The history of tui ag

What are the critical incidents in TUI's history?

The history of TUI AG, the largest tourist firms in Europe today, is fascinating. Starting in the mid 1990s, German company Preussag AG went through a significant transformation, abandoning its smelting and mining activities and taking over the tourism industry. In 1997 the company started acquiring major tourism companies - travel agency chains, airlines, holiday chains, while at the same time divesting the non-core businesses.

In order to become the market leader, Preussag acquired the package holiday leader TUI, as well as Hapag Lloyd AG and large equity shares in various other companies. From 2002 on, the group was renamed to TUI and completed takeovers of Thomson Travel Group (UK) and went on to take over many tour operators across Europe. By August 2001, all brands went under the 'World of TUI' umbrella, fully positioned in the tourism industry. During the slump in tourism, cost-cutting programs were put into practice in order for the company to adjust, resulting in savings of around 260m in 2003 and 100m in 2004. TUI entered the Chinese and the Russian markets (the latter one through a joint venture with with Russian operator Mostravel), as well as the Indian market later on, through a 50 per cent holding in an incoming agency. In 2004, the group set up its first low-cost travel agency - Touristik Express, based in Hamburg, Germany. When in March 2005 the virtual operator was launched, TUI bolstered its leading position in Europe in the direct sale of travel products. At the end of 2005, TUI took control of CP ship - a container shipping line, merging its Hapag Lloyd shipping divisions with the new company.

What past strategies did the organisation pursue? Why? Evaluate past strategies from MBV, RBV, OBV.

The strategic choice of entering a new industry was prompted by the changes in the smelting and mining industry, where profits were declining due to several factors - the industry was too cyclical and facing fast growing competition from emerging markets, which had the potential to develop and threaten Preussag. At the same time, the tourism industry offered good prospects, as it was fast growing, with many opportunities and low barriers to entry; Preussag possessed the resources and capabilities needed to enter and prosper in the tourism industry and in just a few years proved the decision of strategic change to have been right. The strategy pursued by TUI was one of number of acquisitions and takeovers, thus quickly increasing market share.

The tourism industry grew steadily from 1995 to 2005 at around 4.1 per cent annually. Despite the slowdown in the industry in the early 2000s (due to the several terrorist attacks - in New York, Madrid, and the near-pandemic of SARS in 2002-2003), TUI continued its international expansion.

The growth of the sector allowed various groups of customers to have access to the products offered by TUI. The competitive strategy of TUI was of hybrid nature: due to the number of different companies acquired by the group, it could offer a whole range of products - from cost effective holidays and flights, to deluxe vacations.

Strategic Evaluation and conclusions

The strategic choices of TUI were successful, as the results and positioning of the company in 2005 suggest. High market share is of key importance for a company that offers a wide range of products, from low-cost to luxury. TUI has the reputation and the advantage of being the first player in such a concentrated market. The company has well-developed infrastructure, with the various functions managed centrally or locally, depending on their nature. The hybrid strategy employed by TUI, made possible by acquiring organisations with different products, allowed it to offer products and services appealing to a large group of customers.

The strategies chosen by TUI in the past put the group in the leading position on the European market. Having in mind the industrial context, we can conclude that the decision to completely change the company focus was correct, consistent with the market situation at the time. The decreasing profits and uncertainty of the mining and smelting industry drove the group to exit, while the opportunities and steady growth of the tourism sector allowed it to flourish and relatively quickly reach leading positions.

Still, there are some troubles faced by TUI and other big tour operators. These include the increased debt burden, due to the slump in the tourism sector which decreased revenues and thus negatively affected the cash flow; also, no large tour operator had managed to realise economies of scale. In addition, it could be argued that TUI's large market share would provide more significant profits to the group.

II External Analysis

In order for a company to be successful it is important to consider its positioning on the market and its strategies against competitors. There are several types of analysis, developed in order to help companies conduct an external analysis. To start with, the macro environment is important in shaping up the company's behaviour. Macro-level factors, such as general economy, social and political trends affect the pace at which the firm is developing. Furthermore, there are different forces which can affect any business. The easiest way to determine these is to consider a PESTEL analysis. The factors considered are political, economic, social, technological, ecological and legal.

