due to the refinancing of the group bank facility in 2010 and, as a result, they have a
combination of bonds and bank debt with long and varied maturities. You will see from Fig 17 from
Thomas Cook that the volume of debt has been pushed from 1 year to 1-5 year in 2012 to 2015. In
addition, due to Thomas Cook nearing bankruptcy and its poor credit ratings, servicing bonds and
loans have been at a higher interest rate.
However Thomas Cook has been selling assets (e.g. their India business) to reduce its debts and have
a focus on servicing its debts correctly. As a result Thomas Cook has carried out a £1.6 billion capital
refinancing. They raised £431 million in new equity, a new banking facility of £500 million that
matures in 2017 with a second £191 million tranche available from 2015 and a new bond of 525
million Euros that matures in 2020. The refinancing was one of the most significant achievements of
year ending 2013. This was a good opportunity for Thomas Cooks reach an optimal capital structure
by reducing net debt and extending maturities, which allowed Thomas Cook to invest in its future
strategy.
Since Thomas Cook’s focus to clear its debt and arrange its finances in better order, its credit rating
has moved from White Horse Insurance Ireland Ltd with a financial stability rating of B+ (A M Best) or
above in 2011 to “Positive” from “Stable”. This has been achieved by the changed in management
(Thomas Cook Annual Accounts, 2014)
From looking at the market risk rate, the liabilities in bonds and notes combined with debt-to-equity
we can understand from multiple sources the risk in investing in TUI. By comparing this with Thomas
Cook, this provides a bench mark in terms of the market and how TUI fairs in managing its finances
which in turn will allow investment in its future strategy.
From the data we can infer that TUI’s market position is stable with debt being managed effectively
by the evidence provided by bond management and the fact that it is paying its debt back before
bonds arrive at maturity. From the Beta (Fig 15
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
) we can see that TUI’s average market return is 3.86% compared to its free risk return (German Risk
Free Rate, 2014) which essentially means the minimum rate investors could expect to receive from an
investment if it had no risk. The market risk premium is the minimum amount of return for investors
that can be expected. Therefore, TUI’s average market return of 3.86% is classified as low risk,
however all investments do carry some risk and are never completely risk free.
The debt-to-equity ratio and gearing calculations highlight the change in management of its debt.
When comparing Thomas Cook you can see they have loaded their debt over an extended period of
time. Their gearing is considerably worrying in comparison to TUI. In general, a company with
excessive leverage as demonstrated by Thomas Cook in its high gearing ratio may be more vulnerable
to economic downturns. This is because it has to make interest payments and service its debt from its
cash flows that may be significantly lower due to the downturn.
Thomas Cook’s average market return is -0.11% which makes the company high risk compared to
free risk return.
There is plenty of evidence around the two company’s position and TUI’s strength to manage its
finances (Head, 2014). With strong trading in 2014 (Davies, 2014) TUI financial position and strategy
seems to be working (TTG Digital, 2014).
Managing Change, Change Management and Change Leadership.
To be able to provide a comprehensive analysis of TUI’s strategic position, we need to understand its
ability to be agile in changing management and the capability within its leadership. Regardless of
their market position, TUI’s ability to be agile in changing management can provide TUI with the
capability to recover market share subject to its ability to change with the market environment. The
fast pace of the market has already been highlighted within this report. Let us review TUI’s situation,
and compare this to its competitor Thomas Cook in its capability both past and present around this
area.
In relation to TUI’s strategy, it is clear that the focus is on becoming more digital which is key to
driving bookings and making searching online easier. This is imperative so that inspirational ideas for
holidays via its content will drive revenues and, as a result, consolidates finance whilst they leverage
scale across multiple markets (TUI Annual Accounts, 2013). Thomas Cook is also following a digital
strategy (Annual Report & Accounts, 2013) but is somewhat behind TUI with their competitor
commencing a year in advance (2012).
As part of TUI setting a vision (People, 2013), they have decided to go through some changes in
management to meet this vision. Changing management helps others to understand change in
relation to projects and how the organisation will change with tools and techniques to manage the
people-side of change (Prosci, 2015).
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
TUI’s strategy drivers are content, brands & distribution, technology, growth & scale and people (Our
strategic framework and business models, 2013). TUI outlined its strategy “Big Picture” in November
2012 to help bring to life the group strategy, vision and strong growth plans in a dynamic and
engaging way. Thomas Cook’s approach was around “Dream Catcher”; a set of values, ways of
working with a code of conduct across the group, with a focus on behaviours.
Source: Case Study TUI Website 2012
Source: Thomas Cook annual accounts 2014 - Code of Conduct.
To drive an open and honest culture within TUI, the Big Picture was designed to help drive colleagues’
understanding, creating a dialogue about the path that TUI are on and the role each person has to
play, the future success of the business, and working together to achieve TUI’s goals. Using an image
to convey strategy and direction helps to make it more clear, consistent and memorable. This first
attempt (back in 2013) of this was unsuccessful with only 20% of staff being able to mention one of
the business goals (STRATEGIC report HOW WE DO IT: Our five strategic drivers, 2013).
In 2012 TUI revisited the survey and achieved 64% (Engaging and involving our colleagues, 2013).
Comparing this to Thomas Cook and their “Code of Conduct for their vision” with their every voice
survey which they commenced in 2013 for their new strategy, the first attempt generated 73%
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
response. Thomas Cook’s second approach achieved 75%, with 27% of the 75% provided specific
comments and feedback (Engagement Survey – Every Voice, 2014).
We will attempt review the first and second approach of TUI Travel around change management and
try to identify which tools and frameworks they have used in both scenarios to communicate with
55,000 staff across 180 countries (How we do it: Our people, 2013). We will look to uncover areas of
improvement, gaps in the tools, what tools could have helped and also make recommendations.
First we will look at the approach of the second phase to identify what TUI has failed to do in the first
approach. This will outline characteristics of the first approach to see which tools and models can be
identified as there is no reported information on their approach. When comparing this to Thomas
Cook, their approach makes reference to academic research that provides evidence of a clear and
positive correlation between recognition, engagement and performance of employees. We can
assume that Thomas Cook have used other academic approaches to change management
(Recognition - Thomas Cook Group plc Annual Report & Accounts 2013).
Following this, we can identify the areas of the feedback from TUI’s employees. The themes that
came of out of the first survey included opportunity, pride and trust (Engaging and involving our
colleagues, 2013). The lack of visibility of career opportunities across the company, in terms of pride,
left employees wanting to feel part of “One” global business. In terms of leadership, involvement and
more focused employee communication was needed (Engaging and involving our colleagues, 2013).
In Fig 12 there is a table of the actions taken and drivers with references. This approach was as much
a reactive approach and correction for TUI as anything else. In the case of Thomas Cook, 90% of
employees across the group have received comprehensive face-to-face training in interactive
sessions led by line managers as part of the launch of the code of conduct supported by a process
map (Fig.13) (Governance: Corporate governance, 2013).
I have put these into the three areas where I feel they address the outcome of the surveys they were
trying to achieve with the headings from the survey itself. By applying the change classification
framework from Hughes (2010), we can identify what has been missing from the first approach from
the action taken. The organisational change that is taking place is the organisation is the “vision”
which is aligned to their strategy. The reason for this is the impact consumers and their behaviours
make when purchasing holidays. In terms of the decision to make the change, the evidence highlights
that the board and senior leadership from the different regions agreed on the change (Strategic Risk
Governance, 2013, Engaging and involving our colleagues, 2013 & Operational Risk Governance,
2013). This group of people are called Group Management Board (GMB).
The scale of the change was across the entire TUI group. By critically analysing the table and using the
Hughes Classification Framework, we can identify the areas of weakness, who/how the organisation
is being communicated, who is managing this change and how it is being managed and who can
influence the success of this change in management. There is no evidence to support or contradict
any form of responsible lead for the change in management, however we can assume that the CEO
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
communication was driven by the MD and GMB from the first survey, with improvements being
outlined to enhance communication through involvement of people across the business in different
levels.
In addition, key stake holders have taken leadership in specific areas of training such as the CEO for
finance and deputy chief executive and MD for leadership programme. There is no evidence of who is
managing the change, but an attempt on influencers with engagement through different levels leads
us to assume that responsibility was left with a member of the GMB.
Now that the areas of weakness have been identified, we can start to commence the association with
frameworks and models. What is clear is that there was a lack of communication from the first
approach with only 20% being able to mention one of the business goals. Even with the 64% in the
revisited survey, there is still room for considerable improvement. Thomas Cook’s approach with an
initial 75% of staff actively acknowledging “code of conduct” followed by 90% shows considerably
greater success. When looking at changes in leadership and the use of Group Management Board
(GMB) we can identify the kind of leadership by using the Duphy & Stave change matrix (1993).
TUI’s approach based on the evidence is very much a Type 4 leadership approach, whereas the
approach could have benefited from being Type 1 and shown a more collaborative and consultative
approach which was taken on the second phase of survey and actions. As part of this assessment we
will review the leadership and communication as these were the key reasons why the first approach
was unsuccessful.
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
The approaches to change management and leadership are completely different. Change
management is a set of tools & processes to control and change where a big alteration is made, but is
controlled and focused on minimising costs with big output. In comparison, change leadership is
more associated with speed, large scale efficiency with small groups and training with executive
sponsors. Change leadership is more associated with urgency, big visions, and empowering people,
but can lack a sense of control. This is where big leaps are needed with a fast paced environment
(Kotter & Forbes, 2011). The approach identified by TUI Group is changing leadership due to the “Big
Picture” and the pace of change needed for the fast pace in consumer needs.
Now that we have identified the leadership approach, let us review how the change was managed.
There are many elements in the success of change by using change agents and agency. Change agent
is regarded as one of the more important factors of change (Hughes: Change Agents & Agency, 2010
& De Caluwe & Vermaak, 2003).
A change agent are those people that really make the difference implementing the change at a local
level. This is normally middle management who can influence and have authority to make change
take place. What is evident from the analysis is that there was no change team or change champion
from the first approach. Analysing phase 2 of the “Big Picture”, there is little supporting evidence of
change champions with active employee forums with two way feedback and involvement of
important matters. This includes ideas generation from employees empowering them.
Let us now review the communication from TUI around the vision for the “Big Picture”, both from the
first approach of its strategy and the second. We will look to use Quirke’s (1995) “communicating
change” model. Using Quirke’s model, we can identify areas from the second phase where
communication was missing from the first phase. The communication escalator is broken down into
five elements: awareness, understanding, support, involvement and commitment.
In terms of awareness, the first phase awareness was attempted but communication in this area was
weak as only 20% of staff could identify one element of the “Big Picture” compared to 64% from the
second survey. There is no information to provide which kind of communication was attempted as
part of phase one. However, the channel was unsuccessful due to the outcome of the survey. There is
no demonstration other than the survey to access the communication escalator for phase one,
therefore casting aspersions on the existence of a communication element to the project from the
GMB.
When we review phase two of the “Big Picture” strategy there are elements that can be identified
from the outcomes table of survey two. These are highlighted and underlined yellow from the
diagram.
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
The evidence to support these is illustrated in the table (Fig 14).
What can be identified immediately is that despite a recovery to rectify the communication challenge
from the first survey, there are gaps on the communication escalator, especially in regards to
interactive conferencing. We can establish that tools have been applied to provide feedback from
employees, yet the top-down communication from the leadership and GMB is limited with only
development forums serving as a way of communicating with leadership. The updates section only
provides communication to colleagues and not from the leadership.
When looking at the wider part of the communication escalator and its headings, awareness is vacant
from the communication strategy, and this may be the cause of the issues with the second survey still
being only 64% in terms of identifying the “Big Picture”. What also supports this is the lack of take up
in terms of the training portal, with only 1500 members over 42 countries out of 55,000 employees
taking part, which equates to approximately 2.72%.
Thomas Cook’s approach was very much face-to-face training with 90% already delivered. The
question needs to be asked - do they know the portal exists due to the lack of communication, or do
they know the portal does exist and is there still resistance and trust issues with the leadership and
“Big Picture” strategy?
The “Big Picture” itself as part of the communication may be a cause of the issue. The reason why this
assumption has been made is that this “Big Picture” is being used across 42 countries and there is
little attempt made to alter the picture to take into account multi-cultural elements (including
religion, laws etc.). With the diversity between cultures, women in bikinis are not tolerated in some
countries and therefore relating to the “Big Picture” may be difficult.
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
By using Quirke’s (1995) “communicating change” model, the change classification & framework
from Hughes (2010), the Change Agents & Agency (Hughes, 2010) and the works of De Caluwe and
Vermaak (2003), we have been able to identify gaps in areas from the leadership and communication
around the “Big Picture” strategy.
Methodology
To carry out a comprehensive analysis, a considerable amount of research was needed relating to the
travel and tourism industry. This was required to understand the change in the market and the speed
at which the change was happening. A number of scholastic theories and methods were used. The
theory behind this was to identify the credibility and use of both academic research (papers) and the
internet. What was established is that tools and theories from an academic background were of good
use in terms of analysing TUI and its competitive standing. According to Pearson (2015), Amazon
(2015), Waterstone (2015) and the Online Library - Travel and Tourism Operators - Books (2015)
there are no textbooks from 2012/2013 that provide insight or reference to the current landscape
and the speed of which the market is changing. This also includes very limited scholarly papers from
Online Library - Travel and Tourism Operators – Scholar (2015).
