SWOT Analysis

Strength:
 The Company has long history, which will help Company build
their brand firmly and easily.
 Thomas Cook Group is one of the world’s leading leisure travel
groups, with sales of £9.8 billion and 23.6 million customers
(Thomas Cook Group 2011).
 The Company operates under six geographic segments in 22
countries (Thomas Cook Group 2011).
 Obviously the Company already reached the economic scale
 The Company has reached the Greiner’s (1998) Phase 6 –
Growth through Alliances.
 The Company own accommodation and flight consolidator
(Thomas Cook Group 2011).

Weakness
 The Company has faced poor performance in parts of their
business. (Thomas Cook Group 2011)
 Disruption in the MENA region will bring challenges to the
Company. (Thomas Cook Group 2011)
 The profit margin is dropping by 25 percent (Thomas Cook Group
2011)

Opportunity
 With the higher income and purchasing power, Chinese tourists
become more active than before.
 UK unemployment fell 65,000 in the three months to the end of
May. (The Source 2012)
 Tourism is second only to oil as the world’s leading export
commodity, accounting for global earnings of more than $300
billion, or nearly 25 percent of total world GNP

Threat
 Uncertain economic environment across Europe will lead to
adversely impact.
 Customers’ preferences switch from package tour to
independent travel mode which will carry lower margins.
 More customers tend to directly purchase products from the
services provider, when plenty of information is available on the
internet.
 Political instability will cause the business slow down and carry
higher risk.
 Input costs (fuel) are higher (Thomas Cook Group 2011).
 Crang, Obrador-Pons & Travlou (2009) suggest that mass
 tourist’s sensibilities are related to send, sea, sun. Therefore
weather is very important to tourism industry. The weather
issues that affect globally may cause recession of tourism
industry.

PESTEL Analysis:

Political
Tourism is second only to oil as the world’s leading export
commodity, accounting for global earnings of more than $300
billion, or nearly 25 percent of total world GNP. Every government
has the intention to boost the tourism industry. However prosperous
tourism industry requires political stability. Maslow’s Hierarchy of
Needs (1943) indicates that individual seek for safety needs before
they eager for leisure travel, which implies tourists will go to more
safety place instead of places with political instability. Moreover
some political events can facilitate tourism industry for example the
application of Schengen Visa. In addition government published
bank holiday also give people more time for leisure travel.

Recent years large number of Chinese tourists continuing travel

abroad, which may be caused by rising incomes and interest in
overseas travel (Korea Real Time 2012/09/27). The paper further
point out recent geopolitical tension may cause Chinese tourist
refuse to visit Japan, and Japanese tourists who had planned to visit
Korea or China going elsewhere. Western country could be their
second choice?

Economic
Although western world is suffering ailing economy, there is a good
sign that unemployment in UK is falling. The Source reported
“throughout 2012 the U.K labour market has proven to be
surprisingly resilient” (2012/10/9). In spite of the ailing economy,
more people is getting job and have more money to spend on
leisure. London just hosted the Olympic Game. The ‘Olympic effect’
brings couple of good influences to the host community, which may
stimulate tourism industry as well.

Social
Most of local people will not use travel agents for domestic travel.
They always try buying the tickets from the service providers, trains
companies, bus companies and hotel chains. The foreigners,
overseas students and foreign workers prefer travel agent,
whenever they want to escape from their daily routine.

Conversely, international tourists highly depend on travel agents.

Especially when they travel to a strange environment, they tend to
travel through package tour. Travel agents help to create an
“environmental bubble” (Cohen 1979) which is an environment that
similar to tourist home community.

Technological
The most important technology in modern society is the World Wide
Web. Internet is a convenient distribution channel for companies
promoting their products. From customers’ point of view, Internet
allows them to compare the prices between few choices of
companies. In other world Internet has lead travel agents to face
more intensive competition. Another negative example about
technology is telecommunication service. Businessman can save
time and money through using teleconference instead of ‘face to
face’. They even negotiate business through e-mail without
meeting. It’s good for businessman but not so good for travel
agents.

Environmental
Safety issue not only result from political instability but also the
natural disaster. Although sustainable product may be more costly,
it help companies build their brand and fulfil their social
responsibility. Not every customer care about the environment issue
but others may appreciate the sustainable plan.