  • Political: The deregulation of the airline industry by the EU in 1997 made it easier for companies to join the industry. On one hand this was considered as an opportunity when entering the business. Furthermore, until then there was not a single European tour operator that had a leading position in order to achieve economies of scale. On the other hand, the deregulation could bring quick increase in the number of competitors; therefore, entering the business at this time had its opportunities and threats.
  • Economic: After the slump in the industry which followed 9/11 the tourism sector started recovering. There was a rapid growth in the tourism industry from 4.1% 10 years before to 10% growth in 2004.The significant market growth helped the company further develop its activities and target new client groups.
  • Social: For five years people have already overcome their fears of flying after 11th of September, 2001. This increased the number of tourists. Furthermore, TUI was offering pre-paid and pre-planned holidays, which was more convenient, secure and value-wise for customers, who would prefer to book everything in advance. TUI was ahead of its rivals and had turned into the preferred tour operator by having the reputation of a successful tour operator and leader on the market and by offering a wide range of destinations and products to its customers.
  • Technological: Being able to develop its business online, TUI had the opportunity to saturate the market with its presence even more. This gave customers easier access, saved time and presented the opportunity to skip agency fees when booking a holiday.
  • Environmental: As being reported, there was an increase in the growth of tourism. This would lead to an increase in the number of tourists, thus the number of flights. As a result the company would face more environmental issues, such as dealing with the CO2 release in the air. People living around the airports are also affected by the increased levels of noise.
  • Legal: TUI's main strategy is the constant signing of acquisitions. However, there can be future restrictions imposed by the Competition Commission. This would be due to the fact that mergers and acquisitions often lead to gaining a huge market share and affecting smaller businesses.
  • In addition, it is important to consider the global environment factors in order to determine any outside influences that might affect the firm. Recently, ten new members of Europe joined the European Union. This made travelling a lot easier and less time consuming. Therefore an increase in the number of travellers and overall increase on booked trips and holidays was expected. In addition, TUI targets acquisitions with low-cost carriers, which are attractive for customers and therefore increase its popularity.

    So far we have considered the macro environment and the global factors influencing firm's behaviour. These were connected with the companies' overall performance. However, there are other external forces that more vividly influence the competitive advantage of firms. Michael Porter has successfully developed a frame for external analysis under the consideration of the 5 main forces of competition.

  • Threat of entry: this unites all different barriers available in an industry that prevent new companies from entering the market. Until 1994 there were strong barriers of entry due to regulations by the EU. Afterwards, these were lowered and the competition for existing companies became higher. This could be considered as a high and low barrier. On one hand it was easier for TUI to enter the business, however this increased the number of competitors. Still, TUI has the ability to differentiate its services, therefore its products were more attractive to customers - there was greater choice of destinations and variety of holidays
  • Threat of substitutes: the potential substitutes being considered as threats are the quickly developing rail services and the recent trends of people choosing their car as a main transport vehicle. However, air transport is considered as one of the safest vehicles and it is the one that saves time, in comparison to any other. Therefore, it is unlikely a quick change in people's preferences to be examined. The number of low-cost carriers also increases, therefore the price competition. Recently, the price for a flight can be as low as travelling by train.
  • Bargaining power of Buyers: Recently more people are price-wise and this is the main trigger to change between different firms. In times of economic downturn and health crisis, like the breakdown of SARS, people are not so concerned with brand loyalty. There are other factors influencing their choice. Therefore their bargaining power can be considered as high and potential threat for TUI.
  • Bargaining Power of Suppliers: it is important to consider their power in order to achieve competitive advantage. In our case, main suppliers are the different hotels in the different places. Often they give a discount price to tour operators in order to attract customers against possibility of advertising or gaining another privilege. However, when the market is booming with different tour operators, each of them will try to offer better value for its suppliers therefore receive lower prices and attract more customers. Consequently, the bargaining power of suppliers in this case is high and must not be underestimated.
  • Rivalry (industry) competition: so far the major competitors of TUI are four leading companies in the name of Thomas Cook, MyTravel Group, ReweTouristik and First Choice Holidays. Recently, some of them had major issues that led to decrease in their competitive advantage and brought benefits to TUI. For example, MyTravel Group has recently cancelled its cruises offers, which help TUI, emphasise on its offerings. First choice Holidays on the other hand, offers its services through a wide selection of channels which contributes to the successful company's popularisation. Therefore, in order, TUI to keep up their position it is important to constantly enhances its services and emphasise on the internet as a main distribution channel.

