THOMAS COOK AG STRATEGIC ANALYSIS
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Introduction
Thomas cook AG is a Germany company created in 2002 by a joint venture between Karstadt Quelle and Deutsche Lufthansa. This was after the purchase of Thomas Cook Holdings a British tour company founded in 1841. Another merger was in 2007 when Thomas Cook merged with My travel, its key competitor and a British company. The company mainly in the tourism sector offers travel, hotel, and retail travel service and tour operations to its clients. The new group after the merger is called Thomas Group Plc and was listed in London Stock exchange (Cook, 2013, p.1). A further company expansion resulted in Thomas Cook acquisition of a Canadian travel wholesale IFS voyages that comprised of Fun vacations, intuit, exotic tours and boomerang tours.
It can be generally concluded that Thomas Cook AG specialises in the hospitality and tourism industry over a vast number of countries including Germany, India, The United Kingdom and England just to mention a few. The dynamics of the markets within which the company operates comes with diverse political and technological environments. The fact that a company operates in different countries and records remarkable profits over a number of years is a key indicator of the application of best practice that can be analysed and emulated. Thomas Cook AG has been able to successfully venture into markets in both the developed and the developing world despite the presence of a number of strong competitors. A PESTEL analysis on the company shows that the organization is strong to shoulder the negative times and the turmoil world over.
External Environment Analysis using PESTEL
PESTEL is a simple effective tool when it comes to organisational assessment due to the fact that an organization applying this analytical tool will be able to identify the external factors affecting or likely to affect the organization. This technique is often used to access the potential of the new market and the potential negative forces facing the market. PESTEL seeks to achieve three main objectives; finding the current environmental conditions facing an organization, identifying the factors likely to change in the future and exploiting opportunities or defending the organization. Primarily, PESTEL gives the overall picture of an organization. There are specific features of this assessment and they take the focus approach on political, economic, social cultural, technological, environmental/ecological and legal factors (Pest & Pestel Analysis. 2013, p.1).
For example, the political issues surrounding the organization have to do with the political status of the country or region in which the organization is located. Europe being the number one tourist destination has a commission whose sole purpose is to encourage a new framework for coordinated action within the European Union. This is aimed at increasing competitiveness, increasing capacity for sustainable growth for the tourism industry as well as ensures that the region remains the number one tourist destination. In a chaotic environment, the organization is likely to perform poorly because other than the local consumers, the international tourists are likely to shun visiting the country. In a politically stable environment, the consumer flow in and out of the country would be substantial and the organization would experience maximum profits. Thomas Cook enjoys the peaceful political environment.
Economic factors include market dynamics such as demand and supply forces and other financial aspects, both macro and micro-elements affecting the organization. In the tour industry, the difficult economic situate in 2008 had a significant demand for the tourism services and was worsened bu the interruption air traffic resulting from the volcanic ash cloud following the Ejyafjöll volcano eruption in 2010. A significant number of tourist arrivals were cancelled and losses were reported in the air transport sector, the hospitality industry and tourist-related services. Many tour in issues especially the small prefer to employ minimal number of employees. Other organizations use the internet as their key advertisement strategy. Both the European and US used and still use internet services to carry out their daily objectives. The emergence of better and experienced personnel is likely to snatch consumers from the organization. For this reason, Thomas should ensure the proper measures to both ensure that they retain their place in the market. The constant competition from other related industries keeps their services at the edge to ensure that the company is useful when needed.
Social cultural are beliefs, norms and practices of the consumers or the immediate communities in the area within which an organisation operates. Primarily, the social cultural factors likely to influence the organizational functioning are the behavioural patterns of the individuals in relation to their travel habits and options. In the event where the individuals enjoy tourism and traveling for site seeing, the organization has a steady flow of tourists across the globe. Other social cultural changes likely to affect the business are change in consumer tastes and preferences. Europe being a cultural tourism destination has a large number of major sites accounting for 40% of all European tourism and this is a major economic booster for the region.
Technological are the technical materials or tools used by the organization in relation to the other similar firms and organizations. The organization enjoys modern technology like internet marketing and air travel among others (Thomas Cook to go in for stock split; Madhavan Menon is new MD, 2006, p.1). For this reason, they are able to market the organization effectively as well as meet the consumer demands without difficulties. As noted in the case study, the company uses internet to reach out to international consumers and hence a clear evidence that they have embraced technology in the business. The Europe market has grown the online agencies and tour management websites to enhance online bookings.
