Tour Operators Mass Market and Specialist

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Tour OperatorsMass Market and Specialist

• Thriné Hely

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Agenda

• What is a tour operator?
• Types of tour operators
• Segmenting the market
• Development of tour operators
• The fragility of the market
• Case Study - MyTravel

3
Learning Outcomes

• At the end of this sessions students should
• Understand how external influences affect the
  package holiday industry
• Identify different types of tour operators
• Understand how the industry has developed
• Be able to participate in general discussions/
  brainstorm

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What is a Tour Operator?

• Puts together the holiday package
• Segmenting the market
• Market share
• Market demand

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Definition

• A tour operator is
• a wholesaler who purchases holiday services in
  bulk, combines them as holiday packages and sells
  them to the general public
• T. Hely 2002

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Types of Tour Operators

• Tour Operators can be grouped as follows
• Domestic
• In-coming
• Overseas
• Specialist or niche
• Mass market

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Packages

• Can include the following
• Transportation
• Accommodation
• Car hire
• Excursions
• Food (all-inclusive)
• Hire of equipment (activity holidays - ski,
  sailing, scuba diving etc)

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Putting together the Package (a
simplistic view)
Travel Services Hotels/ Accommodation Transporta
tion Transfers Entertainment/ Excursions
The Tourist or Holiday- maker
The Tour operator
Purchased in bulk
Distri- bution channel
Put together in packages
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The Inclusive Holiday System (a more
complex view)
The inclusive holiday system Primary
Elements Transport Accommodation Package
concept Secondary elements Destination
attributes Activities/attractions Leisure
infrastructure
Inputs
Outcomes
Impacts Economic Community Environment Ecology St
akeholders T/ops Retailers Residents Destination
services
Tourists Expectations Entrepreneurial Creativit
y Employee Skills Investors capital
External Influences Tastes competition
technology Legislation demographics politics
From Laws E (1997) General model of the
inclusive holiday industry system
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The economics of package holidays

• T/ops purchase in bulk (accommodation and
  flights)
• Cheaper than the individuals could buy
• Easier than organising own package
• Less time consuming

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Segmenting the market

• By mode of transport
• Sea/air/rail/coach/cycling/canal boat
• By distance to destination
• Long haul/short haul/domestic
• By length of stay
• Short break/one week/two weeks/extended stay
• By season
• Summer/winter/spring/autumn
• Low/high/peak/shoulder
• By activity
• Sports, cultural, heritage, beach,mountain and
  lakes
• By Lifestage
• 18 - 30, young married no family, family with
  young children, family with teenage children,
  empty nesters, grey market

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Market Share

• Fragmented market
• More so in domestic and incoming than overseas
• Top ten o/seas Tour Operators account for 70 -
  80 of market
• Top five 60 approx.
• T/ops account for only c.32 of all overseas
  holidays (by value)
• Very small share of domestic tourism - c.4

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Market Demand

• Most popular destinations
• Spain, France, Greece, Turkey
• USA
• Trends
• Fashion, media, environmental disasters
• Characteristics
• Bargain hunting, last minute deals, independent
  arrangements, consumer complaints

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Take a Break back in 5 minutes
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Whos Who

• The Big Four
• Thomas Cook Group
• MyTravel
• First Choice Holidays
• Thomson Travel Group
• Name their associated companies

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Development of Tour Operators

• In the 50s and 60s T/ops were restricted in
  programme size
• Controlled capacity manually
• The use of technology has enabled t/ops to become
  mass market
• How did the large companies grow?
• Organically
• Through acquisition

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How do companies grow

• Organically?
• Undertake research and development
• Ask the customers where they want to go
• Look for new destinations
• Put the profits back into the company
• Purchase/lease new aircraft
• Increase the size of their workforce
• Increase the size of their programme
• Work with resorts to develop new destinations
• Work with tourist boards to market new
  destinations

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How do companies grow...

• Through acquisition
• Vertically
• Backwards and forwards on chain of production
  (suppliers or retailers)
• Horizontally
• Other tour operators (geographically located,
  competition)

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Issues of Competition

• The large vertically integrated groups can
  control the market place
• Directional selling
• In summer 2000 70 of packages booked through
  Going Places were Airtours (MyTravel) holidays
  while only 2 of Thomson holidays were booked
  through Going Places

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The Fragility of the Market

• Case Study - MyTravel
• Largest T/op in UK
• Public company
• Many institutional investors
• Sales hit by 11 Sept. 2001
• Affected the whole industry
• Many companies reduced capacity

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Case Study Continued

• Auditors discredited - Arthur Anderson
• Deloitte Touche
• They employed ex Anderson personnel!
• Needed to generate sales
• Nil deposits
• Increased capacity while others decreased
• New Auditors not happy with accounting practices
• Issued two profits warnings in September 2001 and
  September 2002

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Continued

• October 2002
• Auditors uncover a large deficit in the
  accounts
• Finance Director and Chief Executive leave the
  company
• 17th October - third profit warning
• Dividend axed
• Disclosure of new accounting issues
• Investors sell their shares
• Shares fell 63 on 17th October
• Shares fell a further 37 the following day
• Now only worth 18p each

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What Next?

• Takeover?
• Management buyout
• Seeking a buyer from within its divisions
• Bankruptcy?
• CAA will want assurances
• 400 M bond to protect consumers
• Non-exec. Directors have frozen contract payments
  to directors who have left the company