The Current External Industry Environment for Travel Agency Business in New Zealand free essay sample

Porter’s 5 Forces identifies the competitiveness and a balance of powers among the travel agency business industry (Michael, 2008). The key factors stated above would help investors to have a better understanding about the travel agency businesses in New Zealand. Introduction New Zealand is a vacation paradise attracting a great many travellers from all over the world. Given this great advantage of natural resources, travel agencies are needed to help local and foreign travellers to book flight tickets, arrange accommodations and tours. As travel agencies usually offer discounts and good services to customers, travellers prefer to book tours through agents rather than on their own (TAANZ, 2011). There are many existing successful travel agencies in New Zealand such as Flight Centre, Star Travel, Harvey Travel World and so on. Investors can either choose to by an existing franchise of the travel agencies or establish own business. No matter which way the investors are following, understanding the key information about the external travel agency businesses environment is essential for investors before putting money in the market. Discussion How profitable is it? Being profitable is a key factor for a business to keep competitive advantage in the travel agency industry. Therefore, financial reports of a company or the whole industry are 2 The current external industry environment for travel agency business in new zealand the fundamental information for the investors. Travel Agent Association of New Zealand (2003) indicated the profitability in a financial report in which travel agencies in New Zealand have a total proceeds around $2. 5 billion per annual. With the boom of New Zealand tourism, the figures would increase significantly in the next few years (TAANZ, 2003). Take Flight Centre as an example, the company estimated the net profit for the year is about $212 million in 2008(Northern Territory News, 2008). To make a comparison, the annual income of Flight Centre in 2008 almost covered the whole industry’s gain in 2003. Obviously, the with a large demand of travellers from New Zealand and other countries, there was and would be a great increase in profit for travel agencies based on the statistical figures (Medcalf, 2005). Therefore, investors could expect to see a great inflow of capital if they invest money to the travel agency industry. However, every agency is selling holiday packages with a low profit margin and they need a large number of customers to gain profits in order to survive in the market (Oppermann, 1999). So retaining customer loyalty is essential to keep profitable for every travel agency (Oppermann, 1999). The Booming Market Marketing Strategies Another economic factor need to be considered is Marketing. In a recent report, TAANZ (2011) showed that the total number of New Zealand travellers in 1986 was about 0. 5 million and the figure rose up to approximately 2 million in 2011. Therefore, based on the fast development tendency, there will be a large demand in travel agencies in the future. From the perspectives of companies, each agency has its own marketing strategies. For example, House of Travel focuses more on building overseas market. Through the online travel booking system, the agency has expanded the market into other countries like Australia and the U. S. (Medcalf, 2005). Customers do not have to go to stores waiting for the advisors’ suggestions. They simply search travel plans online and compare the fares through the website (Medcalf, 2005), which saves significant time for customers and reduces cost to companies. However, Flight Centre planned to set more stores to build its Students Flights brand in New Zealand (Boyes, 2010). Compared to other agencies, Flight Centre offers cheaper deal for students in order to grab more market shares (Boyes, 2010). By paying more 3 The current external industry environment for travel agency business in new zealand efforts on a new market segmentation, agencies can make specific strategies for this special group of customers such as offering more travel plans to students during school holidays. According to a report from New Zealand Tourism Board (2010), there was a shift from Mass Market Approach to Micro Market Approach, which means agencies tend to engage with their targeting customers and reduce the wastage rather than advertise in the mass market. In terms of the travel destinations, North America, South America, Asia and Oceania are attracting more tourists over the last 10 years, in contrast, European countries seem to be less attractive to New Zealanders (New Zealand Tourism Board, 2010). Based on this change, travel agencies have started shifting their targeting regions to more popular countries such as the U. S. , China and Australia. Therefore, each travel agency is keeping up with the market’s needs to satisfy their customers. Knowing the market movements helps investors to make decisions about what customers they are targeting and in which market they could gain more profit. Make better use of the internet As one of the Technological factors, information communication is also important to travel agencies. Using alternative communication technology with suppliers and consumers can make the workings more efficient (Cheyne, Downes, Legg, 2006). From the customers’ perspectives, they are able to compare each travel plans on the website. With pictures or videos, the plans are more visual and specific. In addition, the survey (Cheyne et al. 2006) indicated that most customers are aware of the services through both travel agents and internet, which means agencies with stores and online booking website are more preferred by the travellers. As regard the companies’ development strategies, there is an increasing number of agencies paying much efforts on building their webpages, which offers traveller s much more convenience when collecting information (Cheyne et al. , 2006). For example, House of Travel has been aware of the future development of online flight and accommodation booking systems, so they start merging the traditional stores with internet (Medcalf, 2005). Medcalf (2005) showed that previously customers would like to gather information from the agency advisors, however, in such a competitive market, companies 4 The current external industry environment for travel agency business in new zealand are trying to reduce the cost while attracting more customers. Therefore, making better use of the internet is one way to achieve the goals of the agencies. Balance of powers among the travel agency business industry Having a comprehensive understanding of the travel agency industry’s competitive environment will help the investors to make better decisions. Using Porter’s 5 Forces, we can