Environmental/ecological are the natural factors surrounding the organization and in this case focusing on the impacts on the organization. Other than the beautiful sceneries and landscape, the organization also enjoys a strategic location where the consumers can easily access their organization. Through the internet, Thomas Cook has also created a virtual environment where consumers can easily. Regardless, the region in which the organization is located has bearable environmental conditions to the residents as well as foreigners.
Legal factors are the law related issues that the organization should observe in the course of carrying out the organization duties and objectives. The acquisition of the necessary operating documents has been eased by the formation of the European travel commission as well as its collaboration with the UN world Tourism organisation and other development partners in the development of the Pan-European Thematic Tourism routes. In the case of the foreign visitors, their reasons for travel and their presence implies that the individuals should receive maximum care and consideration until they leave the country.
Forces analysis and industry attractiveness
International group companies are integrating to form bigger and more competitive alliances in the tourism and the hospitality sector. After the formation of Thomas Cook AG as a joint venture of a German retailer Karstadt Quelle and Deutshe Lufthansa, it went ahead in June 2007 to merge with its British competitor MyTravel, an integrated international group. These merges in the same industry could end up forming cartels. In the past ten years, the industry has registered a 7% growth in the airline sector facilitating economic growth and globalisation worldwide as tourism takes a centre stage in Europe. A further procrastinated 6.6% growth yearly in the air industry is expected to the end of the decade. New entrants in the industry have been threatening the industry in the last four years can be attributed to the development of the use of internet to the convenience of the users of air travel. This has come with a promise of the reduction of air travel costs that has gone a long way to attract client to new airlines.
When there is a situation of increased air travels, there tends to be a situation where the client is more important to the airline companies and hence he gains a bargaining power. With this e can bargain for reduced air fares as the situation is in the European market. The key players have reduced the costs and offered a favourable air travel cost.Further, the company operates in 21 countries of the world, with a fleet of 93 aircrafts; its network has over 3400 owned and franchised travel offices as well as interests in 86 hotels and resort properties. In a period of less than six years, it has succeeded to charter flights to more than 22.3 million customers with about 31,000 employees. This period in 2008, total sales reached the 8.8 billion pounds and this has made it be seen to conquer a larger Europe market. This concentration in the European market proves its attractiveness in terms of the political and legal atmosphere that enables Thomas Cook AG smooth operation.
The London stock exchange trades shares and the listing of Thomas Cook Group Plc provides an avenue for pooling resources such as capital to expand its operations. Thomas Cook AG bought out Canadian travel wholesaler IFS voyages which include Fun Sun Vacations, Intain Exotik Tours and Boomerang Tours increasing its Share holding ratios which can be observed in the appendix table.
The hospitality and tourism experiences a number of high values and expansive network of international group of companies, competing to offer both online, airline travel and accommodation for holiday makers. The holiday makers seem to the driving force behind the huge revenues pocketed by the players in this industry. Internet bookings and tour operators are making the largest bookings, and as evident in the figure below preference is growing from online agencies to supplier and tour operator websites.
Thomas Cook Group Plc. recognises the importance of supporting its supply chain as a strategy of their management on sustainability of issues. Travelife is an industry based scheme that the organisation uses to offer tour operators a low cost solution to management of sustainability as well as offers customers an easy way of identifying the businesses they are involved in. one of the strengths in the supply chain of Thomas Cook Ag is in being socially and ecologically responsible throughout the operations of the company both in the source market and the destination of the products and services it offers. In an easy and economical way, Travelife offers the greatest opportunity to ensure sustainability in the supply chain of Thomas Cook Plc as well as the support of hoteliers in the realisation of sustainable measures throughout its market.
Strategic competencies of the company includes joining market leaders such as TUI Nederland I the Dutch travel industry. TUI Nederland is a market leader that aims at improving the sales of sustainability as they offer certified accommodations to the customers it serves. The company is committed to ensuring the holiday destinations it offers meet the client’s needs and have a sustainable future. The Netherland Association of Travel Agents and Tour Operators sees it logical to have joined Travelife as an effective and efficient measuring tool in management of the supply chain of sustainable tourism business worldwide. This is for the purpose of helping the tour operators and travel agents inform customers on the responsible holiday choices.
Travelife has a sustainability criterion that will ensure the extension of other tourism elements such as transport, excursions, and attractions as this is an initiative to increase the uptake of environmental management and labelling schemes throughout the supply chain. Destinations such as Italy, turkey and Australia will the best for the piloting of this initiative to combine the uptake of European Union tools in a bid to improve the environmental, social and economic improvements.
