unit 1 assignment 1 business PESTEL analysis PDF

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TUI GROUPResearch into the efects of businessenvironment into a businessSalem El ShahomiRichard Cullen28 October 2020This report is looking at TUI and how it operates within the EU and the World; this paper aimsto evaluate the efects of the external and internal environment on a business.TUI is the ...

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TUI GROUP Research into the effects of business environment into a business

Salem El Shahomi Richard Cullen 28 October 2020

This report is looking at TUI and how it operates within the EU and the World; this paper aims to evaluate the effects of the external and internal environment on a business. TUI is the largest tourism group, with a broad portfolio gathered under the group umbrella consisting of tour operators, 1,600 travel agencies and online portal, five airlines with the largest airline fleet in Europe, over 400 hotels, 17 cruise liners and many incoming agencies in major destinations around the globe. TUI covers all of these activities under one single roof. this has offered the group a combined total of 27 million customers in 180 regions. TUI prides itself as a key feature of their corporate culture is their corporate social and environmental responsibility and social sustainability. Corporate culture is the beliefs and behaviours govern how a company and its employees and management co-operate and deal with external business operations, culture in a business is implied and not defined. Environmental responsibility is in reference to a company obligation to refrain from damaging the environment it is a term commonly paired with corporate social responsibility. In 2019 the group had a headcount of around 70,000, and a revenue of about $19Bn with profits of $893M. The TUI group's shares are listed on the FTSE 250 index, and in the Quotation Board of the Open Market on the Frankfurt Stock Exchange and regulated market of the Hanover Stock Exchange.

This graph shows the market share of the biggest holiday companies in Europe This graph is showing that TUI is growing each year and competing highly with Thomas Cook and is gaining market share from competitors each year. Market share is percentage of the market which is owned or controlled by a corporation, market share represents the percentage of sales made by a company or product out of the entire market group.

One useful way of being able to analyse the TUI Group is by analysing them using the PESTEL analysis. PESTEL is a useful tool for understanding the market growth or decline of a company; helping analyst what position it is in and what potential it has and direction in which it is headed. PESTEL means political, economic, social, technological, legal, and environmental factors which are very useful in analysing the market for a business.

POLITICAL FACTORS Political factors have a big influence on TUI operations it can affect their profits because it is about navigating a set of rules and regulations which the company has to abide by universally across the globe for their different operations in different countries; Threats present by extremist groups or other social-political factors such as civil wars and civil unrest. In most countries in which TUI operates its airlines, there are strict regulations for the industry of aviation. these regulations are merely in place because of the risks that are associated with flying, including risks of crashing, fuel consumption ECT. the policies which are implemented are there to try to protect the consumers on board the aircrafts such as those of TUI. For TUI airline there is also the factor of wars and civil unrest in certain countries which might harm the flying industry thus having an impact on TUI, causing them to lose customers and infect a loss of market share and profits. There is always the threat of terrorist attacks like that of 9/11 which happened in New York USA a country and city which TUI operates in which can be a very big risk for the company, their customers, planes, and employees if something like this happens again, causing them massive losses consumer distrust and huge PR fallout if such event would happen again. TUI also operates a fleet of cruise ships which are impacted by the political factors which affect cruise ships laws and regulations in the jurisdictions they operate in, these laws and regulation have the potential to have a large impact on the company affecting their long term organisational profits. TUI operates in the Mediterranean for its cruise ships, the Mediterranean has open waters with the middle east and the north of Africa which is an area of social unrest, tensions, and crumbling diplomatic relations; making it a very unpredictable area to work in; if unrest does occur in one of the Mediterranean countries which within it operates it can cause large issues for the company. there is also threats of; bureaucracy and international interference affects if their cruise ships ae able to dock in certain jurisdictions as a result of the legal frame work around each country, going further to having to operate within trade, tariff, taxation and industry safety regulations among other rules they will have to abide by. This can have a very substantial effect on their cruising operations. Operating in areas of free seas also leaves room for new sea pirates, although this is highly unlikely to happen to a commercial cruise ship for holidays it may be a possibility which has to be taken into account if pirate begins doing this work and attacking ships, an example of this happening is in 2009 when pirates in speed boats and guns tried to board the MSC Melody where passengers threw tables and chairs to outrun their assailants, this of course worked but there could have been a very different outcome to politics being played in this matter. Finally, there are major factors which affect TUI hotels operating in different regions including areas such as the Dominican Republic, Egypt, Albania and other countries leaves their hotels in danger of attacks, terrorist attacks and civil unrest in unstable countries. International relations and the political climate in some popular tourist destinations, within them, is the biggest threat is a terrorist attack or a military conflict that may disrupt the entire hospitality and tourism industry. An example of this sort of situation is when the Malaysian flight MH17 was gunned down by a missile in mid-2014 a missile fired from Ukraine naturally an event like this caused people to distrust flying and numbers of people going on non-essential travel fell and coincidently hotel rooms became vacant. Another imminent threat in a country like Egypt is that a gunman would show up in a hotel and begin killing tourist as to what had happened in June of 2015 in Tunisia when an ISIS sympathizer killed 39 people. If an attack like this were to hit a TUI hotel it would devastate the hotel which the event