conclude the balance of powers among the industry. Buyer power among the industry is high as there are a lot of travel agencies can be selected by customers. According to Michael’s report (2008) the buyers’ usually make decisions based on the price and convenience (Michael, 2008). Thus, the buyers have a relatively strong bargaining power. The supplier power is low as a variety of suppliers are able to offer tours, accommodations and flights. Airlines such as Air New Zealand, Jets star and many other companies have a low bargaining power to travel agencies. The travel agency industry is booming in a profitable market which is attracting new competitors into the market. Nevertheless, the travel agency industry does not set high barriers to new entrants (Franchising Starting a travel agency, 2006). Starting up a new travel agency or buying a franchise are not required for many qualifications and limitations by governments or associations (Franchising Starting a travel agency, 2006). Therefore the low barriers to entry make the threat of new entrants high. The threat of substitute products and services is high. Instead of booking flights and accommodations through travel agencies, some travellers may choose to arrange everything on their own. In some cases, if people just want a fast trip around 2 or 3 days, they do not have to consult with travel agencies. So the travellers could easily substitute the ways of arranging their tours. In terms of the rivalry among existing competitors, there is a great diversity of competitors fighting fiercely to prevent themselves from losing the market shares in the industry. In the booming market, each company is trying to offer the best price and services to retain their customers (Franchising Starting a travel agency, 2006). Service is a key factor to differentiate itself from others and also help companies with keeping the competitive advantages (Franchising Starting a travel agency, 2006). Therefore, the rivalry among existing competitors is high. 5 The current external industry environment for travel agency business in new zealand Conclusions To sum up the report, we can draw conclusions to help investors with making decisions. With an increasing demand in travellers in New Zealand, travel agencies will be always needed to help customers to arrange good trips and the profit can be optimistic under good management. However, in such a fiercely competitive market, understanding the customer needs and keeping up with market movements are quite important to investors. Furthermore, using alternative technology such as internet booking system will reduce the cost and offer more comprehensive information to travellers. Finally, Porter’s 5 Forces analysis will give the investors a clear picture about the relationship with supplier, buyers and competitors. Bear in mind the knowledge of current external travel agency industry, the investors can make their decisions on either choose to establish their own business or buying a franchise of large chains of travel agencies. Word Count: 1,575 6 The current external industry environment for travel agency business in new zealand References Boyes, N. (2010). Travel agency sets up Student Flights brand in city. Waikato Times, 13. Retrieved from Australia/New Zealand Reference Centre. Cheyne, J. , Downes, M. , Legg, S. (2006). Travel agent vs internet: What influences travel consumer choices? Journal of Vacation Marketing, 12(1), 41-58. Retrieved from Business Source Premier Database. Flight Centre forecasts 40pc pre-tax profit increase. (2008). Northern Territory News, 027. Retrieved from Australia/New Zealand Reference Centre. Franchising Starting a travel agency. (2006). Retrieved from http://pinoyfranchising. blogspot. co. nz/2006/09/franchising-starting-travelagency. html Medcalf, G. (2005). Bums on Seats. NZ Marketing Magazine, 23(2), 14-16. Retrieved from Business Source Premier Database. Michael E, P. (2008). The Five Competitive Forces That Shape Strategy. Retrieved from http://hbr. org/2008/01/the-five-competitive-forces-that-shapestrategy/ar/1 New Zealand Tourism Board. (2010). Tourism New Zealand 3 Year Marketing Strategy. New Zealand. Oppermann, M. (1999). Databased marketing by travel agents. Journal of Travel Research, 37(3) , 231. Retrieved from Business Source Premier Database. Travel Agents Association of New Zealand. (2003). Comments to the New Zealand Commerce Commission on the proposed Air New Zealand/Qantas Alliance. Auckland. Travel Agents Association of New Zealand. (2011). Annual Report 2011. Auckland. 7 The current external industry environment for travel agency business in new zealand Research Annotations Research Annotation 1 – A source that I cited in your report Reference Using alternative communication technology with suppliers and consumers can make the workings more efficient (Cheyne, Downes, Legg, 2006) I found the source in Business Source Premier Database. Using the keywords â€Å"Travel agency† as the SU Subject Terms. â€Å"New Zealand† as the Geographic Terms. And â€Å"Profit† as the third key word. This article is useful for my report because it talks about the relationship between travel suppliers and consumers. Also points out the transformation from traditional travel agents to online booking agents. In addition, this article outlines a large demand in travel agencies in New Zealand, as discussed in the Discussion part in this report. Search Strategy Annotation Research Annotation 2 – A source that I cited in your report Reference However, every agency is selling holiday packages with a low profit margin and they need a large number of customers to gain profits in order to survive in the market (Oppermann, 1999). I found the source in Business Source Premier Database. Using the keywords â€Å"Travel agency† as the SU Subject Terms. â€Å"New Zealand† as the Geographic Terms. The article is useful for my report because it talks about travel agencies used data-driven strategies to keep customer loyalty. Also indicates how travel agencies promote the products and how to attract new customers, as discussed in the technology part in this report. Search Strategy Annotation Research Annotation 3 – An academic source that I did not use or cite in your report Reference Search Strategy Annotation For example, some agencies offer face-to-face consultation while some prefer calling to customers. I found the source in Business Source Premier Database. Using the keywords â€Å"Travel agency† as the SU Subject Terms. The article talks about different travel destinations offered by a wide range travel agencies. But I found that all agencies discussed in the article are in America rather than in New Zealand. To comply with the instructions of the report, we can only discuss the external business environment in New Zealand. Therefore, the source is not acceptable for this report.