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TUI illustrates one of the most amazing and successful strategic changes of a firm among the largest European companies .From 1997 to 2003, its management turned one of the oldest steel and mining conglomerates known as pressaug into TUI, the undisputed European leader in the tourism industry -a fast growing but very volatile and competitive industry. Putting a smile on people’s faces – was TUI’s mission. And this is they have worked for employing 65,000 people around the world work day after day to create unforgettable holiday experiences for our over 30 million customers.

As an integrated travel group, brands offered by TUI are the complete range of services associated with holiday and travel. Headquartered in Crawley, near Gatwick airport in the UK, company mainly serves the leisure travel customer and is organised and managed through four business sectors: Mainstream, Specialist & Emerging Markets, Activity and Accommodation & Destinations. In the financial year ended 30 September 2008 TUI Travel had revenues of ?13.9bn and an underlying profit before tax of ?320m.

According to Phil Kelly (2009), the analysis of the external environment may be described as an external audit. To analyse the macro-environment of the TUI, this report utilises three tools namely; PESTLE analysis, five forces framework and Opportunity and Threat from the SWOT analysis. This report includes only critical issues from the current macro-environment whereas detailed analysis of PESTLE.

PESTLE Analysis
Political Environment: These include

Tax policy: Tourists contribute to sales, profits, jobs, tax revenues, and income in an area. According to (Dye, 1992) the tourism tax policy is to ensure that the nation adopts the “right” policies to achieve the “right” goals”. To diversify the currency and geographical risk of the TUI group.

KEY DRIVER’S TO CHANGE – TUI embarked on steady programme of major acquisitions while divesting the noncore businesses. TUI group is also listed on London Stock Exchange. These strategic moves gave TUI group protection from devaluation of the currency and more access to capital market. But this strategy also exposed TUI to the high taxation policies of the developed economies. These high taxes could minimize the profit after tax of TUI.

Political stability: Presently TUI is focussing on the markets of developing economies by using the cash from developed markets. Developing markets have high growth rate but this could be affected by the political instability in developing economies. Political instability in many parts of the world, increased risks of terrorism have a significant adverse impact on TUI Group’s financial condition and results of operations. New political crises, terrorist attacks, wars and other hostilities could cause a significant decrease in demand for travel and tourism.

Economical Environment: The most direct effects occur within the primary tourism sectors lodging, restaurants, transportation, amusements, and retail trade. Through secondary effects, tourism affects most sectors of the economy. An economic impact analysis of tourism activity normally focuses on changes in sales, income, and employment in a region resulting from tourism activity.

Economic growth: The importance of channelizing the cash generated from developed markets to innovate new services and to invest it in high growth markets (Ghoshal, 1987). Spending on travel and tourism is discretionary and price sensitive.

Interest rate: Many of the tourists prefer to take bank travel loans or holiday loans .so if the bank rates are high then tourist will really think twice before going on holiday this might have a great impact on tourism industry.

Inflation rate: TUI customers may reduce or stop their spending on travel or opt for low-cost offers, in particular during periods of economic slowdown. TUI results were negatively affected in 2002 and 2003 by the general economic slowdown in our source markets. Although their tourism business improved considerably in 2004, their future economic downturns may cause significant reductions in demand for travel and tourism.

Exchange rate: The exchange rate is commonly considered a determinant in the estimation of tourism demand and it is introduced either as an independent variable or by including it in the relative prices (Crouch, 1994). In this sense, Sinclair and Stabler (1997) argue that tourists consider the exchange rate since they have limited knowledge about relative prices. Thus exchange rate regimes with low uncertainty could promote tourism.

Socio-cultural Environment: Social factors include the demographic and cultural aspects of the external microenvironment .These factors affect customer needs and the size of potential markets .some social factors associated with TUI are as follows Emphasis on safety, Health consciousness and age distribution, Change in lifestyle, Higher life expectancy.

Technological Environment: TUI launched virtual tour operator TOUROPA.COM in Germany selling not only online but through travel agents, television and call centres. Hence TUI became European leader in direct sales of travel product with turnover of a‚¬ 2.6 billion.

Environmental: The environmental issue like global warming has led to the environmental protection laws such as carbon emission limits. This law limits the amount of carbon to be emitted by TUI Airlines which could affect the overall customer service in a particular region/country.

Legal Environment: In the European countries in which TUI airlines operate, an air carrier is permitted to operate airline services only if it is majority owned, and effectively controlled, by member states of the European Economic Area (”EEA”) or their nationals. The carrier must be able to prove this at any time. Failure to do so may result in withdrawal of, or a refusal to issue, the carrier’s operating license or route licenses. Accordingly, TUI must remain majority owned and effectively controlled by EEA member states or their nationals in order for their airlines to maintain their operating and route licenses. In addition, there may be national ownership restrictions applicable to the grant of route licenses to TUI airlines.

PORTER FIVE FORCES FRAMEWORK (also diagram please refer Appendix 3)

Threat of new entrants: Low-cost airlines compete successfully on many routes against TUI charter airlines. For example, established low-cost airlines have gained significant market share on certain flight routes, in particular, routes between the United Kingdom and Spain. In response, TUI had introduced low-cost airline Hapag-Lloyd Express in Germany in December 2002 and introduced TUI low-cost airline Thomsonfly in the United Kingdom in April 2004. If TUI is unable to maintain a competitive cost structure for their airlines as compared to low-cost carriers, their airline and hotel utilization rates could decrease.

Threat of substitutes: The entry of new players in the tourism industry is of very minimal threat to the market share of TUI Group. In developed market these new players are not highly preferred by the customers hence addressing this issue is of least strategic importance for the TUI.

Competitive rivalry for TUI: There is high competition in tourism industry. This competition is fierce not only in developed market but also in developing market where TUI had a started a new cost cutting programme targeting a yearly saving of around a‚¬260 million and a‚¬100 m for 2004. The implication is to diversify in the world market and in new services to compensate the down trend in developed markets (Dickson, P. & Ginter, J, 1987).

Buyers: Due to high competition in tourism industry, the customers in tourism industry have high bargaining power. High bargaining power of buyer raises the importance of the marketing for TUI to create customer loyalty and price inelasticity in consumers to maintain high margin of its brands (Miller, D. 1988).

Suppliers: The bargaining power of suppliers is very low because TUI enjoys the benefit of backward integration.

Strengths

TUI already acquired established players

TUI has well established distribution channels.

TUI took several measures to improve customer services

TUI offers wide range of products.

Backward integration because TUI has its own suppliers.

Economies of scale benefits

Weakness

TU I has ?900 million share holder loans.

TUI has no cheap accommodations

GENERIC STRATEGY – Cost Leadership

TUI’s primary goals is to expand tourism business, grow their container shipping business, complete divestment program and improve financial risk profile.

The business strategy for TUI’s tourism division includes the following key elements:

Expand tourism business.

TUI intends to capitalize on strong brands and market positions to expand tourism business, both in absolute terms and in terms of market share. TUI’s growth strategy reflects belief that the quality of products, the strength of business model and ability to react to new market trends at early stages of development both in existing European source markets and in selected new source markets, such as the emerging markets of Eastern Europe, including Russia, Hungary, Slovenia and Slovakia, and Asia, including China and India. As part of the same strategy, we may divest assets or business units where appropriate returns cannot be earned in the foreseeable future.

Exploit synergies and cost efficiencies across markets and products.

TUI intend to take advantage of remaining synergy and efficiency opportunities to further optimize operational procedures and integrate tourism businesses at each stage of the value chain. TUI has started to integrate and optimize their maintenance, administration, IT network management and purchasing functions and have completed this process for their airlines by establishing a centralized airline management to ensure maximum utilization of airlines’ capacities.

Continue to leverage the benefits of integrated business model and wide distribution network.

TUI intend to continue to develop fully integrated business model to take advantage of new developments in the tourism industry in order to ensure the continued attractiveness of core products and to attain high utilization of own flight and hotel capacity. This strategy helps to maximize the utilization of own capacity at each stage of the value chain and provides considerable flexibility in making contractual arrangements for additional capacity with third parties. In addition, through TUI’s multi-channel distribution network, they are able to initially funnel tourism products into their own tour operators, airlines and hotels and only subsequently into flight and hotel capacity that they purchase from third parties.

Identify new trends and exploit developments in the tourism industry.

The travel and tourism industry is changing rapidly. Recent trends are not only providing travellers new options but also providing industry participants with new opportunities. Recent trends include the growing customer demand for modular products, the growth of low-cost air carriers and the increasing availability of tourism information over the internet. TUI intends to continue to develop business model to take advantage of new developments and to ensure the sustained desirability of their core product offerings.

TUI also intend further to align the activities of their airlines with each other to benefit from the generally high passenger load factors in the charter flight sector and the cost advantages of some of their own airlines. TUI believes that they can promote new products more effectively and profitably than non-integrated competitors through their presence at each stage of the value chain.

VALUE CHAIN (for diagram please refer Appendix 4)

With TUI’s fully integrated business model, tourism division operates at all major stages of the tourism value chain:

Retail sales. TUI is the largest distributor of package holidays in Europe based on number of travel agencies, with 3,399 travel agencies in source markets. They also distribute products through independent travel agencies and direct sales channels, such as internet sites and travel television.

Tour operators. TUI tour operators in Europe sold approximately 18.4 million travel packages in 2004, approximately seven million of which were sold through their own distribution channels and approximately 11 million through third-party distribution channels.

Air transportation. In 2004, TUI own airlines flew 22.6 million passengers (based on one-way trips) who had purchased one of their tour packages or flight-only products. TUI flew approximately 65% of package holiday customers on their own airlines, with the remainder flying on third-party airlines. Based on total passenger kilometres flown, their combined aircraft fleet was the fourth largest airline in Europe and the fifteenth largest worldwide (Source: Airline Business, August 2005. The Airline Rankings, Passenger Analysis).

Destination services. TUI destination services are provided by 41 incoming agencies at major destination areas in 25 countries.

Hotels. TUI owned, leased or managed a portfolio of 285 hotels and 162,800 beds worldwide as of September 30, 2005. At the end of 2004, TUI was the 12th largest hotel chain in the world based on number of hotels and bed capacity. (Source: Hotels Magazine, Industry Survey, July 2005).

Future implications of the changing business environment

General economic and political conditions affecting the tourism industry.

Adverse effects on TUI’s business arising from terrorist attacks or the threat of. terrorism, outbreak of Diseases and natural catastrophes.

TUI’s ability to remain competitive in the markets for their products and services.

Changes in international legal, tax, administrative, regulatory or economic conditions.

Risks associated with TUI’s structure, the Bonds and their other indebtedness.

The impact of exchange rate fluctuations.

The impact of TUI’s acquisition of CP Ships Limited and the related acquisition financing.

Opportunities

Customer needs are changing

TUI has flexible travel experience with wide range of experience

Expanding the group and creating values through acquisition

Threats

Economic conditions

Restricted capacity management

Own very few budget hotels.

Lower job security.

ANSOFF MATRIX

Market penetration strategy: is the least risky since it leverages many of TUI’s existing resources and capabilities. In a growing market, simply maintaining market share will result in growth and exists opportunities to dominate the market if competitors reach capacity limits. However, it has limits, and once the market approaches the saturation stage, another strategy must be pursued to continue expansion.

Consolidation: Consolidation means focussing on current market and current products. There is also mention in the annual report of 2005 to focus on consolidation rather than acquisition and geographic diversification in order to defending market share and downsizing.

Market development options include the pursuit of additional market segments or geographical regions. New market developments for a product may seem to be a good strategy if TUI’s core competencies are related more to the specific product than to its experience with a specific market segment. This strategy posseses more risk than the market penetration strategy as TUI expands into a new market. It seems appropriate to adopt this development strategy as it relates TUI’s strengths to its specific customers rather than to the specific product itself.

Diversification is the most risky of all the growth strategies since it requires both product and market development activities and may be outside the core competencies of TUI. Diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. As from the case study in TUI group started a new cost cutting programme targeting around a‚¬260 m in 2003 and around a‚¬100 m for 2004.Then in april 2004 TUI opened its first low cost travel agency in hamburg germany with Touristik Express to sell low cost holidays. The optimal bases on which segment the market depend on the particular situation are determined by marketing research, market trends, and managerial judgment

Limitations to ANSOFF matrix

Ansoff matrix, particularly focuses on growth which may not be appropriate in some circumstances.

Uses and Limitations of Tools Applied

This analysis is useful in understanding the market growth or decline, business position and direction for TUI (Kotler, P., 1990). The result of the PESTLE analysis can be used to take advantage of the opportunities and to make plans to tackle the threats. It also ensures that TUI’s performance is aligned positively with the powerful forces of change (Byars, L., 1992).

Uses of PESTEL

1: Identifying past trend in the macroeconomic variables based on which future trends can be identified.

2: Identify the key scenarios affecting the strategy.

3: Identification of key scenarios help in taking right and informed decision.

4: Effective policy formulation.

However, one of the disadvantages of this analysis arises from the issues of reliability, validity and relevance of the information from the secondary sources. Also the past data and past events has to be checked and be applied to the current business conditions. While considering the disadvantages of the PESTLE analysis, managers should understand that it is just a strategic starting point hence conclusions and findings of this analysis should be tested against the reality.

Limitations to PESTEL

1: The variables in this model are highly speculative so analysis of past may not be the indication for future.

2: The analysis will be based on predictions so it may not be accurate.

3: It is practically difficult to analyse unlimited macro-economic factors.

4: It is difficult to identify the level of uncertainty.

Limitations to Porter’s Five Forces

The assumption that the organization’s own interest comes first for some charitable institutions and government bodies may be incorrect. It assumes that buyers have no greater importance than any other aspect of the micro-environment. But the customer is more important than other aspects of strategy development and is not to be treated as an equal aspect of any analysis. It considers suppliers and buyers as threats to be tackled by the organisations, but some companies such as TUI found it useful to engage in closer co-operation with suppliers; such a strategy may be excluded if they regarded purely as threats. It ignores human resource aspects of strategy that might connect people to their own and other organisations.

Uses of Porters Five Force Analyses

1: It helps to analyse the dynamics of industries or sector.

2: It helps to analyse the profitability of the industry as a whole. The high level of these forces denotes that industry is highly competitive and may not be attractive to compete in as hyper competition might prevail in the industry.

Limitations of Porters Five Force Analyses

1: Five forces helps in identifying the industry structure but it may not remain fixed, as different strategies might change the structure. The acquisition of competitor might help to reduce the hyper competition and that might in turn increase power over buyers and suppliers.

2: Five force analyses takes into consideration industry as a whole but it does not segregate different segments. The individual analysis of each of the segment can be of much assistance than industry as a whole.

Conclusion

This period of recession and peoples incomes are curtailed .though there is a setback in the growth and profitability there is a tremendous potential in the tourism industry.

References:

Ansoff, H. (1990), Implanting Strategic Management, 2nd ed., Prentice Hall

Byars, L. (1991), Strategic Management: Formulation and Implementation, 3rd ed., New York: Harper Collins

BBC. (2004, september 17). Natural disasters ‘on the rise’. Retrieved November 2, 2009, from www.bbc.co.uk: http://news.bbc.co.uk/1/hi/3666474.stm

Crouch, G.I. (1994): “The study of international tourism demand: A review of

Findings”. Journal of Travel Research, summer, pp. 12-23.

Daily Mail. (2006, March 10). Imporving Technology affects Tourism. Retrieved November 3, 2009, from www.dailymail.com.

Dickson, P and Ginter, J (1987), “Market Segmentation, Product Differentiation and Marketing Strategy”, The Journal of Marketing, Vol. 51, Issue. 2, pp. 1-10.

Dye,Richard, and Therese McGuire. “Growth and Variability of State Individual Income and General Sales Taxes.” national Tax Journal 44 NO 1 (March, 1992); 55-66

Gil-Pareja, S., Llorca-Vivero R., and J.A. Martinez-Serrano (2006): “The Effect of

EMU on Tourism”, Review of International Economics 14, forthcoming.

Gil-Pareja, S., Llorca-Vivero R., and J.A. Martinez-Serrano (2007): “Did the European

Exchange-rate mechanism contribute to the integration of peripheral countries?”

Economics Letters 95, pp. 303-308

Ghoshal, S. (1987), “Global Strategy: An Organising Framework”, Strategic Management Journal, Vol. 8, Issue. 5, pp. 425-440.

Independent. (2009, December 5). TUI sees recovery in long haul holiday market. Retrieved Novemeber 1, 2009, from http://academic.mintel.com/sinatra/oxygen_academic/search_results/show&/display/id=446621/display/id=456831

Johnson, G., Scholes, K., & Whittington, R. (2005). Exploring corporate strategy (7th Edition ed.). Harlow: Prentice Hall.

Kotler, P. (1990), Marketing: An Introduction, 2nd ed., Prentice Hall.

Miller, D. (1988), “Relating Porter’s Business Strategies to Environment and Structure: Analysis and Performance Implications”, The Academy of Management Journal, Vol. 31, Issue. 2, pp. 280-308.

Porter, M. E. (2001). Strategy & Internet. Haward Business Review, 63-79.

Porter, M. E., & Miller, V. E. (1985). How Information gives you competitive advantage. Harward Business Review , 149-160.

Sinclair, M.T. and M. Stabler (1997): The Economics of Tourism. Routledge, London.

TUI Annual Report. (2008). Annual Report. TUI AG.

http://www.accessmylibrary.com/archive/410295-airline-business/august-2005.html accessed on 3rd November 2009.

http://www.hotelsmag.com/article/CA6485150.html accessed on 3rd November 2009.

http://www.ise.ie/debt_documents/3118.pdf accessed on 3rd November 2009

Appendix 1

The purpose of this report is to identify social-cultural and ecological environment which access to the major trends and forces can relate to develop tourism industry in Australia, Queensland and Brisbane. This report suppose to use the result of macro-environment scanning on social-culture and ecological category to analysis the impact on customers, competition and suppliers. Moreover, the opportunities and threats identified from the impact that affects the tourism industry in Australia, Queensland and Brisbane.

Macro-environment analysis divides into two categories which are social-culture and ecological. Each category investigated from five variables.

As reported by the Department of Immigration and Citizenship (2010), Australia’s population growth in the result of two factors: natural increase and net overseas migration. In 2009, Out of the total population growth, 40% was contributed by natural increase and 60% was contributed by net overseas. It is estimated that the resident population will reach 22.33 million at 30 June 2010, an increase of 377,100 people since 30 June 2009.

The population growth of Queensland was the second fastest of all states and territories, with an averagely growth rate of 2.5% each year since 2005 and the population reached 4.51 million in 2010 (Australia Bureau of Statistics, 2009).

According to the latest published data from Australia Bureau of Statistics(ABS)(2009) report??resulting in the population of Brisbane had a steady averaging growth rate of 2.3% per annum over the past five years, resident population increasing from 973,931 to 1,067,279 since 2005 to 2010.

2.1.2 Multiculturalism

Australia is a vast melting pot of different races and nationalities. As stated by Department of Foreign Affairs and Trade (2008), in the past forty years immigration was a significant contributor to the Australia’s population growth. Approximately 6.6 million (25% of Australia’s total population) from around 200 countries have immigrated to Australia since the Second World War which ended in 1945 to 2006-2007. The largest group of overseas-born residents was born in United Kingdom, accounting for 5.4% of Australia’s total population, followed by New Zealand (2.4%), China (1.6%), India (1.4%) and Italy (1.0%) (ABS, 2008).

According to the data of Multicultural Affairs of Queensland report (2010), in 2006, there were 699,438 Queensland residents born overseas, accounting for 17.9% of Queensland’s total population.

Brisbane is also a city with diverse cultures. As reported by the Brisbane City Council (2006), the proportion of the Brisbane population born overseas was 23% (198.630 people).

2.1.3 Disability

According to the data, there are four million (18.5%) people who had a disability in 2009 and more than a million people had service core activity limitation (ABS, 2009) in Australia. From 2003 to 2009, the disability number decreased from 22.1% to 17.9% (ABS, 2009). In Queensland, the physical disability dropped from 18.3% to 14.7% during 2003 to 2009(ABS, 2005). In addition, the mental and behavioral disability dropped from 3.8% to 3.1 %(ABS, 2005). In Australia, about 55% people aged over 65 had a disability in 1998 as well as in 2003(ABS, 2005). Approximately 42% males and 39% female between aged 65 and 69 had a disability in 2003.Between age 70 and 74, the rate of male with disability and female with disability increased to 45% and 46 % respectively ( ABS, 2005).

