The structure of Tourism Industry

Section 1

Introduction to the structure of Tourism Industry

In this report, the structure of the current industry will be examined, according to Holloway’s model. According to Holloway’s there are four main sectors from both Private and Public Sector. They are Producers, Tour Operators and Brokers, Travel Agents and the Tourist (Holloway 1994:58)

Producers

Producers can exist from both Private and Public Sector. “Public sector bodies tend to be particularly dominant in certain sectors of the attraction business, including museums, historic sites, galleries, theatres and leisure centers, for example.

” (Horner, S., Swarbrooke J., 1996: 280)

“Private Sector companies are particularly important players in certain sectors of the attraction business such as theme parks and industrial tourism” (Horner, S., Swarbrooke J., 1996: 281)

Producers consist of accommodation, carriers and man – made attractions. “Accommodation is, by a long way, the largest and most ubiquitous sub sector within the tourism economy. With few exceptions, tourists require a location where they can rest and revive during their travels through, or stay within, a tourism destination.

” (Cooper et all, 1998: 313)

“Transportation for tourism is an essential element of the tourist product in two ways: it is the means to reach the destination and it is necessary as a means of movement at the destination. Increasingly, as transport is viewed as part of leisure, the journey is at least as important as the destination itself.” (Cooper et all, 1998: 271).

Man – made attractions, homes, ancient monuments, activity centres, theme parks and catering facilities are produced to “serve” tourists.

Integration

“The term of integration is an economic concept to describe formal linking arrangements between one organization and another” ( Cooper et all, 1998: 251)

“Vertical integration is the merging or acquisition of one organization with another or the development of a strategic alliance with another organization at a different level of the industry/distribution chain.

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It can be forward or backward vertical integration” (Adopted from lecture notes)

“Horizontal integration is the merging of acquisition of one organization with another or the development of a strategic alliance with another organization on the same level of the chain of distribution or develops a new product which would become located on the same level”(Adopted from lecture notes)

Tourism has so much integration because of the benefits that can be obtained through integration and because tourism industry itself has highly competitive nature.First af all “integration allows the added advantage of improved control over the quality of the product” (Holloway 2002: 85)

The benefits of the horizontal integration could be the expansion of the market share in existing markets, the reduction of levels of competition, the expansion into new markets provision of complementary products.

Vertical’s integration benefits could be the control over access to and the cost of supplies and the control over distribution.

Tourism as a service and it’s service product characteristics

The four product characteristics are:

* Intangibility

* Perishability

* Inseparability

* Heterogeneity

In Tourism, consumers often don’t purchase products but services. It is difficult to use your senses to make a purchase decision because the service experience will be defined after the decision has been made. The service could be defined intangible when a customer receives a confirmation or a ticket by delivery after the purchase has been made. Also, sometimes in Tourism Industry, travelers make a decision according reputation. For example customers will obviously prefer the Holiday Inn instead of a guest house! The most intangible the product is, the greater interest for the marketing department to make as more as tangible they can.

Perishability sometimes can lead to problems for many marketing departments in Tourism. The particular time when the customer is booking a ticket the service is manufactured at the same time as it is consumed. If the organization’s staff is not present at the purchase time the opportunity is lost!

Inseparability means that the customer often comes into direct contact with the service’s providers. If they don’t do their job in a particular way in order to satisfy the customer’s needs, means a bad reputation to the organization. But also the opposite; the better the staff is the better reputation obtains.

Finally, heterogeneity may cause problems but also to be a benefit for the organization. In a multi – location hotel company one branch might be a bad reputation for the whole organization or a really good branch to “save” the reputation of the organisation.

Nowadays the services of the Tourism Industry have changed in the way they are sold. Airline companies, train companies, travel agencies are selling their products on – line through internet. The purchase of a ticket or a package holiday can be completed through internet.

Introduction of Picnic Airways

Picnic Airways is a privately well growing owned company, located within the transportation sector of the Tourism Industry. According to Holloway’s model, air, rail, sea and road transport are part of the carriers/transportation sector of the Industry.

