Vertical Integration and the Effect on the Travel and Tourism Industry
Case Study: Vertical Integration and the Effect on the Travel and Tourism Industry
When two similar companies such as two hotels, are offering very similar products and are in a strong competing situation, integration is a popular move. It can be a voluntary decision by both companies or it can be the take-over of one company by another. Benefits include greater sales, which result in larger revenue and expansion opportunities. Complimentary reasons tend to be the realisation that one hotel offers something that the other hotel doesn’t and vice versa. If the two combined it would create one stronger hotel. The vertical in the supply structure represent examples of vertical integration. This the merging of two companies up or down the chain as opposed to across the same level of the chain. Moving down the chain is known as forward vertical integration. An example of this would be a tour operator buying a chain of travel agents.
Backward integration is moving up the chain. An example of backward integration would be a tour operator buying a principal, such as an airline. It is understood that as you go up the chain each level costs more to buy. This is why forward vertical integration is more commonly found because a travel agency would rarely have enough capital to buy a principal, which is at the top of the chain.
Company expansion is the major reason for this type of merging. A tour operator with its own airline will be much higher in the chain than a tour operator without its own airline. It is also thought that in the tourists eyes a company combining all aspects of the tourism experience will be of more use and more popular with tourists. This is because it would mean that a tourist could buy al the aspects of their holiday from the one company.
Some strong vertical integration has taken place in the travel and tourism industry since the 1970s. The largest travel groups such as Thomsons, Airtours (now known as MyTravel) and Thomas Cook own the
When two similar companies such as two hotels, are offering very similar products and are in a strong competing situation, integration is a popular move. It can be a voluntary decision by both companies or it can be the take-over of one company by another. Benefits include greater sales, which result in larger revenue and expansion opportunities. Complimentary reasons tend to be the realisation that one hotel offers something that the other hotel doesn’t and vice versa. If the two combined it would create one stronger hotel. The vertical in the supply structure represent examples of vertical integration. This the merging of two companies up or down the chain as opposed to across the same level of the chain. Moving down the chain is known as forward vertical integration. An example of this would be a tour operator buying a chain of travel agents.
Backward integration is moving up the chain. An example of backward integration would be a tour operator buying a principal, such as an airline. It is understood that as you go up the chain each level costs more to buy. This is why forward vertical integration is more commonly found because a travel agency would rarely have enough capital to buy a principal, which is at the top of the chain.
Company expansion is the major reason for this type of merging. A tour operator with its own airline will be much higher in the chain than a tour operator without its own airline. It is also thought that in the tourists eyes a company combining all aspects of the tourism experience will be of more use and more popular with tourists. This is because it would mean that a tourist could buy al the aspects of their holiday from the one company.
Some strong vertical integration has taken place in the travel and tourism industry since the 1970s. The largest travel groups such as Thomsons, Airtours (now known as MyTravel) and Thomas Cook own the