Scale and Scope of the UK Tour Operations Market

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Introduction

The UK tourism industry is characterized by high levels of concentration and vertical integration, with market leaders for Tour operators also being the market leaders for retail travel agencies, and for the charter airline sector. The high levels of vertical integration have led to an investigation by the monopolies and merger commission into the foreign package holiday industry in 1997. The commission found that the industry was still very competitive and able to serve the market successfully.

Demographic and Household Trends

The population of the UK is 58.7 million people and is ranked second in terms of size to the rest of Europe. By the year 2020 the population of the UK is expected to reach 61 million. The UK population is concentrated in the southeastern centered on London. This is also the wealthiest region and has the best communications structure for international travel, with Heathrow, Gatwick, Stansted and Luton airports strategically placed to service the area. This area makes up 30.5% of the population (17.8 million) and generates 35 % of the national GDP. Its average GDP per person in 1996 was Euro 18,411 as compared to the rest of the country of Euro 15,684. The lowest average GDP per person were in Wales and Northern Ireland. Although the average GDP is only loosely connected to the consumer spending, yet the cost of living in the southeastern is greater.

In the UK there is a low population growth expected for coming years. Studies show very low fertility levels in most of Northern Europe. The factors contributing to this are the rising expectations of women and their increasing entry into the job market, the reduced influence of the church and better education and higher incomes in general. By the year 2011, the age distribution of the UK population is expected to have various outcomes. The number of children will decrease by about 1 million and the young adult’s age bracket 15 to 29 and age bracket of 30 to 44 will both decrease by over a half a million. The age bracket of 45 to 59 will increase by over 2 million and the 60 to 74 age bracket will increase by 1 million, along with the 75+ bracket increasing by over a half million.

There is an increase in the number of households being formed as traditional large families fragment into a number of smaller units. As the average household size has decreased, the number of households has increased from 16.3 million in 1961 to 23.5 million in 1997. With increase in the number of households gives strength to the projections of continuing market growth in many areas, despite the slow increase in the population base. Since the demand for many goods and services is household than population driven. The demands for rented accommodation on holidays are more or less dependent on the number of households. For the UK travel and tourism industry, the main point is that although the population base is relatively static, additional pressures on housing, family budgets for household goods, roads, and the environment in general will continue.

The average household size in 1961 was 3.1 persons and in 1997 fell to 2.4 persons, a 23 % drop. As households have become smaller, the number of people living alone has increased to a point where in 1997 27% of all households contained just one person, of which two thirds are of pension able age. This is compared to 18% in 1971 and 14% in 1961. There is also a rise in single parent households. The proportion of households with dependent children where there is a single parent increased from 4% in 1979 to 7% in 1996. The demands of providing for and managing such households are great and leave limited scope for holiday taking.

The changing workplace is another factor affecting the UK travel and tourism industry. There is an increased participation by women in the employment sector. Since 1971, the number of women employed in manufacturing has declined by nearly 40%, while the number employed in the service industries has increased by just over 30%. Overall the percentage of women active in the economy increased from 62% in 1975 to 70% in 1996. This increase in the economic activity rate of women is attributable to an increase in the average age at which women have children, the availability of increased numbers of part time jobs, a desire by women for economic independence, larger numbers of lone mothers and pressures on household budgets.

A notable trend in the employment sector has been the move to part-time, self-employment and contract working. This is because employers seek to retain flexibility of response to market demand by keeping a core of essential workers, and buying in services as required meeting production requirements. The number of self-employed in the UK has grown from 2 million in 1979 to 3.3 million in 1997, 2.3 of whom were men and 900,000 women.

Typically most people in full time employment in the UK receive between 4 and 6 weeks holiday a year, depending on the length of service. As the working environment has become more competitive and jobs less secure, as more and more partners are also working, so there has been a practical trend to take shorter holidays, but more frequently.

A European Directive on working hours came into force in the UK on October 1, 1998. It limits the length of the average working week to a maximum 48 hours, guarantees rest periods, the right to one day off works a week, and establishes a statutory minimum paid leave of 4 weeks a year. For the first time in the UK, it also extends these holiday rights to part-time workers.