happened in causing it to close and would more than likely affect all operations of TUI in that country. For political reasons there is also the factor of legislation being passed in different countries, governments can increase or decrease corporate tax, value-added tax on different products or business rates. This can cause the prices of TUI to increase if they have to add the amount of tax on their holiday packages. New laws such as minimum wage can affect company profits as TUI overhead cost would increase and be a big factor in their operating costs. Finally, the Brexit of EU will have an impact on their British operations as the UK enters the single market, the impact will of course be negative for UK customers as they will need to apply for visas and it will be harder for them to travel to Europe causing a decrease in sales of flights from the UK to the rest of Europe and vice versa which may hinder the tourism economy in the UK and cause major losses for TUI as they have to pay airport fees and taxes when they aren't getting enough operations in the UK. Sources: https://www.telegraph.co.uk/travel/cruises/articles/what-happens-if-a-cruise-ship-is-attacked-bypirates/ https://www.aljazeera.com/news/2020/1/11/history-of-planes-brought-down-by-missiles-since-1973 https://www.hulldailymail.co.uk/news/hull-east-yorkshire-news/dad-holiday-time-world-stopped4270216

ECONOMIC FACTORS Economic factors have a great influence on the success or fall of a business. The recent recession (which has been a bi-product of the Covid-19 Pandemic) has caused the closure of thousands of high street stores and the big closure of more than 100+ stores for TUI putting in jeopardy more than 800 jobs while TUI has promised to try and keep 600 of those jobs it still affected the local economy of the towns in which the stores operated. This has been as a result of the attempt from TUI to take into account the technological advancements of people preferring to buy holidays from the comfort of their own home and being in competition with other competitors such as Trivago and Expedia who are focused on being online and are getting an increasing market share each year internationally. Employment unemployment rates (currently at 4.1%) are presently higher than they used to be last year by 0.3% and higher than the last fiscal quarter by 0.2%, this is a good thing for TUI because it offers them more choice of a workforce and having a good amount of people to choose for a certain position in a company. This would be very beneficial for them and in their operating style as it gives them a range of people to choose from for their workforce, however, because of the pandemic, TUI is struggling to employ people even letting go of more than 8000 staff across all of its entire operations in an effect to cost cut and reduce any further damages to the company finances. Employment rates would also impact TUI from a customer point of view, as holidays are viewed as elastic because they are unnecessary and demand for them changes, for this reason, if people have less disposable income this means that they are less likely to go on to having holidays through the year which would impact the company negatively in a reduction in revenue as fewer people go on holidays as it was seen in the 2020 pandemic when people got made redundant and couldn't afford to book flights so the company saw a massive drop in revenue by 98%, this made the company lay off over 11,000 employees over the course of 2020.

Interest rates An interest rate is a percentage of which someone is charged on the total amount which they borrow or save. For TUI the interest rate is very important as they have recently had to take out loans to help them remain afloat and not have to file for bankruptcy. The interest rates can either have a positive effect or a negative effect on the company; low-interest rates mean the company would pay back a lower interest on the amount which they have borrowed which is very beneficial for their bottom line, but when they want to save some cash in bonds guilts and other instruments low-interest rates aren't beneficial for the company because they get a lower return on their investment/ savings. On the other hand, high-interest rates would be bad from a loan point of view as it would cost them more to pay back the loan and it might also be more difficult, however, if they decided to invest in money instruments which pay interest such as bonds they would be earning a lot more of money on their investments. Inflation Inflation is a quantitative measure of the rate the average price of a basket of specified goods and services in an economy increasing over a while. It is the general rise of prices where a unit of currency can buy less than it previously did before, inflation is often expressed as a percentage, therefore making inflation an indicator of the power of a national currency. Inflation is usually juxtaposed with deflation which is when prices decline. Inflation is usually classified into three types: Demand-pull inflation, cost-push inflation, and Built-in inflation; each having its effect. Inflation decisions are all managed by the central bank through the monetary policy committee (MPC). The current inflation rate as per stated on the Bank of England website the current inflation rate is 0.5% with the current bank rate being at 0.1% (which is next due on 17th December 2020), however the aim of the Bank of England is 2.0%. Because TUI is a company which is set up to operate in the tourism sector inflation is a very big factor for them when they operate. It can harm them in general because their running costs as a whole would increase, and this includes overhead fuel, food, maintenance and upkeep of their planes, boats, cars and hotels would all have to increase to keep up with inflation. This increase in running cost could reach to a point where it starts impacting greatly on TUI profits causing them to have a smaller profit to either reinvest or pay-out to shareholders as dividends, this will result in them being more strategic in how they spend retained profits which could lead to cost-cutting in areas and begin having a big effect on the company operations; furthermore, there is also the factor of considering shareholder frustrations, if dividends aren't paid to shareholder expectations, institutional investors and other single investors may not invest in TUI causing their share price to tank which could affect the company financially too as investors always prefer to invest in companies which pay regular and healthy dividends and showing healthy levels of cash flow. Being a world-leading operation, unexpectedly TUI would need suppliers for its different needs to be well-oiled corporations, this is due from the paper used to print tickets and timetables to the parts in their planes. Because of the effect of inflation causing prices to grow the suppliers, in turn, might turn up their prices; so if TUI wanted to buy a new fuel injector it would cost them even more than last year as a result of the suppliers running costs increasing; in effect, if TUI chose to increase the price of tickets then that would negatively impact the customer as a result of these increases in ticket prices which have been implemented to keep profits up, this may not resonate well with customers and could harm TUI because of these price hikes they could lead to them losing customers because they have the option to go around and shop for a deal with other competitors, this action will cause a ripple effect on the rest of the company; we have seen something similar to this in the 2020 pandemic where TUI revenue fell by 98% to just $893; investors were affected in a big way by the company huge losses not receiving dividends and the share price of TUI.