As a result, research was used from professional bodies such as ABTA, Europe Monitor and many
specialist industry research analysts. The use of Brighton Student Central’s online library, Google
Scholar, Yahoo Finance, Travel and Tourism bodies from various parts of the globe were used
including TUI and Thomas Cook websites to research and collect data. Data was collected on a
number of tables in Microsoft Excel to compare and contrast. This allowed a clear table of collecting
data in the same format whilst also providing the ability to research KPI’s and performance and to
carry out comprehensive analyses.
Results
Now that a full analysis has been carried out, we can summarise the environmental, strategic, and
financial position for TUI AG Travel. A comparison table (below) with the data captured and analysed
has been provided. The table has been provided with data that can be matched from the annual
accounts and other sources and compared from the various analyses.
What has been established is that the market is dramatically changing, and that both TUI and its rival
Thomas Cook have unprecedented challenges from competition and financial burdens in a market
which is intensifying both financially and strategically. Investment is needed to penetrate new
emerging markets and to protect future profits in Europe from dwindling further.
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
Below is a table on internal data from the annual accounts, sustainability and annual reports. This
also includes multiple channels which are already referenced, as well as financial institutes and
annual accounts form TUI and Thomas Cook.
Area Description TUI Thomas Cook
Market
Share
Wholesaler
online hotel
Wholesaler growth continues
with TTV up by 19%, but have
pulled out of Asia rooms with
stiff competition from leaders
Agonda (Pierce, 2011)
Does not offer
Wholesaler hotels
Customer
Service
Mentions on
social media
24% 31%
Customer
Service
Digital Apps
downloads
180,000
Unknown (late to digital
strategy)
Customer
Service
Customer
Service
Ranking 2013
>70% >60%
Customer
Service
Year 2013
Negative 4%, Natural 93%,
Positive 3%
Negative 5%, Natural
89%, Positive 6%
Customer
Service
Year 2013
Expedia - Negative 3%, Natural
86%, Positive 11%
Virgin Holiday - Negative
4.5%, Natural 88%
Positive 7.5%
Service Awards None
Europe's Leading Tour
Operator 2013 & 2014
Strategic
Engagement
from staff of
strategy/vision
2012 - 20% / 2013 - 64% 2013 - 73% / 2014 - 75%
Strategic Research Consultancy Academic /Consultancy
Strategic
Employees
Trained
2.72% 90%
Finance 2015 Revenue -1.80% 1.3%
Finance
Financial
Trading
September 2013, approximately
13% of Summer 2015 growth
strong with bookings up by 9%.
Average selling prices are up 2%.
Overall Mainstream Summer
programme has been sold
Recovered 15%
(£151.7M) of its losses
by end of 2012 and
approximately £60M by
2013
Finance Debt-Equity 2011 - 56% to 2014 - 15.9%
Debt equity ratio 2011 -
81.8%, 2014 - 250.9%
Finance
Daily Standard
Deviation
0.54194 0.02225
Finance Daily Variance 0.2937 0.0005
Finance
Annual
Variance
74.5998 0.012575
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
Finance
Annual
Standard
Deviation
8.63712 0.035461
Finance
Average
Market Return
3.86% 0.11%
Finance
Free Risk
Return
-1.40% 0.03%
Finance
Market Risk
Premium
0.05262 -0.03514
Online
Mainstream
Sales %
Year 2010 27 24
Online
Mainstream
Sales %
Year 20111 30 25
Online
Mainstream
Sales %
Year 2012 34 34
Online
Mainstream
Sales %
Year 2013 35 36
As part of this data summary, a 5 year overview of share price trading has also been provided.
Share Price Source: Yahoo Finance
Position of Beta and Market return has also been provided.
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
y = 0.2368x + 0.0028
-0.04
0.46
0.96
1.46
1.96
2.46
2.96
3.46
-0.03 -0.01 0.01 0.03 0.05 0.07 0.09 0.11
StockReturn
TUI Market Return
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
Before we can start to provide some thought to the issue of the TUI Group’s financial, strategic and
future position in the travel industry, we will need to review, compare and analyse the data captured.
This includes the data within the appendices, as well as the market growth and historic data and its
ability to change.
y = 0.2323x + 0.0027
-0.04
0.46
0.96
1.46
1.96
2.46
2.96
3.46
-0.03 -0.01 0.01 0.03 0.05 0.07 0.09 0.11
StockReturn
Thomas Cook Market Return
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
Analysis - Discussion
Now that we have carried out a comprehensive analysis of TUI’s environment, strategy and financial
position, as well as that of its competitor, we can now begin to analyse the data and information
captured.
We should start by interpreting the data and analysing the environment. We can see that the current
travel and tourism market is very volatile, and that it is subject to movement based on the current
economic position of the country’s holidaymakers. Over the last 5 years, Europe and the globe has
been recovering from economic down turn and, for this reason, consumers have had less disposable
income. This has changed the way consumers think about spending, and how they now search for
greater value.
Both TUI and Thomas Cook are seeing competitors like Expedia and others controlling their
environment more effectively due to their access to holiday information, digital experience, customer
satisfaction, and the loyalty schemes which they provide. TUI has been suffering due to a lack of
customer service, no loyalty scheme, and being behind in their digital strategy due to the first
attempt of positioning the vision being so poor. The company’s late entry into digital has had a direct
impact on its profitability, as competitors like Expedia have gained market presence.
Digital has had an impact on what kind of holiday’s consumers want, how they seek the best value,
demands for better service, and loyalty to the brand. Capping costs with all inclusive packages seems
to be setting the trend as 51% of the population book overseas travel this way. By consumers being
more astute, they have realised they can get some real deals and therefore they can now get away
more frequently.
It is reasonable to assume that the reason as to why TUI has sustained its market is by offering all
inclusive as standard for the largest part of its portfolio. The data outlines that consumers are looking
to spend more money on holidays over the coming years. However, I do agree partially in the sense
that they are taking more holidays which will incur extra cost. Despite this, due to the savvy nature of
customers and the online capabilities of saving from searching on the web, this has meant that they
can stretch their money further and take an extra holiday. TUI has to work harder to keep as much of
each consumer’s holiday spends as this is more fragmented with various holidays throughout the
year. Consumer buying power in travel and tourism has never been so strong since the economic
down turn. Based on the data, it is for this reason that the market is growing 3-4% year-on-year.
What is most interesting is that outside of Europe, where TUI is trying to grow a presence, there is a
boom developing in emerging markets, specific centred in Asia. China, with their affluent consumers,
needs greater attention due to the market access and their developing economies. TUI has not
entered Asia as yet as it has investments in Brazil and Russia which have taken priority.
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
When evaluating each of these countries there are a number of challenges. With Brazil there is the
lack of current infrastructure, a lack of skills in emerging markets to provide good customer
experience (e.g. language skills) which can impact the experience and brand, as well as the economy
and government evolving slower than anticipated. With Russia there is a trade embargo which is
creating political issues; something which consumers may feel uncomfortable with. This has had a
direct impact on TUI enhancing new revenue streams and has resulted in stagnated growth. Areas of
Europe which are still suffering include France, Greece, and the Scandinavian nation which is putting
pressure on TUI, so the focus around managing debt and operation is key.
TUI are currently managing this well compared to their competitor Thomas Cook. TUI cannot afford
to be complacent as Thomas Cook are resolving their debt crises, improving customer experience
more efficiently than TUI due to its wards, as well as developing their digital strategy with greater
haste with 90% of the staff trained. TUI’s strategy execution has also been challenging with the first
attempt unsuccessful, and the second remaining somewhat unsuccessful still with only 64% of staff
engaged.
With the pace of which the market is changing, TUI needs to execute its change management
effectively by communicating its vision and strategy more concisely. If TUI fails to achieve this,
investors will be concerned regarding its growth potential or, even more concerning, its loss of
market share. We can assume that this failure in communication may be due to its approach by using
consultants for its vision and strategy rather than a blend of academic research methods and
analyses. We can also assume this may be the reason for Thomas Cook’s pace of recovery. However,
from a consumer perspective, TUI strategy has some strengths with its tailored holidays competing
with online retailers like Trailfinders.
When we look at TUI and its ability to control its business and environment we can see overall trading
higher than average at 9%, but the impact of competition has meant selling prices are only up by 2%
while revenue is still down. This shows that the average cost of a holiday is down by margins which
have been increased to protect operating profits for 2015. This can be sustained long term with
stagnation within the European economy and pressure from online competitors.
We can assume that TUI are predicting some challenges ahead and therefore have taken action by
reducing its debt-to-equity in the last 4 years from 56% - 15.9%. With fluctuating exchange rates, the
cost of fuel, stiff online competition and Thomas Cook having risen from the ashes like the proverbial
phoenix, TUI have taken the right steps and by doing so have turned the company around, making it a
safe risk to invest in compared to Thomas Cook.
The market data captured needs to be analysed more broadly before looking into the future.
Managing costs effectively provides TUI with investment options and greater flexibility and protects
its share price today. Looking at the strategy, the cost of change from the first attempt is its vision,
and additional costs to recover the engagement of its staff in its vision gives a glimpse of challenges
TUI will face.
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
With a fast moving market and plenty of competition, market share and profits are at risk. With
Thomas Cook’s online digital platform outperforming TUI’s (2015 TUI 35% from 2010, 27% / Thomas
Cook 36% from 2010, 24%) and coming back from behind, we can see TUI’s future is bleak unless
investment into Asia and its vision is executed. As customer experience is key to engagement with
employees of TUI and they can’t relay the vision and unique holiday experience without it, then we
can envisage that customers will take their business elsewhere if this is not addressed.
We can assume a formula for retaining customers based on the data we have captured.
((Benefits (ALL inclusive, exclusivity, unique, Staff knowledge) x Holiday Experience (Service, accessible
data regarding holiday and destination-digital) / cost = value)) x customer satisfaction = Loyalty
Despite what the future may hold for TUI, its strategy is on the right path in line with market analyses
and it is ahead in terms of profit, debt and delivery of its overall objectives. TUI has mitigated an
element of future risk by changing its model slightly in BRIC’s by partnering with a Russian airline,
purchasing the small company Malaprinota in Brazil and looking to utilise its own assets for holidays
with hotels across the group.
The question is, is TUI a good investment? Based on its current financial position and its strategy, the
answer is yes. On its ability to execute its strategy the answer would err more towards no, as there is
still work needed to achieve this despite its average holding position on shares. My recommendation
is that due to its ability to execute its strategy and with it being an aggressive online retailer, I would
invest in an alternative company.
A suggestion long term would be to invest in Thomas Cook for a number of reasons. These include
the rate in which it is recovering from the financial collapse, its ability to execute its strategy, and its
interest from investment company Fosun who have already bought 5% shares with intentions of
buying an additional 10% in the next year. The market risk rate for Thomas Cook is high for its shares,
but its ability to bounce back is evident from the data and change management. We also need to take
into account Thomas Cook’s approach to their new business and the due diligence they are using.
This is evident in not just looking at a single source for insight such as consultants, but also academic
research and methods which in turn has given a more balanced approach. Considering its near
collapse in 2010, Thomas Cook’s credit rating has also improved with its management of debt and its
focus to pay its debt through some of its assets by selling off the Indian branch of its business.
Methodology Review
As part of the analysis we need to take into consideration the methodology and the approach taken.
The research has been primarily on travel and tourism. We need to consider the impact of the digital
environment and the fact that digital service has its own industry. If research is carried out in this
area, it may have had implications for the TUI Group due to their approach. The speed in which the
market is developing with digital players like Trailfinders and Expedia suggests that the digital
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
environment may have changed before TUI has implemented their strategy. The same goes for their
competitor Thomas Cook.
In terms of the tools used, a number of scholarly tools were used to carry out the analysis. The
challenge with the research is that since the development of the economic concerns within Europe,
there have been very little in the way of academic papers, books and journals. Specialists from the
industry writing literature in the future may have an impact on the outcome.
Specific writers on the internet may have a particular opinion regarding a situation and we need to
understand in detail if this has contributed to the outcome of press releases and notifications. The
information has to be compared with multiple sources before taking the information as factual. This
too may have had an impact on the outcome of some research. The same goes for ABTA and Euro
Monitor as these bodies may have to provide factual information – however, the way information is
presented may have spin associated with the outcome.
ABTA, Euro Monitor, and Euro International regulate the travel and tourism industry but have little
insight into the digital environment and the global travel and tourism industry. Broader research into
global companies in the same industry and their associated bodies from a global perspective may
change the outcome. We also need to consider emerging markets, as they too may have a different
perspective and this may have impacted the outcome as well in regards to the way data was analysed
with spreadsheet and contracting and comparing. Other methods such as looking at a broad
approach and using other tools may have impacted the result. The reason is that KPI’s ad drivers by
TUI and its competitors like Thomas Cook, Expedia TrailFinders and online travel suppliers may have
different KPI’s which may affect their success and their penetration of the market.