2.1.4 Age

Age is normally structure divided into three parts: Children (under 15 years of age), working age population (aged between 15 to 64 years) and older people (aged 65 years and over). From the 30 June 2009 to 30 June 2010, the population of Children rose by 44,600 and it was 22.0% of total population. The Australia’s largest age group was taken up by working age population, the proportion of this group increased from 66.9% in 1990 to 67.6% in 2010. The population of older people and over increased by 94,800, with a proportion of 13.5%. (ABS, 2010)

In 2010, the 67.5% (2,676,767) of the Queensland’s total population was taken up by working age population, followed by Children 20.4% (807,065) and older people 12.5% ( 480,136) (ABS, 2010).

In Brisbane, in 2009, the 68.9% of Brisbane’s population was accounted for working age population, followed by children (19.9%) and older people (11.1%) (ABS, 2010).

2.1.5 Education

During the 1980s, the rate of participation in education was increasing steadily and the educational level became higher by 1990s (ABS, 2005). In 1976??there were 12% in their 20s were people attending educational institution, however this rate increased to 23% in 2001(ABS, 2005). In addition, according to the data, the number of people between the age of 20 and 29 who had achieved higher education was increasing from 1976 to 2010. In 1976, there were 13% people with a bachelor degree compared with 36% in 2001(ABS, 2005). In 2010, 20% people were enrolled a course and about 39% of these attended higher education (ABS, 2010).

In Queensland, the rate of high-level education participation increased from 22% to 55% during the period of 1981 to 2003 in age group 20 to 29. Furthermore, there were 57% people had school qualification in 2001 compared 38% in 1991 in Brisbane (ABS, 2005).

2.2 Ecological
2.2.1 Waste and recycling

According to paper presented by the then Department of Environment and Heritage to the Productivity Commission’s inquiry into waste generation and resource efficiency in Australia, during 2002-03, Australians generated 32.4 million tones of solid waste (domestic, commercial and industrial), with QLD generating 2.86 million tones of that waste. Of the 2.86 million tones generated, 347,100 tones (12.14%) were recovered (Queensland EPA, 2006). The estimation of waste generation and division in Australia from 2006 to 2007; total disposed was 21,069 tonnes; recycled was 22,707 tonnes; total generated was 43,777 tonnes and the division rates was 52%.

According to the data which estimated per capita waste generation and diversion rates for Australia from 2006 to 2007, there were 4,181,000 people in Queensland. The average disposal was 1,030 kilograms per capita; and recycled 900 kilograms for a division rate of 47%. It is lower than NSW (52%) and VIC (62%), but it is higher than WA (33%) (Davis, G. & Herat, S. 2007).

2.2.2 Temperature Change

According to the recent climate and geophysical trends in Australia, Australia’s continental average temperature has increased by approximately o.8 degree since 1910. Most of this rise occurred after 1950, with 1998 being the warmest year, and the 1990s and 1980s being the warmest and second warmest decades, respectively (Collins 2000). These trends are consistent with those measured globally. Since 1951, mean temperatures have increased 0.1-0.2 degree per decade over most of Australia, with the greatest warming inland, particularly in Queensland and the southern half of Western Australia (WA), although some cooling has occurred in southern Queensland and New South Wales (NSW) (Suppiahet al . 2001).Night-time temperatures have increased more than daytime temperatures (0.96 degree per century for minima 0.56 degree per century for maxima; Suppiah et al. 2001).

Average temperatures in Queensland have risen in both summer (0.07) and winter (0.08) over 20 years.

2.2.3 Water Consumption

According to the Australia Bureau of Statistics (2006) that farming industry had accounted for 65% of total water consumed in Australia in the year 2004-2005. And, 90% of total water was used by farm in the year 2007-2008.

22% of total water in Australia was used by Queensland in 2006, 24.5% in 2007 and 29.2% in 2008.

In Brisbane, according to Brisbane City Council, Environment & Waste (2010) consumption falling from 300 litres per day to as low as 127 litres per person per day.

2.2.4 Biodiversity

Across Australia, the number of animal species that were threatened every year was increase from 312 in 2001 to 427 in 2009, and within those 427 species, 46% of them were just injured, 41% were accounted as serious injured and 13% of them were listed as extinct.

According to Biodiversity (2010), Queensland holds 85% of Australia’s native mammals (239 species), 72% of native birds (562 species), over 50% of native reptiles (473 species) and 12888 species of native plants in the year 2010.

According to the Threatened (2010), approximately 40% of Brisbane’s vertebrate animals and 10% of vascular plants in 1500 plants species and 523 vertebrate animals were threatened. And, according to Protecting (2010), under a rise in temperature of more than 2 degrees and increasing CO2, 21% – 52% of animal species could be extinct, this affect Brisbane, Queensland and across Australia.

2.2.5 Land use

Approximately 55.3% of Australian land was used by agriculture industry in 2006 and Queensland had the highest proportion among all other states (83.1%) and in 2009, 54% of Australian land was managed by agriculture business and Queensland was still the highest among all other states (82%) in the same year.

3.0 Trends
3.1 Social- Culture Trends

Based on the research data, it is easy to see an increasing trend because of the high fertility and birth rates with the total population increasing stably and quickly in Australia, Queensland and Brisbane. According to this current trend, the numbers of population in the future 10 years will also stably increase because of the overseas immigration and natural increase. (Population variable).

As well number of the old people over age 64 increasing significantly during the last 20 years which has resulted in the population in Australia becomes older. In addition, the number of old people with a disability has increased and accounts for half of the old population. It means Australia has an issue with an aging population and in few years, it will become more and more salient factor in government issues (Age variable).

Furthermore, because of the increasing number of migrants, Australia becomes a multicultural country. It can be expected that not migration from different countries will keep increasing during the next decade from different countries (Multiculturalism variable).

In education, as the data showed above, the number of people participating in education increased quickly and stably during the last 30 years. In addition, the data indicates the number of people achieving high-level education was increasing a lot in Australia, as well as in Queensland and Brisbane. (Education variable).

3.2 Ecological trends

In Australia waste generation kept increasing from 2002 to 2007, but recycling is also increase during that period. In Queensland, the per capita waste generation is lower than other states.

The temperature has kept increasing since 1910, because of the global warming, particularly in southern Queensland. It has risen in both summer and winter.

Every year, more and more species of animals and plants are in danger because of land development or climate change

4.0 Forces
4.1 Social-culture forces

Along with the increasing of the ageing population, the ageing tourists become potential tourism market segmentation.

The growth of the older with disability forces the tourism industry to develop more humanized infrastructures to meet the needs of the disability market.

The increasing number of participants in higher education forces the firm to become more productive and competitive in the marketplace.

4.2 Ecological forces

The waste and recycling management is not only to affect the local people living, but also it affects the tourism industry development.

The global temperatures growth is not only happening in Australia, Queensland and Brisbane, but the temperature increase will impact on the natural environment resource. Hence, it will impact the tourism development in the long-term.

5.0 Impacts on customers, competitors and suppliers

First, on the impact of customer, the trend of the increase aging group suggests that the old and retired people will be a big potential market of the tourism industry in Australia, Queensland and Brisbane. Furthermore, from the supplier’s aspect, they should focus on how to create an interesting tourism product and design the destination to attract the senior group and retired people in Australia, Queensland and Brisbane. Lastly, about the impact on competitors, for Australia and Queensland, the competitors will be the other countries and other states. In Brisbane, the competition among the tourism organizations will be to special travel products to catch the attention of old tourists.

Second, the growth of disability among old or people affect customers in three levels: there will be many tourists with a disability. Also, build more humanized infrastructures are good for the disability tourists. Suppliers need to create healthy tourism for these people with a disability and provide appropriate service. Competitors for this market will be more at the Australia and Queensland level, but in Brisbane, there should be little competition in this target market, because not too many firms focus on disability tourists.

Third, the increase of people achieving high level education improves the rate of customer’s satisfaction in Australia, Queensland and Brisbane. In addition, the competition among the firms shows on the recruitment, because all the firms want to employ highly competent people in Australia, as well as in Queensland and Brisbane. Moreover, high level educational staffs that have good skills and provide good service to customers have positive impacts on suppliers In Australia and Queensland.

Fourth, the impacts of loss of biodiversity means loss of tourism potential and reduction in the demand from customers, as there is not too much to see which will be the same for each of Australia, Queensland and Brisbane. The firms in Australia, Queensland and Brisbane will suffer from the lack of product; also, the firms might face the problem of close down. In addition, there will be fewer products to sell.

Fifth, as a result of global warming resulting in rising sea levels there will be less and less land to use which will reduce the opportunity for customer to travel in Australia, Queensland and Brisbane. For firms, the competition among firms will be intense in three levels because lack of the land will reduce the amount of tourism destination. For the suppliers it will be difficult to provide a good land for tourism.

Last, waste and recycle management to advance customers protect environment and reduce wasting. In addition, encourage green tourism participation of customers in Australia, Queensland and Brisbane. Suppliers provide more products of eco-tourism in the tourism industries. For firms, sustainable tourism will be a mainstream tourism product in the marketplace, so it is necessary to create green product in tourism industry of Australia, Queensland and Brisbane.

6.0 Opportunities (in general) that arise from this impact

Australia is a travel destination country which has wonderful natural environment and heritage resources and the speed of development of tourism industries is growing fast in Australia. Although there are some negative impacts of the macro environmental issues on customers, competition and suppliers, there are still opportunities for tourism development.

The increasing number of old and disability tourists will bring Australia, Queensland and Brisbane more tourism opportunity which can help the local stakeholders to be more clear about the target market. From the target market analysis, the local infrastructure and facilities will be built more concern about the older and disability people to provide them higher quality service to satisfy their travel expectation. For example, the destination can provide the nursing facilities for the older and disability people which would provide an advantage over other travel destinations. Targeting the market of old and disability tourists with appropriate infrastructure will decrease the effectiveness of the competition from international tourism market.

The increasing employees with a higher level of the education and training can promote the quality of the tourism service and cater for the technological tourist. It should be an advantage for Australia, Queensland and Brisbane in the marketing share in the tourism industry. Also, it can increasingly attract employees who have hospitality talent to work here.

The Australia waste and recycling management which is a long term environmental protection can provide the travelers a natural protected travel destination. Also, the local waste and recycling management can influence the travelers concern the environmental issues and choose the ‘green tourism’ product and services. The suppliers will invent more ‘green tourism’ products and services not only to concern the environment, but also promote more travelers enjoy the eco-tourism in Australia, Queensland and Brisbane.

7.0 Threats that emanate from this impact

Firstly, in Australia, Queensland and Brisbane, the threats from the aging market and disability market classified into the same category, as they are both potential consumers with special needs. However, there is a significant difference between the spending on the ordinary consumers and consumers with special needs. For instance, in order to make the tourism market accessible, the requirement to build approachable facilities, recruit nursing staff and design tourism packages for these special markets significantly increase the organizations’ budget and the market prices. Thus, for the disabilities and aging customers, they are faced with the high travelling prices and the need of special assistance which may result their dissatisfaction. For suppliers, these market lines may be a threat to them in reaching the organization’s substantial long-term goals. Furthermore, the increasing costs of integrated reconstruction, recruitment and innovation also threat the competitors in tourism industry, which make it more difficult to become competitive in the marketplace.

Secondly, the high level of customer satisfaction has no negative impact on tourism organizations in Australia, as well as Queensland and Brisbane. Moreover, it brings the high customer retention and excellent reputation for the organizations. In addition, from the competitor’s perspective in Australia, Queensland and Brisbane, the increasing demand for higher education employees is a threat to organizations to retain the outstanding employees and maintain low turnover rate. In addition, the good performances of workers lead to an underlying threat that is the workers will demand pay rise in the future and affect the profit of the suppliers in Australia and Queensland.

Thirdly, in Australia, Queensland and Brisbane, as tourism industry is a big contributor to economy, the loss of customer demand will lead to the decline in organization’s profit. Moreover, the lack of product will bring a threat to tourism organizations, which will influence the width of product line.

Fourthly, as lacking of opportunities for customers to travel to Australia, Queensland and Brisbane, tourism organizations need to face threats from other travel destinations in international, domestic and local dimensions. For competitors, the reduce amount of tourism destinations will intensify the difficulty of Australia to be competitive in international tourism marketplace. However, for both Queensland and Brisbane, the reducing number of destinations may create barriers for new entrants, thus avoid competitions. From the suppliers’ perspective, the lack of attractive landscape creates a potential earning loss threat.

8.0 Conclusion

The

The low-cost concept became a moneymaker in the United States, where it was pioneered in the 1970s by Southwest Airlines, the model for budget carriers elsewhere like Ryanair and easyJet in Europe.

Definition of low cost airlines

A low cost airline generally has many features that differentiate it from the traditional carriers. These features include ticketless travel, online ticket sales, no international offices, no frequent flyer points, no free food and beverages, no inflight magazines, no club lounges, use of secondary city airports.

Not all low cost airlines have these features, and not all airlines that have some of these features are low cost airlines. For example, Virgin Express is a low cost airline, but it still offers complimentary coffee and inflight magazine, and they are based at Brussels primary airport.

Case Study-AirAsia

Story of AirAsia

Air Asia, as the second Malaysian National Airline, provides a totally different type of service in line with the nation’s aspirations to benefit all citizens and worldwide travellers. Such service takes the form of a no frills – low airfares flight offering, 40%-60% lower than what is currently offered in this part of Asia. Their vision is “Now Everyone Can Fly” and their mission is to provide ‘Affordable Airfares’ without any compromise to Flight Safety Standards.

The story of emergence of AirAsia is similar to Ryanair, since both carriers underwent a remarkable transformation from a money-losing regional operator to a profitable, low cost airline.

AirAsia was initially launched in 1996 as a full-service regional airline offering slightly cheaper fares than its main competitor, Malaysia Airlines. Before 2001, AirAsia fail to either sufficiently stimulate the market or attract enough passengers from Malaysia Airlines to establish its own niche market. The turnaround point of AisAsia is in 2001, while it was up to sale and bought by Tony Fernandes. Tony Fernandes then enrolled some of the lending low-cost airline experts to restructure AirAsia’s business model. He invited Connor McCarthy, the former director of group operation of Ryanair, to join the executive team. In late 2001, AirAsia was re-launched in Malaysia as a trendy, no-frills operation with three B737 aircraft as a low-fare, low-cost domestic airline.

Opportunities faced by AirAsia in light of external development

Low fare of Indonesia-Malaysia trip

The fare for a Jakarta-Johor Baru trip costs Rp 100,000 (RM 88.88 one way). And charge Rp 150,000 for a Bandung-Kuala Lumpur flight, and Rp 300,000 for a Surabaya-Kuala Lumpur trip, whereas a Jakarta-Kuala Lumpur air ticket from Malaysia Airlines available at travel agents cost Rp 1.4 million. Meanwhile, Lion Air on the same route, charged Rp 1.05 million. The low fare provided by AirAsia helps it open the Indonesia market.

Low fare of Singapore-Bangkok service

AirAsia will increase its services between Singapore & Bangkok by introducing a 2nd daily flight to its existing schedule. This recent development came barely a month after Thai AirAsia operations started its first international flight to Singapore in early February this year. AirAsia is offering its guests promotional fares to/from Singapore- Bangkok from SGD$23.99 (THB 499) one way from the 28th March to 30th Oct, 2004. It is much lower than the lowest fare SGD$56 offered by full-service carrier. This helps it open the Singapore market.

Political connections

AirAsia hold 49% of Thai AirAsia with 1% being held by a Thai individual. The remaining 50% is held by Shin Corp. which is owned by the family of Thailand’s prime minister, Thaksin Shinawatra. Shin Corp. has financial strength, synergy in ingormation technology and telecommunications, which support AirAsia Internet and mobile phone bookings. Shin Corp. allows subscribers of the Shin mobile phone flagship, Advanced Information Service, being able to reserve tickets through its short-messaging service (SMS). AirAsia with its politically powerful backer may well grow up to bite. This helps it open the Thailand market.

Malaysian government support

The Malaysian government supported the establishment of AirAsia in 2001 to help boost the under-used Kuala Lumpur International Airport. AirAsia’s flights from Senai are meant to develop Johor into a transport hub to rival Singapore. AirAsia, therefore, can provide an alternative route to travel to Bangkok, by using Senai Airport in Johor Bahru, in southern Malaysia.

Opportunities faced by AirAsia in light of internal development

Issue of IPO

Kamarudin Meranun, AirAsia’s Executive Director announced the appointment of Credit Suisse First Boston (CSFB) and RHB Sakura Merchant Bankers (RHB) as the bookrunners for the company’s upcoming Initial Public Offering (IPO).

The IPO strengthens AirAsia balance sheet, further cuts its existing low costs at 2.5 US cents per ASK and accelerates our growth plans throughout Asia. The IPO also allows AirAsia to expand its fleet of 18 Boeing 737-300s.

Political connections

Thai AirAsia is a join venture established by AirAsia with Shin Corp. Shin Corp. is owned by the family of Thailand’s prime minister, Thaksin Shinawatra, and about 900 million baht will be invested in Thai AirAsia over a five-year period. Shin Corp. oversees the finance and administration of Thai AirAsia while AirAsia shoulders the responsibility for marketing and operations. Shin Corp. has financial strength and supports AirAsia to grow. AirAsia with its politically powerful backer may well grow up to bite.

Challenges faced by AirAsia in light of external development

Indonesian habit

Preferences of Indonesian passengers are quite different from the concept of cheap air travel without extra service for the passengers (free snacks and drinks), and also their reluctance to bring light baggage.

AirAsia prefers passengers with very light and minimum baggage. If this is the case, it may not last long.

But Indonesian domestic airline companies are able to provide value-added extras like food and beverages as part of their service to the passengers, although at a relatively higher cost.

The comparative edge of Indonesian domestic airline companies compared to AirAsia concerns habit (culture).

Furthermore, Indonesian domestic airlines were already trained with the low-cost air travel concept, known as tariff war. They have proved themselves as immune, and managed to survive.

Last but not least, the Indonesian government or domestic airline companies had never announced the availability of a low-cost airline company of the country. All these affect AirAsia growth in Indonesia.

Singapore government rejection

Initially, AirAsia wanted to start flights from the southern state of Johor, near Singapore, it hoped to attract passengers by running a convenient bus service to the city-state. However, Singapore quickly quashed that idea. The Singapore government said it would not approve a bus link for AirAsia because it was not ‘in her national interest’, reflecting fears that Singapore’s Changi airport would lose business to Johor’s new Senai airport. This makes AirAsia cannot abandon the use of Changi airport, and therefore suffer from a higher cost.

This is because AirAsia flying to Singapore needs to suffer from flight congestion of Changi. Changi has drawbacks of flight congestion that could prevent the quick turnarounds essential to keeping down costs. AirAsia finds it stuck between big planes and circling to wait for a slot to open up, which means extra fuel costs. Moreover, the SGD$21 departure and security tax of Changi is too high for AirAsia low-cost operation. AirAsia had asked the Singapore government to waive the fees, however, a request that was not only rejected but also criticized.

Besides Singapore – Bangkok, AirAsia now provides an alternative route to travel to Bangkok, by using Senai Airport in Johor Bahru, in southern Malaysia. Seeking to cater to the different markets, fares for Johor Bahru- Bangkok are generally 20 % lower in comparison to Singapore – Bangkok. AirAsia currently operate daily flights to Bangkok from Johor Bahru. However, the choice proved unpopular, as the route failed to attract Singaporeans because of the additional cost and inconvenience of having to travel in and out of Malaysia by road. All these affect AirAsia external growth.

Minimum air-fare rates

AirAsia faces challenges finding open takeoff and landing slots at opportune times, and Thailand’s regulation that sets minimum air-fare rates. Although Transport Minister Suriya Jungrungreangkit said the current minimum air-fare regulations will be scrapped to open up the market, he couldn’t name a date when this will be done. This seems to be favoritism toward Thai Airways International’s domestic operations, and affects Thai AirAsia to compete in the Thailand market.

External Changes which have impact on AirAsia

Asia’s middle class growth

Low cost airlines are anticipated to have greater potential in Asia as there are many Asian cities with a population above one million people each as well as a rising middle class population. This growth of middle class in Asia provides a huge market potential for AirAsia to grow.

However, as the market is becoming larger, more airlines or new comers would like to get a piece of the action. For example, Budget airlines, it is estimated, will capture at least 25% of Asia’s air travel market within next 10 years and a lot of that will be new, not diverted, traffic. Therefore, AirAsia will face more competitions at the same time.

Besides the low cost airlines, AirAsia still needs to compete with the conventional carriers. Although extra passengers of the low cost airlines will be coming from the new demand to be created by the low fares, the growth may not be entirely ‘stolen’ from big flag carriers.