Strategic Groups segment the industry by firms following the same strategies. The different strategic dimensions depend on product range, distribution channels, product quality, degree of vertical integration, choice of technology, etc. however using similar strategies and product differentiation techniques does not always mean that companies are competing with one another. In the case of TUI, all tour operators pursue similar strategies; however, mostly they do not compete on the same destinations, hotels, etc.

Evolutionary Forces: Porter has also considered 11 factors that lead to changes in the industry. Some of them directly affect TUI's position on the market. For example, industry growth as mentioned earlier has helped the firm's rapid development by the increase of tourists and destinations. Second, there has been a rapid change in the buyer market sector. There are a lot more people who wish to travel and can afford it. The appearance of low-cost companies has erased the boundaries between the different classes. The rest of the drivers are as follows:

  • Product/ Marketing innovations: TUI has been innovative in offering services packages including transfer from the airport, excursions, etc.
  • Learning by buyers: With the rapid popularization of internet, it is easier for buyers to compare prices and choose the best offer that suits their needs. This increases the competition and makes companies increase the quality of their products.
  • Expansion / contraction in scale: The joining of 10 new members in EU expanded the destinations thus the services TUI offered.
  • Changes in input costs/ exchange rates: The introduction of Euro to many of the EU members made it more convenient to travel and save from exchange rates.
III Internal Analysis

The internal analysis identifies the resources and capabilities with the resulting core competency. This is then examined with the "Vrio Framework" on the creation of competitiveness and the result leads to the strategic implication. The value chain then illustrates the process flow of a travel booking and leads us to cost and value drivers.


Among the resources it is necessary to distinguish between tangible and intangible. The tangible resources are divided into physical and financial. TUI's physical resources are to be listed as follows:

  • 3,500 travel agencies in 17 countries
  • more than 100 aircraft,
  • 285 Hotels (163,000 beds),
  • 4 Cruise Liners (Hapag-Lloyd Cruises),
  • Container Ships (19% of Group's turnover),
  • etc.

The financial resources can be specified as debtors, which can be Customers, creditors as customers, when they pay in advance, business partners like hotels or airlines. The third group of financial resources are shareholder as suppliers of money. Among the largest are the state-owned "Westdeutsche Landesbank" with around 33% and German institutional Investors with 14%.

The company has intangible resources, we found four different types of them. The first is human resources. TUI had in September around 58,000 employees, of which were 85.7% in tourism, 7.8% in logistics, 4.5% in sales operations and 2% in trading.

As the second we could find intellectual Capital, which is in TUI's case the different Brands. This included travel agencies like Hapag-Lloyd Reisebro or TUI TravelCenter, famous tour operators like TUI, Nouvelles Frontires or Thomson, airlines like Britannia or Thomsonfly and shipping companies such as Hapag-Lloyd Cruises, Hapag-Loyed-AG and CP Ships.

Another important resource is the huge database of travel customers because of the leading position in the market. Only in 2005 had TUI 18 million Customers.

The last type of intangible resources is TUI's business system, which is very advanced integrated. The company is able to offer travel customer services completely provided by the group. This service, however, is limited by 163,000 beds and 100 airplanes.

Key Success Factor - full capacity utilisation

The key success factors are identified as the components of strategy in which the organisation must excel in order to do better than the competition (Johnson and Scholes, 1997). In the case of TUI, which mainly sells seats in aeroplanes and rooms in hotels, full capacity utilisation is essential to be ahead of the competition. As

In the following section we aim to identify the underpinning capabilities and competencies which are essential to obtaining sustainable competitive advantage through full capacity utilisation.


Among TUI's capabilities, we have to distinguish between those of the operation and those regarding to the marketing.

Among the operation capabilities it should be at first asked if the facilities are strategically located close to resources and markets. On the on side TUI has 3,500 travel agencies in 17 countries with a very strong presence in the European major markets like Germany, the UK or the Netherlands. On the other hand the company's incoming agencies operating in more than 70 destination countries. The company is showing special commitment to growth markets. It has recent times activities in India, China or Russia. Even more attention should TUI put on the destinations of the Asia-Pacific region and Africa, because those are showing the highest growth rates. Also on the recent trend of online booking deserves TUI attention and launched a virtual tour operator. It follows that the group's strategic facilities' location are mostly well chosen in the travel business. TUI is also close to the customers of its shipping business. Hapag-Lloyd AG is located in export-driven market of Germany and the country is a huge selling market for many oversees companies.