Scenarios
Based on the data captured we can begin to draw up a scenario. My assumption is that TUI’s debt
management will become more troublesome as they will see more pressure from online travel
retailers. This will put more pressure on margins and affect overall profitability as a result of poor
performances in European destinations which TUI is still managing such as Egypt, Scandinavia and
France. This is compounded by the slow take-up of emerging markets like Russia and Brazil for TUI.
The slow take up in emerging markets may see TUI pull out of the Russian market due to the political
issues with the EU and the trading embargo. This will allow TUI to focus on its core business rather
than be distracted by joint ventures. We have already seen Thomas Cook withdraw from its
operation in India by selling the business. Pressure from Thomas Cook in its recovery and its ability to
execute its strategy will also add to TUI’s pressure which will serve to destabilise confidence in
investors.
I predict that share price will drop by the end of 2015 by 15/20%. This is based in TUI’s continued
challenge to deliver its strategy and vision to its employees. We will see TUI’s staff feeling unsettled
Developing InternationalStrategic Capabilities – TUI Travel Group’s
Financial, Strategic and Future Position in the market
and potentially leaving the business to move to online retailers. This will also be a result of staff
feeling disengaged. This is evident by the lack of training and results from the second survey and its
vision.
As staff is the main asset in the travel retail business, this will impact TUI’s performance. The loss in
TUI’s market share will also be as a result of not having some form of loyalty programme for
customers. With so many options available to consumers and the ability to tailor their own holidays,
this limits the value TUI can offer based on its hotel portfolio. TUI’s approach in trying to push
customers to take hotels from their portfolio may put consumers off. Dictating to customers and
having low morale amongst staff as outlined in the report will affect the experience of consumers and
the resulting customer service.
TUI’s financial pressures in 2015 will likely see TUI dilute their shares to raise capital to invest back
into the company rather than revert back to increasing its debt. When a company issues additional
shares, this reduces an existing investor's proportional ownership in that company. This often leads
to a common problem called dilution. The end result is that the value of existing shares may fall.
The current economic position of Europe leaves TUI challenged when entering into new emerging
markets as it requires the funding from profits in its current business. As a result, we may see new
players entering the market due to Fosun having invested in the market.
As part of the continued pressure in the market we will also see Thomas Cook be affected. An
assumption is that Fosun will continue to invest in Thomas Cook by August 2015 before Thomas
Cook’s year ends in September. The reason for this is that if Thomas Cook’s recovery is better than
predicted, then Fosun can benefit from share price increasing based on Thomas Cook’s performance
and its original 5% investment.
Long term we may see Fosun take over Thomas Cook by 2018 with the intention of selling the
business on to a Chinese Travel company like Shijiebang for a profit. Shijiebang has been expanding
its portfolio and recently purchased a digital company called Tukeq (Bischoff, 2014). The reason for
the potential acquisition is the European access for Chinese consumers who like to go tourism
shopping is of real interest to Chinese consumers. The Chinese economy is booming and they are
looking to invest in Europe as a result (BBC, 2015, Waerden, 2010 & World Bank, 2015). This makes a
potential takeover for Thomas Cook seemvery likely. With only 5% of the Chinese population, which
equates to 39 million passengers, having a passport, Thomas Cook’s financial problems and poor
share price will see a take over from Asia.
Conclusion
We can now understand the complexity of the TUI Group with its wide portfolio and stake holder’s
engagement. The industry has changed dramatically over the last few years and with the evolution of
digital services. The future for the industry will be based on user experience of which digital is
currently leading the innovation of with consumer experience. The traditional model of retail stores
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Tourism Digital Transformation Operators Analyses

  • 1. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market Developing International Strategic Capabilities – TUI Group Travel Financial, Strategic and Future Position in the market Abstract – This report provides a summary of the current financial and strategic position of TUI Travel. The report provides a comprehensive market analysis of TUI Groups’ strategy and its ability to change in the current travel industry environment. I will evaluate and carry out a complete analysis of the company, its finances, its strategic position and its ability to change to the environment. The outcome will provide an assessment of future scenarios based on the information captured and whether the TUI Group is deemed a good investment.
  • 2. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market  Travel Operators Environment…………………………………………………………………………………………........3  Key Stake Holders……..…………………………………………………………………………….………………………………6  SWOT Analyses………………………………………………………………………………………………….…………….……10  PESTLE Analyses…………………………………………………………………………………………………………………….12  Market Forces (Porters 5 Forces)……………………………………………….……………………………….…………12  Companies Over View And Trading……………………………………………………………………………………….14  Competitive Position…………………………………………………………………………………………………………..…15  Companies Elasticity…………………………………………………………………………………………………….……….19  Finance Assessment……………………………………………………………………………………………………….……..20  Managing Change, Change Management and Change Leadership……………………………….………..26  Methodology………………………………………………………………………………………………………………………...32  Result…………………………………………………………………………………………………………………………………….32  Analyses and Discussion…………………………………………………………………………………………………..……37  Methodology…………………………………………………………………………………………………………………………39  Scenario…………………………………………………………………………………………………………………………………40  Conclusion…………………………………………………………………………………………………………………………….41  Appreciation and Thanks……………………………………………………………………………………………………….43  References…………………………………………………………………………………………………………………………….44  Appendix………………………………………………………………………………………………………………………..……..53
  • 3. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market Travel Operators Environment Before we can commence evaluation of the TUI Group, we must first evaluate the current environment. I will begin by looking at a smaller section of the industry to understand where the market is heading and what specialists are stating about the industry. Over the last twelve months of 2014, consumer confidence and spending has been mixed due to the economy. This has resulted in irregular trading and, despite a strong start to the holiday season, this has then tailed off resulting in a decline from 83% to 80% in 2013. This has been the lowest since 2010 (Tanzer, M. 2014 & ABTA Travel Trends Report, 2015). However, consumer confidence showed resurgence with more consumers speeding more money the following year (Tanzer, M. 2014). The reason for the slowdown is due to the financial squeeze. Even though Britons are traveling abroad more, 16% of people are taking at least three holidays abroad during the year compared with 14% in 2013 (Tanzer, M. 2014). As a result of the financial squeeze, the package holiday is more desirable and has seen real growth with more than half the population (51%) booking an overseas package holiday in the last 12 months (2014) compared to 37% in 2010 (Tanzer, M. 2014). The reason for this is that it provides the best value having everything taken care of and value option for the price (ABTA Travel Trends 2015). A third of consumers questioned (34%) also stated that they booked a package because they wanted an all-inclusive holiday (Tanzer, M. 2014). This is evident from ABTA consumer survey Figure 1. The most popular types of holiday continues to be city breaks and beach holidays. However there has been a slight decline in beach holidays from 38% in 2014 compared to 41% in 2013. This has seen city breaks overtake beach holidays for the first time as shown in Figure 2 (Tanzer, M. 2014). When consumers look to book their holidays, the most important factor is security and safety of accommodation with 50% of consumers seeing this as the primary factor, while another 36% feel it is important. Other important factors are financial protection (ATOL protection, membership of ABTA) and knowledgeable staff. This has not changed from 2013 as shown by Figure 3 (Tanzer, M. 2014). The trend in booking holidays is now moving to a more digital platform, with consumers using the internet across all channels as illustrated in ‘Who Have Holidays Been Booked With 2014.’ This is both at a micro level and a macro level (Figure 4)(Tanzer, M. 2014). Consumers have different ways of formulating research, and they often use a diverse range of sources – print, online and face-to-face – for holiday ideas and information. Travel company websites come relatively low down the list of sources for inspiration and information: on average, 15% of people use them for ideas/inspiration (rising to 17% among 16-24 year olds). Travel professionals
  • 4. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market score slightly higher: 17% of consumers use them for ideas/inspiration (rising to 25% among 16-24 year olds) according to Figure 5 (Tanzer, M. 2014). The most popular way to book holidays is still the computer, with 93% of consumers using this in 2014. However, there has been a significant increase in the use of tablets with 18% of people using them to book holidays, compared to 10% in 2013. The digital environment for booking holidays is also on the increase with mobile phone seeing a rise from 13% to 17%. The reason why PC’s are still the most common for booking holidays, however, this is due to security - whereas tablets are seen as a way saving time, mobile phones are often used purely for research as they are less secure (Tanzer, M. 2014, Bremner, 2014 & WTM Global trends report, 2014). Consumer attitudes towards travel professionals is also key, as part of booking their holiday is due to sharing insight and knowledge. The key areas are expertise, knowledge, experience in travel and travel arrangements. The experience is of particularly great importance for travel agents (online, on the telephone or the high street) or staff of holiday providers/tour operators, as 51% of consumers directly share this sentiment, and 46% state it saves them time as illustrated in Figure 6 (Tanzer, M. 2014). In 2015 consumers are looking to spend more on holidays with 20% (versus 19% in 2013) stating they will spend more and 15% (compared to 16% in 2013) stating they would spend less, The optimism is set to continue form in the coming year (Tanzer, M. 2014). This may be driven by the average spend rising before going on holiday (for overseas holiday) from 2013 to 2014 with the average shifting from £206 to £224 respectively (Tanzer, M. 2014). We have seen 35% of consumers assert that they will take a holiday to a new country (quite likely or practically certain) in 2015, and 48% of consumers are quite likely or practically certain to visit a new resort or city (Tanzer, M. 2014). There have been a number of issues affecting the tourism industry in the United Kingdom, with a number of holiday destinations being affected by political, social and economic unrest in 2014. The Foreign Office advised against all but essential travel to key areas of Kenya, as well as Thailand coming into the spotlight due both to protests taking place in Bangkok and the high profile murder of two tourists on the island of Kao Tao. The Ebola outbreak caused widespread global concern and has
  • 5. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market had an impact on West Africa and other African destinations. Unrest in Syria and the Middle East led the Foreign & Commonwealth Office to advise British nationals of potential threats globally. The disappearance of Malaysian Flight MH370 and, shortly afterwards, the shooting down of MH17 raised questions over the safety of flying over certain areas (ABTA Travel Trends, 2015). Discretionary leave led to debate over school holiday pricing with ABTA and how it affects the travel industry. Despite this, desire for authentic experiences and the perception of lower prices are driving the growth of this sector. A strong pound in 2014 meant that expenses for British holidaymakers came down in many favourite destinations, and it is predicted that this will boost visitor numbers as we enter 2015 within Europe, the USA and Japan (ABTA Travel Trends 2015). We will now begin to look at a macro level and consumer trends. The consumer trend in the use of digital is following suite as micro. As consumers are more pressed for time, they tend to make purchases on their smartphones. An increase in “omnichannel” (Wikipedia, 2014) creates a seamless link between virtual and “real world” shops with wide consumer appeal. The consumer interest in convenience is also amplified on holiday, from the outward journey onwards (Kasriel-Alexander, 2015 & Sandberg, 2015). Consumers are now also sharing and posting content and news they find interesting from blogs, brands and retailers online before they purchase holidays. Due to post-recession circumstances, the consumer is generally a more cautious spender. They tend to learn about purchase experience and aftersales service (or lack thereof) from other consumers who have already bought the product (Kasriel-Alexander, 2015). The travel and tourism industry continues to grow globally, with arrivals reaching a record 1.1 billion in 2013 which is up by 5.1%. The year 2014 is forecast to see a further increase, estimated at 4.7%. Similarly, inbound receipts are also expected to grow, with Asian middle and affluent classes being identified as the biggest spenders when travelling overseas (WTM Global trends report 2014). This is supported by the trend for consumers who are looking to take holidays for shopping (classified as “shopping tourism”) as part of their holiday. More consumers are looking to downsize to cheaper holiday accommodation to free up cash for product shopping (Kasriel-Alexander 2015 & Sandberg 2015).