Leisure and tourism spending

Increased lengths of paid holidays, shorter nominal working weeks, and more labor saving devices are factors that suggest more leisure time, but the data is deceptive. The travel times to and from work have increased, the rise in single parent households, people living alone, women in the work force and former domestic economies of scale no longer apply. This suggests why there has been a reduction of 3% for men and 4.5% for women in leisure time available after essential commitments have been completed. More often than not paid holidays are representing a further time resource for participating in leisure activities of one sort or another. A week off at Christmas, a second week off at Easter, and three weeks in the summer are now not unusual holiday entitlements for those in regular paid employment in the UK.

Total spending on all holiday trips of 4 or more nights (Long Holiday) has gone up fromL5.9 billion in 1980, L20 billion in 1995. In 1998 it went up 11% to reach over L24 billion. 78 % of this holiday spending went in 1997 on foreign travel: L17.2 billion abroad, as compared with only L4.8 billion on domestic holidays. 27 million UK residents travel abroad for a holiday while 30 million stay within the UK, but the UK residents that travel abroad spend much more. In summary, 27% of all UK consumer expenditure is allocated to leisure items, 17% of all the leisure spending goes to long holidays, and 78% of all spending on long holidays is on foreign holidays.

Outbound holiday market overview

The departures by UK residents for all purposes are monitored by the International Passenger Survey published by the office for national Statistics (ONS). Departures have risen from 11.6million in 1976 to 31.2 in 1990, 39.9 million in 1994, and 46.8 million in 1997, an increase of over 10% from the previous year. During that time the key holiday component rose from 7 million trips in 1976 to 29.7 million trips in 1997 (up 11% from1996) of which the inclusive tour component increased from 3.9million to 15.4 million. Another important market segment is VFR traffic (Visiting Friends and Relatives) which increased from 1.9 million in 1976 to 6.1 million in 1997. The figures for 1998 show that the strength of travel demand has been sustained with the total visits abroad up 10% compared with 1997. The driving force behind the growth is a strong economy and the strength of the sterling, which has enabled holiday prices to be contained.

In 1989, about 86 million holiday trips were made away from home, and this increased to an estimated 94 million in 1997. Of these 94 million, 63 million (67%) were within the UK and 31 million (33%) were abroad. Foreign holidays were mainly longer holidays of 4 or more nights (27 million trips).Even though departure rates remain static, growth in the foreign holidays can continue to occur through erosion of the market secured by domestic holidays and by the taking of multiple holidays. Holidays of 4 nights or more increased in number from 48.5 million in 1980 to 58 million in 1994 and 57 million in 1997. More people were taking second and third holidays. Foreign holidays have grown in number, while domestic holidays have failed to hold their market

The average cost per person in 1997 of a holiday abroad, including all transportation to and from the destination as well as the other expenses at the destination was L611. The average party size was 2.1 people, making an expenditure per party of L1, 344. This compares with expenditure on a domestic holiday of an average L159 per person and average party size of 2.6

Climate, tradition, and school holidays are some of the many factors that determine the pattern of seasonal demand for holidays in the UK. Unlike continental Europe, the UK has very diversified school systems and there is no centrally established regime of school terms. The spring term typically starts at the end of the first week January and finishes at the beginning of April. Summer term starts after Easter, usually in late April, and finishes during the third or forth week in July. The autumn term starts at the beginning of September, and runs to the week before Christmas. The majority of holidays continue to be taken in the summer months. However the proportion of all holidays taken outside this period has been steadily increasing.

Competitor Analysis

The major market sector for outbound tourism is air inclusive tours (AIT). An International Passenger Survey figure shows the dominance of this market, around 81% of the inclusive holiday market is being covered by AITs, and the remainder is split between ferries (16%) and the Eurotunnel (3%). The top five major Air Travel Organizers License (ATOL) operators are Thomson tour operators Ltd., Airtours PLC, First Choice PLC, Flights Ltd., and Sun World Ltd.

