TUI Is an England-Based Travel Company That Essay

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TUI is an England-based travel company that was created with the merger of the English company First Choice and the Germany company TUI. The company operates tours, has its own airline, and accommodation (TUI travel, 2013). The company has operations all over Europe, with minor presence in other areas, mainly to serve its European customers in those regions (for example running safaris in Africa). The company turned in revenue last year around £13.4 billion, and on that it earned a less of £104 million. There are 54,000 full-time employees at TUI (Yahoo! Finance, 2013).

Resources

In terms of human resources, TUI has 54,000 employees spread across dozens of countries. The employees work in sales, organization and in running tours. The employee base is diverse, reflecting the demographics of Europe. The employees perform the functions that are critical to TUI's success, so it is imperative that TUI is able to attract and retain the best people. Airlines are specifically hiring through a different pathway than the other elements of TUI's business. E-commerce is becoming an increasingly important component of the company's success so part of its e-commerce strategy is to build its human resources capabilities in this department (TUI Travel, 2013).

The most important component of the company's physical resources is its IT infrastructure. TUI needs to be able to interface with a number of different reservation systems, it needs to manage its customers through a customer relationship management (CRM) system in order to increase revenues per customer, since in the travel business the repeat and loyal customers are a key revenue driver (Rouse, 2006). Customer relationship management is a means of tracking your customers purchases and then marketing to them based on their anticipated needs and frequent communications. The better the company knows its customers, the better it will be able to market to those customers.

Furthermore the physical IT infrastructure allows TUI to maintain high levels of communication within he company. TUI is vertically-integrated, so this is important because the customer only sees the TUI brand. There is not much room for differentiation between the different businesses that operate under the TUI umbrella. So for example if the customer has a bad experience on a TUI plan, that will affect their impression of the brand such that it could hurt the company's sales of travel packages with that client. So it is important that the company is capable of maintaining close coordination to ensure that all of the travel services provided under the TUI banner are streamlined in order to enhance the customer experience rather than detract from it.

Lastly, the aircraft that the company uses are a key physical resources. The aircraft represent a high fixed cost for the company no matter if they are owned or leased. The company needs to ensure that it can maximize revenue from its fixed assets, but it is also important that TUI is able to maintain aircraft to the standards of the EU in order to maintain licensing. So maintenance of physical assets is actually a key precursor to doing business and the aircraft must also be maximized because a failure to maximize aircraft and hotels represents lost revenue opportunities for TUI.

Financial Resources

TUI has unfortunately lost money in each of the last three years. This corresponds with the recession and the ongoing sluggishness in Europe. While the Germany economy is performing well, the other core market of the UK is struggling economically, and this has led to depressed earnings at TUI. Recent improvements in the GDP have been driven by consumer spending, which is encouraging for TUI in particular going into the prime winter holiday season (BBC, 2013). Indeed, there have been encouraging signs earlier this year about the return to profitability for TUI (Craik, 2013), the company having been on pace for annual profits of £560 million. This highlights the cyclicality of the business, and how TUIs financial are likely to fluctuate with the overall health of the travel and tourism industry.

With recent struggles, the company's balance sheet should have deteriorated. Indeed, that has been the case. The latest figures on Yahoo suggest that TUI's current ratio is just 0.54, which is a very low number and highlights the company's dependence on seasonal cash flows. Fairly consistently over the past five years, TUI has had a high level of gearing, at 78.6%. There are two things to consider here. First, the level has been consistent which shows that this level is generally not considered by management to be a problem, and it is probably not cyclical either.

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Further, it is worth remembering that a lot of the liabilities on the books are from the aircraft, in the form of current liabilities. Where the company is paying leases on properties and aircraft it will have those on the books as liabilities, so many companies that operate aircraft have high liability figures. This also reflects why the current ratio is low -- the company needs to get revenue from those planes on an ongoing basis in order to cover the payments.

Aside from the losses, TUI's income statement shows that it has fairly consistent gross margins, and that those gross margins are actually quite thin. There is intense competition in the travel industry, and in many parts of this industry the margins are very low. As a result, TUI is faced with a situation where its contribution margin is going to be low, and financial success depends largely on maintaining lean operations and on squeezing additional revenues out of existing capacity. In 2008, the company incurred an operating loss while in other years it was the interest expense that pushed the company into loss after barely breaking even on operations. It is evident from examining the financial statements that TUI is faced with a situation where it has difficult operating conditions and must be excellent with respect to its operations in order to succeed. Further, it needs to find ways to drive revenues higher in bad economies, or have more flexible cost structures so that it can downsize quickly in the event of recession and then scale back up again when the economy picks up.

SWOT

The following table highlights a SWOT for TUI:

Strengths

Strong brand

Good presence in multiple nations

Vertical integration

Sophisticated IT and CRM systems

Weaknesses

Lacks capacity flexibility

Inadequate liquidity?

Reliance on package tourist demographic in a world where more people want to travel independently.

Opportunities

New properties and territories

Can expand internationally

Threats

Intense competition driving down prices

Highly susceptible to economic downturn

Value Chain

Porter's value chain is described as follows: "activities common to all businesses, from which the company can derive value" (Mindtools, 2013). The elements of the value chain are the inbound logistics, operations, outbound logistics, marketing & sales and service (Ibid). It is important to understand that a company can derive value from any of these, but most companies focus on one or two as their primary means of driving value in their value chain.

TUI gains a lot from inbound logistics The company's CRM system and its website attract new and existing customers, and it is essential to the success of a company with requires high volumes to fill capacity that it make it as easy as possible for the customers to come and spend money there. So for TUI, the company has done an excellent job with its inbound logistics to bring in billions of pounds and euros per year in business. With respect to operations TUI has to do two things. The first is that it has to convert all sales leads into customers, so that somebody who visits the site or a TUI agent buys something. The second is that because this is a vertically-integrated company, TUI need to ensure that it delivers a very high level of service. This ensures that the customer has a good time, and in doing so that the customer wants to be a return customer. TUI needs to pay special attention to operations. Ultimately, these are the most important components of the value chain.

Sales and service are both important, however, because this is a service business. However, these are essentially support functions -- they have to exist and the company will retain business. If these two areas are weak, the company will lose customers but it might not gain customers through these elements. Lastly, outbound operations seems the least vital part of the TUI value chain.

Core Competencies

TUI's vertically-integrated nature means that it needs to do a lot of things well. It has to be good at sales and service but it also needs to attract customers and it needs to excel at things like operations as well. Arguably, the core competency of TUI is the way that it can manage all of these different tasks simultaneously to present to the customer the impression of a company that is incredibly well-organized. Thus, it is actually organization and information management where TUI excels because of its ability to….....

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