Section 2

Introduction

Picnic Airways flies to five different destinations (Frankfurt, Munich, Parma, Pisa, Prague, and Rome. The expectations of the company is to expand it’s routes into Eastern Europe (Balkan Countries, Bosnia, Bulgaria, Croatia, Czech Republic, Estonia, Latvia, Lithuania, Macedonia, Moldova, Poland, Romania, Romania, Russia, Serbia, Slovak Republic, Ukraine, Yugoslavia).

Some of these countries are going to join European Union such as, Latvia, Estonia, Poland, Lithuania, Slovak Republic and Czech Republic.

It would be useful to investigate the effect of these countries, which are going to join E.U., on Picnic Airways. There are many implications to operate the flights to these countries, externally (macro – environment) and internally (micro – environment).

The Macro – Environment

“The macro – environment is made up of societal forces that can not be controlled by organisations. They can only try to anticipate them and respond to them as effectively as possible.” (Horner S., Swarbrooke J. 1996: 106)

We are going to consider these factors by using a PESTLE analysis which refers to political, economical, socio – cultural, technological, legal and environmental factors that affect Picnic Airways.

Section 2.1 Political Issues

“Europe is clearly in a period of rapid political change, which is of great significance for the European tourism, leisure and hospitality sectors” (Horner S., Swarbrooke J. 1996: 108).

“The European Commission affects tourism in a wide variety of ways EC Package Travel Directive

* The activities of its directorate DG XXIII

* Projects such as European Development Fund

* EU campaigns, policy and strategy at a European Union level, such as, the Green Paper on Tourism Policy

* The implementation of the single market

* The deregulation and liberalization of air fares

* And the single European currency.” (Horner S., Swarbrooke J. 1996:108).

Section 2.2 Economic issues

“At the European level the key economic factors are increasingly those which are being influenced by the actions of the European Commission. They include:

* Plans to abolish duty free sales between member states by the end of the decade(which is already implemented)

* The idea of harmonizing sales taxes, both in terms of the rate and the goods and services on which they are levied

* Deregulation and liberalization of markets that have been largely regulated by individual national governments, such as air travel.

Also the single currency within the European Union. The tourist flows between member states, which have always been influenced by currency exchange rates. For example, the number of British visitors to France fell between 1992 and 1995 as the pound fell in value against the ‘Franc fort’ from around 9.5 in summer 1992 to 7.40 in spring 1996.” (Horner S., Swarbrooke J. 1996:112).

All these measures could be threat to airlines such Picnic Airways.

Section 2.3 Sociological Issues

“These can be divided into several categories, namely:

* Demographic factors, in other words, those concerned with population structure in terms of characteristics such as age, sex, religion, race, education and birth, death and fertility rates.

* Social concerns crime, health and environmental issues

* The emerge of distinctive subcultures within societies, that share certain values and perhaps characteristics as consumers.” (Horner S., Swarbrooke J. 1996:113).

“An AIDS epidemic threatens to explode in some of eastern Europe’s ex-Soviet bloc states if nothing is done to counter economic and social factors helping the disease to spread, a study said Wednesday. According to figures included in the report, HIV infection is running at 53.7 cases per 100,000 inhabitants in Ukraine, 17.3 in Belarus, 12.9 in Poland and 10.8 in Moldova. Poverty and lack of social cohesion is rife in some countries in the region struggling to transform centrally planned structures into market-driven economies since the collapse of the Soviet Union. It is not only economic reform which will determine the future,” said the study. “Social reform is essential, and this means addressing fundamental inequalities.” ” (Agence France-Presse – October 13, 1999)

“Alcohol consumption and psychosocial factors on health is being conducted in random samples of men and women aged 45-64 selected in Russia (city of Novosibirsk), Poland (2 districts of Krakow) and the Czech Republic (2 cities) – three countries of Central and Eastern Europe undergoing rapid social and economic transition.”(http://www.ucl.ac.uk/easteurope/hapiee.html)

Section 2.4 Technological Issues

“Technological factors can be divided into several categories, namely:

* Operational categories

* Communication technologies

* Transport technologies

* Product technologies” (Horner S., Swarbrooke J. 1996:118).