  • 6. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market The China Outbound Tourism Research Institute have highlighted that 27% of Chinese tourists abroad spend more on shopping than on anything else. A total of 82% of Chinese tourists said shopping was a priority while traveling (Kasriel-Alexander, 2015). The reason for this growth in this area is that the Monetary Fund predicts global Gross Domestic Product growth of 3.4% for 2014, up from 3% in 2013, with China, India and the Association of South East Asian Nations driving this growth (WTM Global trends report, 2014). We can associate GDP with the growth of travel retailers in emerging markets (please see table below): Key Stake Holders We now have to look at the key influencers in the industry through key stake holder analysis. Following this, I feel it is imperative to draw attention to the stake holders that all have an in-tester, Key Performance Indicators 2013-2015 % growth 2013 2014 2015 Real GDP Growth 3.2 3.9 4.8 Travel Retail Value (US$) 7.1 9.3 9.7 Real GDP Growth 5.1 5.1 5.5 Travel Retail Value (US$) -0.6 2.8 3.4 Real GDP Growth 5.4 5.3 5.6 Travel Retail Value (US$) 4.4 5.00 4.6 Real GDP Growth 5.1 5.4 6.4 Travel Retail Value (US$) 3.9 9.50 9.2 Source WTM® Global Trends Report 2015 Key: Green highights growth, Red highlights decline Middle East Africa Asia Indian
  • 7. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market and to quantify their objectives. According to Freeman (1984), a stakeholder is “any group or individual who can affect or is affected by the achievement of the organisation’s objectives”. The success of tourism is based on its stakeholders and the development and sustainability of tourism. However not all stakeholder have the same interest - these are categorised into two areas; internal stakeholders to the business and external stakeholders who are influencers (as illustrated below in Company Stakeholders). The stakeholders of an organization (internal) can be divided into primary stakeholders and secondary stakeholders, subject to their relationship between their interests and the company. The white stakeholders are those that the company need to focus on as a priority, with the grey being those that can be involved later in the process subject to market and conditions as illustrated below (Zhao, 2006). Company Stakeholders (Selin, Yilmaz & Ozgur, Devrim, Gunel, 2008) To support the Company stakeholder’s map, please find below stake holders and their key focuses. Internal stake holders (classified as internal and important to business prime) Owners shareholders- Tourism development makes a positive contribution to all aspects of sustainable development, as far as possible in any given space and time (James 2008). Investors also want the interpretation of the brand to be strong (Merrilees, B., Miller, D. & Herington, C., 2012) Employees- Brand values by employees could be linked to driving relationship with wider stakeholders e.g. customers (Merrilees, B., Miller, D. & Herington, C., 2012)
  • 8. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market Financial communities- To provide investment in infrastructure and support. To provide better living standards so that economic growth can be achieved. In addition the reductions of corruptions and tax invasion (Cárdenas-García & Pulido-Fernández, 2014). Intermediaries- Local stakeholders developing entry to market, in addition to educating locals, marketing activities, the importance of quality to consumers (Tuohino, A. & Konu H., 2014). Customers- Connecting consumers to the brand and destination (García, J. A., Gómez, M. & Molina A., 2012). Government- Decides tourism laws. Also to create revenue from local business from Tax (Gough, G. & Duncan, C., 2008)(Sustainable Tourism Online, 2010)(Vijayanand, S., 2015) Satisfy the demands of tourists and the tourism industry, and continue to attract them in order to meet there needs (James, 2008). The focus on Suppliers due to Business changing economic circumstances both country and company growth (Zhang, 2003). Suppliers- Interest in the growth and prosperity of the business (Riley, J., 2012) Media- To build trust with consumers and build trust with online services (Gregori, N., Daniele, R. & Altinay, L., 2014). Also the use of social media and adjust marketing messages to consumers and adjust measurement (Martin, D., Rosenbaum, M. & Hamc, S., 2015). Competitors- Improves knowledge’s sharing which has an impact on community relationships, employee relationships, diversity issues, product issues, and environment issues (Ayuso, S., Rodríguez, M. A., García-Castro, R. & Ariño, M.A, 2012). External stake holders (classified as external/secondary impact on business) Local Government- Make tourism run smoothly by building and making tourism facilities and infrastructure. Running tourist information centres & tourist attractions. Helping local business by training, administration & finical advice. To work with local business so that tourist needs are met (Gough, G. & Duncan, C., 2008)(McBride, 2010)(Sustainable Tourism Online, 2010)(Vijayanand, S., 2015)(TUI Stakeholders, 2015). Travel agencies- Transport organisations, hotels, restaurants and shopping centres with all the same objective; sustainable business income, market promotions and services, plan for services, support communities and solve problems, provide jobs and training (Gough, G. & Duncan, C., 2008)(Sustainable Tourism Online, 2010)(Vijayanand, S., 2015). Local Communities- So that tourist can be informed of local traditions and how to care for the environment. Also that the local communities understand the value of tourism and the associated problems with tourism. By local communities supporting tourism this helps solve problems. They can plan new tourism activities and destinations, promote the area and make tourism safe, and provide
  • 9. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market funds for training to sustain tourism (Gough, G. & Duncan, C., 2008)(Sustainable Tourism Online, 2010)(Vijayanand, S., 2015). NGO’s- Focusing on improve living conditions, support education, protect nature and the environment, and preserve biodiversity - improvement of living conditions, the preservation of biological diversity and environmental and climate protection. (Futouris, 2015). Unions- Tour operator association - European Travel Agents and Tour Operators’ Association (ECTAA) to provide guidance on dealing with and cooperating with European Union institutions and international organizations to ensure that their interests and special requirements are taken into consideration (About ECCTA, 2015). Tour Operators’ Initiative (TOI)- Work closely with UNWTO and UNEP to promote best practice in sustainable development among tour operators including guidance of tours. Provide management tools or experience to design and conduct tours that minimise their negative environmental, social and economic impacts while optimising their benefits (Tour Operators Initiative, 2015). Association of British Travel Agents (ABTA)- To raise standards of and health and safety. The welfare of animals in tourism. To work with Members, Destinations and hotels and accommodations to ensure a sustainable future for our holidays (ABTA Working with Industry, 2015). Universities- In assistance of economic contributions through patenting, licensing, spin-off formation and technology transfer (Benneworth, P. & Jongbloed, B. W., 2009). Political groups- Meet the needs and wants of the local host community in terms of improved living standards and quality of life (James, 2008). Activist groups- Safeguard the environmental resource base for tourism, encompassing natural, built and cultural components, in order to achieve both of the preceding aims (James, 2008). Customer advocate groups- Customer needs need to be addressed or power by the company will cease long term (Allen, R., 2008). Sustainability organisations- To provide integrate sustainable tourism in local business, to protect the environment, create opportunities for local people in tourism destinations including training of local people to develop tourism skills, Conservation projects e.g. resource efficiency in hotels, environmental protection (Travel Foundation, 2015). To also provide a level of standard in sustainability (Global Sustainable Tourism Council, 2015)(Overseas Development Institute, 2015)(Global Sustainable Tourism Council, 2015). Trade associations- Tourismdevelopment makes a positive contribution to all aspects of sustainable development, as far as possible in any given space and time & Economic health, well-being of locals; Unspoilt nature, protection of resources; Healthy culture; Optimum satisfaction of guest requirements (James, 2008).
  • 10. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market External stakeholders – Below outlines external stakeholders and drivers in greater detail. Source: Local Government Pathways to Sustainable Tourism, Sustainable Tourism Cooperative Research Centre, 2009 SWOT After reviewing the environment, we can now understand the industry and its strengths, weakness, opportunities and threats (SWOT). A comprehensive SWOT analysis has been carried out from the perspective of TUI and the environment.  Strengths - TUI is a strong market leader in Europe with a well-recognised brand. TUI has a wide portfolio brand allowing them to both tailor to and address customer demand across a diverse spectrum (Travel and Tourism TUI AG Worldwide, 2014).  Weakness - A considerable amount of antiquated IT and back office systems that drive high costs. Change in integration can remove costs and the business could, in turn, become more efficient (Annual report of accounts and notice 2014 annual general meeting). Customer numbers have dropped by 3% (2012-2013) due to lack of catering for individual needs, a vulnerable Eurozone with weak economies and stagnations (Travel and Tourism TUI AG Worldwide, 2014). The ability to be agile and deal with demand beyond capacity is needed from emerging markets (Curran, E. 2015).  Opportunity - New markets and online accommodation is where future growth lies (Annual report of accounts and notice 2014 annual general meeting). TUI is actively developing
  • 11. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market emerging markets like Russia and Brazil with the acquisition of Malaprinota and OTA’s with the addition of the German market for cruises to offer premium services (Travel and Tourism TUI AG Worldwide 2014). Travel and tourism is growing at a rate of 1.2% per annum through until 2022. In addition, the growth attracts foreign investment which could have a direct impact in investors making an investment in Travel companies.  Developing and emerging economies may entice travel operators to provide services and package holidays as this drives the economy and jobs making it easier to enter into new markets. Countries that have National Tourism Organization (NTOs) status can work in partnership with TUI to promote their countries and reduce marketing costs, especially in emerging markets (Turner, R., 2012). TUI digital strategy and online services can take advantage of the 30% of online travel bookings growth predicted by 2017, and as a result can accelerate purchasing decisions (Saunders, L., 2015).  Threats - Not addressing consumer preference & desires plays an important part in selecting their holiday, including providing the access that customers want and not responding quickly enough to consumer preferences. Market pressure can result in lower short and median term rates and therefore reduce the resulting margin. Cross board trading also has a direct impact on currency fluctuations, exchange rates and tax laws, which then have a direct impact on airplane fuel and operating costs.  Spending on travel and tourism tends to be discretionary from consumers who are very price sensitive as a result of the economy. Attracting talent and retaining key management positions are paramount as they are seen as valuable due to their ability to provide great travel experiences. Impact from international incidents like terrorism, civil war and natural disaster can have a direct impact on operations, leading to cancellations and reductions in consumer demand and an impact on the regulatory environment. Protecting consumer’s aviation and the environment.  Internal systems that fail to control or protect aviation and the environment can have an impact on brands and result in lower revenues (Annual report of accounts and notice 2014 annual general meeting).  Instability in specific countries like Egypt and other key winter sun destinations due to security issues has been reduced. This is also compounded by stiff competition in the online market which has been slowly taking their global market share (Travel and Tourism TUI AG Worldwide, 2014).  The economic slowdown can impact emerging markets through changes in exchange rates and consumer confidence. A lack of skills in emerging markets to provide good customer experience, such as language skills, can impact tourism negatively (Poltavchenko, G.S. 2012).  Lack of national transport infrastructure and the shortage of hotels across countries can impact consumer confidence in new markets. In addition, slow investment from governments can delay revenue streams on investments made in these countries (BMI Brazil Tourism Report, 2015). Market penetration in emerging markets with poor access to consumers can sometimes be weak due to lack of internet access based on TUI digital strategies. There is also
  • 12. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market notably no formal or direct strategy on customer loyalty (TUI Sustainability Annual Accounts, 2013).  Exchange rates and consumer from the UK can benefit through exchange rates e.g. Russia (Travel and Tourism in Russia 2014). Large wave of Chinese outbound to UK can see huge revenues with only 5% of Chinese holding a passport from the 1.3billion population (Curran.E, 2015). PESTLE We can now start to plot the PESTLE analyses from the data captured in a PESTLE table. Please see table in Fig 7. Market Forces - Porters 5 Forces We can now draw upon Porters 5 forces to understand the power of the TUI Group in their market (Porter, M., 1980). Below is TUI’s position in the marketplace based on the information collected within this report. New Market Entrants (Medium Entrance) • Entry ease/barriers – (Medium) E-Commerce suppliers can bring package holidays together with no overheads. However, legal and political barriers make entrance challenging (ABTA & Government). • Geographical factors – (High) Can see MNC entering into Europe market but need large investment to build brand, credibility and access to partners e.g. flight paths, hotels etc. • Incumbent’s resistance – Too many competitors, both niche tour operators and TUI being leaders that need to keep up with consumer demands and squeezed margins due to value holidays. Supplier Power: (Low Power) _ • Brand reputation – (Medium) TUI are well positioned being the largest travel operator in Europe, controlling a lot of power in terms of scale. However, BRIC countries may not recognise the brand and this will take time to establish partnerships, but this is balanced with tourism generating revenue and jobs for emerging markets. • Geographical coverage – Current suppliers of TUI in Europe are being squeezed more due to the economic down turn and consumers looking for more value (e.g. all-inclusive). Also, suppliers are at the mercy of their economies and political environment; if the economy or instability of politics/terrorism has an impact on tourism then TUI has the power to reduce package holidays to
  • 13. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market designated areas/countries. TUI’s scale also allows them to negotiate hard and obtain the best value. • Product/service level quality – Suppliers need to conform to high levels of service and security (safety). Europe is well established however emerging markets will take time to develop tourist attractions and bring businesses up to date with tourism needs. • Relationships with customers – Customer experience is key at destinations as customers can now build package holidays online allowing them to shop for better offers and service. Contacts with suppliers from TUI will have specific guidelines around engagement with consumers. • Bidding processes/capabilities – Suppliers will compete with others in the procurement process. Current established markets will be able to compete, however new emerging markets may have issues around the capability to bid for contracts due to the lack of training and capability. Competitive Rivalry (High) • Number and size of firms – There are only a small amount of travel companies competing in Europe. However there is a growing trend with online package holidays and travel operators. Competition may grow as TUI starts to target BRIC’s emerging market with new travel providers competing. • Industry size and trends – The market continues to grow year-on-year. The race to penetrate BRIC countries will intensify over the coming years and margins will be squeezed to provide value for money. TUI will need to continue its focus on managing its costs effectively to compete well and to keep market position. • Fixed vs. variable cost bases – This is very hard to control with the cost of fuel and tax playing a large part in controlling internal costs. In addition, government taxes vary from country to country. In addition, fluctuating exchange rate have an impact on costs. • Product/service ranges – TUI has a vast product and service range, from all inclusive to tailored holidays. This also includes cruises and activity holidays. • Differentiation, strategy – TUI are well positioned with their digital strategy compared to other competitors like Thomas Cook. They are more advanced in both retail stores and online in terms of customer experience (Lansell, 2015). Buyer Power (High) • Buyer choice – Consumers are more in-tune and have access to the internet to shop around for the best value-for-money offers. Subject to the weather, they may need to be enticed to take a holiday if the resonating country has good weather.