The next step is to find out whether the organisation has developed any particular competences in the area of operations. Through the high number of companies within the group, TUI developed many competences. So it is specialised e.g. in organising tours for Chinese customer to Germany or offers incoming tourist tours in India. In addition the group has offers for each income class, from cheap package travel with 1-2-fly until exclusive club holiday in Robinson.

One type of marketing competence is the market segmentation. As we already heard, TUI offers travel for each income class. It also offers different types of services, from single components like care rental or flight until a completely in advanced booked all inclusive holiday. Although TUI is offering a wide range of destinations, there is a need for entering new emerging markets, like Africa or Asia Pacific.

TUI is in a strong competitive position, because as the market leader in Europe it hast a market share of 21% and offers therefore a huge range of holiday. The company position against competitors is very strong as well. It represents most of the time an alternative to a direct competitor and it is hard to find a segment in which TUI is not in.

The competences together are resulting in the core competence. Through the high 75 TUI owned tour operator, the group has in nearly every market segment a specialised subsidy.

The diagram shows that the specialization in many segments leads not only to temporary competitive advantage, but also to sustainable competitive advantage. The strategic implication of this result is that TUI should try to achieve benefits through economies of scale.

Key Cost driver and how they are strategically managed

The key cost driver for TUI is the processing of orders. It is important to distinguish the costs between those for staff and those for fuel. While the cost for fuel can only get reduced through optimal utilization of transportation, there are more opportunities for reducing the staff costs. It should be tried to increase the proportion of direct virtual booking for reducing sales staff. While online booking had only a share of around 7 % of turnovers in 2005, nearly 50000 employees of TUI were operating in tourism. A possibility would be to install booking machines, like ticket machines at train stations, in travel agencies or at airports, where customers can inform themselves and book directly. This service would be particularly suitable for last minute offers. Another goal for TUI must be to generate competitive advantages through economies of scale. In parts, the company has already completed the necessary steps, such as centralized control of the airlines by the TUI Airline Management Team. However, decisive progress is needed in order to achieve further synergies.

Key value driver and how they are strategically managed

TUI's key value drivers in the travel sector as their main business are branding, product differentiation and capacity utilisation.

Branding is in the tourism industry a very important factor. The reputation of a tour operator leads often to the decision for or against an order. Therefore it is necessary that the name of a tour operator or hotel chain gets connected with the criterions for the purchasing decisions of each customer group. That means for example that the customer who is searching for an exclusive stay should know about the benefits of Robinson. This aim can be achieved with advertisement or sponsoring of special events, like golf tournaments in the case of RIU, which has many golf hotels. The brand and the organisation TUI are already quite well known. TUI's public image is in general positive and incarnates services of high quality. On the other side, the subsidies, like Grupotel or Airtours, have only a limited visibility in public. Especially in terms of differentiation it is necessary to increase the appearance of those parts of the TUI Group.

Product differentiation is important for optimal market segmentation and leads to competitive advantage. It is crucial not only to satisfy different customer needs, but also to strength the competitive position of TUI. That means on the one side, that there should be no possibility for competitors to profile themselves in a niche, and on the other side, that a customer should always find a TUI product as an alternative to a competitor's service. Product differentiation can be reached with acquisition of competitors, which provide other services than TUI. Another way would be the launch of new products, which already exists in the market or not.

Product differentiation has already reached a high level within the TUI. Nevertheless, it is important to progress this development in order to strengthen the leading position of the company. Although TUI is already active in India, a major role is played by the growth markets of Asia-Pacific and Africa. It could be recommended either acquisition of or cooperation with existing businesses in this environment for using their location-based connections and know-how.

The third key value driver, which should be mentioned, is the capacity utilisation. The net profit margin in the tourism sector is very low. TUI as the market leading company in the travel sector could both bring and take of pressure in the market through adjustments of capacity. A reduction of offered services would increase capacity utilisation and probably cause a simultaneous behaviour of competitors in line with the market leader. The changes will have on the one hand the advantage of increasing profits and, secondly, the risk would be reduced to get in a ruinous price war in the case of sales problems. TUI's net profit margin (without 'other income') sunk from 3.51 per cent in 2004 to 2.72 per cent in 2005, while the turnover rose by almost 12 per cent. The recent development of raising the revenues while reducing the profit must be stopped. This can only be achieved by taken pressure out of the market with reducing capacity.

