Analysis of the UK Package Holiday Industry and its Environment

Essay, 2016

21 Pages, Grade: 78%



In this paper, I will analyse the development of the UK package holiday industry between 1974 and 2015. This entails an analysis of the industry structure in both years seen from a Porter’s 5 forces view, a detailed explanation of macro environmental causes of this development as well as an illustration at Thomas Cook.

The major changes in the industry structure are

significant increases in buyer- and supplier power, in threat from substitutes as well as in rivalry within the industry. This is majorly triggered by changes in the macro and meso environment:

(1) The advent of the Internet and digital revolution opened up new distribution and information channels, shifting the power towards buyers and suppliers, as well as new possibilities in sophisticated data collection and analysis.
(2) Growing intercultural experience of Britons triggered a shift in preferences towards individualised travelling.
(3) A rising awareness of issues concerning society’s wellbeing has started to become a concern in travel and will become more important in the future.
(4) A number of deregulations have acted as catalysts for the globalisation of the package holiday industry.
(5) Rising macro environmental worries, political unrest and natural catastrophes have led to the recovery of the industry after years of decline due to the blossoming of independently organised holidays.
(6) The emergence of budget carriers has enabled customers to organise their own holiday at a lower price.

These environmental changes have caused Thomas Cook to change in 4 main areas since 1974: (1) they have become part of the Thomas Cook Group, (2) they pursue a digital innovation leadership and development of multi channel distribution, (3) they differentiate their products by high flexibility and quality guarantee through concept and partner hotels, (4) they offer superior service by being in close dialogue with its customers and staying in touch in the post-holiday period to learn from customers’ critique.


Thomas Cook laid the foundations for the package holiday industry in 1841 when he arranged a train for 500 temperance supporters from Leicester to Loughborough. That time, he would have never imagined that 1,5 centuries later, more than 64 million Britons will travel abroad (Office for National Statistics, 2015).

Before the 1950s, most Britons had just travelled to coast spots in the UK and were therefore used to the unpredictable, rough UK weather (Hannah, 2014). Horizon was the pioneer of mass package holiday when they started offering tours from Gatwick to Corsica in 1950. Package holidays were a break through innovation because they offered the joy of guaranteed good weather at the beach for an affordable price (The Independent, 2010; Welsh Government, 2016).

5 Forces analysis 1974

Rivalry among existing competitors

According to Johnson (2003), industry rivalry was very high because of severe price competition:

First, the 1960s boom has led to numerous competitors (Gyr, 2010) that were offering very similar vacations (Johnson, 2003). Most competitors catered the same need, namely a cheap holiday in the sun abroad (The Independent, 2010). Second, the industry faced high fixed costs due to the planes they chartered. Third, a package tour is a perishable service as unused capacity cannot be recovered. This set the industry under high pressure to reduce prices to ensure that capacities are exploited and that the service is sold while it is valuable (Porter, 2008). Hence, most firms were not profitable (Draper, 1974). As a result, Court Line, the second largest tour provider, declared bankruptcy in 1974 (Kerr, 2002).

Furthermore, rivals had aspirations to gain market leadership. Challengers attempted to dethrone the market leader Thompson (Evans, 2015).

Power of buyers

The UK was facing an economic recession and the 3 days work week (Kerr, 2002). Thus, the cost of a holiday was a considerable proportion of peoples’ disposable income.

Customers were not facing significant switching costs as travel packages were standardised and undifferentiated (Loannides and Debbage, 2005): cheap beach holidays in identical coastal destinations and low quality hotels (Middleton and Clarke, 2001).

Organisations’ pressure to exploit capacity gave buyers some bargaining power. Due to the overcapacity of the industry (Vogel, 2001), buyer competition was low.

However, customers depended on package holiday companies and travel agents to provide information, communicate with suppliers and organise the tour. The choice of products was limited. Comparison of packages was time consuming and recommendations were limited to personal contacts (Deloitte, 2015).

Hence, they could not significantly negotiate away profits from the industry.

Power of suppliers

According to Loannides and Debbage, (2005), tourist regions were economically highly dependent on tour operators as these had a high influence on their success as a tourism destination. Hotels generated the majority of their revenues from package holiday tourism (Welsh Government, 2016). As the package holiday industry integrated backwards by chartering planes, airlines were rather irrelevant as suppliers (The independent, 2004; Welsh Government, 2016).

The UK was one of the few countries that travelled abroad, so that countries to which they could have supplied were few. Also, concentration tended to be low as there were numerous suppliers, like small individual hotels. Generally, the industry faced low switching costs for suppliers and suppliers’ products were undifferentiated (Middleton and Clarke, 2001). Thus, supplier power was low.