  • 14. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market • Buyers size/number – The market continues to grow between 3-4% annually. Therefore buyer’s power is strong as TUI needs to maintain growth and position number one in Europe. • Change cost/frequency – Consumers are sensitive to the economy and therefore put pressure on the travel industry to reduce cost if there is less disposable income. The market needs to actively monitor consumer behaviours to adjust pricing and offers. • Product/service importance – Consumers are now moving to more tailored package holidays or are building their own package holidays with online suppliers providing access and more control to consumers. • Volumes, JIT scheduling – Low as consumers tend to go on more than 2-3 holidays a year. Their loyalty is low to existing travel companies including TUI. Product and Technology Development • Alternatives price/quality – High; consumers can stay in their own country and take holidays there. Can use train or car to travel to destinations. Can also seek to package their own holidays. • Market distribution changes – IT systems can have an impact on consumer spending. Political and economic unrest can change consumer behaviours. Natural disasters can impact by causing cancelations or a change in the destination of holiday consumers. • Fashion and trends – Changing needs of consumers can impact on the operations of TUI. The digital environment and competitiveness can impact consumers by influencing where they spend their money. • Legislative effects – Tax implications have an impact on emerging market access. Governments and stake holders can impose operating costs to become compliant and to impact costs. Companies Over view & Trading To be able to provide a greater understanding of the leadership of TUI Group and its current success, we need to understand from the company’s report how they feel they have been trading. By doing so, we can analyse its positions and compare it to the data collected and the evidence from the analyses. The approach is to understand if there is any credibility in their statement, or if there are underlying issues which can be highlighted. We will look to review and extract information from their performance plan to understand their trading, and compile an analysis with the data collected to enable greater understanding of their future. Fig 8 provides highlights and challenges in the form of a summary.
  • 15. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market There was no formal format from year-on-year of the terms of reviewing the previous year’s weakness and strengths. However, a high level dashboard providing the year’s performance is listed as illustrated in Fig 9. Planning for fuel and currency was also reported on and was constant in terms of reporting. Fig 10 shows the percentage of TUI’s forecast requirement for currency and fuel for the seasons in 2013/14 and 2014/15 (Operation and Financial Highlights 2014 & Current Trading Outlook, 2013). When comparing this to Thomas Cook, the aforementioned states that there is a focus to reduce fuel costs. Their focus is wider, and Group Airlines have endeavoured to make a 12% improvement in efficiency from 2008-2020 and have achieved a 6% improvement up to 2013. The focus from Thomas Cook has been very much on operational cost savings. An example of this is their intent to reduce energy consumption by 20% which they are on track to accomplish, with overall reduction at 10% across their offices and retail networks and a 17% year-on-year in 2013. There is a focus on customer service to achieve an average score of very good/excellent from customer feedback questionnaires. They have achieved 92% rated in this area as rated good/excellent (Our Performance, 2013). Thomas Cook’s 2014 annual reports provide real clarity in comparison to TUI Group, with clear tables outlining year-on-year comparisons in virtually all sections as illustrated in Fig 9. This has been a transformation from the 2013 annual accounts reporting which had been split between countries as shown in Fig 9. Competitive Position Now that a comprehensive scan of the market has been completed, we need to evaluate the current position of TUI Group and its position in the market, including its rival company Thomas Cook. A review of the last three will provide an overview of any recovery, market gain, holding position or loss. This will in turn provide evidence to support what the future may hold and provide some insight into its strategic position and financial standing. To be able to analyse this correctly, we will review the period in order of year from 2012 to 2015. We will begin with year 2012/13 to see how the company is performing and move to subsequent years so that we can understand its relation to strategy and how it has performed to be able to carry out a final assessment later. In 2013 we saw TUI performing strongly with an 11% increase from the previous year, while its rival Thomas Cook was trying to recover lost ground due to financial issues which, as a result, kept TUI as the biggest holiday company in Europe (Bridge 2011& TUI Annual Accounts 2013). The issue for Thomas Cook was trying to be a cost leader back in 2011 when it was also sustaining heavy financial losses, and as a result has had a direct impact on consumer confidence and investors. As a result Thomas Cook have moved away from focusing on being cost leaders and are now focusing on becoming differentiators instead (Riley 2011).
  • 16. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market Thomas Cook have kept their market position as the second largest European travel company in 2012 after a cost cutting exercise and having sold off its Indian business (for £113M) to remove the need for further funding requests and, as a result, stem losses (Reuters 2012 & Scuffham, M., 2012). In December 2011, Thomas Cook took market share of TUI and this has happened once again in January 2012 due to TUI promotions which really demonstrates how sensitive the market is in regards to promotions. At this point Thomas Cook lost 90% of their share value and had 3 profit warnings (Scuffham, M., 2012). Whilst Thomas Cook has been trying to recover from its profits warnings, TUI has been expanding into the BRIC countries. In 2012, TUI created TUI Russia from Moscow Domodedovo as a joint venture with Russian carrier Kolavia. This was to provide flight and holiday packages, giving it a potential advantage in the Russian leisure market. TUI spent 1 million USD on rebranding the airline with 11 charter routes across Eastern Europe, Western Europe and North Africa. The approach to this expansion has been different from normal business practice as it is a virtual airline model rather than one which operates its own aircraft. Their intention is to expand to long haul in 2013, although this will require long body air crafts to accommodate the expansion and move into flights to Asia; specifically to Thailand due to the growing market (averaging 15% year-on-year). The new strict guidelines & regulations from the Russian government means that TUI can benefit them as necessary funds are needed to protect consumers from the operator going bust. TUI is well positioned as 13 of 14 Russian tour operators cannot fulfil this and may lose their federal registration (Capa 2012).
  • 17. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market It is not all gloom for Thomas Cook as their new CEO has already made an improvement of 15% (£151.7M) on its losses by the end of 2012 and approximately £60M by 2013. Industry outsider Harriet Green (CEO of Thomas Cook) also slashed its debt with the sale of its Indian business and several Spanish hotels. At this point TUI had already grown by 9% of its summer bookings. TUI has also seen benefits from sales of unique holidays (differentiated and exclusive product combined) as they were up 3% compared same position last year (2013). Online sales for TUI continue to grow, accounting for 46% of winter holidays. TUI still has challenges with 12% increases in its loss before tax to a total of £178m in the last quarter of 2012. This was partly due to sales in Germany and France going down, and partly due to reductions in capacity to Egypt and a number of long-haul destinations. The economic down turn is not affecting business as disposable income is still used by consumers for holidays according to Nick Hood, business analyst for Company Watch (Thomas, 2013). In 2014 trading the groups of mainstream holiday division saw underlying profits rise by 13% to £581 million. The current market position from consumers echoes the performance from the two rivals where TUI Group and its sub-brands are mentioned in social media as better performing, whilst Thomas Cook have the lowest customer experience (please see tables below)(Jaume, 2013).
  • 18. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market When looking at a micro level in the UK where both operators have their largest business in Europe, neither company came up top. Instead, Trailfinders picked up “Best British Tour Operator” awards, with TUI sub-brands and Thomas Cook coming in the bottom range. First Choice scored less than 70%, while Thomas Cook scored less than 60%, neither of which were in the top ten (Smith, 2013). This is echoed by The Guardian naming Trailfinders 4th with no mention of TUI or the Thomas Cook sub-brands (Guardian, 2013). Market analysts have seen both TUI and Thomas Cook making steady performance increases over the year, with Thomas Cook showing the most potential due to coming back from the verge of
  • 19. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market bankruptcy (Baird, 2013 & Harris-Doughty, 2013). TUI Travel still seems to be nudging ahead based on its shares and performance due to growth from TUI and struggling recovery from Thomas Cook, but both have had issues with Egypt due to political unrest (Guardian, 2013 & Craik, 2013). Despite TUI’s steady performance, Thomas Cook has managed to secure Europe's Leading Tour Operator 2013, therefore demonstrating its fight-back. They also managed to secure the award again in 2014 (Travel Awards, 2013). This is supported by their online sales growth for 2012 & 2013, with Thomas Cook leaping in online sales (Fig 11). The competition is becoming fiercer, with online retailers impacting the market with new entrances (Read, 2014). The future for TUI and Thomas Cook is still bleak, with both forecasting a loss in 2014 (Clarke, 2014). As we move into 2015, it is reported that TUI revenue has dropped by 1.8% compared to Thomas Cook, which has seen a 1.3% increase, suggesting that the small rivals are catching up with the two leaders (FVW Dossier, 2014). Thomas Cook’s troubles are still far from resolved with the CEO Harriet Green leaving the business back in 2014 and the company being unable to provide a sense of direction (Ficenec, 2015). The replacement Thomas Cook CEO Peter Fanhauser has already started to change the business around by going into a partnership with Fosun, who have purchased a 5% share which will increase to 10%. This will give Thomas Cook a cash injection of £91.8M and access to the Chinese market, which will boost visitors to Russia and Europe giving Thomas Cook a new opportunity. Thomas Cook strategy seems a lot clearer now with a focus on online, and its services, and more customer-focused retail stores (The Hindu Business Line, 2015 & Selig, D., 2015 & Rigby, C., 2015). Thomas Cook, however, still need to develop their mobile application when compared to TUI’s established mobile application with 180,000 downloads (Rossi, 2014). Companies Elasticity One of the Key factors in analysing the competitor’s position is to understand the elasticity of consumers in their markets. By reviewing the current data and researching the environment, we can
  • 20. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market understand TUI’s position and how Thomas Cook and other companies serving the industry are maintaining and growing their customer base. By maintaining customers, this provides a secure financial position resulting in greater flexibility to invest in its strategy. Based on current information, the focus has been on clearly developing access of services to consumers by using the digital environment. From the environmental scan we can identify that the digital providers are gaining market share. TUI and Thomas Cook have been benefiting from the 3-4% organic growth in the market which provides little evidence of elasticity. There is little evidence to support any approach to elasticity, however specific service around unique hotels seems to drive the highest customer retentions from TUI Travel. TUI has identified that customer retention is a high risk area in the current market. In 2014 TUI’s focus remained on unique holidays as this accounts for 71% of their mainstream sales, the business benefits of which include higher average selling prices, higher rates of retention and earlier bookings. This is just what TUI seems to believe and there is a direct correlation between unique holidays and customer service questionnaire scores that lead to increased customer retention (TUI Travel PLC Annual Report & Accounts, 2014). By comparison, Thomas Cook 2013 & 2014 had no correlation between customer retention at all. There are elements of indirect elasticity through combination of the Thomas Cook market leadership position, scale, the focus on unique holidays, increasingly online presence and their relationship with the customer throughout their whole holiday experience. It continues to provide a strong basis for sustainable, profitable growth (Barnes, 2014). When comparing Expedia it is clear that the key focus is hiring directors of customer loyalty (Simply Hired, 2015). In addition, online competitors are making a move to acquire loyalty programs. Priceline has made a pre-emptive move to acquire Rocketmiles, which offers air miles for bookings of hotels and travel through its website. Expedia have a similar model but with points not air miles (Cuff, 2015). Finance Assessment We have now carried out both a strategic and market analysis, and therefore we now need to focus on a financial analysis. There are a number of areas that can be used for financial analysis, however to provide a comparison the areas of financial analysis needs to be comparable. TUI Groups travel operation is different to its competitors Thomas Cook in that there are elements and markets which are different. For example, TUI Group has a portfolio of online hotel companies, and that investment into BRIC’s has been different with TUI having a joint venture whereas Thomas Cook has invested directly into these markets. The main focus of the financial investment will be around the share price, and the impacts of debt around the share price. The reason for this as a focal point is that TUI’s rival Thomas
  • 21. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market Cook nearly went bankrupt back in 2009 and TUI’s future may change if its main rival was to disappear from Europe. The ability of TUI Travel to manage it finances has a direct impact on the confidence of investors to invest long term. In addition surplus cash can be invested into new markets and services to grow and protect future profits and revenue so that TUI can achieve its objectives. The financial management goes hand in hand with strategy, as the profitability of the company is underpinned by its strategy and the outcome is more profits (as illustrated below). We will look to compare and contrast TUI to Thomas Cook. We will commence by looking at the share prices over the last 4 years and the changes TUI and Thomas Cook have gone through. To be able to establish the risk of TUI’s shares, we need to carry out an analysis of the last 4 years. We will begin by calculating beta for TUI. As part of this analysis we will also carry out the same assessment for Thomas Cook. Beta is used to measure the difference between the average market return and the return on an individual stock - in other words the profit from shares if an investment is made. The beta of the market equals one, so stock betas close to one will emulate the market's average return. Beta measures the risk, and higher betas imply higher returns with higher risk profiles. In addition to this we will look at CAPM (Capital Asset Pricing Model). The CAPM says that the expected return of a security or a portfolio equals the rate on a risk-free security, plus a risk premium. If this expected return does not meet or beat the required return, then the investment