IV Organisation Based View

The Organisation Based View focuses on the key stakeholders of a company, on their aims and expectations in order to determine the best strategy to approach. These expectations are influenced by business ethics, corporate culture, governance and stakeholder power/interest, organisation structure as well as the perceptions regarding the complexity and ambiguity surrounding a strategic decision. By using the OB view, we aim to identify the organisational factors which affect strategy development and to formulate organisational strategies through this process.


When identifying the major stakeholders we need to take into consideration the activity of the company. The suppliers, employees, shareholders, the government or the pressure groups are all stakeholders of TUI.

The most important stakeholders of TUI AG are the shareholders. As the company made several substantial investments they expected a good return on their investment. This is a very important aspect as the balance sheet shows that over 92% of the profits in 2004 and 2005 were given to the shareholders, suggesting the company tried to offer increased shareholder value.

TUI mainly had a B2C activity therefore the customers were an important stakeholder. With 18 million customers, representing a turnover of more than $14bn, it is obvious why pleasing the customers is another important focus for TUI. Because of the crisis in tourism following 9/11, travelling had decreased substantially and TUI went through a difficult stage in their development until 2003. By exercising more pressure on the suppliers, TUI introduced new holiday packages in order to be able to satisfy the customer's requirements for cheaper travel. Customers had better tailored travel options and were able to access low cost fares even from this new industry giant.

The government is another stakeholder of the company, as it has to ensure the taxes are being paid on time and with such a big company that owns smaller enterprises, it can be very difficult if the firm is not transparent. The company paid significantly more taxes in 2005 than in 2004, which we could assume was due to an illegal activity of the group.

With thousands of employees, TUI has an impact on the lives of people across Europe. As most of them are part of companies which had been acquired by TUI, they are interested in keeping their jobs and potentially having their salaries increased as a result of having a European leader as their employer.

TUI sells international tourism services; therefore the suppliers also have an interest in the company's performance. By developing new types of services, such as the pre-arranged holiday packages, which included airplane tickets, accommodation and transport to and from the airport, TUI needed to collaborate with the suppliers for better offers. But in a difficult business environment, being the European leader means having a substantial power to influence suppliers. We can assume that by bargaining with the suppliers and by guaranteeing high numbers of tourists to the resorts, TUI obtained lower travel fares and discounted accommodation, food and other services.

Pressure groups such as Greenpeace are keen to investigate any "green" issues TUI might create, from pollution through usage of kerosene for airplanes or by encouraging foreign holidays rather than local holidays. The latter would presumably involve travelling by train or by bus which impacts less on the environment. Their influence is important, but not extremely significant to the company. This is due to the fact that most people are aware of the effects pollution has on the environment and make a conscientious choice when travelling.

Corporation Culture

In terms of culture, the organisation had an incredibly varied culture as it incorporated all the different organisations it had acquired and tried to make them efficient. The advantage of buying successful companies was that of the working organisational culture and cultural web, which implied less transition costs. Also, the cultural style of the organisations working in tourism is most likely that of a task culture, in which teams are multidisciplinary and flexible which resulted in a more rapid adapting period to the new governance. In addition, the fact that most of the separate companies acquired by TUI were left to continue their jobs had a positive impact on the employees as well as they did not have to radically change their day-to day activities.

Business Ethics encompasses the standards and conduct that an organisation sets itself in its dealing with the organisation and the external environment.

On the macro level, TUI AG was following a stockholder strategy by maximising benefits to the financial stakeholders. Namely these are the shareholders of the company, who have, as mentioned above, invested large sums of money into the corporation and are expecting similar returns on investment.

On the specific level, the article does not include many details about the CSR activity of the company, but details about the projects which were introduced in some of the travel agencies can help. Firstly, by moving from the mining and smelting industry, the company had to lose the association it had with the usage of natural resources. Being associated in that way could have potentially affected the credibility of the company (although not necessarily the individual brands) which is why we assume the shareholders voted for the name change in 2002. There are no other internal or external issues to observe and analyse from the report.

On the individual level, there were no issues discussed within the report concerning this aspect. However, by representing a quickly former multi-national company, TUI AG might have had problems implementing the organisational culture within the companies they acquired,

In terms of corporate governance, even though it acquired other companies, TUI AG permitted most of them to remain independent, which some may argue was of real help as it did not require cultural change as modifying the strategy to fit the culture worked great. However, this lead to a lack of a unifying culture, as well as a lack of optimisation in the operational system. This caused an even more significant problem, the lack of economies of scale which directly impacts profits and ultimately the business.