Legal
There are numbers of legal obligation that the travel agents need to
follow. Thomas Cook Group plc is a transnational corporation (TNC),
which have to put more efforts in the legal sections. As the process
of globalisation move forward, legal globalisation (e.g. international
law) makes TNC’s life easier and safer.

Porter’s five forces

Porter’s five forces is an analytical tool for testing the competitive
environment (Luthans & Davis 1993). This conceptual framework
implies that there are five key index of competition which will also
be used to examine that attractiveness of the market (Hooley,
Piercy & Nicoulaud, 2008). The five elements are identified as below:
(three “horizontal” competitions and two “vertical” competitions)
The threat of new entrants
The threat of substitute products
The threat of competitive rivals
The bargaining power of suppliers
The bargaining power of customers

A change in any of these factors requires a business unit to reassess

the marketplace. However Faulkner and Campbell pointed out some
of the limitation with the model. The framework bases on static view
of industry structure. It’s a good tool to analyse the external
environment but it lack indicator of internal environment (Faulkner &
Campbell, 2003).

The threat of new entrants

Travel industry usually requires low skilled employees and large
amount resources. Regarding travel agents financial barrier are low
for new entrants, especially after internet was invented. As
indicated in the Company's annual report 2011 that “online growth
is predicted to be faster than offline growth”. Internet can serve
large amount of customer in short period of time at relatively low
cost. On the other hand, normally new entrants suffer form their
limited number of suppliers result in limited choices of destinations.
New entrants will take more risk because they usually over depend
on their key suppliers for example particular coach company or
airline. Thus the profit margin relatively is lower than branded
company. Therefore changes in macro economy will influent those
new entrants first, which are great challenges.

The treat of substitute products

Substitute products choices of the travel industry are plentiful.
Tourists can go for self-driving tour instead of using travel agent. In
a sense maps, GPS equipments and travel guide books are
substitute products. Alternatively direct suppliers (the airlines,
hotels and cruise companies) can sell directly to the customer.
According to the Company’s annual report 2011, the sales of direct
suppliers are twice to the sales of travel intermediaries. It occupied
a very big portion of the leisure travel market. The substitute
products for business travellers are video conferencing,
teleconferencing. With more advance device, business travellers
have less need to travel and engage travel agents.

The threat of competitive rivals

The Company claims that UK business decline significantly in 2011
(Thomas Cook Group plc Annual Report & Accounts 2011). The profit
margin fall 25 percent from 4.1% to 3.1%, the tourism industry
remains its high competitive, which not only result from number of
new entrants come in but also attribute to decrease in customer
purchasing power. The Company foresees that “the uncertain
economic environment, continued disruption in the (Mideast and
North America) MENA region and higher input costs, particularly
fuel” (Thomas Cook Group plc Annual Report & Accounts 2011, pp.3)
will contribute to a higher competitive environment.

The bargaining power of suppliers

The suppliers for a travel agent mainly refer to hotels,
transportations, attractions mega events and so on. The sources of
suppliers are various. For the big company like Thomas Cook have
great power in price negotiation with suppliers. Actually the
Company owns some of the hotels and aircrafts, which will further
lower the cost of the operation. It’s how the fourth Growth Strategy
works: “capture growth and value through M&A and partnerships”.
The Company touches their suppliers’ business or seeks long term
cooperation so that the cost of the supplier will be lower than SMEs
and new entrants. A best example will be Airline provide ‘over-ride
commissions’ to travel agents based on the quantity of the sale that
the agent bring in (Shaw, 2007).

The bargaining power of customers

Nowadays customers tend to be more informative than ever before.
Everything is labelled with prices and it’s all transparent. Some of
the customers check the prices through all channels especially from
websites like “Groupon” which will offer customer better price
usually. Thomas Cook has to create more value-add services into
their package in order to maintain those loyalty customers and
develop potential customers. Urry’s (2002) post-tourist shows
today’s tourist tends to be individualised, demanding and preferring
more customised services. If the Company wants customer pay
higher price, they have to come up with some unique tour packages
to delight their customer.