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The Ownership of Travel and Tourism Organisations: Takeovers - Activity

Sometimes very complex arrangements exist between business organisations in the travel and tourism industry. These come about because of changes in the ownership of different businesses in the sector. Let's look at some examples of these ownership changes:

Vertical integration:

Travel businesses may be large enough to be able to take over other smaller businesses that offer other travel products and services. For instance, if an airline was taken over by a tour operator, this would be an example of vertical integration; the tour operator would be looking to benefit from lower costs in allocating customers their air travel services.

This would mean that the tour operator should be able to make more profit from its overall business. The same tour operator might also take over a travel agency in order to find a more profitable way of selling its travel products and services.

The whole organisation would then be a vertically integrated travel business offering holiday packages to customers through its own retail outlets. The business should be able to control its costs more effectively and be able to communicate well with all parts of its travel operations. Problems may occur if the whole business becomes too large to operate efficiently.

If the different parts of the whole business were branded differently, say by giving each part a different name, this might be regarded as being unethical. Customers should have the right to know when there is a relationship between a tour operator and a travel agent. If not, they may believe they are getting a fair price for their holiday, when in fact the price is being kept artificially high because the operator and the agent are different parts of the same business.

Horizontal integration:

easyJet took over Go! in 2002.

Image: easyJet took over Go! in 2002 - an example of horizontal integration. Copyright: easyJet airline company limited

This is where a business offering one travel product takes over another that offers a very similar travel product or service. For example, when easyJet took over Go! in 2002, it was a case of one budget airline taking over another no-frills airline. Although the two companies became one, they could have retained their different brand names. In fact in this case, easyJet very quickly re-branded all of Go!'s planes with their own distinctive livery.

Tasks:

  1. A public-private partnership:

    'Hotel giants join £40m public-private plan to boost British tourism'(http://www.caterer-online.com/news/articledetail.asp?lSiteSectionID=3&lSectionID=1&articleID=41424) is a story that appeared in 'caterer-online.com' about a particular public-private partnership.

    Make a list of the organisations involved in the deal and identify examples of organisations in the following:
    • Public sector
    • Private sector
    • Trade associations

    What are the benefits of this partnership for
    • The private sector organisations?
    • The public sector?
    • The trade association?

  2. A company takeover

    The takeover of Travelbag by ebookers in 2003 was worth £55 million. This Guardian article ''Business as usual' for ebookers acquisitions'(http://travel.guardian.co.uk/saturdaysection/story/0,8922,881492,00.html) looks into some of the reasons for the takeover. Following the takeover, (but after the Guardian article was written), ebookers closed all of Travelbag's 9 retail outlets and moved its services online. This involved the loss of 200 jobs.

    Investigate the two companies involved and work out whether this was a case of a vertical or horizontal takeover.

    Bearing in mind the job losses and office closures that occurred after the takeover, what benefits do you think ebookers actually gained from the takeover?

  3. Ethics in travel and tourism

    The Campaign for Real Travel Agents exists to represent the interests of independent specialist travel agents and operators. Its Web site outlines the reasons why they feel the industry needs this kind of trade association. Have a look at its 'About Us' page(http://www.realholiday.co.uk/About_AITO_agents.asp) and make a list of the arguments it uses to justify its work. What arguments are there for travel and tourism customers to choose to use an independent travel agent rather than a multiple?