The financial ratios places TUI AG/TUI Hotel and resorts the eighth among the largest hotel chains in the world with 140, 416 rooms and 279 hotels. Competitive rivalry is a key indicator of economic situation in the tourism sector as it will take a central role in determination of the stimulation packages to be used. Travel and tourism competitiveness index reveals the ranking of countries in Europe as Switzerland, Germany and Austria leading in travel and tourism attractiveness due to the putting in place of factors and policies to attract airline companies to the industry and also ranking the top ten also include United States, the United Kingdom, Spain, France, Canada, Sweden, and Singapore.
Swot analysis
According to Pahl & Ritcher, (2007, p. 27), SWOT is the analysis is a beneficial decision making tool for understanding the dependencies between a company and its environment as well as identification of significant potential growth and exploitation areas. It deviates from the objective opinions and concentrates on the proactive thinking approach to decision making. SWOT sets a framework for the reviewing of a strategy, the position and the direction that a company has been taking so far to enable the formulation of better policies and way forward for the next period. Business planning, strategic marketing planning, competitor evaluation, business and product development as well as research reports required such an analysis to ensure its success.
As far as Thomas Cook AG is concern, focus will need to take an internal approach within the company in assessing strategies that the company employed in getting through the business cycles over financial years. Mergers and acquisitions of the company in the various markets it operates occurred such as India and London. In analysing the market environment that Thomas Cook Ag operates in, the weakness and areas of growth will be weighed up to a SWOT analysis scale to determine if the course of action that was taken during a particular period was the right move. SWOT gives insight to the path a company takes in gaining competitive advantage and identify potential weaknesses in advance.
Consequently, the implementation of SWOT has to go hand in hand with already established departmental strategic plans and be used as a tool to monitor the success of the laid down blue prints. Thomas Cook AG policies and managerial tactics have to be put under scrutiny, using this analysis to evaluate the success of the end results. It is possible to procrastinate the success or failure of a proposed strategy by using such as analysis in the operational plans.
Germany faced one of its most serious economic crises in 2008-2010, one of its worst crises since the time after the Second World War. Majority of success indicator of the companies declined including demand, incoming orders, output and profit at large. Companies such as Thomas Cook Ag were in this crisis and had to come up with strategies to overhaul management, trade unions and councils in addressing the situation, the negative effects of the crisis called for cross cutting measures and programmes, (Zagelmeyer, 2013, p. 1). Thomas Cook, a subsidiary of Arcandor AG dealt specifically in tourism.
In 2008, the group was getting into difficulties once more but Thomas Cook AG was fair successful indicating profit margins. Just as the critical bank loans were about to expire, the company used strategies to cut costs such as labour reduction. This cut costs by 115m euros each year over a period of three years; this was in exchange of a non-redundancy guarantee. This pact covered over twenty organisations and each of them individually adjusted the solutions to meet their requirements. As a result, the overall effect was a reduction in holiday between 50 and 100 per cent depending on the wage grade of each of the employees, reduction in the bonus given for Christmas by 75 per cent. There was also a non-reducancy clause, a guarantee to maintain the location of Nuremberg, an option to optimise organisational structure and, merge locations as well as continue with the outsourcing activities for some of its supplies.
Arcandor group, the parent company of Thomas Cook AG reported in January 2009 that it reported a solid business performance in the first quarter of the fiscal year 2008/09 and in March 2009 announced that it was applying for loans and state guarantees from several public institutions for the purpose of providing the liquidity needed for its operations. All these applications were however rejected, (Arcandor, 2009, p. 241). Other German companies had to cope with the crisis in different ways they knew best to avoid being declared insolvent.
According to Godlevskaja, Iwaarden and Wiele, (2010, p. 1), many of the developed nations have the potential to derive over and above 80 per cent of GDP from the service industry. Majorly the services are the tourism and hospitality industry as many people are employed in the service. The service science, a science about services, dealing with service components, service modelling, service systems, service quality and service management, (Katzan, 2008, p.23-40; Thomas Cook finds many suitors, 2005). Currently the emphasis of many companies is on their potential for ensuring financial, strategic and marketing benefits.
As a leading leisure travel provider, Thomas Cook AG addresses its business priorities regularly and the list include optimizing communication to better serve its customers. Advanced technology is obtained from collaboration with Group 1 Software. This technology is used to access customer information that is stored in various databases and provide information needed via different corporate applications. Diverse communication channels are used to efficiently deliver information and achieving customer information at a central location quickly is facilitated by updated technology.