Picnic Airways extended its number of aircraft from 4 to 8. That is a technological operational betterment of the company.

As Picnic Airways is a low cost airline is better to relay on internet bookings like Easy Jet, because it is a good way to keep the costs low. Through Internet it will be the best way to attract passengers from Eastern Europe instead of branches in all the countries of Eastern Europe.

Section 2.5 Legal Issues

Legal issues include holiday entitlement health and safety issues, consumer protection and advertising.

The Eastern European countries are of the poorest countries in Europe. The fact that they are going to be members of the European Union will improve the living standards the wages for the citizens. These countries will be conformed according to the EU law and regulations. Eastern Europe will be leaded to demand for tourism development.

Section 2.6 Environmental Issues

Environmental factor include issues like pollution and land use.

The land use will be increased because of the new airports and the expansion of the old ones.

The pollution will also be increased because of the fuels from aircrafts and air traffic

Section 3

The Micro Environment

To examine the Micro Environment, SWOT analysis will be useful. We are going to examine the Strengths the Weaknesses the Opportunities and the Threats that Picnic Airways face.

“As a basis for the company’s planning further understanding of the organisation’s place within its market can be gained from a detailed consideration of the strengths and weaknesses of it’s current operations, and from scanning the various environment influences for threats and opportunities”( Laws E., 1991:78)

Section 3.1 Strengths

“Strengths are normally expressed as inherent current advantages, whether by earlier strategic decisions or historic good fortune. Strengths may exist in an organisation’s market / product portfolio and its operations in relation to competitors. Products with increasing shares of markets predicted to grow are obviously strengths.” (Middleton V.T.C., Clarke J., 2001: 206)

1. Picnic Airways was able to attain considerable financial backing from financial investors. That means that the company will not face economical problem with purchasing new aircrafts, with employing more staff for aircrew and at the new destination’s airports. Also there is not a problem for paying fees to the airports.

2. Hub airports like Heathrow and Gatwick are congested because host all airways companies. Picnic airways operates from East Midlands Airport which is uncontested and there will be no problem.

Section 3.2 Weaknesses

“Weaknesses ranging ageing products in declining markets to surly customer contact staff, must also be clearly identified. Once identified, they may be subject to management action designed to minimize their impact or to remove them where possible.” (Middleton V.T.C., Clarke J., 2001: 207)

1. Picnic Airways offers only a small number of destinations. Six destinations (Frankfurt, Munich, Parma, Pisa, Prague and Rome), only in three countries.

2. By operating the company from only one airport, East Midlands Airport, is limiting the potential market of customers.

Section 3.3 Opportunities

“Opportunities in a marketing context may arise from elements of the business under direct control, such as a particular product or process, or a particular set of staff competencies. They may also arise from shifts in the external environment, which a firm may exploit.” (Middleton V.T.C., Clarke J., 2001: 208)

1. Deregulation and liberalization of the skies would be an opportunity for Picnic airways because Eastern Europe will join the European Union in 2004.

2. Also the reduction in fuel prices constitutes an opportunity

3. New operational technologies, like smart cards are really vital for the company.

Section 3.4 Threats

“Threats may be presented by internal elements within the business’s control or by external events such as exchange rate changes, rising oil prices or acts of international terrorism.” (Middleton V.T.C., Clarke J., 2001: 208)

1. Due to the regulation and liberalization of the skies there will be an increased competition.

2. One of business biggest threats is the two other low cost airline companies, Easy Jet and Ryanair. These two companies would be able to drive away Picnic Airways because of the brand loyalty these companies have produced, if they would want to expand their business into the market of Eastern Europe.

Section 4 Conclusion

Concluding the findings of PESTLE and SWOT analysis it is worth for Picnic Airways to expand into the new market of Eastern Europe. It is a great opportunity because no famous airline company is established in Eastern Europe.