Threat of new entrants

Despite the low capital requirement to enter (Juddery, 2010), the package travel industry tended to be unattractive to new entrants as margins were very small and industry profitability very low (Johnson, 2003; Draper, 1974). Also, incumbents’ expertise and experience were major entry barriers. Furthermore, new entrants had to expect considerable retaliation by incumbents as they faced high fixed costs and will defend their market share by lowering prices. In addition, the market was decreasing significantly due to economic recession and the 3 days working week. People had less income but flight prices soar due to the Middle East oil crisis (Kerr, 2002). Thus, new entrants could only gain market share by taking it from incumbents.

Threat of substitutes

According to The Independent (2010), since most Britons have never been abroad and market transparency and information were lacking it was hardly possible to travel independently. Customers depended on the travel agents’ expertise, connections and information provision (Lusher, 2015). Even travel guides such as Lonely Planet were published only after 1974. Hence, switching costs for substitution by individually planned trips were considerably high and thus, the threat of substitutes was low.

5 Forces analysis 2015

Rivalry among existing competitors

The package holiday industry has seen a significant consolidation. Market leader Tui and second largest player Thomas Cook dominate the industry (Mintel, 2015b). There are also a few medium sized firms such as Kuoni and Virgin Holidays which offer trips to long-haul flight destinations and numerous small companies (Zekaria, 2011). Companies have become more diversified. For example, Expedia has integrated backwards with its most recent acquisition of Home Away and Trivago.

According to Deloitte (2015), price competition has become much more intense than in 1974, which is mainly due to the proliferation of the Internet. First, this has led to price transparency across the industry. Second, self-organised holidays have become a major substitute, forcing the industry to cut prices to compete. Furthermore, the fixed costs are even higher in 2015, mainly because major players such as Thomas Cook, Thomson, First Choice and Virgin have their own planes.

Power of buyers

The digital revolution and subsequent changes in consumer behaviour have transformed travel from a seller ’ s to a buyer ’ s market (Deloitte, 2015 p.2).

The Internet has led to access to a larger range of products and enables buyers to compare offers and prices easily and make informed choices (Deloitte, 2015). Deloitte (2015) has revealed that 59% of holidaymakers compare prices through the Internet.

The package travel industry has lost much influence as buyers primarily do their research on the Internet and place higher emphasise on opinions of other consumers than on commercial information (Deloitte, 2015). This is a form of customer forward integration, as they serve themselves by doing the tasks that originally the travel industry has done (see fig.1).

Figure 1: How holidaymakers use the Internet to plan vacations

illustration not visible in this excerpt

According to Deloitte (2015), social media and review websites give buyers higher power since they have a strong influence on other buyers. Companies have to treat them carefully to avoid negative word of mouth harming their image.

Price sensitivity is high: the price remains the primary decision criterion (Deloitte, 2015) and the cost of a holiday still makes up a considerable proportion of peoples income.

Power of suppliers

The power of suppliers has become considerably high.

The major reason is that the online channel enables them to bypass the package holiday industry by selling directly to customers (Jones, 2008). This way they can save the travel agents’ commissions and offer a far cheaper price (Conolly et al., 1998). Furthermore, most countries have a travel industry nowadays, enabling suppliers to cater other countries’ travel industries. The proportion of revenue generated through UK package holiday companies and hence their dependence on the industry have decreased significantly.

Suppliers are more concentrated as there are major international organisations. According to Hospitality Net (2013), the top 6 hotel groups account for more than 50% of group hotel bookings. There are no good substitutes for these superior brands and failing to collaborate with them could put tour operators in disadvantage to its competitors. Furthermore, they have the resources to credibly threaten a forward integration. British Airways and Easy Jet have already launched their own package holiday online portal.

Threat of new entrants

Although the market is expected to continue to grow (Mintel, 2015a), the low margins and profitability is not attractive for potential entrants. The expected retaliation from incumbents is high since the major players Tui and Thomas Cook have substantial resources to protect their market share to retain the necessary volume to survive (Johnson, 2003).

However, intelligent technologies enable new entrants to set up an online system that accesses available information via the Internet. Therefore, incumbents’ experience and expertise have decreased in relevance as being entry barriers (Deloitte, 2015). The new online distribution channel and the low switching costs for buyers significantly facilitate new entry.


Excerpt out of 21 pages


Analysis of the UK Package Holiday Industry and its Environment
University of Warwick  (Warwick Business School)
Environment of Business
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
1046 KB
5 Forces, Porter, Five Forces, Package Holiday, industry analysis, marketing
Quote paper
Nicklas Westphal (Author), 2016, Analysis of the UK Package Holiday Industry and its Environment, Munich, GRIN Verlag,


  • No comments yet.
Look inside the ebook
Title: Analysis of the UK Package Holiday Industry and its Environment

Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free