The Market Share of Air Inclusive tour Operators

There are economies of scale for Massachusetts-market tour operating, so it is important to maintain market position. The Civil Aviation Authority’s (CAA) figures for licensed seats suggest that Thomas Cook has overtaken First Choice. The market share figures for the top seven operators indicate that First Choice will be the second largest operator in summer 2000. The changes in market share and positions between the top four operators show that there is intense rivalry and competition in the marketplace.

Travel Agents

The concentration in the travel agency sector is very similar to the concentration in the tour operator sector. The leading travel agencies now also represent the leading tour operators. The rapid development of travel agency outlets by First Choice, with Bakers Dolphin, Intatravel and Hays Travel, pushed First Choice into the top four. However, in terms of brand qualification, First Choice is outside of the top four. Co-op Travel care has 264 outlets and there are 5 members of the Co-op Travel Consortium with 203 outlets. Also there are 634 outlets under the World Choice banner, with its Thomas Cook affiliation through Thomas Cook’s purchase of Carlson’s outlets. By February 2000, the top four travel agencies owned 35% of all Association of British Travel Agents (ABTA) travel agency outlets. In terms of value, the top four travel agencies command a higher proportion of the market. Considering the consolidation of the industry in 1998 and 1999, analysts’ estimate that the share of the AIT market by value for the top five travel agents increased from 56.9% in 1997 to 66.3% in 1999.

Market Leaders

Air tours PLC has been the second largest UK outbound tour operator since 1991. AS a group Air tours is the worlds largest AIT operator with tour operations in 17 countries, including the UK, Scandinavia, the US, Canada, Germany, Belgium, France, Holland, Austria, Switzerland, Poland, and the Republic of Ireland. The group carries about 9 million passengers per year and is managed through six divisions. Overall the group has 1,613 travel outlets, 17 telesales centers, 42 aircraft, 10 cruise ships, 2 vacation resorts, 46 resort properties and over 40 principal operating brands.

Thomson Travel Group (TTG) PLC is one of the largest integrated outbound tour operators in the world, although it had no overseas interests until 1996, when it acquired the Irish tour operator Budget. TTG has been the leading tour operator for the UK outbound market for 25 years, but its main rival in the market is Air tours. Air tours are larger overall as it has more overseas interests. Through acquisitions, Thomson now has overseas operation in Poland, Republic of Ireland, Sweden, Finland, and Denmark. TTG has four main activities: out bound tour operating (Thomson Holidays), charter airline operations (Britannia Airways), travel retailing (Lunn Poly), and holiday cottage renting

(Independent Holiday Cottages Group). TTG’s strategy for many years has been to try and maintain market leadership as the UK’s largest tour operator, charter airline, and travel retailer. This strategy aims to maximize the advantage of vertical integration. In

1999, the company operated from 21 UK airports, with a choice of 4,000 hotels and apartments throughout the world. In total, Thomson Travel Group operated 7 million holidays, flew almost 10 million passengers on its fleet in 1998, and reached L80.1 million in pre-tax profits.

First Choice Holidays PLC was formed in 1994 out of an existing tour operator, Owners Abroad, which had existed since 1973. Its main brands are First Choice Holidays, Sovereign, twenties, Ski, Lakes and Mountains, and Eclipse. The group is divided into four main operating divisions, reflecting the company’s brand portfolio.

These divisions are First Choice Holidays and Flights, Air 2000, Signature Vacation, and First Choice Ski, Lakes and Mountains. Unlike the other leading tour operators, First

Choice has only integrated vertically. For the year ending October 1999 First Choice’s pre-tax profits reached L46.9 million.

The Thomas Cook Group Ltd. (TC) is one of the world’s largest international travel and financial services groups and has a high level of international brand awareness. Thomas Cook claims to offer a wider variety of holiday products on the Internet than any other company with over 2 million holidays available online. Its retail outlets outside the UK are located in Canada, Australia, New Zealand, Hong Kong, Mexico and Egypt. The Thomas Cook brand and its retailing activities are aided by the fact that Thomas Cook Financial Services owns the world’s largest network of retail foreign exchange bureaus. Thomas Cook’s rapid rise in the UK market in the last few years has been driven by several large acquisitions. In 1996, TC acquired Sun World Ltd., the fourth largest inclusive tour operator at that time, along with its charter airline Air world Aviation. The Thomas Cook Group Ltd. in the year ending 31stDecember reached a pre-tax profit of L47.1 million.

