The tourism industry of Europe is dynamic and the growth in this sector is accelerating at a fast pace. In recent times, the tourism industry has gained huge amount of momentum as it is greatly influenced by the changing dynamics of the society; it has become a networked society in which everyone is linked together by various technological mediums (Tourismlink, 2012). With the rise of the industrial society, the concept of tourism has changed into a ‘mass leisure activity’. The globalisation and post modernisation are the two crucial factors that have generated a fragmented, assorted and individualised field of tourism demand and supply.
In Europe, the tourism industry is undergoing consolidation in which the number of players is decreasing as a result of both mergers and acquisitions (ECORYS, 2009). The primary factors that have supported the forming of an integrated and strengthened tour operator are increased globalisation, new and cheaper modes of transportation and severe usage of Information and Communication Technologies (ICT). As the tourism industry is becoming competitive on international level, it has become vital for the tour operators to take account of the factors that can impact their business operations.
PESTEL Analysis of Tourism Industry
In order to assess the external environment faced by the tour operators in Europe, PESTEL analysis is an effective tool for ensuring that crucial aspects are appropriately handled. This analysis allows the players to remain alert about the external environment characteristics that can impact their business strategies and ultimately operations. The PESTEL analysis of tourism industry for European tour operators is as follows:
Since the 9/11 event, the airline industry had to bear high costs as the government has refused to tolerate the security cost. As the costs cannot be tolerated by the airline companies, they have transferred the complete cost to the consumers. The immigration laws have been made strict so that the corrupt elements cannot gain entrance in the country (Butler, 2011). There are many countries that are willing to join the European Union (EU) which can impact the political environment significantly.
Euro is a strong currency worldwide that allows easy conversion of the currency. Similarly, the parliament of EU has asked the airlines to pay taxes on the aviation fuel so that they can support the EU carbon emission trading scheme (Furmanov, Balaeva & Predvoditeleva, 2011).
The tourism industry is affected by the recession. Most of the airline companies are relaying on very low margin of profit and both big and small players are being affected by such depressing situations worldwide. Once the recession will get over, only then the bigger players will be able to exploit the opportunities and even gain new opportunities (Richards, 2011). The recession has impacted the exchange rate as there is a lot of fluctuations in it. It has been reported by Richards (2011) that Euro is still depreciating and the euro rate has been reported to depreciate by 20% of the dollar.
The living standards of people are improving and life expectancy rate is also extending at a fast pace which shows that older people will travel more to have a good time. It is expected that the percentage of aging population that will travel in Europe will be about 60%. The travel patterns of people are changing as they want a diverse range of options in selecting the travelling destinations; the consumers are expecting a wide variety of choices as they want to travel different places and make their travelling plans on their own (ECORYS, 2009). It is also projected that the number of short holidays will grow by about 47% in EU and European tourists have modified their behaviours as they prefer to travel abroad rather than domestic places.
As a result of technological advances, the work of tour operators has become automated. Most of the people are using Internet to make online reservations and avail the services of online travel agencies. Almost all the tour operators are making use of both traditional and online platforms for reaching customers and it has helped them in curtailing down the cost of these operators (Furmanov, Balaeva & Predvoditeleva, 2011).
Since people have become too much environmentally concerned, the UK government stopped the plan for a third runway at Heathrow as a result of increase in pollution. The government has even imposed the green tax for offsetting the carbon emissions effect. Some health factors like SARS and Swine flu impacted the traveller’s destination choice (Tourismlink, 2011).
In order to keep a strict control on the tour operators, the government has imposed stricter rules and regulations. The competition policy of EU keeps an eye on the companies to ensure that they don’t club together to give unfavourable packages to the customers (Richards, 2011).
Porter’s Five Forces Model
According to Tourismlink (2011), the analysis of the EU tourism industry according to the Porter’s Five Forces Model reveals the following aspects:
Threat of new entrants
The new entrants cannot easily enter the tourism industry as there is high cost associated with initial investment cost as it requires huge amount of capital. The existing companies have strong brand loyalty so the customers will not easily switch to any other company.
Competition among rivals
Within the market, there is very less intense competition as there are only limited big players. Although there are various indirect competitors in the industry but the top players in EU are still Thomas Cook and TUI Travel PLC.
Bargaining power of suppliers
In the case of tourism industry, the bargaining power of suppliers is moderate as there are various options airlines, hotels and travel agents. Since the customers are willing to do online booking, the airlines and hotels are reaching them by their own online platforms.
Bargaining power of buyers
The bargaining power of buyers is low as there is very less difference between the products that are offered by the travel agencies. As the customers are able to make online booking, even it will not impact their bargaining power.
Threat of substitutes
It is a known fact that people will never leave their leisure activities especially the travelling option as it provides them the chance of going away from home. Other alternatives are available for people such as in-home activities, domestic trips to town, playing video games but they can never replace the travelling option. It means that there will be low threat of substitutes.
Industry Life Cycle
The concept of Tourism Area Life Cycle was coined by Butler (2011) who stated that the tour operators have to analyse the industry to ensure that they introduce the new products and services in accordance to the demands of the customers. The factors that are considered by the players are the prices offered to the customers, packages designing according to the destination places, changing demands of the customers, tourist attractions to be presented to visitors and availability of various facilities. Currently, EU’s tourism industry is in the consolidation stage as there are only few competitors and people are spending limited amount of money on foreign travels.
Source: Butler (2011)
The effect of recession is slowly wearing off and EU tourism industry is expected to grow further by offering various attractive packages to the customers. hence, the tour operators have to ensure that they present the best travel packages to the customers that will allow them to reap the opportunity of having a marvellous travelling experience in the region.