Mission and Objectives

The article does not mention any mission statements of the company, but by offering low-cost holiday packages and other similar services we can assume the mission statement implied getting good value for money for the customers. Alongside that, being a European leader in tourism must have been amongst the objectives the company had before starting its activity in 1997 and has probably aimed to maintain this status after achieving it. It is also very probable that the company aimed to expand globally and become the biggest player on the international market.

V Analysis of the Current Corporate Strategy - Corporate Strategy I. What is the role of the Corporate Parent?

The portfolio of businesses in which the corporation wants to be is defined by its corporate strategy (Lasserre, 2003). Being the biggest tour operator and market leader in Europe, TUI manages a wide range of activities and functions. Some of its activities are managed centrally, others - locally. As a portfolio manager, TUI tries to enhance the value of its business by improving efficiency as much as it can. When the strategic choice was made to enter the tourism industry, the corporate parent divested low-performing businesses and focused on the ones with potential. TUI successfully manages a large number of businesses, having management-friendly shareholders, who allow executives to better do their jobs. The corporate parent in the case of TUI is also a restructurer, as proven by the identified opportunity to develop in the tourism market. Restructuring occurred by acquisitions of other companies. Some synergies value has been added to the company through its corporate strategy of TUI, especially when talking about the airline unit of the business. The airlines are separate entities, responsible for their results locally, but TUI has centralized activities such as fleet operations, maintenance and purchasing, to increase efficiency. Also, presumably the different travel agencies, hotels, tour operators, and other units share competences and skills, to improve the performance of the corporation as a whole.

II. What are the nature and the extent of diversification?

The diversifications of TUI's business involve a wide range of services and products - from tour operators and hotels, to airlines, cruises, shipping activities, and international trade. Some of the diversifications are related, namely all those part of the tourism activities of TUI. The shipping and international trade activities, on the other hand are unrelated to the above.

TUI's portfolio consists of strategic business units in tourism: travel agencies, tour operators, airlines, including presence on the low-cost market, hotels (including services for car rental assistance, transfers, local excursions, etc.) and cruise liners. Tourism sector employs 85.7% of TUI's employees. The other activities are in shipping (mostly logistics division, 7.8% of employees and 19% of the total revenue of TUI), trading and sales (2% and 4.5% of employees, 5% of the total revenue). Managing these SBUs is complex, as it involves a large number of subsidiaries and acquired companies, as well as a lot of employees - over 58,000 people working for the different divisions of TUI.

One of the challenges that TUI faces is that despite the large number of units and leading position on the European market, it has still failed to achieve economies of scales. This suggests that there is more to be done, to improve the coordination and exchange of resources and capabilities between the various activities in TUI's portfolio.

III. The Logic of the Portfolio

In the TUI Group portfolio, there are:

  • 3,500 travel agencies in 17 countries, with strong presence in Germany, UK, Netherlands, Belgium;
  • 75 tour operators in 18 European markets, brands include TUI, Nouvelles Frontieres, 1-2-Fly, Gebeco, Robinson, Thomson, Star Tour, Jetair, Gulet;
  • Airlines with more than 100 aircrafts, including: Britannia, Corsairfly, Hapagfly, Jetairfly, Thomsonfly, as well as low-cost Hapag-Lloyd-Express (Germany) and (UK); the airlines are independent entities, with responsibility for results at a local level; fleet operations, maintenance and purchasing are centralized and managed by TUI Airline Management in Hanover;
  • TUI is also the largest holiday hotelier in Europe - 285 hotels, 163,000 bends (13 biggest hotelier in the world); includes 37 incoming agencies organising various services;
  • 4 cruise liners, belonging to Hapag-Lloyd Cruises
  • Logistics and containers activity, activities of the subsidiaries Hapag-Lloyd AG (Hamburg) and CP Ships (Montreal), with turnover of more than EUR 3.4bn (19% of total TUI turnover) and 4,900 employees.
  • International trading activities - 5% of total turnover, growing 50% from previous year.
  • The Boston Consulting Group (BCG History, 1968) developed a growth-share matrix, to categorise products within a corporation's portfolio according to their growth rate and market share (The Boston Consulting Group, n.d.). Using the model, also known as BCG matrix, to analyse the different divisions of the corporations, they can be assessed as follows (see graph):

  • Tourism has steady market growth and TUI has high market share; however, parts of the tourist divisions - those that offer high-end products, such as luxury vacations, do not register the same high growth rate. This suggests that the tourist business units can be classified as 'stars,' when talking about the products offered to the mass consumers, and 'cash cows' when considering more differentiated products.
  • The logistics division is important, as Hapag-Lloyd and CP ships together are a large player in the market, so this unit may be classified as 'cash cow' - relatively high market share in a mature market.
  • The international trading business unit has seen high growth - twofold from 2004 to 2005, so it is a 'question mark', meaning that it requires spending to increase market share.