The company has a policy to take customer documents to the next level by booking trips by use of catalogues. Each interested customer is given a booklet containing address labels, rail and airline vouchers, flight information, and hotel vouchers among many other gifts. This service has been newly introduced to Germany and is expected to be rolled out in other countries such as Belgium and France. The billing is improvised and done electronically as well as the necessary payments in processing for the purpose of customer convenience. It can generally be said that Thomas Cook has invested in relevant technology to serve their customers to the highest standards possible. This has the overall effect of greatly improving customer experience and hence increased customer loyalty. The newest investment is in software that provides a complete suite of tools for delivering the right message to the right customer at the right time (Thomas Cook net up 150% to Rs 5.52cr, 2002, p.1).
Thomas cook AG has subsidiary companies in many countries including Germany, India and London. Thomas Cook AG disposed 60% of its shareholder capacity in the Indian market in 2005. Dubai Holding LLC a subsidiary of Dubai holding acquired this stake and increased its ownership in the company. The deal’s price is rumoured to be close to the tune of $127m since the official figure was not released to the public. Several bidders had shown massive interest in buying the India subsidiary; it looks like the company is exiting its operations in India. Further, Dubai financial LLC acquired 8% which represents 1,183,461 shares of the company. Share purchase agreements were entered into the company having informed the national stock exchange. New holiday brands are also being launched and get excellent reception from the customers despite the sale, 100% holidays for its outbound holiday packages. This package is sold throughout its subsidiaries as the company is over 125years old.
TWOS Analysis
Internal strengths
1. It’s a joint venture/ an integrated international group hence vast knowledge pool and resources
2. Listed on the stock exchange – good public image Internal Weaknesses
Limited scope as specialisation is on hotel and travel
External Opportunities
Large market – over 22.3milllion customers in over 21 countries
Low cost airlines in Europe SO
-Market exploration in a diverse way, diversified products and services to be introduces
-Stock exchange revenue generation to exploit economies of scale WO
-Research and development on new products that will supplement travel and hospitality needs
External Threats
Competition with larger airlines – Indirect competition online and airline suppliers
Fragmented Europe lodging industry
ST
-Acquisition of more strategic ventures to counter competition
-Use the publicity and funds that comes with listing to diverse to accommodation business. WT
-Strategically placing Thomas Cook AG in revenue maximising regions and new competition reduction measures – market awareness
Bibliography
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“Thomas Cook finds many suitors” (2005). Available at :< HYPERLINK “http://articles.economictimes.indiatimes.com/2005-08-22/news/27496877_1_thomas-cook-ag-cox-kings-india-operations” http://articles.economictimes.indiatimes.com/2005-08-22/news/27496877_1_thomas-cook-ag-cox-kings-india-operations> (Accessed 8 Nov 2013).
“Thomas Cook net up 150% to Rs 5.52cr”, (2002) Available at :< HYPERLINK “http://articles.economictimes.indiatimes.com/2002-05-31/news/27342509_1_thomas-cook-ag-net-profit-ashwini-kakkar” http://articles.economictimes.indiatimes.com/2002-05-31/news/27342509_1_thomas-cook-ag-net-profit-ashwini-kakkar> (Accessed 8 Nov 2013).
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Godlevskaja, O., Iwaarden, J. V, & Wiele A. (2010). Moving from product-based to service-based business strategies: Services categorisation schemes for the automotive industry. Rotterdam School of Management, Erasmus University, Rotterdam,The Netherlands.
Katzan, H. Jr (2008), Service Science: Concepts, Technology, Management. A Guide to Service Science for Academicians and Practitioners, iUniverse Inc., New York, NY
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Appendix: table 1 showing major share holdings in ordinary share capital
Name Number of shares held as at 26/11/2012 Percentage of issued capital (%) as at 26/11/2012 Number of shares held as at 12/12/2011 Percentage of issued capital (%) as at
12/12/2011
Invesco Ltd 149,209,379 16.75 45,085,133 5.15
Marathon Asset Management LLP 59,283,472 6.65 59,283,472 6.78
BlackRock Inc 42,946,657 4.82 42,946,657 4.91
AXA S.A. 42,030,117 4.72 42,030,117 4.80
Lloyds Banking Group plc 40,869,697 4.59 40,869,697 4.67
Massachusetts Financial Services Company 40,726,189
4.57
40,726,189
4.65
Norges Bank 29,060,292 3.26 – –