  • 22. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market should not be undertaken. The security market line plots the results of the CAPM for all different risks (betas). In each country the government calculates the risk return based on the position of the economy. Therefore, for this exercise we will use the London Stock Exchange (TCG THOMAS COOK GROUP PLC ORD EUR0.01, 2015) for Thomas Cook for its historic share price and the London Stock Exchange (Current market rate, 2015) market rate in which Thomas Cook is benchmarked on as constant. This will be compared to the UK Governments Risk Free Market Rate (Barr, D., Bush, O., & Pienkowski, A., 2014). TUI’s data will be collected in the same format but form the DMAX stock exchange in which TUI’s trades in (TUI Historic Data, 2015) with the market rate (BORSE Frankfurt, 2015). The German economy is different in the sense of its GDP and therefore the Risk Free Market Rate (German Risk Free Rate, 2014) will be different. By comparing them both, we can understand TUI’s position to its competitor and its ability to manage its financial matters. As an example model by using the CAPM model and the following assumptions, we can calculate the expected return of a stock in this CAPM example. If the risk-free rate is 3%, the beta (risk measure) of the stock is 2 and the expected market return over the period is 10%, the stock is expected to return 17% (3%+2(10%- 3%)). The calculations for Beta and CAPM are shown below for both TUI and Thomas Cook (full data available in appendices Fig 15). Calculate Stock Beta with Excel Daily Standard deviation 2014 Stocks Prices (Adjusted Close) % Returns Stock Beta Daliy Variance Date Thomas Cook LSE.L Thomas Cook LSE.L Method 1 0.232262 COVARIANCE.P(E8:E108,F8:F108)/VAR.P(F8:F108) 29/09/2014 119.3 1874.52 Method 2 0.232262 SLOPE(E8:E216,F8:F216) Number of trading days of the yea 26/09/2014 117.8 1876.5 -0.012573345 0.001057 25/09/2014 119.2 1874.52 0.01188455 -0.00106 Annualized Variance 24/09/2014 117.1 1893.35 -0.01761745 0.010043 23/09/2014 119 1891.36 0.016225448 -0.00105 Annualized Standard Deviation 22/09/2014 119.5 1879.48 0.004201681 -0.00629 19/09/2014 122.9 1874.52 0.028451883 -0.00264 18/09/2014 122 1852.73 -0.007323027 -0.01163 17/09/2014 120.5 1846.78 -0.012295082 -0.00321 16/09/2014 122 1819.04 0.012448133 -0.01502 15/09/2014 130 1841.83 0.06557377 0.012527 12/09/2014 135 1851.73 0.038461538 0.005379 11/09/2014 131.5 1849.75 -0.025925926 -0.00107 avgerage market return = 10/09/2014 133.9 1869.99 0.018250951 0.010943 free risk return = 09/09/2014 136.7 1891.9 0.020911128 0.011714 Market risk premium (Rm- Rf) 08/09/2014 135 1871.82 -0.012435991 -0.01061 05/09/2014 136.2 1861.78 0.008888889 -0.00536 04/09/2014 134.6 1902.85 -0.01174743 0.022058 03/09/2014 130.1 1880.03 -0.033432392 -0.01199 02/09/2014 127.6 1890.07 -0.019215988 0.005338 01/09/2014 125.5 1878.21 -0.01645768 -0.00627 29/08/2014 124.8 1864.52 -0.005577689 -0.00729 28/08/2014 128.8 1856.3 0.032051282 -0.00441 27/08/2014 130.2 1880.94 0.010869565 0.013274 26/08/2014 128.7 1858.12 -0.011520737 -0.01213 25/08/2014 125.2 1851.74 -0.027195027 -0.00343 22/08/2014 125.2 1851.74 0 0 21/08/2014 121 1829.84 -0.033546326 -0.01183 y = 0.2323x + 0.0027 -0.04 0.46 0.96 1.46 1.96 2.46 2.96 3.46 -0.03 -0.01 0.01 0.03 0.05 0.07 0.09 0.11 StockReturn Market Return
  • 23. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market Beta is normally calculated weekly for share price and market rate, however due to the DMAX German market in which TUI is registered, data is only available in daily format and therefore calculations have been calculated in daily to provide a direct comparison. We can see from the results that both the UK London Stock Exchange and German Market have different risk-free returns. 'risk-free return' is the theoretical rate of return attributed to an investment with zero risk. The risk-free rate represents the interest on an investor's money that he or she would expect from an absolutely risk-free investment over a specified period of time. Shares are impacted in terms of value due to the risk associated with its capital structure. Capital structure is a mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funding. The funding/debt comes in many forms from Bond issues, long term note payable compared to equity which is associated with common stock, preferred stock or retained earnings. Short-term debt like working capital requirement is also considered to be capital structure. We will look at and analyse capital structure by reviewing its short and long term debt which will provide a ratio of debt-to-equity ratio. This will provide insight into the how risky TUI is as a business and also compare this to Thomas Cook (please see review TUI and Thomas Cook Ratio calculations in Fig 16). We can see from TUI that there has been a clear focus on reducing its debit-to- Calculate Stock Beta with Excel Daily Standard deviation 2014 Stocks Prices (Adjusted Close) % Returns Stock Beta Daliy Variance Date TUI DMAX TUI DMAX Method 1 0.89770565 COVARIANCE.P(E8:E108,F8:F108)/VAR.P(F8:F108) 29/09/2014 7.36 358.40 Method 2 0.89770565 SLOPE(E8:E196,F8:F196) Number of trading days of the yea 26/09/2014 7.24 428.27 -0.0163 0.19495 25/09/2014 15.19 459.5 1.098066 0.072921 Annualized Variance 24/09/2014 17.5 368.87 0.152074 -0.19724 23/09/2014 8.97 395.63 -0.48743 0.072546 Annualized Standard Deviation 22/09/2014 13.66 360.46 0.522854 -0.0889 19/09/2014 28.58 759.44 1.09224 1.106863 18/09/2014 25.23 404.2 -0.11721 -0.46777 17/09/2014 13.48 325.46 -0.46572 -0.1948 16/09/2014 11.42 346.22 -0.15282 0.063787 15/09/2014 21.87 301.64 0.915061 -0.12876 12/09/2014 7.07 306.55 -0.67673 0.016278 11/09/2014 9.02 323.56 0.275813 0.055489 avgerage market return = 10/09/2014 9.2 304.62 0.019956 -0.05854 free risk return = 09/09/2014 6.36 297.69 -0.3087 -0.02275 Market risk premium (Rm- Rf) 08/09/2014 11.31 305.45 0.778302 0.026067 05/09/2014 11.18 394.47 -0.01149 0.291439 04/09/2014 8.11 492.59 -0.2746 0.248739 03/09/2014 11 491.63 0.35635 -0.00195 02/09/2014 6.95 283.35 -0.36818 -0.42365 01/09/2014 4.08 226.26 -0.41295 -0.20148 29/08/2014 8.08 361.94 0.980392 0.599664 28/08/2014 6.24 358.98 -0.22772 -0.00818 27/08/2014 8.79 309.57 0.408654 -0.13764 26/08/2014 7.52 339.39 -0.14448 0.096327 25/08/2014 3.87 204.35 -0.48537 -0.39789 22/08/2014 7.55 320.81 0.950904 0.569905 21/08/2014 8.75 377.67 0.15894 0.177239 y = 0.2368x + 0.0028 -0.04 0.46 0.96 1.46 1.96 2.46 2.96 3.46 -0.03 -0.01 0.01 0.03 0.05 0.07 0.09 0.11 StockReturn Market Return
  • 24. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market equity over the past 4 years with debt being reduced from 56% in 2011 to 15.9% in 2014. This is echoed by TUI’s gearing ratio also going from 35.9% in 2011 to 13.8% in 2014. Gearing measures a company’s financial leverage and shows the extent to which its operations are funded by lenders versus shareholders. The term “gearing” also refers to the ratio between a company’s stock price and the price of its warrants. Any travel company with high gearing ratio may be more exposed to economic downturns due to the interest payments on its debt through cash flows. Thomas Cook’s comparison debt-equity-ratio went from 81.8% in 2011 to 250.9% in 2014. Thomas Cook has been loading its debt onto the company. The gearing from Thomas Cook tells the same story with a gearing at unprecedented levels from 2011 at 45%, followed by 250.9% in 2014. There are many sources of capital such as ordinary shares, preference shares, bonds, convertibles and bank borrowings. Each source of capital come with different costs associated with them (interest). As TUI has a number of sub companies like Thomas Cook, we can look at them as a parent company and compare the borrowings, as shown in Fig 17. It has been very difficult to extract the comparing data as TUI’s format is clear in the type of bonds it has accumulated and also in the detail around its borrowing compared to Thomas Cook. TUI has been focused on repaying its debt since 2011 as the difference year-on-year on its bonds has dramatically changed. From 2011 to 2012, cash outflow from financing activities amounted to €894.2M and was down from the previous year - a decrease of €1,355M versus the year prior. This was due to the lower repayments of debt. TUI AG spent a total of €437.5m for the early redemption of bonds (paying of bonds early and its charges) and liabilities to banks (Bonds 2012 -1,087.1, 2011 - 1,300.6, Variance - 16.4) (TUI Annual Accounts 2012). As a result credit reference agencies Standard & Poor’s and Moody’s. In February 2012, Moody’s lifted its outlook for TUI’s corporate rating from “stable” to “positive”. In November 2012, Standard & Poor's also lifted its credit rating from “stable” to “positive”. The importance of credit rating is associated with the Interest TUI pays on its bonds and therefore has a direct impact on operating profit for shareholders resulting in disposable monies for shareholder funds. The payment of its debt has continued with (Bonds 2013 - £1,333.5, 2012 - £1,551.1, Variance - 14.0) the remaining outstanding amount of €233.0m of TUI AG’s bonds maturing in December 2012 (“senior fixed rate note” from 2012 Fig 17). There were small areas of bond exchange for shares to reduce liabilities. The volume of finance leases increased though as four new aircrafts was refinanced. Other loans newly taken out and other loan redemptions only accounted for minor amounts. Moving into 2013, TUI continued to reduce its liabilities by converting a five year bond (maturing in 2014) at 5.5% interest to shares (199 bonds = 10 shares each). This has resulted in decreases to around €215m at the end of the reporting period. In addition, TUI again issues a convertible bonds value of 339M, maturing in 2016 with a coupon of 2.75% being converted into ten shares over the
  • 25. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market financial year of 2012/13. The 2013 balance sheet bondholders held conversion rights for a total of 66,812,720 at TUI. Convertible bonds allow the bond holder to exchange the bond for a predetermined number of shares in the issuing company (TUI). Because convertibles can be changed into stock and thus benefit from a rise in the price of the underlying stock, this provides a short term security blanket for investors that may want to participate in uncertain growth of TUI. By investing in converts you are limiting your downside risk at the expense of limiting your upside potential. As a result there is an element of confidence from bondholders in TUI in converting these bonds. When comparing this to its competitor Thomas Cook, there is a completely different picture. Thomas Cook’s liabilities are unclear both in format and data provided from 2011-2014. Since Thomas Cook neared collapse in 2010, Thomas Cook has been in a state of recovery. Since 2011 Thomas Cook has had higher interest of debit (£122M in 2011) which is higher than average (Thomas Cook Annual accounts, 2011) due to the refinancing of the group bank facility in 2010 and, as a result, they have a combination of bonds and bank debt with long and varied maturities. You will see from Fig 17 from Thomas Cook that the volume of debt has been pushed from 1 year to 1-5 year in 2012 to 2015. In addition, due to Thomas Cook nearing bankruptcy and its poor credit ratings, servicing bonds and loans have been at a higher interest rate. However Thomas Cook has been selling assets (e.g. their India business) to reduce its debts and have a focus on servicing its debts correctly. As a result Thomas Cook has carried out a £1.6 billion capital refinancing. They raised £431 million in new equity, a new banking facility of £500 million that matures in 2017 with a second £191 million tranche available from 2015 and a new bond of 525 million Euros that matures in 2020. The refinancing was one of the most significant achievements of year ending 2013. This was a good opportunity for Thomas Cooks reach an optimal capital structure by reducing net debt and extending maturities, which allowed Thomas Cook to invest in its future strategy. Since Thomas Cook’s focus to clear its debt and arrange its finances in better order, its credit rating has moved from White Horse Insurance Ireland Ltd with a financial stability rating of B+ (A M Best) or above in 2011 to “Positive” from “Stable”. This has been achieved by the changed in management (Thomas Cook Annual Accounts, 2014) From looking at the market risk rate, the liabilities in bonds and notes combined with debt-to-equity we can understand from multiple sources the risk in investing in TUI. By comparing this with Thomas Cook, this provides a bench mark in terms of the market and how TUI fairs in managing its finances which in turn will allow investment in its future strategy. From the data we can infer that TUI’s market position is stable with debt being managed effectively by the evidence provided by bond management and the fact that it is paying its debt back before bonds arrive at maturity. From the Beta (Fig 15
  • 26. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market ) we can see that TUI’s average market return is 3.86% compared to its free risk return (German Risk Free Rate, 2014) which essentially means the minimum rate investors could expect to receive from an investment if it had no risk. The market risk premium is the minimum amount of return for investors that can be expected. Therefore, TUI’s average market return of 3.86% is classified as low risk, however all investments do carry some risk and are never completely risk free. The debt-to-equity ratio and gearing calculations highlight the change in management of its debt. When comparing Thomas Cook you can see they have loaded their debt over an extended period of time. Their gearing is considerably worrying in comparison to TUI. In general, a company with excessive leverage as demonstrated by Thomas Cook in its high gearing ratio may be more vulnerable to economic downturns. This is because it has to make interest payments and service its debt from its cash flows that may be significantly lower due to the downturn. Thomas Cook’s average market return is -0.11% which makes the company high risk compared to free risk return. There is plenty of evidence around the two company’s position and TUI’s strength to manage its finances (Head, 2014). With strong trading in 2014 (Davies, 2014) TUI financial position and strategy seems to be working (TTG Digital, 2014). Managing Change, Change Management and Change Leadership. To be able to provide a comprehensive analysis of TUI’s strategic position, we need to understand its ability to be agile in changing management and the capability within its leadership. Regardless of their market position, TUI’s ability to be agile in changing management can provide TUI with the capability to recover market share subject to its ability to change with the market environment. The fast pace of the market has already been highlighted within this report. Let us review TUI’s situation, and compare this to its competitor Thomas Cook in its capability both past and present around this area. In relation to TUI’s strategy, it is clear that the focus is on becoming more digital which is key to driving bookings and making searching online easier. This is imperative so that inspirational ideas for holidays via its content will drive revenues and, as a result, consolidates finance whilst they leverage scale across multiple markets (TUI Annual Accounts, 2013). Thomas Cook is also following a digital strategy (Annual Report & Accounts, 2013) but is somewhat behind TUI with their competitor commencing a year in advance (2012). As part of TUI setting a vision (People, 2013), they have decided to go through some changes in management to meet this vision. Changing management helps others to understand change in relation to projects and how the organisation will change with tools and techniques to manage the people-side of change (Prosci, 2015).