Actions of Changi and nearby airports

The growth of low cost airlines in south-east Asia has a significant effect on which airports will dominate the regional aviation market. Low cost airlines are seen as helping funnel more passengers to airport hubs. Therefore, there is a realization among regional governments that they need smashing airports and feisty carriers or they are going to miss out big time. Therefore, these governments are more willing to support low cost airlines. For example, the Malaysian government supported the establishment of AirAsian in 2001 to help boost the under-used Kuala Lumpur International Airport, and Thai premier’s Shin Corp. forms a join venture with AirAsia that would benefit Bangkok’s new airport and create a new hub at Chiang Mai. Therefore, under this situation, it helps AirAsia grow in Asia.

Moreover, as there is a growth of several south-east Asian airports, this poses a challenge to the status of Singapore’s Changi airport as a regional aviation hub. These airports include Johor’s new Senai airport in southern Malaysia, Bangkok’s new Suvarnabhumi airport which will be able to handle 45 million passengers when it opens in 2005, Bangkok Don Muang which recently overtook Changi in passenger numbers, etc. To maintain Changi’s position as the air hub in the region, Singapore is proposing a budget airline terminal at Changi by 2005 and lower passenger taxes to attract low cost airlines. This helps AirAsia grow and lower the cost.

Actions of existing airlines

The existing airlines in south-east Asia have several actions to compete with AirAsia, for example, some have launched a low cost airline to fight with AirAsia.

Singapore Airlines launched a low cost airline subsidiary, Tiger Airways, in the second half of 2003, only months after the scheduled launch of ValuAir set up by one of its former executives.

Orient Thai Airlines launched a new low cost airline subsidiary, One-To-Go. One-To-Go operates with a fleet of six Boeing 757-200s and match any fares that Thai AirAsia offers.

Thai Airways have frequency and capacity to offer to their 13 domestic destinations. They also have, during the past two years, worked to improve operational efficiency, slashing unprofitable domestic routes, increasing flights on busy routes, strengthening yield management and controlling costs.

All these make AirAsia face a huge competition.

Critical success factors in the Low cost airlines in Asia

Reduction in operational cost

Low cost airlines strive to achieve the lowest possible price for their products and services. Low prices cannot sustain unless the company maximizes its operational efficiency.

The success factors of Asian low cost airlines in reducing their operational cost include:

Service savings (no frills cabin service and extensive use of outsourcing)

NO-frills include:

NO drinks, NO food, NO headphones, NO newspapers, NO movies, NO VIP lounges, NO expensive offices, NO mileage programs, NO seat allocation, NO children’s fares, NO paper tickets (Electronic tickets only), NO connecting flights (All flight-legs must be booked independently)

Operational savings (point-to-point services and uniform fleet)

Overhead savings (internet sales and streamlined bureaucracy)

We can compare the operational cost in terms of costs per available seat kilometer (ASK), a measure of the running cost of the airline. For instance, Ryanair in Europe is almost half of the ASK price comparing with the full services airline. The average fare offered by Air Asia in Malaysia is 40-60 % lower than its full-service competitor.

Competitive Ticket price against traditional full-service airline

Low cost airlines begins with two initial cost advantages arising from the very nature of their operation: higher seating density and higher daily aircraft utilization. By removing business class and reconfiguring their aircraft, low cost airlines can increase the number of seats on their aircraft. Seat pitch of a low cost airline is usually 28 inches, compared to a traditional conventional economy class pitch with 32 inches. Doganis (2001) calculates that should be able to operate at seat cost that are only 40-50 % those of mainline rival. Combining the load factor benefit and beneficial distribution cost, low cost airline’s cost per passenger can reduce price by one-third of conventional airline.

Flying out of secondary airports

Many low-cost airlines keep expenses down by flying out of secondary airports, avoiding major hubs where takeoff and landing fees are much higher while still getting passengers close enough to their destinations.

The travel distance is short

As the routes offered by low cost airlines are mainly short, domestic routes which may only take one to two hours, travellers might be fine with no amenities on flights

Success factors in AirAsia

Absolute Cost Advantage

Low cost per average seat kilometer

AirAsia focused on ensuring a competitive cost structure as its main business strategy. It has been able to achieve a cost per average seat kilometer (ASK) of 2.5 cents, half that of Malaysia Airlines and Ryanair and a third that of EasyJet. AirAsia can lease the B737-300s aircraft at a very competitive market rates due to the harsh global market conditions for the second-hand aircrafts because of the September 11th event in 2001. On the other hand, the operating cost of the company is also dropped drastically.

Low distribution cost

AirAsia focus on Internet bookings and ticketless travel allowed it to lower the distribution cost.

Attractive ticket price

With the average fare being 40-60 % lower than its full-service competitor, AirAsia has been able to achieve strong market stimulation in the domestic Malaysian air market (Thomas 2003). For instance, the fare for the trip from Kuala Lumpur to Penang on AirAsia starts from 39 ringgit. Comparing to trip by bus charge 40 ringgit and 80 ringgit by car. The effect of attractive low fare is more travelers switching from bus to air, similar case as Ryanair in Europe.

Good Management Team

AirAsia value proposition is more sophisticated than Ryanair placing equal emphasis on brand reputation and customer service/people management, by a senior advisor to AisAsia’s top management team. AirAsia pursue a Ryanair operational strategy, Southwest people strategy and an Easyjet branding strategy.

Weakness

Fair availability

The availability of AirAsia is not good as traditional airline as it only provide unique aircraft. However, it cannot be the cost leader if it offers customized features or comprehensive support which will result in increasing operational cost.

However, focus on a specific customer may avoid straddling.

Case of straddling

A Japanese low cost airline, Skymark, trying to be everything to everyone targeting the broader customer and offering limited special features (satellite TV, Business class and charter operations). The result is failing to both cost efficient and price competitive rendering it vulnerable to market forces and customer demand (porter1996; Lawton 1999).

Major strategic directions recommended

Open more Asian market

Low cost airlines are anticipated to have greater potential in Asia as there are many Asian cities with a population above one million people each as well as a rising middle class population. It is time for AirAsia to exploit the potentials of affordable air travel by Asia’s growing middle class. Besides starting services to the Pearl River Delta in south China in 2004, AirAsia can expend its services to the coastal cities in China.

Besides the growth of Asian middle class, the liberalization of aviation sector of India is another reason for AirAsia to open more Asian market. The Indian government has liberalized the aviation sector long dominated by the national carriers. Now, only a few low cost airlines, e.g. Air Deccan, Airone Feeder Airline Pvt Ltd, Crescent Air, have launched their services there. Moreover, the national carriers, Indian Airlines or Air India, despite their domination of the Indian skies, do not seem to be much interested in operating low-cost services. Therefore, it is a good chance for AirAsia to open the Indian market.

Join venture with Virgin Group

AirAsia should put more effort to set up a pan-Asian low cost airline with Virgin Blue, which is a low cost carrier of Virgin Group serving Australia and New Zealand mainly. Virgin Blue has suggested it may extend services to south-east Asia. Therefore, setting up a join venture with Virgin Blue can help AirAsia to grow in Asia even further, and help Virgin Blue to extend services to south-east Asia.

Recommendations to maximize competitive advandages of AirAsia

1. Enforce Political advantages

AirAsia established a join venture, Thai AirAsia with Shin Corp. Shin Corp. is owned by the family of Thailand’s prime minister, Thaksin Shinawatra, and about 900 million baht will be invested in Thai AirAsia over a five-year period. Shin Corp. has financial strength, synergy in ingormation technology and telecommunications, which support AirAsia to grow in Thailand. AirAsia with its politically powerful backer can well grow up to bite, and therefore it should enforce such political advantages in order to extend the growth in Thailand.

Furthermore, AirAsia should use its Thai subsidiary, Thai AirAsia, to claim the use of Thailand’s ‘open skies’ agreements to fly to Singapore, Brunei and Cambodia, overcoming the barrier of bilateral aviation pacts that threatened to limit its growth.

Induction of smart cards

AirAsia can issue a smart card which is compatible with the existing ticketless booking.

It can offer 2 kinds of smart cards. The first kind of smart card, aimed at ordinary travellers, will offer instant rewards when topped up, offering greater value than its purchase price. For example a Bt5,000 card may be worth Bt5,500. The card can also be used by other people with the same family name as the cardholder.

The second kind of smart card will offer unlimited travel for frequent flyers. Priced provisionally at Bt20,000, cardholders will be allowed make as many trips as they want within a specified period.

Conclusion

A study by the Centre for Asia Pacific Aviation (2002) confirms that Asia continues to offer attractive conditions for the air transportation industry. With thirteen out of world’s top twenty-five major urban centres located in the Asia Pacific region and a rapidly increasing urbanization trends, the Asian air travel market is bound to continue to grow. Urbanization is highlighted as one of the key drivers for the growth in air travel. It is estimated that Asia would account for 30% of the world market by 2019, or one third of growth between now and then. While the impact of SARS is going to slow down the growth of Asian regional demand, the long-run forecast continues to be very positive. These enable low cost airlines to grow even further.

Air Arabia is one of the low cost airlines of UAE, based in Sharjah. It presently is operating in more than 45 destinations comprising of major cities in south-east Asia, Middle-East and few regions of central Asia and Africa. Air Arabia is also registered in AACO or “Arab Air Carriers Organization”

In the recent years the threat due to its substitute competitors was almost nullified. They stood nowhere in front of Air Arabia but there had been a constant threat from the upcoming new competitors. Though the new competitors were not enough to challenge Air Arabia, there was still some kind of threat because the numbers of such competitors were increasing day by day. In UAE initially there were many air service providers, but in the recent times Air Arabia has proved to be the most effective one compared to its previous competitors. With the increasing oil prices the competitors of Air Arabia increased their prices, but Air Arabia kept its low budget fares in order to gain more and more public support at the cost of temporary loss or little marginal gain.

The low cost carriers are so effective that they helped Air Arabia win Merit Award for CAPA Low Cost Airline of the Year 2006 and the World Airline Award for Best Low-Cost Airline in the Middle East in 2007. The biggest threat that Air Arabia has is from its competitors. The reason for the same is that once a company gets a remark of dissatisfying its customers by not doing as advertised, the competitors take advantage.

Key strategies include:

Entering in new segments and thus removing dependency on singe segment (low cost carrier).

Arranging funds to buy more funds.

Balancing between increasing inflation and controlling the prices of the tickets.

Acquiring new and small airlines for faster expansion.

Getting listed at new airports and starting operation in new places.

Supporting government’s Emiritization strategy to get more federal support.

Talking about the implementation of strategies, for increasing its marketing dimension, the company has invested over DH one million in terms of Ads, both online and print media. This would result in a long term profit for the company, though it’s quite a heavy amount on the basis of company’s current scenario. More includes:

International flight connecting Abu Dhabi to more than 45 international destinations in USA, Indian subcontinent etc. Air Arabia carried over 4.6 million passengers, an augment of approximately 65.8% over in 2006. (Lowcostairlinesworld, 2009)

Along with this, it also griped 175,000 tons of freight in 2007, which is an increase of over 75% than the year 2006.

Introduction:

Air Arabia is one of the low cost airlines of UAE, based in Sharjah. It presently is operating in more than 45 destinations comprising of major cities in south-east Asia, Middle-East and few regions of central Asia and Africa. Air Arabia is also registered in AACO or “Arab Air Carriers Organization”. It was the first low-fare organization in the Middle-East, started on 3rd February in the year 2003. It offers almost 40% less price than the other airlines. The main base of the airline is Sharjah. In 2007 it was the first to offer public 55% of its stock. It basically aims at attracting the people. After its foundation it kept on spreading in services. For the time in 2008 it had to back out from the Nepal region due to some uncertain political and economic issues. It has collaborated with many other airlines in many parts of the world.

Vision:

The ultimate goal of the company is to position itself at the top of all the Low-fare airlines in UAE and in Gulf. The key features of Vision of the company are as follows:

aˆ? Expanding its aircraft range

aˆ? To provide service on more number of routes

aˆ? To enhance efficiency of operations

aˆ? And to increase its revenue maintaining a low and simple structure of low air-fare industry.

Mission:

The company’s mission includes building and creating multi-functional team, increase revenue and offering a value for money services in the region. The ultimate mission is to bring a revolution in the fright industry by new and innovative corporate standards.

Industry background:

The airlines industry of UAE is vast if we look at the number of service providers. There are number of low cost airlines. National airlines of UAE other than air Arabia include Gulf Air, Emirates and Etihad. Gulf air was started long ago in 1950. It provides a number of facilities to its users. Firstly it has provided many onboard facilities to children below the age of 12. For the business related people it provides the BBC world news. It also provides separate dinning for the passengers. It is treated as a standard national flight for most of the purposes. Emirates airlines were introduced after Gulf Air in 1985. It is also considered as a national flight. It has won several awards for its services. This airline consists of many air planes both for public and private issues. Etihad is the most recent one and was introduced after air Arabia in the same year. It had also become quite popular but could not compete with Air Arabia on low cost. A Kam air fare is also considered as one of the low cost airlines in UAE. Among all the existing national airlines till date Air Arabia is considered to be the cheapest one. It is not considered to be a flight with the best facility on board but of course it offers a cheap fare t its customers. The facilities provided by these national airlines to their customers vary from each other. All these airlines greatly contribute to the national economy of UAE.

Statement of problem:

In this report, we will talk about the key strategies of Air Arabia, alternate strategies available, implementation, and SWOT, PEST and competitor analysis of Air Arabia. For this concern, an interview with a manager of the company is organized. The Manager stated that Air Arabia is doing substantially well in its domain which is presently concentrated to low cost airline segment. For long term perspective, the company is aiming to enter in more segments than this alone. There are number of strategic problems the company is facing. These are:

Entering in new segments and thus removing dependency on singe segment (low cost carrier).

Arranging funds to buy more funds.

Balancing between increasing inflation and controlling the prices of the tickets.

Acquiring new and small airlines for faster expansion.

Getting listed at new airports and starting operation in new places.

Supporting government’s Emiritization strategy to get more federal support.

Analysis:
Environmental or Industrial Analysis:

Air Arabia believes in providing a superior and cost efficient life support system by introducing advanced facilities and more availability to gain customer satisfaction. It aims to be a company that has value and importance based on kind of services it provides. The organization has certain morals when it comes to staffing and team work, maintaining customer relationship, honesty, truthfulness, and flexibility are that satisfy the grounds.

The customers of the Air industry are in all forms. The aircrafts are used for the security of nations and so go to the government. Then importers and exporters of the market that import goods from as small as vegetables to cars. So in turn we also are using these services. They are used for the people to travel. The aircrafts are the majority form of transportation in the recent times.

Porter’s five forces analysis
The threat of substitute competitors:

In the recent years the threat due to its substitute competitors was almost nullified. They stood nowhere in front of Air Arabia. The other substitutes kept on declining and the company Air Arabia kept on improving talking in terms of profit in the market. The other companies could not offer such a low fares as compared to Air Arabia whose fares were remarkable.

The threat of the entry of new competitors

There had been a constant threat from the upcoming new competitors. Every now and then many new companies were launched along with the existing ones. They all tried to match up to the level of Air Arabia but ultimately failed to continue on a long run. They met with huge loss and ultimately ended up in increasing the cost. All these competitors tried to copy Air Arabia based on service it provides, but they failed to regulate them on a regular basis based on public satisfaction and demand.

The intensity of competitive rivalry

Though Air Arabia continued to dominate the market in the recent years, it had not been an easy job. It always had to keep itself alert and changing. Though the new competitors were not enough to challenge Air Arabia, there was still some kind of threat because the numbers of such competitors were increasing day by day. Air Arabia had to keep a survey of the prevailing market conditions and take safe decisions to keep going. Marketing aspect of the company became crucial in maintaining the market position.

The bargaining power of customers

Considering the bargaining power in case of Air Arabia is a mere thing if we compare it with the facilities it provides and the lack of able competitors. People were not much into bargaining because Air Arabia had been the best available among all the others. However, in times of strong competition by some new rivals there had been some kind of bargaining by the customers, which was gracefully accepted for that period.

The bargaining power of suppliers

Suppliers in this case refer to the stock holders of the company. They also got a huge discount on available stocks. Also the amount of available public stocks was considerably increased. They also get a good amount of annual dividend. Also due to expansion of their business the stock holders made a huge profit.

Competitor Analysis:

In UAE initially there were many air service providers, but in the recent times Air Arabia has proved to be the most effective one compared to its previous competitors. With the increasing oil prices the competitors of Air Arabia increased their prices, but Air Arabia kept its low budget fares in order to gain more and more public support at the cost of temporary loss or little marginal gain. This was very crucial in giving Air Arabia a position quite different from others. Among all the existing national airlines till date Air Arabia is considered to be the cheapest one. It is not considered to be a flight with the best facility on board but of course it offers a cheap fare t its customers. The facilities provided by these national airlines to their customers vary from each other. All these airlines greatly contribute to the national economy of UAE.

SWOT Analysis:
Strengths

Considering the case of Air Arabia, the low cost fare plays a crucial role in gaining the public interest. The low cost carriers are so effective that they helped Air Arabia win Merit Award for CAPA Low Cost Airline of the Year 2006 and the World Airline Award for Best Low-Cost Airline in the Middle East in 2007.

With the increasing infrastructure, high regional GDP and a huge demand in various regions, air travels are contributing to the success of low cost carriers in UAE.

The reason for Air Arabia being so popular among all the regions of the world is its award winning strategies. These awards add a great deal in their marketing strategy which helps to bag future success.

Air Arabia has been able to advertise its business in the following ways:

Travel agency commissions stopped

Removal of interline, code-share relationships

Usage of secondary or alternate city airports (Eyefortravel, 2008)

As a number of people have begun to feel the same, it is certainly a positive aspect of advertising for Air Arabia.

Weakness

The greatest weakness that most of the airlines companies are facing nowadays is that they have not been able to live up to their expectations. On many occasions, Air Arabia has agreed on certain flying to certain destinations but it has not lived up to it.

One such concern is that when the airline company promised to fly to some of the most restricted destinations in the world, it could not make it to Cairo as it most highly expected by the tourists and other regular passengers. So, as the advertisement said they did not book their expensive tickets through different airline companies but at the same time did not get the opportunity to travel at all.

Some of the major accessories as expected by the passengers in Air Arabia in spite of its low cost are as follows:

Amenity Kits

Air Sickness Bags

In-flight socks

Eye shades

Blankets

Headsets

Opportunities

High GDP Growth Rates: Petroleum extraction and refining operations have been on an all time high in the UAE in the past few years. This has helped in the boost of the economy of UAE. Air Arabia can take advantage of this fact and can help make the use of its low cost carriers more prominent.

Positive Demographics: The percentage of youth (under 30 years) in the UAE is 64%. This will provide a high in the future market as liberalization opens market even to air travel. It is one of the important factors for Air Arabia to select its targeting strategy.

Strong Tourism: The energy and entrepreneurial spirit of the middle-east region is attracting tourism and business traffic in its own right. Advertisement can be done with all the tourism companies so as to make the tour highly affordable for the tourists.

Threats

The biggest threat that Air Arabia has is from its competitors. The reason for the same is that once a company gets a remark of dissatisfying its customers by not doing as advertised, the competitors take advantage.

The other reason of threat for Air Arabia is that all the newly merging airline companies are in a spree to capture the market by making a strong reputation. Once they come up with price fares lesser than Air Arabia then even the best of advertising would fail.

Company’s performance:

Air Arabia is one of the low cost airlines of UAE, based in Sharjah. It presently is operating in more than 45 destinations comprising of major cities in south-east Asia, Middle-East and few regions of central Asia and Africa. Air Arabia is also registered in AACO or “Arab Air Carriers Organization”. The company’s mission includes building and creating multi-functional team, increase revenue and offering a value for money services in the region. It was the first low-fare organization in the Middle-East, started on 3rd February in the year 2003. It offers almost 40% less price than the other airlines. The main base of the airline is Sharjah. In 2007 it was the first to offer public 55% of its stock. It basically aims at attracting the people. After its foundation it kept on spreading in services. For the time in 2008 it had to back out from the Nepal region due to some uncertain political and economic issues. It has collaborated with many other airlines in many parts of the world. (Ameinfo, 2009)

Key Strategies:

A key strategic issue includes:

Entering in new segments and thus removing dependency on singe segment (low cost carrier).

Arranging funds to buy more funds.

Balancing between increasing inflation and controlling the prices of the tickets.

Acquiring new and small airlines for faster expansion.