The tourism market has been growing steadily since 1995 and this makes it an attractive market for the main business of TUI. The industry is attractive and the company has a stable competitive position of a market leader with the largest market share. Therefore, investments in the tourism activities of TUI are reasonable.

IV. Corporate Control Style

The ideal control style for TUI would possibly be strategic planning style - where the portfolio is composed of core businesses with potential synergy between them, i.e. achieving efficiency in the long run.

VI Analysis of Current Strategies - Business and others

The business strategies of a company are important in determining the competitive advantage of a firm over its rivals. Still this is not directly connected with achieving higher profitability. Often the profits can be outsourced to different activities. In the case of TUI, the company made several substantial investments, expecting a good return on their investment. This is a very important aspect as the balance sheet shows that over 92% of the profits in 2004 and 2005 were given to the shareholders, suggesting the company tried to offer increased shareholder value. Value advantage is a part of the generic strategies as defined by Michael Porter along with cost leadership and differentiation. So far the value benefit has been fulfilled. However, companies usually focus afterwards on low cost leadership or differentiation. In difference to many companies TUI tries to become cost leader but also to differentiate itself from the rivals. It is often challenging to follow the two strategies and not stuck in the middle offering medium quality and medium prices and be easily overthrown by competitors. However, the results show that TUI manages to deal with this challenge successfully.

TUI has well developed cost leadership and successfully deals with the market factors influencing company's performance. TUI's strategies to neutralise the 5 forces are:

  • THREAT OF ENTRY: TUI has created high entry barriers by establishing economies of scale that can help the business rapidly reduce costs, by receiving discounts from third parties supplying airport transportation around Europe.
  • INTENSITY OF RIVALRY: Mergers with low cost companies and airlines helps the company reduce its prices therefore attract different target groups of customers and increase its market share.
  • THREAT OF SUBSTITUTES: In the tourism sector there is low customer loyalty. However by introducing high quality, secure and trust worthy transactions, TUI tries to go ahead of competitors and create long lasting profitable relationships.
  • BARGAINING POWER OF SUPPLIERS: having large number of bookings at the partner hotels, I said reducing is a value driver. TUI maintains easy profitable and lower cost relationships with suppliers, thus reducing the bargaining power of suppliers.
  • BARGAINING POWER OF BUYERS: In order, to reduce the bargaining power of buyers, TUI offers a range of holidays at different price in order to satisfy every budget.

In order to sustain its competitive advantage, there are certain criteria that should be completed. Based on the resource based view analysis of the group, TUI has the appropriate history background to deal with issues like economies of learning, input costs, managing location and timing. TUI also benefits from strong organization culture based on the recent mergers that give opportunity to lower transition costs, makes personnel easily transferable between the different departments of the group and be able to create unified services.

The differentiation strategy of the group is based on delivering all aspects in achieving superior service. For example, the company offers a wide range of holidays, transportation and benefits to its customers. It keeps increasing the number of destinations it offers too. TUI also tries to target different groups of customers and be able to fulfill any need in order to avoid substitution. By offering high quality and reliable services the company creates a loyal relationship with the customer. This affects the reputation of the products offered, thus advertises its qualities. At last by signing mergers with different companies, airlines and suppliers of accommodation, the company lowers its distribution and transaction costs. All new companies added to the bigger group offer the service that each customer needs at the price they are ready to pay.

TUI's primary activity is in the tourist industry. However, its SBUs are divided between tourism, shipbuilding and construction. Still, when considering the business strategies the most valued one is the one developing the tourism perspective of the company. This is also the sector the company receives the most of its profits from. Considering all different strategies on the strategy clock, TUI's recent strategies can be considered at the stage of Low price. The criterion is:

  • Lower price than competitors but mainly similar value of product/ service like the competitors TUI offers similar holidays along with its competitors. However, the choice of destinations and after arrival services is greater. In addition after successful mergers with low cost airline companies, TUI offers lower priced holidays to its customers.
  • Focus on market segments unattractive for competitors - as mentioned earlier, one of TUI main competitors - My Travel Group - has ceased offering cruise breaks. Therefore, lowering the competition in this particular market sector.

