Thompson

1. Discuss the evolution of the industry and its perspectives of profitability.


The UK travel industry in 1998 was the second-largest market in Europe, with 20 million holidaymakers expected to spend £8.4 billion traveling abroad. Furthermore, the demand for foreign travel had grown steadily for the three last decades (appendix 1 and 2) even in years of economic downturn, and this stable growth was a reflection of a global trend. Therefore, tourism was emerging as the world’s largest industry[1].   These factors all put together made the UK travel industry one of the most appealing markets worldwide. Over the years, this characteristic attracted many new entrants to this industry and constantly brought new challenges to its players, as the devastating price wars and the wafer-thin profit margins.



Evolution of the Industry

In the 1970s, the leading operator Clarkson had decided to adopt a new business strategy, betting in volume and market share instead of focusing in profits and margins. The final decision was to reduce margins to £1 a tour. The market response was to follow the leader’s play, by cutting prices. By that time, Clarkson ant Thomson together had one third of the market and the three next players – Horizon, Cosmos and Global – had another third (appendix 3). However, this structure suffered a dramatic change due to the macroeconomic events that were taking place by that time: the first oil crisis; a Sterling devaluation; inflation; an outbreak of cholera in the Mediterranean; and a Middle East war. When putting together these events with the starting price war, the first consequence was that smaller operators started entering into bankruptcy. However, in 1973, the major operators in the market were also hit by the market crisis. Clarkson itself collapsed, followed by Horizon.

Clarkson and Horizon were later acquired for £1 each by Court Line, but it did not take much time until the latter entered into bankruptcy in 1974, “leaving over...