Getting listed at new airports and starting operation in new places.

Supporting government’s Emiritization strategy to get more federal support.

The company is trying to introduce low cost flights so that more and more people avail them. There are basically targeting on two areas. First of all they are reducing some unnecessary facilities on short time journeys. Removing these facilities based on such a low cost hardly affects public interest. Secondly, they are trying to reduce the fair on some routes and at the same time increasing the number of flights on these routes. This means gaining public interest and support based on low marginal profit. Other than offering incentives to its customers it also offers heavy dividend and discounts to stock holders. It was the first flight to provide so much of rebate to its customers and stock holders. It keeps on increasing the facilities offered in order to keep the interest maintained. (Ameinfo, 2009)

Air Arabia has recently expanded its aircraft ranges. It has tried to expand the business in by introducing new routes in many parts of the region. There are more and number of aircrafts in the regions where there were less no of aircrafts. Now the flights are available more frequently in some routes based on amount of profit made in the existing routes. In order to increase the value of its stocks in the market, the company has released more no of stocks to the public with discounts. The strategies, the growth and the future plans offered by Air Arabia are sufficient to attract more and more stock holders which ultimately lead to expansion in terms to money, power and public support. It has also appeared on many other stock lists and transactions are also about to start. (Eyefortravel, 2008)

The company had been very particular in deciding the cost of transport. It kept in mind the rising and the falling prices of oil and other equipments, directly or indirectly related to their business. In other words, they maintained a complete survey of the prevailing market. With the increase in the fuel prices many airlines companies increased their prices and vice versa.

There are other strategies which were used for marketing at financial level. The company has gained a lot from them. The profit margin has increased by 40% in the recent years and there are still chances of further increase. These all strategies have proved fruitful both for the company and the company stock holders which are directly or indirectly related to the company. The company has been able to hold up to the expectations of its employees and its customers. Air Arabia greatly contributes in the UAE economy. Recently it got an approval to appear on Dubai financial list. The Air Arabia is going to appear on stock list of Dubai financial market and trading it will be started in few days. The way Air Arabia is using the budget and the way it is applying the strategies it is believed that in the time to come if there is a slow economy progress, Air Arabia alone can handle it.

Strategic Alternatives:

Some strategies of Air Arabia for future few years are as follows:

Expanding its aircraft range: One important constraint in company’s expansion plan is the limited number of cargo and passenger planes available to the company. The company will place periodic orders for new aircrafts to support its expansions plans.

To provide service on more number of routes: The company would like to serve in European countries and other untouched destinations in North and South America. The expansion will give a vast increment in company’s present market size.

To enhance efficiency of operations: As a long term strategy, the company would like to implement TQM strategies in its operations.

Increase its revenue maintaining high and quality structure of luxurious aircraft industry

Another one is Emiritization and advancement of UAE people. The company has a number of plans in this direction with long term interest which are mentioned as follows:

“UAE National Cadet Pilots Training or UNCPT”

The company invites aspirants who what to become a pilot with a statement like “We are giving wings to your dreams”. Its pilot training program is one of the finest in the nation.

The company states that as the public Airline of the United Arab Emirate, it has an immense vision. To see further Emiratis taking their correct position as pilots in lone of the fastest mounting airlines on the planet.

“UAE National Graduate Entry Management Plan”

The public airline of the UAE, Air Arabia, is investing in its outlook and would consequently like to spend in people by giving them the chance to be 1 of the privileged students chosen to join its UNGEM program.

It states that by this program, graduates will develop sturdy leadership abilities and form a collection of professionals who are organized to meet quickly expanding and developing leadership wants in various branches within the company. (Eyefortravel, 2008)

Enhancing the cargo carrier’s flights: – As shown from the contribution of profit from the cargo and customer units, the cargo unit contributes around 65% of the company’s turnover, which depict the clear dominance of cargo unit over the customer unit in terms of profit. The company would like to utilize this faith of people in Air Arabia’s cargo unit to gain additional market share. Thus as an expansion plan for cargo unit, the company is ordering more share of cargo planes as compared to that of passenger planes.

Segmentation and targeting: The Company had divided the consumer market into various segments based on income and profession. The segment which appears to be the center of consideration for the company is those of high earning boniness people who need to travel consistently and comfortably.

Positioning: It’s actually consumer’s perception about the service. Royal Jet, from the beginning has tried to establish as a symbol for a cheap but reliable air traffic business partner.

Implementation:

Air Arabia greatly contributes in the UAE economy. Recently it got an approval to appear on Dubai financial list. The Air Arabia is going to appear on stock list of Dubai financial market and trading it will be started in few days. It has already started offering rebates on stocks to its customers. The national economy of UAE is going to be benefited by the kind of strategies being forwarded by Air Arabia. Not only are they going to have a huge business but also a huge investment in the stocks by the common people. The market is going to be greatly affected. Many new services are being started. The UAE government believes that Air Arabia can alone increase the UAE economy from going down. It has now met with 32% profit which is the highest ever in the recent years.

For increasing its marketing dimension, the company has invested over DH one million in terms of Ads, both online and print media. This would result in a long term profit for the company, though it’s quite a heavy amount on the basis of company’s current scenario. (Arabia, 2009)

Use of technology: The Company has recently brought 7 new aircrafts with increased capacities and advance technology. As the company is still very new, almost all of the aircrafts are in good condition. Talking about other technological diffusion parameters, the company has recently brought a SAP system which is an expert system from Sap international. This expert system is Artificial Intelligence based and works on knowledge representation rather than data manipulation, thus is highly technical and advance. The operation unit exploits the SAP system to efficiently monitor the various aspects and inventory constituents. The company also has an online terminal to book tickets and offers various plans in flights according to customer requirements.

International flight connecting Abu Dhabi to more than 45 international destinations in USA, Indian subcontinent etc. Air Arabia carried over 4.6 million passengers, an augment of approximately 65.8% over in 2006.

Along with this, it also griped 175,000 tons of freight in 2007, which is an increase of over 75% than the year 2006. (Ameinfo, 2009)

Air Arabia owns complete share is its two subsidiaries, Air Arabia Holidays, a travel group and vehicle rental company and “Air Arabia Crystal Cargo”, which provides freight handling services.

Air Arabia had a 24 hour help line for its customers.

Air Arabia also provides hospitality services by providing temporary accommodation in hotels. (Arabia, 2009)

The Air Arabia owned a group of 37 traveler and cargo airplanes, as depicted by the data of January 2008 and it plan is to increase its aircraft group to 300 by the year 2020.

Air Arabia is also planning to fly over 25 million customers per year by 2020 and to twofold the number of metropolitans served from 50 to make it near 100.

Market segmentation:

Presently the market is segmented on the basis of income and travelling frequency of the people. It results in generation of segments like high business class consumers, consumers travelling too often but expending less, tourism based consumers (not fixed) etc.

Apart from these segments, a variety of new segments can be created like low-spending domestic class, mainly for tourism. As example of this segment can be India’s growing domestic aviation market which depends little spending but large sized segment.

Talking about the competitor’s involvement in these segments, Etihad is a big player of cheap flights segments along with Easy jet. Some other like Palm operates in multiple segments. Some competitors are head to head rival of Air Arabia in Luxury market like Sky jets etc. Thus the competitors are widely spread in these segments.

References:

Ameinfo (2009), “Air Arabia marketing team takes centre stage”, retrieved on 1st November, from http://www.ameinfo.com/29672.html

Eyefortravel (2008), “Air Arabia plans expansion”, retrieved on 1st November, from http://www.eyefortravel.com/news/middle-east/air-arabia-plans-expansionddle-east/air-arabia-plans-expansion

Lowcostairlinesworld (2009), “Innovation and opportunity for traditional and low cost carriers and investors”, retrieved on 31st October from http://www.lowcostairlinesworld.com/sg/programme.stm

Air Arabia (2009), “Know us”, retrieved on 1st November, from http://www.airarabia.com/crp_1/know-more

Jetstar Asia Airways is a low-cost budget airline operating in the Southeast Asian region. It is founded by its mother company – Australia’s Qantas Airways in 2003. Unlike Jetstar in Australia, Jetstar Asia is majority Singapore in which a Singapore investment company, Temasek Holdings Limited holds 19 per cent of shares, two Singaporean businessmen possess 32 percent, and the remaining 49 per cent of shares belongs to Qantas Group. The company is known as an airline to offer low fares, all day and every day to South East Asia customers. It has received several valuable awards, such as “Best Brand Experience for Low Cost Carrier” (2006), “Best Low Cost Airline, Southeast Asia and Asia” (2006, 2008), “Top 10 Airlines by Passenger Carriage” (2006, 2007), “Best Asian Low-Cost Carrier” (2006, 2007). The first Jetstar Asia Airways’ flight took off for Hong Kong on December 13, 2004. Jetstar Asia and Valuair Airways Limited were merged on July 22, 2005 (Jetstar, nd).

With a fleet of seven A320 aircrafts, Jetstar Asia now offers up to 126 weekly flights from Singapore to 17 destinations in ten Asian countries. It is planning to increase capacity by more three A320 aircrafts by early next year and add destinations in India and China.

This marketing study aims to provide the Jetstar Asia Airways’ current marketing environment. It will analyse SWOT as well as PESTEL to make clearly internal and external marketing environment. The report also discuss about the current market plan of Jetstar Asia Airways. From the audit process, recommendations will come out for improving Jetstar Asia Airways’ marketing performance in existing competitive aviation environment.

II. Background

Today, global aviation industry has been divided into three major categories (Lelieur, 2003). The first category consists of large network carriers, such as United Airlines, American Airlines, and Delta in the United States; Air France, British Airway, Lufthansa in Europe. The second one is the middle size carriers such as KLM and SAS in Europe. The final category is the low cost carriers, such as Jet Blue, Westjet in North America; Virgin Blue and Australian Airlines in Australia; Ryanair, EasyJet, and Air Berlin in Europe; Air Asia, Oasis Hong Kong Airline, Jetsatr Asia Airway, and Tiger Airway in Asia Pacific.

According to Weiss (2008, p.84), “Low-cost carriers, also known as a no frills or discount airlines, offers low fares in exchange for eliminating many traditional passengers services. These airlines have a lower cost structures than competitors. They often operate a single passenger class and fleet, reducing training and servicing costs”.

In recent years, the low-cost carriers (LLCs) phenomenon has become more popular in aviation industry. The low cost airline business has experienced surprising growth in term of passengers carried and aircraft ordered. LLCs are likely to keep their price down thoroughly online booking as well as providing the minimum level of onboard services. They can be seen as a new big success in the world airline industry. According to OAG’s Quarterly Airline Traffic Statistics (2007), low cost international flights have increased 20% year by year. Asia Pacific witnessed a dramatic growth in low cost sector, with an increase from 3,900 flights and 600,000 seats in 2001 to 61,000 flights and 9.2 million seats in 2007 (Abacus, 2008). The Asia Pacific low cost market now has accounted for 12% of all flights and all seats. Many Asian countries such as Singapore, Malaysia, India has opened up LCCs to attractive a large number of passengers. As an affirmation about Jetstar Airways’ prospect, Geoff Dixon, CEO of Qantas Airways Ltd said: “We’re very confident about the timing of the launch of this airline. I don’t know where other airlines will end up but I can assure you Jetstar Asia will be around in four years’ time and will be profitable, so Temasek and our other investors can be confident.” (2004).

Jetstar Asia has announced its revenue increases 20% for the year ended 31 March 2008 (Jetstar, nd). These proves that low fares has become attract more travellers. The expectation of Jetstar Asia Airways about “the world’s largest potential aviation market” is coming true.

2.2 PEST analysis

PEST analysis is a common tool for analysing an organisation’s macro-environment to identify those factors that might increase the potential for crisis. (Elliott, Swartz and Herbane, 2002). These include political, economic, social and technological factors and the analysis examines the impact of each of them on the business.

2.2.1 Political factors

On the August 09, 1965, Singapore left Malaysia Federation and became sovereign, democratic and independent nation. In 1967, Singapore, Indonesia, Malaysia, the Philippines and Thailand established the Association of Southeast Asian Nations (Asnic, nd). From 1970 Singapore is considered as a political stability nation. It has become the prosperous nation with a widespread network of trading links. So far, Singapore political stability has leaded to a high rate of economic growth. As one of Asia’ most stable economics, many Singapore companies have developed well. Singapore economic has been developing services industries such as wealth management and tourism, aviation industry. Singaporean airline industry plays a key role in Singaporean economy. It now includes mainstream Singapore Airlines and two low cost airlines – Tiger Airways and Jetstar Asia Airways. However, September 11th terrorist attack event in United States caused significant falling in travelling. Besides, the political instability in South East Asia region, such as Thailand, Indonesia, and Malaysia influenced negatively on aviation industry in Asia areas.

2.2.2 Economic factors

“The economic environment consists of factors that affect consumer purchasing power and spending patterns”.(Kotler and Armstrong, 2009, p103). These following analyses will show how economic factors have an effect on aviation industry.

In recent years, global economic crisis has pushed the trade-service dependent countries into worst recession. The world travel market has also been affected in this crisis. According to International Air Transport Association, due to economic recession, the global passenger traffic will decrease by 3% in 2009 and not growing above 4% until 2011 (IATA, 2008). Another major factor effects strongly on airline market, especially budget airlines, that is the increase in fuel price. From 2004, the oil price surge was a result of three main factors: increased demand, a small global excess of production capability, and the fear of supply disruption. The fuel cost increase caused of 36% rising of airline operating costs in 2008. The deadly combination of falling demand and high oil prices made a plunge of aviation industry’s profitability, approximately losses of US$10.4 billion in 2008. At the same year, Asia Pacific airline industry incurred losses US$ 300 million (IATA, 2009).

2.2.3 Social factors

Trends in social factors are significant component of the PEST analysis for airline industry. Firstly, some factors such as advanced medical provisions and low ratio at birth have allowed people to live longer. The average age of the population has been increasing steadily. Thus, the products that airlines offer concerning to older and disabled passengers who need help at airports. Besides, traditional family structure has been changing in today modern society. The increase of divorce rate as well as number of one-parent family has become contemporary trend that travel industry has to do to accommodate. They can be promotional and product planning policies, which offer to those who are singles or one-parent family. Furthermore, the changes in the job market have impacts for airline marketing policies. Due to work pressures, executives often have to make a day-return trip instead of two days. This has become more important for short-haul markets.

2.2.4 Technology factors

As an advanced technology, Internet now plays an important role in airlines industry. All airlines have websites that allow customers to book air ticket online. In making reservation, customers can also select their seat. Utilization of internet in aviation industry brings benefits for both airlines and passengers based on cost saving. The application of Simplifying the Business (StB) project in almost airlines brings not only convenience to consumers but also lower costs to airlines industry. The project includes electronic-ticketing, Common-Use Self-Service kiosks, and bar-coded boarding passes (BCBP). BCBP can be accessed through websites, kiosk, and a check-in desk. It will eliminate magnetic-stripe boarding passes in near future.

With PEST analysis as above, marketing environment of Jetstar Asia Airways has just evaluated to consider how the company operates in the today changing environment.

III. External analysis

1. Micro-environment (app 1,200 words)

– Description of the market

– Competitors analysis

– Market size, location, growth and opportunities

– Government participation in the marketplace

2. Macro-environment
2.1 SWOT analysis

“A SWOT analysis is an in-depth examination of key factors that are internal (strengths and weaknesses) and external (opportunities and threats) to a business” (Pinson, 2008, p.33). “Strengths are internal capabilities that may help a company reach its objects. Weaknesses are internal limitations that may interfere with a company’s ability to achieve its objects. Opportunities are external factors that the company may be able to exploit to its advantages. Threats are current external factors that may challenge the company’s performance.” (Kotler and Armstrong, 2009, p.78).

SWOT analysis helps a business to concentrate on those areas that present the greatest opportunities and those competencies in which it is strongest. That business look into ways to diminish its weaknesses, develop strategies to defeat threats. The following analysis focuses on Jetstar Asia’s SWOT.

SWOT ANALYSIS OF JETSTAR ASIA AIRWAYS
Internal
Strengths
Weaknesses

– Flexible ticket price structure

– Growth in market share

– One type of aircraft

– Performance

– Narrow flight destinations.

– Limited fleet.

External
Opportunities
Threats

– Strengthen competitive capability.

– Increase in short-haul travelling.

– Growth in Singapore tourism

– Increase of fuel price

– Unpredictable disaster factors

– Swine flu spread

– Customers’ belief.

2.1.1 Strengths

– Flexible ticket price structure: Jetstar Asia Airways has applied flexible ticket price structure that allows customers can choose any kind of ticket, depending on customers’ demand. Customers can purchase which ticket with or without luggage. By this application, Jetstar Asia Airways desires to meet customers’ diversified demands.

– Growth in market share: The Company is going to launch its first service into China on December 16, 2009 (BusinessWeek, 2009). After that, it will offer new destination in India. Moreover, with 3 additional A320 aircrafts, it will expand its current capacity by 46 per cent by launching twice daily services on the Singapore-Phuket route.

– One type of aircraft: Thanks to exploiting one type of aircraft – Airbus A320- Jetstar Asia Airways can save cost of fuel consumption, cost of maintaining other aircrafts and reduce cost of staff training, leading to lower operation cost. As a result, Jetstar Asia Airways can make up competitive advantage to lure more customers by offering low ticket price.

– Performance: One of the most important factors affecting customers’ choice in airline industry is on-time performance. Understand this; Jetstar has used the computerised Aircraft Communication Addressing and Reporting System (ACARS) to assure the accuracy of departure time and arrival time. In 2008 and 2009, Jetstar’s on-time performance always achieved from 92% to 98% (Jetstar, nd).

2.1.2 Weaknesses

– Narrow flight destinations: So far, Jetstar Asia Airways has just exploited its aeronautic routes to 17 destinations across 10 countries in Asia Pacific (Jetstar, nd). Meanwhile, Tiger Airways has operating with 27 destinations, and Asia Airways has 50 destinations. This can be seen weaknesses of Jetstar Asia in aviation competition to attain customers.

– Limited fleet: Due to the limited fleet of seven A320 aircrafts, Jetstar Asia Airways has some difficulties in expanding its market share to new destinations.

2.1.3 Opportunities

Jetstar Asia Airways has focused on not only individual passengers but also business travellers. It has set up several kinds of privilege services for business travellers to increase number of passengers year by year. From only 50 firms in 2004, now Jetstar has 400 corporations travelling with it (Baoying, 2009). More and more businesses, even multinational companies, are likely to choose low cost airlines to save their business cost that create potential low cost market for Jetstar Asia Airways and other airlines. Besides, trend of short-haul travelling is increasing in number of Asian tourists; instead of long-haul holidays because it enables Asian people travel more regularly in year. Focusing on these subjects, Jetstar Asia will catch more opportunities to expand its market share. In addition to this, in Singapore, two integrated resorts – the Marina Bay Sands and Resorts World Sentosa – will be opened in 2010. At that time, number of traveller visits Singapore will increase dramatically. There will be about 15 million visitors coming to Singapore (integratedresort, nd). Such general trends as mentioned above will bring prospect for Singapore airline industry, including budget airlines and mainstream airlines.

2.1.4 Threats

The increase in fuel price over the past few years has bad affected on sustainable growth of Jetstar Asia Airways and aviation industry. This can be seen an implicit threats to profitability of airlines. Furthermore, the spread swine flu in many regions has affected significantly on airline travelling due to the dramatic decrease of travellers. Unpredictable accidents that come from bad weather or technical problems are also threats to airlines. Passengers may hesitate in choosing between budget airlines and mainstream airlines because of the safety in budget airlines. This threat may negative impact on sales of Jetstar Asia.

Recommendation

Nowadays, Asian airlines industry is getting more fiercely competitive between budget airlines and traditional full services airlines. Moreover, competition among the emergence of Asian budget airlines, such as Air Asia, Tiger Airways and Jetstar Asia has also become intensely. In order to improve the company’s marketing performance, we suggest some recommendations based on SWOT analysis above and results collected from an interview with people who are concerning about airlines market.

Firstly, we suggest Jetstar Asia should design a customer driven marketing strategy to identify its target market. Its market segmentation includes customers those who usually travel on short haul trips and cannot afford average international tickets. Then the company should build profitable customer relationships based on subjects: travellers for leisure, businessmen and students. Understanding who its customers are, the company will build customer relationship to satisfy their demands.

In addition to this, the results from interviewing reflect the company’s convenience and services are not too high, just over 50% of respondents think that it is fair. In order to capture value from customers and own customer loyalty, in its marketing strategies, the company needs to build the right relationship with right customers and create customer delight. The company should strengthen customers’ belief that lower price does not mean bad services. Besides, Jetstar Asia should develop effective advertising strategy to consolidate their brand name through mass media.