From the recent results and performance analysis of the group it seems that the company has "locked in" its strategies. It has achieved market dominance and increased its market share rapidly during the last several years. It has also changed the lead strategies pursued in this industry by introducing the practice of numerous mergers establishment. Having so many companies under its wing, t is too difficult for competitors to try to imitate the same path. Finally by offering the exclusive number of possible holidays without matter of destination, budget, requirements, etc, TUI has created the reputation of offering superior service and experience to its customers.

VII Identification of strategic issues

Critical weakness that need to be corrected

Lack of utilization of economies of scale should be seen as critical weakness, because if a company, compared to rivals, is not working efficient it loses competitive advantage and risks the whole business. Another weakness is a too high capacity in the whole market. TUI's margin was 2.72% in 2005. If the industry would face selling problems the risk exists that a ruinous price war would start. The third weakness is brand a lack of brand loyalty. Particularly package tourists' decision for a trip does not depend on the brand, but on the price. This can cause a very irregular stream of orders.

Possible threats from which the company wants to steer from

Terror attacks or pandemics lead to a sudden crash of the global travel market. They happen unpredictably and there are almost no opportunities for travel operator to prepare themselves for travel or keep away from them. A second threat is the competition commission. Especially TUI with its acquisition policy could face intervention by this commission in future. It could be tried to limit TUI's market power.

Barriers to formulate and implement current strategies successfully

The Barrier for TUI is the independent acting of many subsidiaries. This leads to an inconsistent firm culture which causes different expectations and attitudes to changes.

Opportunity the company wants to take the advantage

The increasing demand for online services is an opportunity. With the partly relocation of controlled bookings from the travel agency to the online travel agency the company could reduce processing costs. Another opportunity is the new emerging markets. The growth rates in Africa or Asia Pacific, measured by arrivals, posses the opportunity to increase the domestic market share as a European pioneer in this markets. Branding should be used to increase the visibility of the whole group in public. It is not only good, if customers know the provider, it also makes it easier to perform the services, because the tourist knows what he has to expect. Product differentiation helps TUI to keep competitive advantage. A high segmented market can be seen as an entrance barrier for new rivals. It also makes it more difficult for existing competitors to place products in segments where TUI is not in. TUI should have an answer for every move of its rivals.

VIII Generation of Strategic Choices

Some people may say that TUI was doing great and that its leaders could have just sat back and pursuit a no change strategy, due to its achievements on the European market, namely the significant market share obtained in the UK, Germany, France and Scandinavia. However, this strategy would not tackle the essential issues facing the company.

Even though TUI had an established success on the European market and with the possibility of expanding into the new emerging markets, the strategy we propose is that of retrenchment, which implies divesting all activities which do not improve the organisation's efficiency. In this case we refer directly to the shipping branch of the business, which is not a core activity of the company and is not bringing a major part of the revenue either. Cost reduction should be another priority of the TUI and this can be achieved by analysing in detail to see which of its many acquisitions are making most use of the key cost driver which is the processing of orders and reduce it to a minimum.

Benefits can also be achieved through forming strategic alliances and networks without the costs of vertical integration (Dyer, 2000). A strategic alliance with another tourism firm would be a good option to increase capacity utilisation, which was agreed to be the key success factor. This could be a positive move as both partners could increase their revenues by sharing the customers, promoting each other and even promoting holidays at prices agreed by the two of them, but the negative impact of a strategic move like this appears is when the alliance is no longer acting towards a competitive market. This option could be risky if it raises questions on acting against the customer interest.

Evaluation of strategic choices

Suitability analyses whether the chosen strategy addresses the current situation in which the organisation is operating, how it would work with the trends in the industry. Acceptability is concerned with the risks of implementing the strategy and it aims to assess how it would be receive by the stakeholders. In terms of feasibility, the strategies need to be evaluated on how it would work in practice.

Using the organisation's circumstances and the possibilities for development which we identified through the strategic analysis and options we can take the next step in analysing the two strategies in terms of suitability. Firstly, the retrenchment strategy is considered suitable as it will lead to better financial performance by exploiting the core competencies and delivering them at a better level, as well as strengthening the balance of activities.


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