  • 27. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market TUI’s strategy drivers are content, brands & distribution, technology, growth & scale and people (Our strategic framework and business models, 2013). TUI outlined its strategy “Big Picture” in November 2012 to help bring to life the group strategy, vision and strong growth plans in a dynamic and engaging way. Thomas Cook’s approach was around “Dream Catcher”; a set of values, ways of working with a code of conduct across the group, with a focus on behaviours. Source: Case Study TUI Website 2012 Source: Thomas Cook annual accounts 2014 - Code of Conduct. To drive an open and honest culture within TUI, the Big Picture was designed to help drive colleagues’ understanding, creating a dialogue about the path that TUI are on and the role each person has to play, the future success of the business, and working together to achieve TUI’s goals. Using an image to convey strategy and direction helps to make it more clear, consistent and memorable. This first attempt (back in 2013) of this was unsuccessful with only 20% of staff being able to mention one of the business goals (STRATEGIC report HOW WE DO IT: Our five strategic drivers, 2013). In 2012 TUI revisited the survey and achieved 64% (Engaging and involving our colleagues, 2013). Comparing this to Thomas Cook and their “Code of Conduct for their vision” with their every voice survey which they commenced in 2013 for their new strategy, the first attempt generated 73%
  • 28. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market response. Thomas Cook’s second approach achieved 75%, with 27% of the 75% provided specific comments and feedback (Engagement Survey – Every Voice, 2014). We will attempt review the first and second approach of TUI Travel around change management and try to identify which tools and frameworks they have used in both scenarios to communicate with 55,000 staff across 180 countries (How we do it: Our people, 2013). We will look to uncover areas of improvement, gaps in the tools, what tools could have helped and also make recommendations. First we will look at the approach of the second phase to identify what TUI has failed to do in the first approach. This will outline characteristics of the first approach to see which tools and models can be identified as there is no reported information on their approach. When comparing this to Thomas Cook, their approach makes reference to academic research that provides evidence of a clear and positive correlation between recognition, engagement and performance of employees. We can assume that Thomas Cook have used other academic approaches to change management (Recognition - Thomas Cook Group plc Annual Report & Accounts 2013). Following this, we can identify the areas of the feedback from TUI’s employees. The themes that came of out of the first survey included opportunity, pride and trust (Engaging and involving our colleagues, 2013). The lack of visibility of career opportunities across the company, in terms of pride, left employees wanting to feel part of “One” global business. In terms of leadership, involvement and more focused employee communication was needed (Engaging and involving our colleagues, 2013). In Fig 12 there is a table of the actions taken and drivers with references. This approach was as much a reactive approach and correction for TUI as anything else. In the case of Thomas Cook, 90% of employees across the group have received comprehensive face-to-face training in interactive sessions led by line managers as part of the launch of the code of conduct supported by a process map (Fig.13) (Governance: Corporate governance, 2013). I have put these into the three areas where I feel they address the outcome of the surveys they were trying to achieve with the headings from the survey itself. By applying the change classification framework from Hughes (2010), we can identify what has been missing from the first approach from the action taken. The organisational change that is taking place is the organisation is the “vision” which is aligned to their strategy. The reason for this is the impact consumers and their behaviours make when purchasing holidays. In terms of the decision to make the change, the evidence highlights that the board and senior leadership from the different regions agreed on the change (Strategic Risk Governance, 2013, Engaging and involving our colleagues, 2013 & Operational Risk Governance, 2013). This group of people are called Group Management Board (GMB). The scale of the change was across the entire TUI group. By critically analysing the table and using the Hughes Classification Framework, we can identify the areas of weakness, who/how the organisation is being communicated, who is managing this change and how it is being managed and who can influence the success of this change in management. There is no evidence to support or contradict any form of responsible lead for the change in management, however we can assume that the CEO
  • 29. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market communication was driven by the MD and GMB from the first survey, with improvements being outlined to enhance communication through involvement of people across the business in different levels. In addition, key stake holders have taken leadership in specific areas of training such as the CEO for finance and deputy chief executive and MD for leadership programme. There is no evidence of who is managing the change, but an attempt on influencers with engagement through different levels leads us to assume that responsibility was left with a member of the GMB. Now that the areas of weakness have been identified, we can start to commence the association with frameworks and models. What is clear is that there was a lack of communication from the first approach with only 20% being able to mention one of the business goals. Even with the 64% in the revisited survey, there is still room for considerable improvement. Thomas Cook’s approach with an initial 75% of staff actively acknowledging “code of conduct” followed by 90% shows considerably greater success. When looking at changes in leadership and the use of Group Management Board (GMB) we can identify the kind of leadership by using the Duphy & Stave change matrix (1993). TUI’s approach based on the evidence is very much a Type 4 leadership approach, whereas the approach could have benefited from being Type 1 and shown a more collaborative and consultative approach which was taken on the second phase of survey and actions. As part of this assessment we will review the leadership and communication as these were the key reasons why the first approach was unsuccessful.
  • 30. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market The approaches to change management and leadership are completely different. Change management is a set of tools & processes to control and change where a big alteration is made, but is controlled and focused on minimising costs with big output. In comparison, change leadership is more associated with speed, large scale efficiency with small groups and training with executive sponsors. Change leadership is more associated with urgency, big visions, and empowering people, but can lack a sense of control. This is where big leaps are needed with a fast paced environment (Kotter & Forbes, 2011). The approach identified by TUI Group is changing leadership due to the “Big Picture” and the pace of change needed for the fast pace in consumer needs. Now that we have identified the leadership approach, let us review how the change was managed. There are many elements in the success of change by using change agents and agency. Change agent is regarded as one of the more important factors of change (Hughes: Change Agents & Agency, 2010 & De Caluwe & Vermaak, 2003). A change agent are those people that really make the difference implementing the change at a local level. This is normally middle management who can influence and have authority to make change take place. What is evident from the analysis is that there was no change team or change champion from the first approach. Analysing phase 2 of the “Big Picture”, there is little supporting evidence of change champions with active employee forums with two way feedback and involvement of important matters. This includes ideas generation from employees empowering them. Let us now review the communication from TUI around the vision for the “Big Picture”, both from the first approach of its strategy and the second. We will look to use Quirke’s (1995) “communicating change” model. Using Quirke’s model, we can identify areas from the second phase where communication was missing from the first phase. The communication escalator is broken down into five elements: awareness, understanding, support, involvement and commitment. In terms of awareness, the first phase awareness was attempted but communication in this area was weak as only 20% of staff could identify one element of the “Big Picture” compared to 64% from the second survey. There is no information to provide which kind of communication was attempted as part of phase one. However, the channel was unsuccessful due to the outcome of the survey. There is no demonstration other than the survey to access the communication escalator for phase one, therefore casting aspersions on the existence of a communication element to the project from the GMB. When we review phase two of the “Big Picture” strategy there are elements that can be identified from the outcomes table of survey two. These are highlighted and underlined yellow from the diagram.
  • 31. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market The evidence to support these is illustrated in the table (Fig 14). What can be identified immediately is that despite a recovery to rectify the communication challenge from the first survey, there are gaps on the communication escalator, especially in regards to interactive conferencing. We can establish that tools have been applied to provide feedback from employees, yet the top-down communication from the leadership and GMB is limited with only development forums serving as a way of communicating with leadership. The updates section only provides communication to colleagues and not from the leadership. When looking at the wider part of the communication escalator and its headings, awareness is vacant from the communication strategy, and this may be the cause of the issues with the second survey still being only 64% in terms of identifying the “Big Picture”. What also supports this is the lack of take up in terms of the training portal, with only 1500 members over 42 countries out of 55,000 employees taking part, which equates to approximately 2.72%. Thomas Cook’s approach was very much face-to-face training with 90% already delivered. The question needs to be asked - do they know the portal exists due to the lack of communication, or do they know the portal does exist and is there still resistance and trust issues with the leadership and “Big Picture” strategy? The “Big Picture” itself as part of the communication may be a cause of the issue. The reason why this assumption has been made is that this “Big Picture” is being used across 42 countries and there is little attempt made to alter the picture to take into account multi-cultural elements (including religion, laws etc.). With the diversity between cultures, women in bikinis are not tolerated in some countries and therefore relating to the “Big Picture” may be difficult.
  • 32. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market By using Quirke’s (1995) “communicating change” model, the change classification & framework from Hughes (2010), the Change Agents & Agency (Hughes, 2010) and the works of De Caluwe and Vermaak (2003), we have been able to identify gaps in areas from the leadership and communication around the “Big Picture” strategy. Methodology To carry out a comprehensive analysis, a considerable amount of research was needed relating to the travel and tourism industry. This was required to understand the change in the market and the speed at which the change was happening. A number of scholastic theories and methods were used. The theory behind this was to identify the credibility and use of both academic research (papers) and the internet. What was established is that tools and theories from an academic background were of good use in terms of analysing TUI and its competitive standing. According to Pearson (2015), Amazon (2015), Waterstone (2015) and the Online Library - Travel and Tourism Operators - Books (2015) there are no textbooks from 2012/2013 that provide insight or reference to the current landscape and the speed of which the market is changing. This also includes very limited scholarly papers from Online Library - Travel and Tourism Operators – Scholar (2015). As a result, research was used from professional bodies such as ABTA, Europe Monitor and many specialist industry research analysts. The use of Brighton Student Central’s online library, Google Scholar, Yahoo Finance, Travel and Tourism bodies from various parts of the globe were used including TUI and Thomas Cook websites to research and collect data. Data was collected on a number of tables in Microsoft Excel to compare and contrast. This allowed a clear table of collecting data in the same format whilst also providing the ability to research KPI’s and performance and to carry out comprehensive analyses. Results Now that a full analysis has been carried out, we can summarise the environmental, strategic, and financial position for TUI AG Travel. A comparison table (below) with the data captured and analysed has been provided. The table has been provided with data that can be matched from the annual accounts and other sources and compared from the various analyses. What has been established is that the market is dramatically changing, and that both TUI and its rival Thomas Cook have unprecedented challenges from competition and financial burdens in a market which is intensifying both financially and strategically. Investment is needed to penetrate new emerging markets and to protect future profits in Europe from dwindling further.
  • 33. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market Below is a table on internal data from the annual accounts, sustainability and annual reports. This also includes multiple channels which are already referenced, as well as financial institutes and annual accounts form TUI and Thomas Cook. Area Description TUI Thomas Cook Market Share Wholesaler online hotel Wholesaler growth continues with TTV up by 19%, but have pulled out of Asia rooms with stiff competition from leaders Agonda (Pierce, 2011) Does not offer Wholesaler hotels Customer Service Mentions on social media 24% 31% Customer Service Digital Apps downloads 180,000 Unknown (late to digital strategy) Customer Service Customer Service Ranking 2013 >70% >60% Customer Service Year 2013 Negative 4%, Natural 93%, Positive 3% Negative 5%, Natural 89%, Positive 6% Customer Service Year 2013 Expedia - Negative 3%, Natural 86%, Positive 11% Virgin Holiday - Negative 4.5%, Natural 88% Positive 7.5% Service Awards None Europe's Leading Tour Operator 2013 & 2014 Strategic Engagement from staff of strategy/vision 2012 - 20% / 2013 - 64% 2013 - 73% / 2014 - 75% Strategic Research Consultancy Academic /Consultancy Strategic Employees Trained 2.72% 90% Finance 2015 Revenue -1.80% 1.3% Finance Financial Trading September 2013, approximately 13% of Summer 2015 growth strong with bookings up by 9%. Average selling prices are up 2%. Overall Mainstream Summer programme has been sold Recovered 15% (£151.7M) of its losses by end of 2012 and approximately £60M by 2013 Finance Debt-Equity 2011 - 56% to 2014 - 15.9% Debt equity ratio 2011 - 81.8%, 2014 - 250.9% Finance Daily Standard Deviation 0.54194 0.02225 Finance Daily Variance 0.2937 0.0005 Finance Annual Variance 74.5998 0.012575
  • 34. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market Finance Annual Standard Deviation 8.63712 0.035461 Finance Average Market Return 3.86% 0.11% Finance Free Risk Return -1.40% 0.03% Finance Market Risk Premium 0.05262 -0.03514 Online Mainstream Sales % Year 2010 27 24 Online Mainstream Sales % Year 20111 30 25 Online Mainstream Sales % Year 2012 34 34 Online Mainstream Sales % Year 2013 35 36 As part of this data summary, a 5 year overview of share price trading has also been provided. Share Price Source: Yahoo Finance Position of Beta and Market return has also been provided.