Furthermore, limited fleet and flight destinations caused restriction in expansion marketplace as well as attracting target customers. Thus, we recommend the company to apply competitive strategies. The company should carry out not only protect its current market shares but also increase it further.

Books

Weiss, J.W. (2008) Business Ethics: A Stakeholder and Issues Management Approach, Cengage Learning, New York.

Lelieur, I. (2003) Law and policy of substantial ownership and effective control of airlines – Prospects for change, Ashgate Publishing, Hampshire.

Pinson, L.J.(2008) Anatomy of a business plan: the step-by-step guide to building a business and securing your company’ future, Out of your mindaˆ¦and into the marketplace, California.

Kotler, P and Amstrong, G (2009) Principles of Marketing, Pearson, New Jersey.

Elliott, D., Swartz, E. and Herbane, B (2002) Business continuity management: a crisis management approach, Routledge, London

Websites

Abacus (2008) The Year of the Resourceful & Enterprising Rat, accessed September 06, 2009,

http://www.abacus.com.sg

BusinessWeek (2009) Jetstar Airways Pty Ltd, accessed September 06, 2009,

http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=10917341&goback=.cps_1247149767187_1

Baoying, Ng. (2009) Jetstar Asia expands fleet and routes to keep up with competition, accessed September 06, 2009,

http://www.channelnewsasia.com/stories/singaporebusinessnews/view/450077/1/.html

integratedresort (nd) Singapore Integrated Resorts, accessed September 06, 2009,

http://integratedresorts.com.sg/

jetstar (nd) News, accessed September 06, 2009,

http://www.jetstar.com/sg/en/about-us/news.aspx#SinApr16b

Asnic (nd) Singapore history, accessed September 06, 2009,

http://asnic.utexas.edu/asnic/countries/singapore/Singapore-History.html

IATA (2008) IATA Economic briefing-The impact of recession on air traffic volumes, accessed September 07, 2009,

http://www.iata.org/NR/rdonlyres/7E25AD13-E0AD-4166-ABD8-CFA192D51AB4/0/IATA_Economics_Briefing_Impact_of_Recession_Dec08.pdf

IATA (2009) Annual report 2009, accessed September 07, 2009,

http://www.iata.org/nr/rdonlyres/a33bc4b3-431b-4690-be6d-6788900c8ae3/0/iataannualreport2009.pdf

Primary Resource Interview

We have conducted market research by an interview with clients of Jetstar Asia and non-clients at Changi Airport to find answers then develop marketing strategy for Jetstar Asia.

We would be thankful if you could assist our group by completing our questionnaires, which will provide useful information to us.

Personal information

1. Sex: a-? Male a-? Female

2. Age range: a-?18-25 a-? 26-30 a-? 31-40 a-? 41-50 a-? 51-60

3. Occupation: _______________

A. Questionnaires

1. Which airline with do you usually fly?

a-? Mainstream airlines a-? Budget airlines a-? Never

2. Which budget airline with do you usually fly?

a-? Jetstar Asia a-? Tiger Airways a-? Air Asia a-? Others ____________

3. What concerns you most when you think of choosing the budget airline?

a-? Money a-? Service a-? Convenience a-? Others ____________

4. Which source lead you know Jetstar Asia?

a-? Newspapers a-? Internet a-? Friends a-? Others ____________

5. What is the purpose of your trip? a-? Leisure a-? Business a-? Study a-? Others

6. How would you rate Jetstar Asia in terms of service?

a-? Poor a-? Fair a-? Good a-? Excellent

7. How would you rate Jetstar Asia in terms of convenience?

a-? Poor a-? Fair a-? Good a-? Excellent

8. What do you think about Jetstar Asia’s ticket price comparing to other budget airlines?

a-? High a-? Reasonable a-? Low

Thank you very much for taking the time to answer these questions.

B. Answers from surveying
Question 1:

For this question, the results show that passengers of budget airlines are lower than that of mainstream airlines, 27% compared to 69%. It means that budget aviation’s market share is small. 4% of the respondents have never been on plane.

Question 2:

Responding this question, outcomes point out that Jetstar Asia rank at third position behind Tiger Airways and Air Asia, with 23% whereas Tiger Airways and Air Asia are 31% and 42% respectively. 4% of the answers flew with other airlines. It should be recommended that Jetstar Asia need more effective marketing strategy to enhance the competitive capacity.

Question 3:

The result illustrate that the most customers’ concern when they choose budget airlines is saving money, with 69% of the respondents. Service criteria and convenient criteria rank the second and the third choice, with 16% and 13% respectively. 2% of the answers chose budget airlines primarily because accompanying with friends.

Question 4:

41% of the answers show that they knew Jetstar Asia through Internet. Newspapers, Friends and Others are ordered by 27%, 25% and 7% respectively.

Question 5:

For purpose of business, 31% of the respondents chose this result. 44% of the answers show that their trip for leisure. For studying purpose is 19%, other purpose is 6%, such as health care, visiting old friends. Therefore, Jetstar Asia should focus on target customers who are travellers in order to boost up its sales. Besides it should pay attention to potential customer segment, including businessmen and students.

Question 6:

In term of services, 53% of respondents explained that they considered Jetstar Asia’s services are reasonable and acceptable. In contrast, 8% of interviewees admitted poorness of service. Good criteria and excellent criteria are appraised by 25% and 14% respectively.

Question 7:

Similarly, 51% of interviewees illustrated that they evaluated convenience is fair. 23% of the answers think that convenience offered by Jetstar Asia is good whilst 15% of them considered it as excellent. Remaining 11% of respondents are not pleased with Jetstar Asia’ convenience as they think it is poor.

Question 8:

What do you think about ticket price of Jetstar Asia comparing to other budget airlines?

64% of them think that ticket price offered by Jetstar Asia is reasonable. 29% of them believe that is low. Only 7% of the answers claim its price is high.

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Crystal Spa is a spa facilities where visitors can enjoy body therapy at a nominal charge.There are three huts located here, named as a Sapphire, Topaz and Amethyst.The spa offers Aromatherapy Massage and Head & Shoulder Massage.

Top of The World Pool

Right at the very Top of the Lost World Hot Springs & SPA sits the Top of The World pool.This pool si a Jacuzzi pool. The pampering massage of the water jets in our Jacuzzi pool allows for a full range of therapeutic hydro-massage for muscles, joints and pressure points.For those Who is particularly advisable for guest who are suffering from muscle, neck, shoulder and back pain.

The Geyser of Tambun

The Geyser of Tambun Sprout thermal hot springs water 40 feel up and with subtle lighting effects it exudes a beautiful experience for those who visit at night.

Foot Spa

This enique spa is designed by special reflexology pebbles are fitted on the floor of the spa, visitors can walk on the pebbles when enjoying the hot spring water soothing.Reflexology targets pressure points on your feet and generally helps in stress reduction.

Saphira`s Bistro

To further enhance the experience in the Lost World Hot Springs & SPA, a swim up dining outletknown as Saphira`s Bistro has been built to cater for visitors.This dining outlet serves from Chicken Stew,Open Sandwiches, Western Style Curry,Salmon Fillet, Salads Saphira`s Special and the Herbal Tea etc.

Crystal Pool

There is a special pool called Crystal Pool. This pool is specially designed with crystal tiles that glimmers reflecting the sunlight by day.This Pool can also be privately reserved as a VIP pool.

Tiger Valley, The five tigers of the Lost World of Tambun : Sultan, Raima, Putra, Jazz and Azian, and observe their agility and strength as they jump over rocks and logs to get to their meats during the tiger feeding shows.

The last one element is Lost World Petting Zoo, where you will be able to get personal with just some of the zoo favorites – Ruby the raccoon, Nia the Python and Wira the Green Macaw.And also you can take some time to walk through the different areans, where you would be able to feed, touch and experience animals in their natural habitats.

Question 1 answer
Market Strenght

The market strength mean that positive factors of the company for example the Lost World of Tambun got many market strengths.The Lost World of Tambun is located not too far from the main town of Ipoh.Inside the Lost World they have a variety of many rides slides cave and other adventures for customers enjoy.The staff must have a good talking skills and must all trained well and how to speak a professional English.And the four P`s ,the Lost World of Tambun is following the fourP`s People,Promotion,Product and Place, because all those staff are correctly trained,They have a location is close to most residents of Ipoh and something they have a promotion tactics for customers or make some events like beach partyaˆ¦aˆ¦

Zone of Natural Expansion

The Zone of Natural Expansion means, what a company has done with there natural environment to improve the farcicalities on the theme park.They can going make a hotel, Jungle trekking , suitable for all ages.Camping, for those which customers are able to experience what it is like to live out doors, suitable for all ages.

Brand Positioning and Marketability

The Brand Positioning and Marketability companies brand and their marketability what special about our brand and how to sell.The Lost World of Tambun have a Large Variety of entertainment for customers to enjoy from water slides to carnival games.A way to expose yourself to the natural environment,inside of the Lost World of Tambun there are a lot of attractions for customers purely made out the environment.Natural Resources, the Lost World of Tambun has a lot of natural resources where can build natural at the moment they are developing a cave where customers can explore with enthusiasm.

Suggest Steps to Improve Sales and Profits

They have many ways to improve sales and profits tremendously, the Lost World of tambun can improve their sales and profits easily.They can improve in organizing more events, by having more events in a theme park customers will get interested and they will come then look at what event is occurring here.And the family packages also can improve sales and profits if they have more family packages because then more customers will be come The Lost World of Tambun.The last one is Special Rates, a company puts special rates for customers due to the lower prices more customer will be visit the theme park.

Suggest How They Can Improve Their Business to a Global Scale

A company is looking for a way how to improve there business to a global scale there are many ways which can do so.Example the Travel and tours, if the Lost World of Tambun deals with a travel and tour company that can help improving there business to the global scale.Promotions, by having a more discount this can help interest more customers from other city or state.Foreign advertisers, by getting foreign advertisers it can help you promote the theme park in other country.

Summary
Enrtainment

The Lost World of Tambun has so many attractions,customers are attracted and are willing to spend money come for playing.The customers can relax after a long days working or have a romantic meeting in the Crystal Pool where sunlight is reflected from the crystal like tiles at the bottom of the pool creating a wonderful barrage of colours.

Good Market Strenght

The Lost World of Tambun has so many market strength that effect their market having trained staff, nice products,good location and the good promotionfor there customers.

Zone of Natural Expansion

The Lost World of Tambun having a lot of natural space.they can help develop to improve there theme park.Building a hotel will help because during holiday seasons many tourists would visit from another city or state.Cave Tracking and Jungle Tracking can both be under there natural resources.

Brand positioning and marketability

The Lost World of Tambun having a lot of products.Having a good entertainment, leisure, natural resources.Family bonding and is a great way to expose yourself to the natural environment.

Suggest steps to improve sales and profits

A sales and profits can impoved in many ways by having a more events, more packages and special rates etc.

Suggest how they can improve there business to a global scale

The Lost World of Tambun can improve there business to a global scale by negotiating with a tours company,promoting,foreign investors and travel etc.

In all big business – making projects there have always been rigging and bonds. It the past it used to be called bribery and now days, due to its improved form and sophisticate way it is done, it is said to be lobbying. Who are the lobbyists in tourism? How can they advantage from favouring certain group of people and certain destinations? Is it the matter of well done lobbying the promotion of a certain destination? Lobbying and marketing – how are these actually connected? Is it up to the lobbyists that some good values have lost their importance? To what extent have the Internet and mass media influenced the style and awareness formation of the certain destination and is it also a kind of lobbying? To what extent is lobbying good for some people, destinations and projects and what is the role of the civil sector in such processes? These are just some of questions necessary to be resolved in order to get acquitted with the occurrence more and more present in modern travel industry. It is all about huge amounts of money and because of this tourism will become (even more) interesting to the lobbyists.

Very often people wonder how it could be that certain projects are completed on time and how only the certain group of people takes a part in these? Many of these people were not supposed to deal with such projects, many of these companies did not have the best offer; yet they managed to participate in the projects. How it is possible for an individual to make just a few steps and suddenly to become an important participant? Lobbying is one of the best possible answers. It is well featured in business where it is everything about the large sum of money as well as where the great national and social interest is concerned. Who the lobbyists are- in some cases it is known who they are, while in some others they are like some secret societies, pretty mysterious. It is the second half of the twentieth century when lobbying in tourism started to bloom. It was the moment when the mass tourism flourished along with the great number of receptive objects built and numerous tourism fairs held-all these were/are a fantastic medium for the lobbyists to expand their influence. Many high school and college principals as well as hotel/motel and tourist organisation managers are also involved in the process of lobbying- there are interests everywhere- not necessarily financial, why some things are done in such way and why certain people do these.

The notion “lobbying” comes from the English word “lobby” which denotes “the area that is just inside a large building, where people can meet and wait “.In this space members of the British Parliament used to negotiate, make some arrangements and exchange the information. That is how the notion of lobbying was formed (to try to influence a politician or the government to do or not to do something). In both British and American system of government it is incorporated organization dealing with legislative processes in such way as to represent industrial .and other interests [1] .

In case of tourism, the usual lobbyists are the governments of some countries as well as those who want something to be done as they like it and in order to gain some profit. Very often ordinary people are not acquainted with this, due to well skilled professionals. Supremacy and domination are important parts in all spheres of life and lobbying as such is fine means to achieve this.

1. LOBBYING IN SERBIA

In Serbia, lobbying will no longer be operated in a secret way and away from the public eye; on the contrary, it will be an occupation in which franchised professionals will be involved. In July, 2009, there was the proposition of The Lobbying Law created, so that lobbying could become an occupation as any other. According to this law, there will be unique Professional Lobbyist Register Office to deal with the rules of lobbying and to control those who operate opposite the way it is predicted. In such Bill it is said that lobbying is the way for the interested party to achieve impact on some participants in both judicial power and legislation, so as such regulations co no harm on the interested parties or they can benefit from them. The impact has to be explained in full details and at the same time truthful, useful and meaningful and at the same time it should do no harm on other participants by the time it is put into practice. Lobbying involves all the activities done with purpose to influence decision making within public authorities. The purpose of such law is to make lobbying process public and transparent, to make it available to be easily controlled by the executive and legislative authorities and prevent lobbying to act in the way opposite the legal regulations. (The draft of the Lobbying Law outline). In this law it is also mentioned that a lobbyist is a natural person or an entity and lobbying is an activity with purpose to achieve some influence on the processes within the executive and legislative authorities. It would be necessary for all those who want to do this job to have a licence, the written document, obtained from the Lobbyist Board. Furthermore, this law states who can be a lobbyist and even something more important-who are those having no rights to do such activity, and they are: officials, members of State Budget Agency, members of the official managing and supervising boards i.e. all those whose activity may cause conflict of interests. Lobbyist activity is available to the public according to the law, although certain pieces of information are confidential as to protect clients and their privacy.

Up to the moment when the law is passed, lobbying is an activity done by the influential people who are amateurs only according to their education and can not get the licence; they are businessmen having chief influence on decision making and profit sharing.

2. LOBBYING AND TOURISM

In case of tourism, lobbying can be considered to be any communications made by employees in the tourism industry, firstly with the potential clients as the way he checks his lobbying skills – namely, if he is a good “lobbyist”, he can turn a potential client into the client and succeed in taking his Leisure time and money and provide certain services for him. The contact and the invisible services presentation to the client is one kind of lobbying as well as that involves certain skills. Zoran Ivanovic, a professor at the Faculty of Management in Tourism and Hospitality in Opatija mentioned, at he Congress of the Hotel and Tourism Management, held in Opatija in 2008 that what matters is the ‘essential skills and competences, rather than knowledge’. This thought is actually a definition of well done lobbying. It is necessary to improve knowledge continuously and keep working on it. Those possessing a kind of passive knowledge can possibly be lost in a wide range of scientific knowledge. Skills and competencies are taught and and it is their ongoing practice and improvement that can lead to the results, no matter what activities we consider – negotiations, lobbying, or when we simply want to leave a good impression.

Competencies [2] and skills [3] and lobbying are essential for tourism. Tourism, defined as moving of people from their place of residence to another with a lot of money spent there, is actually an industry selling its services without to be checked previously. All these so called activities, being not previously checked must be sold and must be properly displayed in order to be purchased. It is claimed that one or even more tourist seasons largely depend on lobbyists – it can be so due to the fact that the lobbyists are those who often create trends and images and they are exactly the ones who do the promotion – trends actually depend on them, they are those who people believe in or vice versa. One of the most important skills of lobbyists and people working in tourism is the rhetoric. Is one of the seven antique, ancient skills and indicates the way communication is accomplished and the information transmitted. Unfortunately, students at the Faculties of Tourism in Serbia do not have a chance to acquaint with this, but it is essential for this profession. It is important for the lobbyists because they have to know how to state what they want to and how, by using the smallest possible numbers of words announce anything. It can be said that lobbying is an officially new skill in Serbia but it is sure that it used to exist in tourism and some other industries a long time ago and that lobbyist used to be well paid for the job done. So far lobbying in Serbia has been concerned to mean bribery and corruption, but in some other the EU countries management contracts and awards for the completed projects are not the news. It is exactly what Serbia attains to. To award someone means that you honour hisher work and merit for certain things.

Lobbying can make some tourist destinations become staple, it can have to do with sustainable development, it can promote some an idea concerning tourism-all these depend on the one who orders lobbying services. When tourism is taken into consideration, each government should have lobbyists in some of the organizations such as: UNESCO, ICOM, ICOMOS, etc. It will be possible than to present natural beauties and projects related to their protection and those lobbyists should have task to convince the officials there that it is their project that it is most urgent and should be the first financed because it is unique, special and endangeredaˆ¦all these activities have to do with rhetoric, good presentation and good impression the officials get.

3. LOBBYING AS THE CREATIVE INDUSTRY SEGMENT

The concept of creative industry features the description of conceptual and practical merging of creative arts (individual talent) along with cultural industries (mass) and altogether in the context of Informational and Communication Technology that is a part of new economic knowledge that newly created interactive users-consumers can partake.

(Hartley, John ed. 2007:11)

It can not be a priori claimed that lobbying is a creative industry segment, but the definition part stating that creative industries directly imply to creative arts merging

-out of this it can be concluded that an individual talent can be related to lobbying. One of the greatest talents is rhetoric, previously mentioned but the talent also involves personal image, the communication manners, dress code, style and all the things that have to do with a certain task and is considered to be proper professional and ethic conduct of a lobbyist himself.

One thing is certain when we talk about lobbyists and it is the way they look like and how he wants to achieve his goals. In tourism, it is of core importance the contacts with people not being so well positioned and whose satisfaction dictates the tourist destination and product rating on the market – these people are outgoing and sales managers who according to their impressions transmit the messages to their employees and to the consumers as well.

We can consider that lobbying as an activity can be done at a certain tourist destination and lobbyists would be the tourist guides and reception staff. It is the ability to animate the guests one of the most important in tourism and at the same time can be perceived as lobbying. Well performed and high quality tourist animation can produce satisfied consumers who will by word of mouth communication become the best sales managers for a given destination or a tourist product.

In tourism, lobbying lasts much longer than a tourist arrangement itself-it starts from the moment when a potential customer steps into a travel agent’s, tries to decide on the destination product [4] , stays at the certain destination and finally shares his feedback, very important for the tourist agent’s itself. Even negative feedback is important, because a good manager is at the same time a good lobbyist and he will do anything to turn such negative experiences into something positive and will not let them have any publicity.

Creativity that can be found in lobbying is widely defined and what matters is the level on which lobbying is done. When we talk about tourist agent’s and hotels lobbying can be done by animators and so it will not be necessary for them to have a classic lobbying licence – for them it is necessary to possess talent and ability in order to make the tourists buy something, go on excursions organized by the certain local agent. On larger scales of states, huge markets and destinations it is not only necessary for a lobbyist to have a licence but to have knowledge concerning tourist legality as well.In this case it is essential for a lobyst to be good at rhetoric and to be well informed and to be in possession of exact items of information. At the same time there is no need for animation and if it happens to ocur it should be done in a descrete manner.

4. LOBBYING OR HOW TO PUT IT IN PRACTICE?

It is not easy to be a lobbyist in societies which are xenophobic and used to have totalitarian regime. The idea of democracy is pretty new in the former Yugoslavia area of and it can not be understood that the representation of other people’s interests, negotiation and urging do not equal bribery and corruption. That is why it is important that professionals introduce and put lobbying into practice in order that audience gets impression that they are businessmen like any others.