Field Research

First Public Relations (First PR) is public relations and promotions firm that mainly serves the travel and tourism industry. Their clients include Massachusetts (BCCVB), Palm Springs, CA, Miami, Washington, Texas, Oregon and Dallas, TX. First PR’s strategy for their clients is to promote them by using 50% of their resources for marketing activities and 50% for promotional activities. This includes television coverage, radio ads, and print ads and articles. Print promotion is the best way to reach their target market because the average person in the UK reads 4 national newspapers per day. From their research, 27% of the search hits on the Internet in the UK are for travel and 52% of the market share of British travelers goes to other countries. The travel industry is vertically integrated and consists of four main operators: First Choice, Air tours, Thomson Travel Group, and Thomas Cook. First PR’s target market is 45+-age group, a segment that has higher purchasing power, which is called the Empty nesters group. They have no children living home, usually retired, socially aware, and highly educated. First PR targets this segment in three tiers: A list – very rich, B list –Lawyers, Doctors, & Professionals, and C list- middle class. The average person in the market receives a minimum of 4 weeks of paid holiday. Three million British travels to the USA each year, out of that 1/3 go to Florida and 400,000 come to Massachusetts. Travel products and services are number one when it comes to consumer spending (First Public Relations).

Strategic Alternatives

For the BCCVB to create interest, awareness, brand image and recognition, and successfully enter the UK travel and tourism market also considering their international marketing budget various strategic alternatives have been created. Analyzing the travel and tourism industry and the competition in the UK along with field observations these are the strategic alternatives for the BCCVB:

• Establish a BCCVB office in the UK- appoint a representative to promote Bristol

County

Dedicate 1-2 years pushing Bristol County
Alert and utilize the press to promote Bristol County
Offer Farm Trips to tour operator-a free holiday in Bristol County
Create Press trips to create awareness
Create a “Coffee Table Magazine” of Bristol County- this is the new trend
Consult tour operators’ databases, and then push Bristol County
Focus on finding niche operators and a niche market
Develop a better Website
Educate the UK tour operators

Recommendations

Considering the international marketing budget that the BCCVB has allocated to them, these are the most strategic and logical recommendations. The BCCVB should allocate between 60-75% of their funds for international marketing to the UK market penetration project. The BCCVB should continue to use First PR in helping with their marketing, promotions, and public relations in the UK. Then the BCCVB should recommend to First PR to alert and utilize the press to promote Bristol County and offer Press trips to create awareness. They should send out press releases about Bristol County and hire freelance article writers to produce articles about Bristol County to be featured in the travel sections national newspapers.

Also they should try to (if the funds allow) organize Press trips so the press writers can produce articles based on first hand experiences in Bristol County that the public will perceive to be more creditable. First PR should consult tour operators’ databases focusing on finding niche operators and a niche market that will fit Bristol County’s strategy. They can achieve this by persistently contacting the large and small tour operators so they can acquire the necessary market research to use in promoting Bristol County. Finally the BCCVB should improve the Bristol County website, so tour operators and the general public can actually research and view the area for themselves. To support this activity the BCCVB should then contact First PR and try to come up with a tour operator and potential customer mailing list, which they will then use for direct mailing of promotional pieces for Bristol County.

Works Cited

BCCVB. Web.

Canela, Montserrat. “Tourism Industry Meeting.” National Trade Data Bank. Online. Internet Explorer.

“Country Commercial Guide Spain.” National Trade Data Bank. Online. Internet Explorer.

EIU Country Reports.

IBA. Web.

Key Note Ltd. 2000.

Mintel International Group Limited. Web.

National Trade Database. Web.

Vega, Mariana. “Tourism and Travel Services.” National Trade Data Bank. Online. Internet Explorer. 2000.

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