Travel Retail in UK

Travel Retail in the United Kingdom

Dissertation Writing Help in Travel Retail in UK

Headlines

·         Sales drop by 1% from 2006 in current value terms to £29.1 billion in 2007

·         Strong consolidation due to takeover of MyTravel by Thomas Cook and First Choice by TUI

·         Foreig currency saw the sharpest current value growth in 2007, but cruising, city breaks and adventure/trekking holidays also showed significant growth

·         TUI and Thomas Cook strengthen lead thanks to acquisitions and account for combined 49% value share in 2007

·         1% constant value decline expected for forecast period

Trends

·         Travel retail turnover has declined since 2004. This was despite 4% volume CAGR in the number of outbound travellers from the UK during the review period, although the average number of nights per trip declined. The number of retail outlets fell by around 1,000 during the review period, with a fall of 10%, and the number of players within travel retail fell even faster. UK travellers are increasingly booking holidays and trips independently and the need for a travel agent is dropping

·         Traditional travel agencies face intensive competition from dynamic packaging. Consumers can book all elements of the holiday directly with airlines, hotels and car rental websites but also on internet-only travel companies such as Expedia or low cost airlines, which also offer accommodation and car, hire via their websites. For example, easyJet had an alliance with Europcar since 2005. Travel insurance has been sold on its site since 2002 and accommodation, both in hotels and self-catering apartments, has been available for several years. Mainstream tour operators addressed these social and economic trends, so that all elements of the traditional package – flight, meals, aircraft seating, accommodation and transfer to resorts have become available separately.

·         The UK remains one of Europe’s leaders in terms of consumers using the internet for travel purchases. In 2007, the internet accounted for 26% of total value in travel retail products, compared to 20% in 2005. The increasing share of internet sales was chiefly due to the widening availability of broadband. In 2007, 84% of all household internet connections were broadband, compared to just 53% in 2005. Broadband is particularly important for holiday websites, allowing the user to see videos of resorts and hotels, which require significant download speeds.

·         On-line retailers continue to gain share from traditional operators although many of these have also developed on-line services for customers and bought out on-line operators.

Growth Sectors

·         There were a couple of areas of growth, in spite of the gradual decline in overall business. Adventure/trekking holidays saw a steady increase from 4% of total value sales in 2002 to 6% in 2007. This growth was due to a gradual trend away from mass-market holidays and destinations.

·         Another growth area was city breaks. This growth was fuelled by the development of low cost flights in the London area and also by the development of significant networks from airports outside London to mainland Europe. However, travel retailers’ share of these trips is small, as most consumers book independently online, with internet access being widely available in the UK.

·         The travel retail product showing substantial growth is foreign currency which shows constant value growth of 32% in 2007 when compared to the previous year. As the traditional destinations for British holidaymakers are changing, their need for travel money is too. The opening up of eastern European destinations which are not in the eurozone, as well as more increasingly popular destinations such as Turkey and Egpyt has created a demand for foreign currency. Previously many travellers who were familiar with eurozone destinations such as France and Spain would not change money in the United Kingdom as they knew there were ATM facilities widely available. With these newer destinations the knowledge is not so widespread.

·         These are areas of travel and tourism where inpendent advice on travel options remains important to consumers. Cruise is a good example, as consumers seek advice from travel agents on the vessels, the cruise line and the merits of different ports. As the move away from standardised packages continues, growth is expected in niches such as yoga/meditation, wildlife tours and learning skills while on holiday, such as cookery and art classes. For many consumers, the advice and assistance of a travel retail agent remains indispensable when booking these types of holiday

Competitive Landscape

·         The most significant events in travel retail in 2007 were two major mergers. In February 2007, Thomas Cook announced a merger with MyTravel. Meanwhile, in March 2007, TUI announced a merger with First Choice, a deal completed in September of that year. The major objective of the mergers was to reduce costs. This action was taken in response to shrinking demand for mainstream package deals and increasing competition from internet-only providers such as Expedia and lastminute.com. The mergers saw excess capacity removed, thus reducing discounting. Also, the merger reduced the number of retail outlets, also minimising costs, with outlet operation a cost not incurred by companies such as Expedia. In addition, TUI gained First Choice’s successful adventure and specialist holiday division, whilst Thomas Cook and My Travel had similar business divisions.

·         In 2007, the enlarged TUI Travel Plc achieved revenue of £7.8 billion while the enlarged Thomas Cook Group Plc reached £6.5 billion. This gave the two large operators a combined value share of 49% in travel retail in 2007. The two leading internet-only brands, Travelocity and Expedia meanwhile had combined revenue of £2.6 billion, equivalent to 9% of value in travel retail.

·         TUI and Thomas Cook became fully vertically-integrated entities as a result of the mergers. The two large companies manage their outlets as a means of developing income streams to other parts of their business, rather than as independent advisors to business and leisure clients.

Prospects

·         Travel retail is likely to continue to split into three areas during the forecast period. These are vertically integrated tour operators, online travel agents independent of all tour operators and small independent travel agents. The latter will either operate online or with retail outlets. Travel retail outlets will become more focused on areas of travel and tourism requiring specialist advice.

·         Overall travel retail will show no real growth during the forecast period, apart for a small boost during the Olympic Games in 2012. Package holidays are expected to represent an ever-decreasing proportion of total retail travel business dropping from 38% value share in overall travel retail in 2007 to 37% in 2012. However, much of this decline in business will be alleviated by growth in smaller product areas such as city breaks and cruising.

·         Internet-based bookings will continue to increase. At 26% of total transaction values in 2007, the value share of internet bookings is low for travel retail compared to air transportation, where the share was 50%. There is therefore potential for a higher proportion of internet bookings, both through vertically integrated tour operators and through internet-only agents. By 2012, the internet is expected to be responsible for 37% of bookings by value.

·         The enlarged TUI and Thomas Cook companies are expected to consolidate their leadership of travel retail during the forecast period. The companies will benefit from lower costs due to the removal of retail outlets, the merging of information systems and the removal of excess capacity in the industry. This should increase prices and profit margins on holidays. The impact of higher prices may not be felt until 2009, however, if consumers decide to shift to independent travel agents and do-it-yourself holidays via the internet.

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