In Serbia, one of the obstacles is that there is no lobbying as a subject at the faculties. At “VERN” University in Croatia, students at the economic enterprise department have a chance to choose “The Introduction to Lobbying” as the optional subject. In further course description it is explained that in democratic systems it is not unusual activity for somebody to practice lobbying-on the contrary, it is legitimate means to achieve certain goals and represent the interests. Various legal acts regulate lobbying, and lobbyists have to be incorporated and have to respect the rules and some codes. Lobbyists are those representatives of big companies and business sector, national and local governments, as many other representatives of non-government sector and other interest groups. Due to the fact that lobbying is closely tied with political system, legislation, media and international level, it is the multidisciplinary approach that will be applied on problem solving in this course. “The Introduction to Lobbying” staff wants to stress the importance of this concept and its practicing in modern political, social and economic life. Even what is more important that we want the student to acquire skills and abilities which will enable him to develop business possibilities. It is this course that will help you to find some answers for the following questions: how to get to the right information and what to do in order to accomplish and protect one’s goals? The students are expected to imagine life situations and by applying what they have learned try to find the best, or the least harmful possible solutions. (www.vern.hr/program/…/IvancicI-Vodic%20kroz%20kolegij.doc)

Out of this description it can be concluded that lobbying is necessary and at the same time permeates all spheres of industry. As for someone to become a lobbyist in tourism industry, he/she has to master knowledge from tourism and be well versed in non-verbal communication.

This non-verbal communication is necessary linked with animation and especially in case of tourism. Lobbying is also tightly linked with animation and non verbal communication especially in some tourism spheres. The development of business tourism is one of the important aspects not only in our country,but the worldwide, too. Business clients are educated pepole who travel round the world visiting different fairs, conferences, symposiums business meetings and many other business activities and protocols so it is of core imprtance what impression he/she will get of the host country. The business clients are said to represent the country to possible tourists in best way.

According to the latest research conducted by SITE (Society of Incentive and Travel Executives), 76 % of American executive directors claim that business fairs and professional congresses are the main reasons for them to travel,and even 80% of the world’s top managers claim that these events are the most imporatant sources of the information they need and possibilities to make new business contracts.

In what way it is important for tourism in a country is best shown on the example of the English town Birmingham, which would have still been an average, industrial town, if there had not been the congress tourism developed.It is the congress tourism that makes profit of approximately a‚¤711 million to this town.

Congress presentation has to include all the economic and non-economic services in order to satisfy the needs of the guests here.Such tourist presentation should include tourist attractions, natural beauties, climate,hospitality and cultural heritige. The fact that should be take into consideration is that congres tourist spend even three times greater sum of money than so called average tourists. (Year book of International Organization, 1980).

In order to satisfy business clients’ needs the experiences of some more developed countries should be taken into consideration and some latest trends put into practice.These include some motivating or “incentive” trips which are specially created for the businessman when they are on business trips. These short, but intensive tours are organized for small number of people and according to their wishes and interests expressed in the questionnaire they had previously filled in and the tours are organized at the most popular locations and include extreme sports adventures and unique parties. It should so if it is well know fact that “incentive” business contracts worldwide are worth about billion $.

Such animation of business people is very demanding and not easy at all, because through the short period of time one should make satisfy the needs of already tired guests and then to make them satisfied. It can be very demanding and useful at the same time for the tourist propaganda, and maybe one of the most useful way of animation because all these people are well educated and experienced, since they have

visited so many countries, and at the moment when they rate the host country well, it means that they will share these positive experiences with people in their home countries and in such way they can become the best possible presenters of the county they stayed in. (Ivkov – DA?igurski AnA‘elija, 2008)

Only these sorts of business trips and such clients can imply to what extent animation is linked with lobbying. Well versed animator is a good lobbyist at the same time knowing how to impose his rhythm and where to take his business clients as they can have a good time. It is up to him and his ability to what extent the clients would be satisfied and be ready to follow him. At the same time, it is his responsibility what feedback the host country would have when the client gets back home. It is no wonder that good animation and lobbying as well can make up for the possible failures. When the business clients are mentioned it is very important that the host county knows what it wants and that it can be accomplished by animators – lobbyists. The quality of the product is of core importance, then services and the ideas, but what are crucial are the lobbyist’s experience and his/her non – verbal communication.

INSTEAD OF CONCLUSION

No matter what is going to happen in the future people would always like to travel as they did so from the beginning of the world. Some time in the past migrations used to move towards wealthier spots and because of the search for food. The times when tourism was available only for the aristocracy had passed a long time ago. The era of mass tourism is also vanishing. The highlights of the present moment are city break tours and tours having enriched thematic content along with various cultural itineraries.

People used to travel where the masses went, but nowadays people travel where their friends recommend, they gather some information on different social forumsaˆ¦ Actually, the forums are the best places to lobby for something – it is possible to have someone there in order to opt for a tourist destination. The Internet plays an important part in tourism and in its marketing as well and it can be said that the Internet is an integral part of lobbying, too. The Internet preserves the “magic and mystique” of the lobbying activity, since you do not know who the lobbyist is but no matter you get involved and up to the extent of his skills you believe him or not. That is how you become a potential customer of his “invisible” services. The lobbyist is a successful one if he manages to draw your attention and make you not leave the forum, if he provokes you to ask him farther questions which are a good signal for him that he made you think unconsciously about the tourist product. It is a huge success for the lobbyist himself because the forum user will start to spread the story about the good forum and in this way to make a potential destination become a part of tourist propaganda-it is much easier to sell a product or a service when the name is familiar to the potential customers.

It is necessary to answer the following questions:

who

who with

with what

why

how

who to

what for

who for the lobbying is done?

After answering all these questions it would be much easier to train a lobbyist and then he/she would how exactly how to act in order to achieve some goals. Machiavelli once said that “The goal justifies the means” but ethic code should be obeyed as well. Lobbyists should obey their own ethic code and the one in tourism, so in case of tourism it can not be said that all the goals and aims in the process of lobbying for the certain destination or a tourist product. It is necessary to bear in mind, who is lobbying and whom he is representing and what will be long term results. Lobbying is a process where the results can not be shown immediately, its effect can become visible in a period of couple of years. Continuous evaluation is necessary – both for the lobbyists and tourist destinations, as well. It is necessary to evaluate the results-they actually show what a lobbyist team has managed to do. Team work is the best possible one even in lobbying industry and it does not mean that that two or more people should act simultaneously, but it means that their actions should be coordinated and not to be futile.

Lobbying is a sign of the extent to which a society is democratic and civil sector developed. The region of the Western Balkans is still immature in that sense and along with its evolution the lobbying activities will start to develop and the concept of lobbying will become familiar to them. The lobbyists’ task is a promotion and that is why it can not be a priori said that everything is about money – it is very important segment in fact, but its effects can influence economic development of some countries, civil sectors and eventually the promotion of some products and services. Apart from all this, money is important because it can make the society consolidate and influence well balanced financial distribution within all social scales. It is tourism that can help the society and the country to develop and good lobbying can make huge amounts of money to reach the country and later be invested in sustainable development, the promotion of tourism as a very important tertiary sector, young people’s grantsaˆ¦

Lobbying makes it possible:

For the Institutions to be easily recognized on the international market and especially among the partners that have already been selected to be within significant institutions in the realm of tourism in Europe and worldwide,

To follow the world trends in tourism and make it possible for the activities to be promoted,

The creation of the international partnership system of the professional associations,

Necessary support in the process of association in the institutrional network organisation which have the similar goals and in that way to promote the product.

Lobbying and tourism are closely connected. It is the fact. Maybe it is not said in public. Maybe people have not realized this too seriously so far, but in the years to come their relationship should been taken into more serious consideration. Lobbyists have to do their job, and along with the fact that tourism is becoming a leading industry in the world the lobbying will become more and more present. The students of tourism should bear in mind that they can the lobbying as their profession although some of them, being members of various student organizations, have already been acquainted with this, though on amateur level.

In this piece of work I have discussed the history of the museum and its establishment in London including its unique characterstics.The possible key challenges faced by the attraction in coming future and the ways to combat these challenges by giving proposed management including range of aspects

“Leisure is the opportunity available to an individual after completing the immediate necessities of life, when he or she has the freedom to choose and engage in an experience that is expected to be personally satisfying”

From Edexcel Leisure and Recreation Course Specification

“The term leisure is an ever changing concept that reflects the current social and economic conditions and aspirations, adapting in response to consumer demand and expectations” The idea of leisure being described as a state of mind originated with Aristotle. He believed that leisure was a form of self-indulgence and self-improvement.

‘Leisure is seen as a man’s greatest possession because it is essential for self development. It forces us to step back from the constant pressures of daily life in order for us to see what is really important (Aristotle internet website)

IMPORTANCE OF LEISURE

Each person has their own opinion of what leisure means to them and there is no set definition of the word as it covers a wide range of things. leisure time and how it is spent is an individual’s choice and the way in which they spend it whether it be home based, active or passive. As long as the individual gets satisfaction from this ‘leisure’ time then it has been used to its potential.

Leisure is important because everyone needs a little bit of relaxation in their life. Having leisure helps a person relieve stress, have time to themselves, and just to recharge their body and mind. Leisure is very important for one’s mental and physical health. It provides an opportunity to spend time as you want away from regular work stress with family and friends. It is very important for an individual to take time out for itself as it bring about a positive flow of energy in an individual.

Leisure as a function has changed enormously over the last 100 years. With the arrival of new technology some forms of leisure have increased their range of activities hugely. 100 years ago art was considered to be drama, stage shows, architecture and so on. Now it include many different forms. Broadcasting, Film Production and Video were all aspects of the Art Council that received funding in the last year. These have only been considered arts in the last century. The Government, private companies and investors have also discovered the commercial side of leisure. From this information it can be concluded that over the last 100 years leisure has evolved from something that is the opposite of work to something that is vital in our everyday lives.

Madame tussauds is among the popular leisure attraction of the present time, it is standing at its place from last 200 years but getting more popular with time for the kind of unique entertainment it is providing to its visitors. Celebrities wax images draw visitors towards itself. IT is a kind of place which has all kind of attraction in it from past to present both for history lovers and for modern young youth.It helps to make visitors dreams come true when they want to touch or meet the personality they like ,which otherwise my not be possible for them because either it has become history or is very big celebrity of modern time ,whom one cant meet. Is it real or is it wax? Sometimes it’s hard to tell the difference when you’re at Madame Tussauds Wax Museum .This unique museum of its own kind has entertained about 500 million visitors since it first opened. The Target Market for Madame Tussaud’s is to attract all types of consumers, from all social classes. As well as Domestic and Overseas visitors. (Refer to appendix 5)

London is a cosmopolitan city having peple all around the world with different cultures.The management of Madame tussauds when targeting marketing has taken advantage of this feature of the city and has kept different types of wax sculptures which visitors want to see for example to attract Asian visitors there are various political, sports ,and entertainment figures in the museum.

According to the student pack of Madame Tussaud’s, it identifies their Current Market as Demographics Segmentation according to social class. (Refer to appendix 6)

Kotler (1994) believes marketing a product/service, includes potential customers for using this specific product/service. Therefore, organisations will effectively market their product/service according to the Segment of market. This has been known as Target Market.

Additionally to Lancaster & Reynololds (1999), indicate that, in order to acquire target segment, the organisations has to break down the amount of the total market into different sub-groups / segments, according to their needs and wants, in-order to make the product/service attract consumers within that market segment.

Madame Tussaud’s uses segmentation and targeting market, because it provides many return to their organisation, such as:

u It allows the exhibition to identify their customer groups with different requirements and wants

u The exhibition objective can be achieved easily. For example; profit maximisation and long term growth

u When there are market gaps in a market, it is assessed and then satisfied, this can be done by using unique product / promotional offerings

u By handling marketing mix, in order for competence recognise the target needs. This will lead to an increase customers satisfaction

history

The name of Madame Tussaud is a famous one known the world over. Most people have heard of the waxwork exhibitions that have her name attached to them, but there was a real woman after whom subsequent exhibitions were named.

Madame Marie Tussaud was born Marie Grosholtz on December 1st 1761, in Strasbourg, France. Marie’s father, Joseph Grosholtz, had been a soldier during the Seven Year War, but had died two months prior to Marie’s birth. After Marie’s birth, her mother, Anne Made, moved both of them to Berne, Switzerland, Marie’s mother obtaining a job as a housekeeper with Dr. Philippe Curtius. In some sources Curtius is named as Marie’s uncle, though this is probably due to friendship rather than blood ties. Curtius was a skilled physician, who used wax models he made to demonstrate anatomy. Curtius passed on his knowledge of wax modelling to Marie.

In 1765 Curtius moved to Paris in order to set up a waxwork show, one of his first casts was of Louis XV’s mistress, Marie-Jeanne du Barry. Two years later Marie and her mother joined Curtius in Paris. It took until 1770 for Curtius to be in a position to host his first exhibition, but it immediately became a success attracting large audiences. By 1776 Curtius’ exhibition was such a success that it moved to the Palais Royal. During this period Curtius continued his tuition of Marie, and soon she was modelling her own waxworks. She met a number of famous individuals; her first wax figure was of Francois Voltaire in 1777, and was quickly followed by Benjamin Franklin and Jean Jacques Rousseau.

In addition to famous individuals, Curtius’ exhibition was also visited by the French Royal family. Curtius expanded his waxworks into a second location, the Caverne des Grands Voleurs on Boulevard du Temple. Marie though had been picked as tutor for the artistic education of Elizabeth, King Louis XVI’s sister. Living at the Royal court at Versailles caused problems when the Revolution came. Arrested for allegedly having royalist sympathies, Marie was imprisoned in La Force prison alongside aristocrats and other sympathisers.

It is not clear why Marie was saved from the guillotine, her talent at making death masks may have been one, although her acquaintance with Robespierre and Napoleon may have helped. What ever the reason, Marie never faced the guillotine, although she was forced to make death masks from the victims of it, these included friends like Louis XVI and Marie Antoinette. In prison she shared a cell with Josephine

de Beauharais, the future Empress Josephine, and together the two friends were eventually released.

Upon the death of Curtius in 1794, the whole waxwork collection was left to Marie. In the following year, Marie married an engineer, Francois Tussaud, and before 1800 Marie had given birth to two sons, Joseph and Francois. The thriving business of pre-revolution days though struggled in the relative depravation of the New France. To improve their prospects Marie made the decision to take her waxworks on tour.

In 1802, Marie along with Joseph travelled to London, with her collection of death masks and wax figures. Resumption though in Revolutionary/Napoleonic War between Britain and France, meant that Marie was stranded, separated from her husband and second son. Extending her tour, Marie took her waxworks on a tour of Britain and Ireland, a tour which would last 33 years. Francois joined Marie in Britain in 1821, following the deaths of Marie’s husband and mother.

The tour came to end in 1835, when Marie found a permanent base for Madame Tussauds on Baker Street. The permanent site was soon attracting a large audience, drawn to the Chamber of Horrors, where victims of the French Revolution and notable murderers and criminals were exhibited. Marie wrote her memoirs in 1838, as her collection continued to grow, the figures of Nelson and Sir Walter Scott were added.

Marie died in her sleep in London on 15th April, 1850.

Madame Tussauds though continued to thrive, first through her sons and then grandsons. It was her grandsons who moved the exhibition to Marylebone Road in 1884, and since then other branches have been established in Amsterdam, Las Vegas, New York, Washington DC, Hong Kong and Shanghai. The modern Tussauds continues in the traditions of its founder, creating wax figures of the most notable individuals of every generation.

location and characterstics

The attraction is on the corner of Allsop Place and Marylebone Road, to the north of Central London. The nearest underground station is Baker Street, which is on the Jubilee, Bakerloo, Metropolitan, Circle and Hammersmith and City lines. Its distinguishing green dome used to house the London Planetarium.

Green dome of Madame Tussauds

History of location

Following a successful tour of the UK, Madame Tussauds established a permanent base for her exhibition in London as the Baker Street Bazaar in 1835. Visitors paid sixpence for the chance to meet the biggest names of the day. The attraction moved to its present site in Marylebone Road in 1884. As fame grows it is a frequent observation that crowds of people can reduce enjoyment of the exhibit by increasing queuing times and causing crowding that has prompted complaints and many patrons to ask for refund

Opening times

Off-peak opening times are generally 9:30am to 5:30pm. Off-peak periods are weekdays and non UK school holidays.

Peak opening times are 9am to 6pm. Peak opening times are weekends, UK school holidays, bank holidays and the whole of the summer period (July through August).

In 2008, the opening times in the summer period were 9am to 7pm.

Occasionally the attraction shuts early if there is a corporate event happening.

] Zones within the attraction

A-List Party

Formally Blush, this is the first room on the tour. Included in this room is the Big Brother experience, plus figures such as Samuel L Jackson, Morgan Freeman, Leo DiCaprio, Nicole Kidman David and Victoria Beckham and Robert Pattinson. It is designed to feel like you have stepped into a celebrity party, with wax figures dotted around the room.

High School Musical & Hannah Montana

Launched in 2008, this room has a figure of Zac Efron as the character of Troy Bolton from the High School Musical franchise. The room is set like a basketball court and a locker room. It is interactive in that if you successfully shoot a basket a crowd will cheer. In addition the lockers have ‘belongings’ of other characters of the movie. This zone also includes Miley Cyrus’s wax figure. There is also a karaoke facility, in which a person can sing Miley’s songs.

Premiere Night (Movie Room)

This zone houses four Bollywood figures as well as celebrities from Hollywood, including Steven Spielberg, Jim Carrey and Audrey Hepburn. It also has several fictional characters: Shrek (which has a squeezable stomach), Spiderman, the Incredible Hulk (which had to be airlifted into the attraction due to its size) and the smallest wax figure ever made,[1] Tinker Bell.

Sports Zone

The Sports zone has several interactive elements. Putt a golf ball with Tiger Woods, stand on boxing scales next to Mohammed Ali and see what ‘weight’ you would qualify for in boxing, take a penalty on a virtual reality screen, and ride a bike next to Lance Armstrong.

A Royal Appointment

In the Royals there is an opportunity to stand next to Queen Elizabeth II of the United Kingdom and Prince Philip, Duke of Edinburgh, Charles, Prince of Wales, Camilla, Duchess of Cornwall, Prince William of Wales and Prince Henry of Wales.

Culture

A mixture of cultural icons fill this area, including Albert Einstein, Stephen Hawking, Pablo Picasso and Charles Darwin.

Music Megastars

A mixture of music stars from across the decades appear in an area with a music stage complete with glitter balls. Music icons include Beyonce, Jennifer Lopez, Madonna, Britney Spears, Leona Lewis, Kylie Minogue, Amy Winehouse, Tom Jones, Bob Marley, Justin Timberlake and Freddie Mercury. The Beatles in this area appear on the album cover of Sgt. Pepper’s Lonely Hearts Club Band.

World Leaders

The World Leaders area of the attraction contains political and spiritual leaders of the World – past and present. The new figure of Barack Obama dominates this area; he is standing in a mock-up of the Oval Office which has a replica of the Resolute desk. Other leaders in this area include Margaret Thatcher, Winston Churchill, Nicolas Sarkozy, Ronald Reagan, Tony Blair, Benazir Bhutto, Martin Luther King, Mustafa Kemal Ataturk and Gandhi.

The World Leaders area is also noted for its inclusion of controversial figures, including Adolf Hitler, Saddam Hussein and Robert Mugabe. Mother Teresa is one of the very few icons to ask not to be made, saying “her work was more important, not the person”[2]. Another notable omission from this area is current British Prime Minister Gordon Brown – the company said it has not been made into a wax figure due to his low popularity and not being elected into the position of Prime Minister, having assumed the position after the retirement of Tony Blair.[3]

Chamber of Horrors and Scream

The Chamber of Horrors is the horror section of Madame Tussauds, which showcases serial killers and murders. Included in this area are Guy Fawkes and Dennis Nilsen. This area also exhibits the original guillotine blade that killed Marie Antoinette.

The Scream experience (formally Chamber Live) is a live-action, actor-led scare maze. It is based on the premise that several serial killers have been let loose in the chamber. This attraction is not suitable for pregnant women and children under 12 years of age.

Behind the Secenes and History of Madame Tussauds

This area shows the history of Marie Tussaud, and how she started creating wax figures. It also has an area on how the scupltors make the figures, using Beyonce as an example.

