Thomas Cook and Tour and Travel Sector

 
 

Introduction

The global tour and travel sector has experienced rapid changes in the recent past due to influx of small to medium sized companies. This scenario has further been fueled by globalization of most major markets through Internet marketing. In spite of this, there still remains a relatively small group of global leaders in online/offline tour and travel, which in many ways control the market. The dominant group in global tour and travel consists of four companies. These are First Choice, TUI (Thompson), Thomas Cook and Airtours. This essay will look at the tour and travel sector, with Thomas Cook as the focus study company.

Types of Market Structures

There are four major market structures, which includes monopoly, oligopoly, perfect competition, monopolistic competition, oligopsony and monopsony. In this essay, the type of market structure is oligopoly, where few players dominate the market and it typically has few entrants because of various entry restrictions. In addition, the market is met with high demand for goods and services. It is notable that while there are numerous tour and travel companies in the global market, there are just a few dominant players. The essay will focus on the market structure, integration, micro and macroeconomic conditions in which Thomas Cook operates. Microeconomics focus on the industry factors that determine growth, while macroeconomic factors are external influences such as the wider economies, global trends, government regulations and similar factors.

Background at Thomas Cook

Thomas Cook is a global tour and travel company originally established in 1841 under the name Thomas Cook and Son, a partnership between Cook and his son. It was acquired in 2002 to become Thomas Cook AG and later the Thomas Cook Group through a merger between Thomas Cook AG and My Travel Group Plc in 2007. Its current product range includes scheduled and charter passenger airlines, cruises, package holidays, hotels and resorts. As a major player in the tourism market, the group had revenue of $9.8 billion in 2011.

Market Structure

The global tour and travel sector is a complex oligopoly dominated by four major companies, and a formation of a union of the Association of Independent Tour Operators to lobby against the market dominance of the leading four. There are more than 1640 enterprises in the tour and travel platform, but the four leading operators already control 28% of the total revenue in the industry in the 2011-2012 period. The average revenue of the major players for the same period is? 11.8 billion.

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Oligopoly Market Structure for Thomas Cook

Competition

Thomas cook is the second largest tour and travel company in the U.K. The major competitors are First Choice, TUI (Thompson), Thomas Cook and Air Tours. Together, they dominate the 1640 registered operators. The company operates in 21 countries with a total employee base of 31,000. It has more than 8,000,000 customers per year. In addition to market dominance, the following factors emphasize the oligopolistic nature of the sector.

Vertical Integration

Like its major competitors, Thomas Cook is a vertically integrated company, meaning it operates a complex chain of subsidiaries, which together support its market dominance. This is in addition to giving the firm a competitive edge due to economics of scale and services integration and the group operates the following subsidiaries. SunWorld, the main operator with more than 12 UK based operators under the umbrella JMC direct sales operators includes Flights Direct and Thomas Cook direct. The company also operates direct chains including 385 Thomas Cook, 689 ARTAC World Choice and 409 Carlson WorldChoice. Charter Airlines include Caledonian and Flying Colors.

Price Control

Oligopoly sees the major players set the base price. This is true for Thomas Cook and the other three players who so successfully determine the product pricing that the minor players, rely on a lobby union (AITO), to avoid being forced out of market by the competitive control the four pose in the sector.

Product Differentiation

Oligopolies focus on a wide range of products with a view to spread its effect across the market spectrum as well as keep pace with emerging trends. The company has diversified into car hire, accommodation and regular passenger services, different from its initial charter services.

Macroeconomic Factors Controlling the Sector

Other than the internal environment comprising of such forces as competition, market structure, growth among others, external factors affect the sector. These factors are included in the following discussion.

Global Economy

In 2008-2009 global financial crisis, the tour and travel sector was greatly affected, thus Thomas Cook experienced a decline in revenue by about 20%. Industry revenues fell through the last five years at an annual average of 1.7% across the board. This is a major factor affecting the industry, as its services are globally set. 

Government Policy and External Regulations

Government regulations control all types of markets. This control is in form of restrictive controls such as those enhancing fair trade and consumer protection. The tour and travel sector is regulated by such bodies as AITO, Regional Development Agencies (RDAs), Federation of Tour Operators, Tourism Control Boards (TCBs).

Emerging Competitors

The traditional advertising for tour and travel is constantly being challenged by emergence of small independent online companies with more customer-focused offers. These emerging technologies are a threat to all major players in the sector. In the current setting, tour and travel clients may perform directed searches for specific tour services in specific countries and may break it down to a certain locality within a country.

Conclusion

In order to survive the stiff market, there is the need for Thomas Cook among other companies in the tour and travel sector to evaluate aspects such as pricing, product differentiation among others. Further, there is the need to conduct constant market surveys, especially on competitors in order to improve on the level of service delivery.

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