Exchange rate The exchange rate is the value of one currency when being compared to another currency The exchange rate is the rate at which one currency will be exchanged for another, it is also regarded as the basis of comparison for one countries currency to another, TUI mainly deals in the British pound and the European Euro being a company which mainly operates in Germany and the UK. The use of what is known as a base currency is a good thing for the company this is because they can exchange them easily because there is already a lot of trading happening between the two currencies. Exchange rates also affect their pricing in different countries they work in Euros as their main currency of expenditure so all their pricing needs to be equivalent to their Euro pricing with tweaks to the market that they are in, for example, if the price of the Euro increases compared to the dollar this means that anyone wanting to book a trip from America to Europe through TUI it would be more expensive for them and TUI ends up making a bigger profit, furthermore if they wanted to buy more planes from Boeing, this is where the exchange rate has a bigger difference than it does with smaller amounts, if the Euro price compared to the dollar has gone up this means that for TUI would be spending less to buy the plane than they would if the dollar is higher than the Euro.

Consumer spending Consumer spending, consumption or expenditure is the habits of consumer spending on goods and services and is divided into the spending of individuals and families. There are two components of consumer spending: induced consumption and autonomous consumption. Induced consumption is when consumption varies based on income and usually, the variance occurs with disposable income if a person has a higher disposable income, they are more likely to spend and if they don't have as high disposable income then they won't spend as much. On the other hand, autonomous consumption is the expenditure even when consumers don't have a disposable income. They are expenses which cannot be eliminated such as food, water and bills. Because of this difference consumer spending is more than likely to fluctuate, which affects how much money a household is spending on luxury expenditure this would affect companies like TUI as holidays are seen as excessive and a luxury to be having when so many people are currently losing their jobs and don't have a high disposable income, so they are choosing to not go on holiday this paired with the current has seen a high effect on the company leading to needing emergency loans and not being able to retain staff; this effect of no spending has led to a slower revenue report of only $893M in this year. This is also proven by the increase in consumer spending on essentials by 6.1% as more than ¼ have admitted to stockpiling. Non-essential spending only rose by 0.6% down by 1.4% from the previous year this is bad news for the tourism industry as their packages are often made to be advertised as paradise getaways and once in a lifetime experiences making them seem more exclusive and making consumers less committed to spending on them especially with TUI marketing resonating with this tone and may lead to a long term lack of spending in the tourism industry by consumers as a whole. Sources: https://www.bankofengland.co.uk/monetary-policy https://en.wikipedia.org/wiki/Consumer_spending https://en.wikipedia.org/wiki/Autonomous_consumption https://www.barclayscorporate.com/insights/industry-expertise/uk-consumer-spending-report/

SOCIAL FACTORS Social factors include the age distribution, population growth rate employment levels, income levels, education and career trends, religious beliefs, as well as cultural and social conventions. Tourism is a great way for cross-cultural exchanging of people from different cultures backgrounds and religious

beliefs, it has a positive impact in teaching people about a country history and magic hands-on and showing them the different customs and history. There is a revival to a country history and a sense of pride in their customs and traditions to show them off which is a major employer for the people in the countries in which TUI operates these countries are usually poorer such as Ecuador, Zimbabwe and Kenya to name a few of the underdeveloped/discovered countries they operate in which could be a good increase to their local economy through tourists wanting to find out about the local culture and history. This gives the respective countries a sense of national pride and cultural importance while supplying them with work and the ability to improve their family lives and support them, this in effect allows people find out more about their ancestry and their past while also able to afford a better quality of life and more work is available through the indirect effect of tourism. This has a positive effect on TUI as the more these countries are while TUI has support programs which educate young people and trains them to work in the tourism industry up to TUI standards and offering them a job which is beneficial to both the children their community as they become a productive member of their local society and TUI have a new specialized workforce which is up to their standards. However, the entry of migrants may ruin the artefacts and littering, human waste, theft, loitering and loss of culture may also occur as these new tourists come in they may cause a shift in the national landscape damage to artefacts and so forth, this is very damaging to the foundations of the local communities and culture furthermore the local communities may be influenced by the tourists, making the younger generation wanting to become more westernized. TUI airlines also need to meet the changing demands of consumers, the changing attitudes of consumer spending and their appetite for further distance travel have meant that they...