Spirit of London ride

The Spirit of London is a sit-down ride in which visitors sit in London taxis and are taken on a journey through the history of London. The ride starts in Tudor times and ends in the 1980s, passing through the times of Shakespeare, the Great Fire of London, the Industrial Revolution and the Swinging Sixties. The ride has commentary in a few languages and a photo is taken near the end of the ride which can be purchased when disembarke

Top of Form

Bottom of Form

Top of Form

James Bond

The James Bond area contains the figures of Daniel Craig and Judi Dench. It has on display an original motorbike used in the James Bond movie Casino Royale.

Warhol’s Women

The Warhol’s Women zone contains the figure of Andy Warhol as well as the female celebrities he famously portrayed, including Marilyn Monroe in the classic pose where her skirt is blown upward, Liza Minnelli, Judy Garland, Jerry Hall and Jackie O.

About Madame Tussauds

Madame Tussauds has branches in 8 major cities (Amsterdam, Berlin, Hong Kong, Shanghai, New York, Las Vegas and Washington, D.C.). A 9th attraction in Hollywood is planned for 2009.

Madame Tussauds is part of the Merlin Entertainments group, which also owns the London Eye, the Dungeons, Sea Life Centres and Legoland Discovery Centres, as well as theme parks including Alton Towers, Chessington World of Adventures and Thorpe Park in the UK, and Gardaland in Italy.

KEY CHALLENGES TO BE FACED BY THE EXHIBITION

Swar brooke(2002) states without visitor attractions there would be no need for other tourism services and tourism as such would not exist without them.

Different attractions provide their customers with services that are available with in the attraction for example some give their visitors a day out ,others give educational services,some give their customers ancilliary operations but Madme tussauds is one that entertain its visitors with combination of all above mentioned services due to which it is important that this work is put into place to deal with consumers content health and safety and to make sure of their repeat visits. To maintain this standard of excellence the tussauds organisation may possibly face some challenges in future specially in

Marketing and competition

Customer care

Human resource management

SWOT ANALYSIS

This can be used in order for the organisation to achieve their objectives. This procedure is an effective method of identifying businesses Strengths and Weaknesses, and to examine the Opportunities and Threats they face. Often carrying out an analysis using the SWOT framework that will be enough to reveal changes, which can be usefully made. Swift (2000)

According to Hannagan (1992) he defined SWOT analysis as:

“A SWOT analysis helps to focus attention on the key areas in an organisation that need to be taken into account in producing a marketing planaˆ¦.

A SWOT analysis is a smmary of the marketing audit. It highlights internal differential strengths and weaknesses form the customers point of view as they relate to external opportunities and threats.”

Madame Tussaud’ s is like any attraction/organisation that analysis its internal factors; this is carried out in the marketing process, to analyse the effectiveness of the business operation and their internal factors, which influence to their success. This is achieved by conducting the SWOT analysis.

MARKETING AND COMPETITION :

In today’s world of business and economics makets have become very competitive therefore understanding consumer is no longer enough .Organisations must start giving attention to their competitors , if want to have share in the market. (kotler 2003) As it is stated before, Madame Tussaud’s it is a large organisation within the travel and tourism industry, therefore it face high standard of challenger not only in London but all around UK,which can become stronger in the future. that is why more effective marketing is required to survive in the competition However, it uses circulation channel for more knowledge of their product national and international.

They mainly deliver the awareness of their product/service through the Internet, as it is global. However, other sources of promoting and awareness of their product is mainly done through Media, in the form of posters at tube stations and bus sides which is mainly and to communicate the brand to a wider audience, public relations, portraits, business development and Banqueting & Co-operate Entertaining,

The prime objective of the organisation is to stay London top paying attraction,therefore a marketing strategy should be in terms of its target,current and potential market study and their process of promotion in order to attract their product to their customer by distribution. However, the aim of promotional planning in the long run is not just to inform, but to promote customers to purchase products/services or, to adopt ideas. Therefore, effective promotion is usually attained by well researched for tracking sales levels and attitude patterns toward consumers needs, this means objective must link to the target aimed. This can be achieved by updating, convincing and highlighting the organisation current and potential target marke

CUSTOMER CARE

Ensuring that customers are provided with quality services every time is a key in organisational success. Like other tourist attractions Madame tussauds may also face the challenge of delivering quality customer care.

The organisation should note that words of mouths from satisfied customers is a free advertising and improved reputation and above all an increased revenue.

Tussauds organisation should maintain a high standard of customer care training with in the exhibition to achieve goals like

Increase sales

Gain a competitive advantage

Maintain consumer loyalty

Attract new consumers

Gain customer satisfaction

Enhance the visitor attraction image

For achieving high standard of customer care the organisation must improve

? Their queuing process in term of not making consumer to wait for a long period to enter the exhibition

? Signs around the exhibition for direction (such as direction for facilities for disabilities segment)

Having more staff speaking different languages

Having effective management that can handle crowd

HUMAN RESOURCES

Human resource management can also be a challenge as selection and recruitment costs will be much more due to the high presence of staff at visitor attractions. Competition in the service sector offering prmanent employment can detract suitable applicants from applying for positions within visitor attractions. With the high staff turnover consistency will be difficult to maintain within visitor attractions, which inevitably will have a negative effect on the quality of service delivered to customers. This is due to the fact that to be able to deliver quality services to consumers requires skilled and well-trained employees. As many employees of visitor attractions are employed on short-term contracts, operators may be less willing to invest in training and development for seasonal staff. In Scotland the Association of Scottish Visitor Attractions encourages its members to invest in training and development for all staff, whether full or part time, seasonal or permanent. Many operators of attractions dislike spending money on training and development for seasonal employees as there is the possibility of the employees not returning the following year. Operators are being encouraged to invest in training and development as this has proven to lead to a stronger more motivated workforce. If employees are enable and empowered to deliver a quality service, employee turnover should reduce, and employees affected by seasonality would be easier retained for the next season to come.

They mainly deliver the awareness of their product/service through the Internet, as it is global. However, other sources of promoting and awareness of their product is mainly done through Media, in the form of posters at tube stations and bus sides which is mainly and to communicate the brand to a wider audience, public relations, portraits, business development and Banqueting & Co-operate Entertaining,

The prime objective of the organisation is to stay London top paying attraction,therefore a marketing strategy should be in terms of its target,current and potential market study and their process of promotion in order to attract their product to their customer by distribution. However, the aim of promotional planning in the long run is not just to inform, but to promote customers to purchase products/services or, to adopt ideas. Therefore, effective promotion is usually attained by well researched for tracking sales levels and attitude patterns toward consumers needs, this means objective must link to the target aimed. This can be achieved by updating, convincing and highlighting the organisation current and potential target market.

At the same time one of their target is to carry out a promotional action plan to tsarget market, attract all types of consumers both domestic and overseas

CONCLUSION

Operators in today’s business environment face many challenges as we have seen in bring quality services to visitors of their attractions. By putting in place suitable measures and processes, and ensuring their employees are capable of knowledge about efficient customer care training, confidence and incentive in which to perform at their best, operators can gain an competitive edge in their market, and deliver customer satisfaction s every time.

The present report contains information on the legal and regulatory framework of the British tourism sector as well as of surface, sea and air transport laws and analyses the benefits of those to passengers.

The report aims at providing sound advice to the travel agency entrepreneur on British legal and regulatory issues as well as on business ethics that may influence the particular business venture.

The objective of the report is to provide the entrepreneur with detailed information so as to help him with his decision making.

British Legal & Regulatory framework of the Travel & tourism sector

Although there is no legal and regulatory framework in British system, however, there is the ABTA code of conduct which contains issues related to tourism such as insurance notification, communication, booking etc. Regarding booking, it contains all processes like what happens before booking, how to make the booking, what can happen between travel and booking etc (Theobald, 2005).

These processes should be carefully implemented in order to protect the rights of the consumer in British tourism. There are other associations that provide also guidelines regarding tourists’ comfortable stay and legal issues. These associations are:

Health and Safety Commission (HSC), Maritime Authorities, International Air Transport Association (IATA), Air Travel Operators Licensing (ATOL) and CivilAviation Authority (CAA), Strategic Rail Authority (SRA), Health and Safety Executive(HSE).

British law is divided in environmental, shipping and air and space law. These are all different laws under the umbrella of British law in tourism.The regulatory power is assigned to special bodies such as the Travel association as well as other authorized bodies. The role of these bodies is to preserve a national stock of recreation facilities such as parks, gardens, sport facilities etc. These bodies are mainly local authorities (Archer et al.,2005).

Legal And Regulatory Framework

The carriers are responsible for any damages caused to the passengers according to Acts described below (WTO, 2005):

Carriage by Air and Road Act 1979. The carrier is everyone involved in carrying passengers either by air or road. The carrier is responsible if due to his/her carelessness the passenger dies or gets injured or any damages are caused to his/her belongings.

International Carriage by Sea (Athens Convention 1974.

It concerns sea travelling and in this Convention the carrier is also liable for any damages caused to passengers when sea travelling.

International Carriage by Road (Carriage by Air and Road Act 1979). It concerns the rights of the travellers even if they had paid for the journey or travel for free.This Act also involves any damages caused to passengers during their travel.

Further to travelling by road there is the Regulation (EC) No 1073/2009 for travel by road which concerns free provision of international road passengers. This regulation sets common accessibility rules to the international market for coach and bus [Regulation 1073/2009]. However, it provides, in particular, the liberalization of the shuttle service (from city to city and back) with overnight accomodation via bus and coach, as well as almost all emergency services. It also sets the procedures for granting licenses for these shipments and documents needed for these services. It also specifies the conditions under which are accepted in transport, particularly in national road transport (cabotage) services within a Member State, carriers that are not located in it. In case of transfer from one Member State to a third country and vice versa, the regulation applies to the department within the territory of the Member State from which the route passes.

The Athens Conventions Act 1974 is applied and amended in the UK. It involves international carriers and/ or passengers whereas the Domestic Carriage Order 1987 is addressed to domestic passengers travelling by sea.

The Carriage by Railway Act 1972 concerns international carriages and involves passengers with registered luggage. When there is a damage to a passenger then the carrier is obliged to pay for the passenger’s registered luggage.

Regulation (EC) No 1371/2007 concerns also rail travel. This regulation is designed to protect people with disabilities and reduced mobility from unfair and discriminating treatment and to provide assistance during the use of commercial air services.It obliges carriers and / the travel / s agents who represent them not deny booking and boarding to disabled, to provide information in formats appropriate for their physical injuries, to provide points of departure and arrival into the airport, take and distribute among them the notification that they have to serve people with disabilities,as well as to provide them with assistance in the airport and in flight. At the same time, it binds the parties involved to have fully trained staff to the treatment of people with disabilities, and requires compensation for loss of or damage to motor equipment.

Finally, it sets the limits for complaints and sanctions.

Although there is no doubt that this regulation improves conditions of air transport for people with disabilities, it does not address accessibility obligation outtside airports and aircraft business services concerned.

Thus, there is no obligation on the electronic benefits of airlines and travel companies, which is not justified by the needs of reasonable accommodation. It should be borne in mind that airlines provide a wide range of services outside the traditional areas in which they are active (airports – aircraft) and participate in corporate networks after having completed these activities

Regarding carriage by air the Warsaw Convention 1929 is applied. The Warsaw convention is created by the global community of air transport and the purpose was to provide global standards for carrying passengers world wide, especially common rules on liability for passengers and goods in case of accident, loss of baggage and delay in international air transport, while it reduces the cost to the airlines. Among others, a very important layout was included that the airline is considered liable (Article 17) but that liability is generally limited (Article 22) up to 10,000 U.S. dollars maximum.

However, the passenger and the carrier may, by special contract agree to a higher limit of liability (Article 22, paragraph 1). The carrier has the opportunity to rebut any action based on the contract if s/he proves that s/he took all necessary measures to avoid damage, and in this case s/he is not liable (Article 20, paragraph 1).

Moreover, the carrier is able to limit his liability if s/he proves that s/he contributed to the accident and the negligence of the injured individual (Article 21). Finally, Article 25 prohibits a carrier from benefitting of any clause that limits or excludes liability if s/he or his/her agents commit a willful misconduct.

Finally, it should be mentioned the EU Directive on Package Travel for visitors to Europe or from Europe. The European law facilitates traveling for leisure or on business within the European Union and the common currency facilitates travelers in eurozone countries. Travellers can make unlimited purchases in the country visited and bring the goods to their country duty free. Citizens of the Member States are entitled to unlimited exchange for intra-European trips, whereas before the liberalization of capital movements they were entitled only limited tourist exchange. For their package holidays, they are protected by European legislation for the mismanagement or misuse of their holiday by tour operators [Directive 90/314] For their air trips, they are also protected against overbooking charged by airlines [Regulation 261/2004]. Travelers can call the 112 number free European emergency call across the European Union [Decision 91/396 and Directive 2002/22]. In case of illness or accident happening to them only by presenting the European Health Insurance Card, which attests their participation to a similar system in their country of residence [Decisions 2003/751, 2003/752 and 2003/753]. In the ports and airports of the Member States, special channels exist for citizens of EE, who have a uniform passport [Resolutions 23/06/1981, 14/07/1986 and 10/07/1995]. Showing passports is not needed when crossing internal borders of the Schengen area [Decision 2000/586]. The conditions of travel within the EU have become much easier for pet owners [Regulation 998/2003].

Ethical dilemmas

The travel agency may have to face unethical competition i.e. extremely low prices. The company can overcome these issues by creating a code of ethics that will enable it to act in harmony with host countries and achieve competitive advantage (Holden, 2003).

The country will provide, prior to travelling, all information regarding the country that they will visit as well as to any information regarding safety and health risks. Furthermore, the company will encourage them to respect the local environment and avoid any actions that will be against the law. Safeguarding the natural environment of the countries will be top in the code of ethics of the company.

The company should also try to distribute holidays in such a way so as tourist flow would be smoothed and the environment will not be further burdened. Furthermore, tourist activities planned by the company will respect the ecosystem. The company will, in cooperation with local authorities, take care of health protection and security of its clients.

In addition, the company will respect the spiritual needs of its clients and allow them to practice their religions.

Corporate Social Responsibility – Key Travel

There will be presented the CSR program of Key Travel. Key travel is based in London and Manchester and employs over 100 employees. It is UK’s 47th biggest travel agency. It focuses on business travel for the not-for-profit sector. More specifically, Key Travel provides services to charitable organizations no matter what their purpose is i.e. medical relief, educational projects etc (Key Travel, 2012).

Its CSR consists of three axes: People, Planet and Profits. Regarding People, Key Travel believes strongly in its people and promotes diversity in workplace by employing people of different ethnic origins as well as women. Key Travel was a pioneer since it implemented in the 1980s what is in fashion nowadays i.e. flexible working hours and home-working. It also provides gym tickets and weekend travel breaks for its employees. In addition, it offers its employees fresh fruit in the office!

Finally, Key Travel offers to charities money and items that are not needed (Key Travel, 2012).

Regarding travelling, Key Travel respects local people of the countries visited and demands its customers to ask for permission before they take any picture of local people, their homes as well as of religious sites such as temples, churches etc. It also encourages litter free travel, respect of animals by not supporting festivals where animals are used for performance.

Key Travel warns its customers not to buy goods coming from endangered species such as sea turtle, ivory etc.Key Travel believes that its CSR program has benefited the company a lot since it has managed to attract new customers, reduce costs and improve efficiency and motivation.

It is suggested that the new business venture should take Key Travel as a case study for its CSR program. More specifically, the new business should also base its program on the three axes People, Planet and Profits and implement the appropriate actions that will reinforce the values attributed to each one of the axes.

Conclusion

The travel agencies are divided into different categories based on the type and nature of activities and services they offer having as their primary responsibility the service of all travelers, providing tourist services with quality (Hudson & Miller, 2005).

Travel Agencies are one of the major players of the tourism industry, because the travel agency is the means for promoting the trip, given the fact that if it uses the appropriate means, it will guide, lead and assist the traveler to choose the destination of his/her travel depending on his/her needs and possibilities (Ingbar, 2004). The travel agency acts on behalf of its clients and partners-suppliers, who organize the trip before the visitor arrives.Therefore, a new Travel Agency should know the legal framework concerning tourism since it provides tourism services and it has to follow the law. However, following the law is not sufficient for being efficient nowadays. The Agency has to be an ethical business and implement specific CSR programs to achieve maximum efficiency and enhance its brand.

Commercial Casino Industry has been occurring in United States over 75 years since Nevada legalizing it. When Chef Wolfgang initiated to out fine dining restaurant in commercial casino, this is the beginning of food and beverage revolution in industry in 1992. In 1995, American Gaming Association was created. MGM Mirage acquired Mandalay Resort Group, Harrah’s Entertainment Inc. and Caesar Entertainment in 2005 and the commercial casino industry started booming and other states started legalize opening casinos since then.

The international gaming industry is expanding. Many U.S. casino companies expanded or planned to expand to other countries such as Macao, Korea, Taiwan and Singapore. The international casino industry tends to have rapidly growth as gross gaming revenue in Macao has been more than gross gaming revenue in Las Vegas strip since 2006.

“Know your enemy and know yourself, and in a hundred battles you will never be defeated.” (Sun Tzu’s The Art of War Writings). This Chinese wisdom of warfare probably helps companies deploy a better strategy in many business situations. The MGM Mirage Inc. is the largest company in the Hotel and Casio industry by revenue in the U.S., but MGM financial statement showed that company bottom-line in debt. The company was facing bankruptcy code in the early 2010. In this project, the report had been organized and presented MGM Mirage Inc. or MGM Resorts International in 4W framework:

(1) Who are we? (Company profile, Hotel and Casino industry profile),

(2) Where are we? (Sophisticated tools in Management, Technology, Marketing, Financial and Accounting were used to analyze the company position with competitor in the industry.),

(3)What are problems? (SWOT analysis) and

(4) What are solutions?

Who are we? : Know yourself
MGM History
The Beginning of Las Vegas Race:
2005: MGM Merged Mandalay Bay Group.
MGM Profile in 2009
Organization Structure
Company Strategy

The MGM Mirage Inc. strategy is to generate sustainable, profitable growth by creating and maintaining competitive advantages and through the execution of our business plan, which is focused on: Owning, developing, operating and strategically investing in a strong portfolio of resorts; Operating our resorts in a manner that emphasizes the delivery of excellent customer service with the goal of maximizing revenue and profit; and Leveraging our strong brands and taking advantage of significant management experience and expertise. (Source: MGM Mirage 2010 Form 10-K)

Current Operation

As of 2009, the MGM Mirage reported that the company has completed control of 14 casino resorts and hold 50% of investment in 5 casino resorts. In addition, the MGM Mirage also owned 3 golf courses in Las Vegas, Mississippi and California.(Source: MGM Mirage 2010 Form 10-K)

Casio Resort ( Completely owned)

Nevada

MGM Grand Las Vegas

Mandalay Bay

The Mirage

Excalibur

Monte Carlo

Railroad Pass, Henderson

Gold Strike, Jean

Luxor

Bellagio

New York – New York

Circus Circus Las Vegas

Other

MGM Grand Detroit

Beau Rivage , Biloxi, Mississippi

Gold Strike Tunica ,Mississippi

Casio Resort ( hold 50% in stock)

Nevada

City Center

(Joint Venture with Dubai World)

Circus Circus Reno

Siler Legacy

Other

Borgata, Atlantic City, NJ

Gran Victoia , Elgin, IL

MGM Grand Macau, China

Industry Analysis

Industry Analysis process is an essential assessment tools for every company to deeply understand industry current trends and opportunities. In fact, company will gain a better position and achieve a competitive advantage when it truly understanding marketplace. In the complex marketplace, the U.S. government is categorized industry with 4-digits Standard Industrial Classification (SIC) system. In addition to SIC, the North American Industry Classification System (NAICS) is a new standard for the industry. The NAICS with 6-digits code contains more details than the SIC system. The purpose of SIC and NAICS are economy analysis.

The MGM Mirage Inc. has been classified with SIC into three major categories: Hotels and Motels (SIC 7011), Coin-Operated Amusement Devices (SIC 7993) and Amusement and Recreation Services, Not Elsewhere Classified (SIC 7999). In addition, the MGM Mirage inc. also has been classified with NAICS into two categories: All Other Amusement and Recreation Industries and Hotels (except Casino Hotels) (713990) and Motels (721110). To thoroughly understand MGM Mirage Inc. marketplace, the hotel industry and casino industry had been analyzed.