  • 35. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market y = 0.2368x + 0.0028 -0.04 0.46 0.96 1.46 1.96 2.46 2.96 3.46 -0.03 -0.01 0.01 0.03 0.05 0.07 0.09 0.11 StockReturn TUI Market Return
  • 36. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market Before we can start to provide some thought to the issue of the TUI Group’s financial, strategic and future position in the travel industry, we will need to review, compare and analyse the data captured. This includes the data within the appendices, as well as the market growth and historic data and its ability to change. y = 0.2323x + 0.0027 -0.04 0.46 0.96 1.46 1.96 2.46 2.96 3.46 -0.03 -0.01 0.01 0.03 0.05 0.07 0.09 0.11 StockReturn Thomas Cook Market Return
  • 37. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market Analysis - Discussion Now that we have carried out a comprehensive analysis of TUI’s environment, strategy and financial position, as well as that of its competitor, we can now begin to analyse the data and information captured. We should start by interpreting the data and analysing the environment. We can see that the current travel and tourism market is very volatile, and that it is subject to movement based on the current economic position of the country’s holidaymakers. Over the last 5 years, Europe and the globe has been recovering from economic down turn and, for this reason, consumers have had less disposable income. This has changed the way consumers think about spending, and how they now search for greater value. Both TUI and Thomas Cook are seeing competitors like Expedia and others controlling their environment more effectively due to their access to holiday information, digital experience, customer satisfaction, and the loyalty schemes which they provide. TUI has been suffering due to a lack of customer service, no loyalty scheme, and being behind in their digital strategy due to the first attempt of positioning the vision being so poor. The company’s late entry into digital has had a direct impact on its profitability, as competitors like Expedia have gained market presence. Digital has had an impact on what kind of holiday’s consumers want, how they seek the best value, demands for better service, and loyalty to the brand. Capping costs with all inclusive packages seems to be setting the trend as 51% of the population book overseas travel this way. By consumers being more astute, they have realised they can get some real deals and therefore they can now get away more frequently. It is reasonable to assume that the reason as to why TUI has sustained its market is by offering all inclusive as standard for the largest part of its portfolio. The data outlines that consumers are looking to spend more money on holidays over the coming years. However, I do agree partially in the sense that they are taking more holidays which will incur extra cost. Despite this, due to the savvy nature of customers and the online capabilities of saving from searching on the web, this has meant that they can stretch their money further and take an extra holiday. TUI has to work harder to keep as much of each consumer’s holiday spends as this is more fragmented with various holidays throughout the year. Consumer buying power in travel and tourism has never been so strong since the economic down turn. Based on the data, it is for this reason that the market is growing 3-4% year-on-year. What is most interesting is that outside of Europe, where TUI is trying to grow a presence, there is a boom developing in emerging markets, specific centred in Asia. China, with their affluent consumers, needs greater attention due to the market access and their developing economies. TUI has not entered Asia as yet as it has investments in Brazil and Russia which have taken priority.
  • 38. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market When evaluating each of these countries there are a number of challenges. With Brazil there is the lack of current infrastructure, a lack of skills in emerging markets to provide good customer experience (e.g. language skills) which can impact the experience and brand, as well as the economy and government evolving slower than anticipated. With Russia there is a trade embargo which is creating political issues; something which consumers may feel uncomfortable with. This has had a direct impact on TUI enhancing new revenue streams and has resulted in stagnated growth. Areas of Europe which are still suffering include France, Greece, and the Scandinavian nation which is putting pressure on TUI, so the focus around managing debt and operation is key. TUI are currently managing this well compared to their competitor Thomas Cook. TUI cannot afford to be complacent as Thomas Cook are resolving their debt crises, improving customer experience more efficiently than TUI due to its wards, as well as developing their digital strategy with greater haste with 90% of the staff trained. TUI’s strategy execution has also been challenging with the first attempt unsuccessful, and the second remaining somewhat unsuccessful still with only 64% of staff engaged. With the pace of which the market is changing, TUI needs to execute its change management effectively by communicating its vision and strategy more concisely. If TUI fails to achieve this, investors will be concerned regarding its growth potential or, even more concerning, its loss of market share. We can assume that this failure in communication may be due to its approach by using consultants for its vision and strategy rather than a blend of academic research methods and analyses. We can also assume this may be the reason for Thomas Cook’s pace of recovery. However, from a consumer perspective, TUI strategy has some strengths with its tailored holidays competing with online retailers like Trailfinders. When we look at TUI and its ability to control its business and environment we can see overall trading higher than average at 9%, but the impact of competition has meant selling prices are only up by 2% while revenue is still down. This shows that the average cost of a holiday is down by margins which have been increased to protect operating profits for 2015. This can be sustained long term with stagnation within the European economy and pressure from online competitors. We can assume that TUI are predicting some challenges ahead and therefore have taken action by reducing its debt-to-equity in the last 4 years from 56% - 15.9%. With fluctuating exchange rates, the cost of fuel, stiff online competition and Thomas Cook having risen from the ashes like the proverbial phoenix, TUI have taken the right steps and by doing so have turned the company around, making it a safe risk to invest in compared to Thomas Cook. The market data captured needs to be analysed more broadly before looking into the future. Managing costs effectively provides TUI with investment options and greater flexibility and protects its share price today. Looking at the strategy, the cost of change from the first attempt is its vision, and additional costs to recover the engagement of its staff in its vision gives a glimpse of challenges TUI will face.
  • 39. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market With a fast moving market and plenty of competition, market share and profits are at risk. With Thomas Cook’s online digital platform outperforming TUI’s (2015 TUI 35% from 2010, 27% / Thomas Cook 36% from 2010, 24%) and coming back from behind, we can see TUI’s future is bleak unless investment into Asia and its vision is executed. As customer experience is key to engagement with employees of TUI and they can’t relay the vision and unique holiday experience without it, then we can envisage that customers will take their business elsewhere if this is not addressed. We can assume a formula for retaining customers based on the data we have captured. ((Benefits (ALL inclusive, exclusivity, unique, Staff knowledge) x Holiday Experience (Service, accessible data regarding holiday and destination-digital) / cost = value)) x customer satisfaction = Loyalty Despite what the future may hold for TUI, its strategy is on the right path in line with market analyses and it is ahead in terms of profit, debt and delivery of its overall objectives. TUI has mitigated an element of future risk by changing its model slightly in BRIC’s by partnering with a Russian airline, purchasing the small company Malaprinota in Brazil and looking to utilise its own assets for holidays with hotels across the group. The question is, is TUI a good investment? Based on its current financial position and its strategy, the answer is yes. On its ability to execute its strategy the answer would err more towards no, as there is still work needed to achieve this despite its average holding position on shares. My recommendation is that due to its ability to execute its strategy and with it being an aggressive online retailer, I would invest in an alternative company. A suggestion long term would be to invest in Thomas Cook for a number of reasons. These include the rate in which it is recovering from the financial collapse, its ability to execute its strategy, and its interest from investment company Fosun who have already bought 5% shares with intentions of buying an additional 10% in the next year. The market risk rate for Thomas Cook is high for its shares, but its ability to bounce back is evident from the data and change management. We also need to take into account Thomas Cook’s approach to their new business and the due diligence they are using. This is evident in not just looking at a single source for insight such as consultants, but also academic research and methods which in turn has given a more balanced approach. Considering its near collapse in 2010, Thomas Cook’s credit rating has also improved with its management of debt and its focus to pay its debt through some of its assets by selling off the Indian branch of its business. Methodology Review As part of the analysis we need to take into consideration the methodology and the approach taken. The research has been primarily on travel and tourism. We need to consider the impact of the digital environment and the fact that digital service has its own industry. If research is carried out in this area, it may have had implications for the TUI Group due to their approach. The speed in which the market is developing with digital players like Trailfinders and Expedia suggests that the digital
  • 40. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market environment may have changed before TUI has implemented their strategy. The same goes for their competitor Thomas Cook. In terms of the tools used, a number of scholarly tools were used to carry out the analysis. The challenge with the research is that since the development of the economic concerns within Europe, there have been very little in the way of academic papers, books and journals. Specialists from the industry writing literature in the future may have an impact on the outcome. Specific writers on the internet may have a particular opinion regarding a situation and we need to understand in detail if this has contributed to the outcome of press releases and notifications. The information has to be compared with multiple sources before taking the information as factual. This too may have had an impact on the outcome of some research. The same goes for ABTA and Euro Monitor as these bodies may have to provide factual information – however, the way information is presented may have spin associated with the outcome. ABTA, Euro Monitor, and Euro International regulate the travel and tourism industry but have little insight into the digital environment and the global travel and tourism industry. Broader research into global companies in the same industry and their associated bodies from a global perspective may change the outcome. We also need to consider emerging markets, as they too may have a different perspective and this may have impacted the outcome as well in regards to the way data was analysed with spreadsheet and contracting and comparing. Other methods such as looking at a broad approach and using other tools may have impacted the result. The reason is that KPI’s ad drivers by TUI and its competitors like Thomas Cook, Expedia TrailFinders and online travel suppliers may have different KPI’s which may affect their success and their penetration of the market. Scenarios Based on the data captured we can begin to draw up a scenario. My assumption is that TUI’s debt management will become more troublesome as they will see more pressure from online travel retailers. This will put more pressure on margins and affect overall profitability as a result of poor performances in European destinations which TUI is still managing such as Egypt, Scandinavia and France. This is compounded by the slow take-up of emerging markets like Russia and Brazil for TUI. The slow take up in emerging markets may see TUI pull out of the Russian market due to the political issues with the EU and the trading embargo. This will allow TUI to focus on its core business rather than be distracted by joint ventures. We have already seen Thomas Cook withdraw from its operation in India by selling the business. Pressure from Thomas Cook in its recovery and its ability to execute its strategy will also add to TUI’s pressure which will serve to destabilise confidence in investors. I predict that share price will drop by the end of 2015 by 15/20%. This is based in TUI’s continued challenge to deliver its strategy and vision to its employees. We will see TUI’s staff feeling unsettled
  • 41. Developing InternationalStrategic Capabilities – TUI Travel Group’s Financial, Strategic and Future Position in the market and potentially leaving the business to move to online retailers. This will also be a result of staff feeling disengaged. This is evident by the lack of training and results from the second survey and its vision. As staff is the main asset in the travel retail business, this will impact TUI’s performance. The loss in TUI’s market share will also be as a result of not having some form of loyalty programme for customers. With so many options available to consumers and the ability to tailor their own holidays, this limits the value TUI can offer based on its hotel portfolio. TUI’s approach in trying to push customers to take hotels from their portfolio may put consumers off. Dictating to customers and having low morale amongst staff as outlined in the report will affect the experience of consumers and the resulting customer service. TUI’s financial pressures in 2015 will likely see TUI dilute their shares to raise capital to invest back into the company rather than revert back to increasing its debt. When a company issues additional shares, this reduces an existing investor's proportional ownership in that company. This often leads to a common problem called dilution. The end result is that the value of existing shares may fall. The current economic position of Europe leaves TUI challenged when entering into new emerging markets as it requires the funding from profits in its current business. As a result, we may see new players entering the market due to Fosun having invested in the market. As part of the continued pressure in the market we will also see Thomas Cook be affected. An assumption is that Fosun will continue to invest in Thomas Cook by August 2015 before Thomas Cook’s year ends in September. The reason for this is that if Thomas Cook’s recovery is better than predicted, then Fosun can benefit from share price increasing based on Thomas Cook’s performance and its original 5% investment. Long term we may see Fosun take over Thomas Cook by 2018 with the intention of selling the business on to a Chinese Travel company like Shijiebang for a profit. Shijiebang has been expanding its portfolio and recently purchased a digital company called Tukeq (Bischoff, 2014). The reason for the potential acquisition is the European access for Chinese consumers who like to go tourism shopping is of real interest to Chinese consumers. The Chinese economy is booming and they are looking to invest in Europe as a result (BBC, 2015, Waerden, 2010 & World Bank, 2015). This makes a potential takeover for Thomas Cook seemvery likely. With only 5% of the Chinese population, which equates to 39 million passengers, having a passport, Thomas Cook’s financial problems and poor share price will see a take over from Asia. Conclusion We can now understand the complexity of the TUI Group with its wide portfolio and stake holder’s engagement. The industry has changed dramatically over the last few years and with the evolution of digital services. The future for the industry will be based on user experience of which digital is currently leading the innovation of with consumer experience. The traditional model of retail stores