Hotels and Motels Industry (SIC 7011)

The U.S. government defined a company in Hotels and Motels Industry as

“Commercial establishments, known to the public as hotels, motor hotels, motels, or tourist courts, primarily engaged in providing lodging, or lodging and meals, for the general public. Hotels which are operated by membership organizations and open to the general public are included in this industry. Hotels operated by organizations for their members only are classified in Industry 7041. Apartment hotels are classified in Real Estate, Industry 6513; rooming and boarding houses are classified in Industry 7021; and sporting and recreational camps are classified in Industry 7032.”

Recession impacts hotel industry

In May 2010, Standard & Poor’s industry report stated the hotel industry is still in an unstable condition. The industry will require a longer period to recover from the 2008 recession. Currently, the industry is operating in a difficult situation. The hotel industry is facing drastic competition that forces hotel businesses to lower room rates, which in turn results in lower profit.

Figure 1: Hotel Industry Fact Sheet 2001 – Forecast 2011

The data from Smith Travel Research (STR) Inc. indicated that on average the hotel industry has lost its Revenue Per Available Room (RevPAR) since 2008. The 2008 recession has also brought the hotel occupancy rate down from 60% to 55%. In addition, average daily roommate also dropped significantly 8.8% in 2009. Moreover, room demand dropped 6% in 2009. In contrast, the supply of rooms rose 3.2% in 2009 (refer to figure1). While the U.S. government is making their way out from 2008 recession, S&P’s forecasted that the hotel industry will not return to the same pre-recession level for the next eight to ten years.

Figure 2: Percent Change in Room Supply and Demand in the U.S. from 1989 – April 2009

Real GDP helps the hotel industry in predicting room demand

In the hotel industry, a high accuracy in room demand elasticity estimation provides CEO with essential information for a long term planning and deploying strategies. In 2009, the research by Dr. Hanson from Global Hospitality Group – Hospitality Lawyers shows approximately a 1-to-1 relationship that holds between the U.S. Real GDP and room demand until the 2001 economic crisis. The real Gross Domestic Product (GDP) is the total output of goods and services produced in a country and adjusted for priced change. The demand is more elastic when the greater the proportion of income spent on the good. After the 2001 recession, the demand retract and continue to grow in a slower pace when compare with the real GDP. The GDP is increasing 4 times faster than the room demand does. The 5 factors that researcher believes that might have an influence GDP and room demand relationship are: Long-term deterioration in consumer confidence, Higher consumer saving rate, consumers trying to recover lost investment, new pattern of behavior and proposed levels of tax increase affecting disposable income. Moreover, in the 2008 recession, the researcher also believes that the recession might create an additional snap back for room demand.

Figure 3: The relationship between GDP and Room Demand

U.S. Business and group travel

The hotel industry profitability can be influenced by a demand from business travel. According to a member survey, the Association of Corporate Travel Executives (ACTE) reports hotel expense represents, on average, 40% of all business travel expense. In addition, American Express stated that airfare will increase from 2% to 10% in 2011, and hotel rates will increase 1% to 10% (Paurowski, 2010). The survey also indicated that 35% of its member strongly considered optimizing hotel expense in 2011 and 50% of its member expressed concern regard increasing in expenses. Passenger Name Record (PNR) in Computer Reservation System (CRS) showed that cooperate travelers have shifted booking methods from Travel Management Companies (TMCs) to Online Travel Agency (OTA). In fact, 30% of its members stated that online hotel rates offered are lower than negotiated rates. The complementary items that are preferred by the majority corporate travelers are: complementary cocktails, free WiFi-internet access and comfort. In conclusion, the demand for business and group travel will likely be for cheaper rooms at lower rates with free complementary. (Michael Boult, 2010).

Domestic and international travelers

Shifts in airline schedules and passenger booking have a direct impact on hotel occupancy. According to the data from Air Transport Association (ATA) 2010 annual report, the static in figure 3 shows that domestic capacity had a declining trend since 2000, and the data also showed that passenger enplaned has dropped significantly from 743 million passengers in 2008 to 703 million in 2009 reflecting a 5.3% decrease of airline industry capacity. In fact, profit margin in the airline industry has been on the negative side. Airliners cut back routes and canceled destinations.

For international travelers, The U.S. Department of Commerce (DOC) and Office of Travel and Tourism Industries (OTTI) expect the industry growth in 2010 and gradual increase to approximately 6-9% through 2015. Five countries, excluding Canada and Mexico, that rank highest in number of visitors to the U.S. in 2010 by volume are: China (40%), Brazil (35%), Korea (35%), Hong Kong (27%), New Zealand (24%) and Australia (19%). A weakening in U.S. currency helps the hotel industry by stimulating the demand from international travelers.

Figure 3: Domestic Demand Trend, Profitability among Airline, Passenger Yield Trend

Medical tourism -a little hope for the hotel industry

In the economic downturn, hotel industry needs a stimulant plan to boot-up its occupancy rate. In 2009, Reuters Health section provided some interesting facts about medical tourism in the U.S. The report indicated that U.S. health providers have lost 650,000 patients to hospital oversea such as Thailand, India, and Singapore. In addition, the health providers are predicted to lose as much as $67.7 billion in revenue in 2010. Oscar Goodman, Mayor of Las Vegas, foresee the opportunity for the hotel industry in Las Vegas. Mayor encourages a local business to support the idea of medial tourism. The medical tourism will be an alternative business in the area, the national public radio reported.

Casio Industry

Casinos are the largest revenue generator in the gambling industry. The industry provided approximately 350,000 jobs in the U.S. market. The American Gaming Association and the National Indian Gaming Association (NIGA) are the main organizations in the U.S. casino industry. The AGA encourages its members and their employee to be aligned with updated law and regulations. Moreover, AGA is a realizable source for a gaming industry providing gaming history, educational program, and statistic data on the Casino industry. In addition, the NIGA under the Indian Gaming Regulatory Act has provided Native Americans opportunities to legally run casinos.

U.S. casino trends

The casino industry has been hard-hit by the recession. According to the United States department of labor, the Mass Layoff statistics (MLS) program showed that the hotel-casino industry eliminated 13,000 jobs in 2008 (Labor, 2010). The revenue trend in the casino industry has been on a downturn for the last two consecutive years. The S&P expected a slow recovery from the casino industry.

Las Vegas, Nevada

As of 2009, the American Gaming Association reported that Las Vegas with $5.55 billion in revenue was a dominant U.S. market. According to Las Vegas Convention and Visitors Authority (LVCVA), the statistic in figure 5 showed a 2.4% increase in the number of visitors from 2009. The Las Vegas Strip gaming revenue was increased by 4.3%, but the downtown area gaming revenue was decreased by -7.3% from 2009. In 2009, the 14% unemployment rate in the state Nevada plummeted the economic trail. On a carryover impact from the economic crisis in 2008, the number of attendees at conventions, and a number of scheduled conventions and number of meetings held remained on the decline with decreases of -1.1% and -6.7% respectively. According to the Las Vegas Visitor Profile, Market Segment reported by LVCVA (2009) that 76% of Casino guests were most likely to be traveling in a party of two and average stay in Las Vegas is 4 nights. Casino guests on LVCVA survey stated that 87% of visitors called the hotel-casino directly to book their accommodation.

In 2010, S&P’s industry report estimated casino revenue on the Strip to be 35%-45% of total revenues, and the revenue from hotel rooms was 20-30% of the total revenue. A total enplaned and deplaned air passenger continued to decline. The number of air travelers accounts for 42% of all visitors. (LVCVA visitor profile: ir visitor version). The S&P’s report indicated strong growth from Las Vegas.

Figure 4: U.S. Casino Industry Gaming Revenue

Figure 5: Las Vegas Convention and Visitor Authority (LVCVA) : Executive Summary

Atlantic City, New Jersey

The Atlantic City is a second large of the U.S. casino marketplace. The static in figure 4 shows that casinos in the area have been losing revenue -5.7%, -7.6% and 13.2% in three consecutive years. According to S&P, casinos in Atlantic City are facing heavily competition from New York and Pennsylvania.

Macau, China: New Era of Asia Gold rush

Macau is a special administrative region of China. The CIA – The World Factbook reported that, in 2006, Macau’s gaming revenue surpassed that of the Las Vegas strip, and gaming-related taxes accounted for more than 70% of total government revenue. The Macau market attracted many casino operators from Las Vegas to come and establish a new home-based outside the U.S.

In 2010, the profit in Macau market increased 9.7% in revenue from its loss in 2009. The gaming industry in Macau was expected to rise, but, S&P reported a concern about the room surplus of 40% in 2011 and 2012. In the long-term, S&P still believes that the Macau gaming industry will generate a significant profit for China.

Singapore: A hidden dragon

Singapore is the one of the most strategic locations in South-East Asia. According to Economy Watch and World Bank, Singapore is considered to be a very attractive country for new business. Sources in the Wall Street Journal on October 7, 2010 reported that the Marina Bay Sands project is a 8-billion dollar casino in Singapore, known to be the cleanest city in the world. The casino includes three 50-story structure with approximately 2,500 rooms; a casino, retail stores, dining and 800,000 square feet entertainment complex. The S&P 2010 industry report predicted that the top five markets for Singapore casinos are: Indonesia, China, Australia, India and Malaysia. In addition, the Marina Bay Sands should have no effect on Macau market because the hotel presents a more family-orientated appeal.

Legal and Regulation
Internet/Online gambling

Online gambling is illegal in the U.S. as of November, 2010. Internet Gambling Regulation, Consumer Protection, and Enforcement Act (H.R. 2266) was introduced to congress in May 2009 by Frank, Barney (Rep). The bill is aimed to Unlawful Internet Gambling Enforcement Act of 2006, which prohibits internet gambling operators from receiving money related to any online gambling that violates State or Federal law (Frank, 2010). Online gambling is also on a serious debate among AGA members regarding a safety and government regulation. The concerns regarding an online gambling are a security technology such as firewall to protect million online users.

Summary Key Fact from Industry Analysis

Room demand dropped because economic recession.

Occupancy rate dropped because dropped in demand and increasing room surplus.

Real GDP could be used as atool for the hotel industry to future demand.

Business Travel booking trends changed from Travel agency to online travel agency.

China is a number one inbound visitor by volume from oversea.

Medical tourism could be an alternative route for simulating demand.

Gaming on Las Vegas Strip continues generating profit.

Atlantic City market for casino is not pleasant after loss in profit of 3 consecutive years.

Macau is growing and generated more revenue than Las Vegas Strip.

Singapore could be a new growing casino market in South-East Asia.

Legalize an online gambling is an ongoing process.

Casino Market: Oligopoly Market Competition

In 2009, the casinos industry had revenue in total of $US 21.8 billion. To determine an economic competitive type of market in the industry, the company uses a four-firm concentration ratio as the indicator. The ratio is the percentage of total industry sales made by the four largest firms (Fig. 4). The four-firm ratio for the casinos industry is approximately 70%, which had created an oligopoly form of market competition. In oligopoly, one firm decision can have a direct influence on demand, price, and profit of competitor in the industry.

Figure 5: Companies in the casino industry by revenue

Furthermore, external assessment of the industry is a critical process for management in decision making. The Porter’s Five-Forces Model, competitive analysis tool, has been utilized for in-depth industry analysis. The model analysis is provided five perspectives in assessing the industry: Rivalry among competing firms, Potential entry of new competitor, Potential development of substitute products, Bargaining power of suppliers, and Bargaining power of consumers.

Porter’s Five-Forces Model Analysis
Rivalry among existing competitors:

MGM : Rivalry among existing competitors : HIGH

Same-size competitors

High exit barrier

Indifferent in product and service among competitors

Table x: Threat of existing competitors

The competitive atmosphere in hotel industry is high. There are a lot of competitors in industry. Furthermore, it seems that competitors compete in same dimension because in commercial casino industry, customers are not much diverse. Therefore, players in this industry found it hard to target different customers with different needs

– There are a lot of competitors with equal power and size.

– Exit barrier in commercial casino industry is high because a company invests huge amount of money, especially, building cost. Even a company wants to exit from the industry, sometimes it force to stay in because exit costs are high.

– Product and service in commercial casino industry are identical. Moreover, there is no switching cost for buyers. Thus, competitor might cut price to attract buyers.

– Fixed costs are high. In order to compete in hotel industry, a casino manager adopts revenue management. The process allows buyers to stay in same type of room in different price. Even a hotel’s products and service are not rapidly become outdated but competitive atmosphere in commercial casino industry is hot, therefore, companies cannot make high profit from this industry.

Threat of new entrants:

The threat of new entrants for hotel and motels industry is low. The industry has significant barriers to entry which include:

MGM : Threat of new entrants : LOW

Supply-side economies of scale

Demand-side benefits of scale

Customers switching costs

Capital requirements

Restrictive government policy

Position advantages independent of size

Unequal access to distribution channels

Table x: Threat of new entrants

Supply-side economies of scale: In commercial casino industry these economies hardly appear. Even a company built more rooms or more recreations in its casino, these economies will not appear. Moreover, the company has to carry more cost, more maintenance cost and more employees cost.

Demand-side benefits of scale (network effects): These benefits occur when the numbers of buyer patronize the company. However, these benefits might not occur in commercial casino industry. In commercial casino industry, a company will find advantages in location, facilities and characteristics of personal working in direct contract with customers. Therefore, having a lot of customers patronize a company will not provide huge demand-side benefits of scale.

Customers switching costs: In commercial casino industry, when customers purchase service from a casino, it is one time use. Therefore, there is no switching cost.

Capital requirements: In order to enter commercial casino industry, a company needs to finance huge budget and the industry return is not attractive. Thus this industry has high barrier.

Position advantages independent of size: These advantages are not depends on a company’s size, incumbents can have competitive advantages that not available to competitors. These advantages in commercial casino industry can stem from locations, brand identities and service.

Unequal access to distribution channels: It is not hard to establish or find distribution channels in commercial casino industry. A company could use agents or let customer books rooms via its websites.

Restrictive government policy: There might be some restriction related to commercial industry such in some area government do not allow a company to build a building that higher than 2 floors or in some countries, a company has to has citizens hold more than half of a company’s shares to operate in that country. In U.S., commercial casino industry is the most regulated and monitored industry.

The threat of substitutes:

MGM : Threat of substitutes : HIGH

Competitor

Table x: Threat of substitutes

There are some substitutes for commercial casino such as hostels, apartments or houses. Customers can stay in hostel, apartment or houses and go to gaming or using recreation facilities at casinos. If buyers concern convenience, they might prefer casino. Because they will have maids clean their room and casinos always locate in a convenience location. If buyers concerns price, they might stay in hostel. However, if buyers concern privacy, they might prefer house.

– There is no cost of switching to substitute. Buyers can change to substitutes anytime if they would like.

Hostels, apartments and house can be substitutes for casinos. They perform similar products and service to casinos, if you concern only hospitality part. However, there are some differences which made substitutes have huge different from hotels. Buyers have to determine trade-off between hotels and substitutes.

In this industry, the threat of substitutes is not high because substitutes have too many differences in facilities and service from casinos. Thus, industry’s profitability is not suffered from substitutes.

The power of suppliers:

If suppliers have power over a company, suppliers might set its price higher, limit quality of service and shift its cost to other parties. In commercial casino industry, a company uses wide range of different suppliers such as supplier for construction, supplier for food and beverages and supplier for hotel equipment. There is almost no monopoly in hotel suppliers. Moreover, only a few supplies that have switching cost such as securities equipment and suppliers did not differentiate their products. The company has to differentiate itself by choosing good location, providing well-maintenance facilities and providing supreme service. Furthermore, the company can easily find substitute suppliers. Therefore, the power of suppliers in commercial casino industry is low.

The power of buyers:

MGM : The Power of Buyer :

Table x: The power of buyer

– There are various customers in commercial casino industry. However, there are some buyers that have ability to negotiate such as group tour.

– Products and service in commercial casino industry are not much different. If customers find that a hotel that they always stay in is full, they have to stay in other hotel. They have to purchase products and service in some hotel anyway.

– Buyers have no switch cost. If buyers want to change from a hotel to a hotel, they can just check-in to another hotel without any switching cost.

– Buyers cannot produce industry’s product if buyers found that a hotel is too profitable. Buyers can switch to other hotels but they cannot produce it by their selves.

– In commercial casino industry, buyers do not stick with brands. Buyers might concerns about quality of product and service. If they find another casino that cheaper but quality and facility are same, they will switch to another casino. In sum, in commercial casino industry, buyers are relatively price sensitive.

From analysis given above, buyers in commercial casino industry have high power and seem to be price sensitive. They can press companies to lower their price and can ask for more quality and service.

Financial and Accounting Analysis

The financial information was published annually to external and internal users.

MGM Mirage Inc. financial statements had been analyzed using financial ratio analysis and information in management discussion. The median number of industry ratio in 2009 is used in this report. By the nature of hotel business, MGM contains a high fix-cost in normal business operation and profits are driven by tourism and business travel demand. MGM requires a large capital to run its hotels and casinos. In 2010, MGM is in process of development a City Center, a capital intensive driven project. The delayed of City Center project has enormous impact on MGM financial statement.

Liquidity and Financial Position
Liquidity Ratios
Industry
2009
2008
2007
2006
2005

Current Ratio

1.1

1.28

0.51

0.68

0.92

0.66

Quick Ratio

0.8

1.02

0.2

0.48

0.5

0.48

Credit Risk: Facing Bankruptcy

As of December 31, 2009, MGM is in a weak financial position because of its indebtedness.

MGM with credit rating of CCC+ operated the business with 39% on the long-term debt. The management team declared unpleasant statement about the $1.1 billion senior credit facility debt which might be defaulted on maturity date in 2010. The management suggests that MGM must extent the payback period by negotiating with their creditors. Also, management has predicted that future revenue from operation and tax refunds would help reducing MGM debt. The current and quick ratio indicated that MGM has had insufficient fund to operate its casino since 2005. With the ratio less than 1 and below the industry average in both current ratio and quick ratio, MGM has been operated on the line of bankruptcy if the company defaults on its debt.

Revenue base and mix

MGM primary source of revenue came from Las Vegas Strip. As December 31, 2009, the majority of MGM revenue came from three sources: casino (44%), hotel room (23%), and food & beverage (23%).

Casino revenue dropped 12% from 2008 and it had been on decline trends since 2007. In 2009 MGM financial statement, revenue from casino had been divided into three sub-categories: Table games (36% of total casino revenue), Slots (60% of total casino revenue), and Other revenue. The table game revenue decreased 11%, even though there is 33% increases in demand for baccarat.

Sustainability of revenues and earning

As of December 2009, MGM

**Reasonable Analysis
*focus on MD&A
*Risk and Factor
* Note
Analyzing financial statement
Accounting item to review
Cash Flow
Profitability ratios

MGM profitability ratios are negative in 2010 and 2009 for some ratios. ROA in both 2009 and 2010 are negative. We can break ROA to net profit margin multiply total assets turnover to deepen our analyzing. Assets turnover ratio shows MGM’s ability to use assets generate revenues. MGM’s assets turnover ratio decreases from 2007 to 2009. Even this ratio does not decrease much during 3 year period, it made ROA go down. The main factor that has impact on ROA is net profit margin. The MGM has very low net profit margin since 2008. MGM’s bad signal shows since 2008. After its net profit margin ratio plunge to -11.86% in 2008 and -21.61% in 2009 which a major factor lowing ROA. From analyzing ROA, we can see that MGM has a problem with maintaining its profit margin. MGM’s revenues in 2008 are not much different from 2007, however, MGM cannot control operating expenses, operating expenses in 2007 exceeds revenues. In 2009 MGM revenues decreases by 17%, further, MGM’s ability to control its operating expense decreased. MGM’s operating expenses in 2009 is 114.65% from revenues. The major increase in operating expenses in 2008 and 2009 is property transactions. MGM’s ability to fulfill its short term obligation is getting better in 2009. Both quick and current ratios go up. The reason both quick and current ratios increase because in 2009 MGM carries more cash. However, MGM debt management ratios worsen. Long term debt to equity ratio increases from 2007 to 2009 results increase in total debt to equity ratio. These ratio shows MGM has larger portion of debt compare to equity. Even MGM carries more long term debt recently; MGM has interest coverage ratio high enough to pay back its interest. But this ratio trend increase in recent year.

Hotel operating statistics
Asset values
Balance sheet ratios
Book Value
Off-balance-sheet commitments or liabilities
Valuation measures

Leverage ratios

Debt Management
2009
2008
2007
2006
2005

LT Debt to Equity

3.35

3.12

1.84

3.38

3.82

Industry Ratio

Total Debt to Equity

3.63

3.39

1.84

3.38

3.82

Industry Ratio

Interest Coverage

–

1.66

2.06

1.95

1.93

Industry Ratio

Activity ratios

Asset Management
2009
2008
2007
2006