Porters Five Force Analysis-Gaurav Arya (07)

8/6/2019 Porters Five Force Analysis-Gaurav Arya (07)

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Analysis of Indian Travel Industry (i.e. Travel Agencies) using Porter Five

Force Model

Travel and Tourism current scenario

Indian tourism started to bounce back in 2010

With negative growth in the number of arrivals, low average daily room rates and reduced

occupancy levels, 2009 was one of the most challenging years for Indian travel and tourism. After

witnessing a tough 2009, from mid-2010, tourism in India started to recover, and recorded double-

digit growth in the number of tourists visiting India during 2010. Occupancy levels increased, and

consequently average daily room rates also increased. Improved consumer confidence, the

Commonwealth Games and attractive promotional packages by travel retailers added to the growth

in travel and tourism in the country.Increased promotion by the Ministry of Tourism helps with rapid recovery

Across the globe, whilst the majority of countries reduced their marketing spend during the

recession, the Indian Ministry of Tourism continued to aggressively promote India as an attractive

tourist destination through its Incredible India brand campaign and promotional programmes such

as Visit India. Both these campaigns contributed to the revival of international tourism in the

country in 2010. As a measure to attract more foreign tourists to India, particularly during the

sluggish economic conditions, in January 2010 the Indian government launched a scheme of Visa on

Arrival (VoA) for citizens of five countries (Finland, Japan, Luxembourg, New Zealand and Singapore)

visiting India for tourism purposes.

Infrastructure development remains the key priority

In order to develop tourism in the country, the Indian Ministry of Tourism keeps on formulating

different policies and programmes to extend its support to hotels, airlines and tour operators.

Infrastructure development, with a special focus on undeveloped or underdeveloped regions, is

foremost in the development list of the Ministry. The Ministry is taking a special interest in

promoting the north east region as Paradise Unexplored, both for domestic and international

tourists, and has allowed for infrastructure projects worth Rs5,400 million during the 11th five year

plan for the development of the region.

Escalated efforts to streamline civil aviation in the country

The Indian government is monitoring the aviation industry very closely, and recently took a number

of regulatory measures to improve the civil aviation industry in the country and increase consumer

confidence. Concerned about the steep rises in air fares at festive and holiday seasons, Civil Aviation

Minister Praful Patel issued a strict warning to the airlines, directing them to bring air fares toreasonable levels. In December 2010, the Directorate General of Civil Aviation (DGCA) also asked

airlines to post fare details on websites. It also issued a draft of a new rule which calls for airlines to

compensate passengers Rs2, 000-4,000 or the value of their ticket if a flight is delayed for more than

two hours or cancelled.



Indian tourism is riding high

Due to its strong monetary and fiscal policies the Indian economy is recovering quickly, and the

effect was visible in terms of strong growth witnessed by all forms of tourism in India in 2010. The

emerging middle-class, rising purchasing power and increased awareness will continue to ensure the

growth of tourism over the forecast period. The Ministry of Tourisms efforts to increase the influx of tourists to the country is likely to see positive results in the coming years. Its campaigns such as

Safe and Honourable Tourism will increase the image of India as a safe destination, and thereby

increase consumer confidence in choosing India for a holiday.

Porters Five Force Analysis: Travel Agency

Five Forces Analysis helps the marketer to contrast a competitive environment.

Five forces analysis looks at five key areas namely the

1. Threat of entry

2. Power of buyers

3. Power of suppliers

4. Threat of substitutes

5. Competitive rivalry



Threat to Entry

While entry and exit barriers are low, it is difficult to build scale because of lack of ready

distribution channels

Government regulation of direct FDI in retail restricts entry of foreign retailers

There is low level of proprietary travel knowledge and asset specificity. This makes it relatively

easier for new players to enter industry and does not provoke very aggressive rivalry from existing

players

Low minimum efficient level allow entry of small start-ups, however significant scale is necessary

to negotiate profitable deals

Due to a fragmented market , travel agencies do not have access to ready distribution channels

Online channel is growing at a rapid rate but is primarily selling air and rail

Power of Buyer

Buyers are fragmented, their diminishing brand loyalty and ability to switch (for most products) gives

them reasonable buying power.

Diverse retail buyer and corporate buyer profiles

Switching costs for buyers is not high as brand loyalty is low/diminishing

Credible threat of backward integration i.e. buyers can directly buy from suppliers (hotels, airlines

etc)

Luxury segment is brand conscious to and willing to pay a premium for great experience and

service quality

Power of Supplier

Suppliers usually sell commodity products. The ability to sell direct gives power to

suppliers like airlines; other suppliers are fragmented

Forward integration by suppliers like airlines selling directly Attempts by suppliers to sell packages and complex itineraries not very successful

While suppliers concentrated in some areas like domestic airlines, there is widespread

fragmentation in hotels, tour operators, car rentals etc.

There is no significant cost to switch suppliers

Travel agency cannot typically buyout suppliers like airlines



Threat of Substitutes

Low Threat of Substitutes as travel moves up the list of household priorities

India is witnessing a growth of discretionary spend as % of income from 30% in 2005 to around

70% by 2025. Travels, being a discretionary spend poised to gain.

Travel has moved up the list of household spending priorities. It is unlikely to be substituted by a

durable purchase or investments.

Education & Recreation will occupy 9% share of wallet in 2025 as compared to 5% now.

Travel Industry currently at $16 billion, is expected to touch $26 billion by 2010

Industry Rivalry

It is a highly fragmented industry with intense rivalry.

Fragmentation:-

Organized players would barely have 15-20% of the marketplace

Most of organized players are present in metros & mini-metros

Intense Rivalry:-

Rivalry Intense because of low switching costs, low levels of product differentiation,

perishability of products diversity of rivals

Rivalry is not cut throat since exit barriers are not high, fixed costs are not high, market

growth is good

Conclusion

Companies that thrive will not just meet travellers needs, but also please their tastes and

sensibilities and do it for less.

The explosion of product offerings and channels continues to erode profit margins and

fragment markets.

Strategy to serve this segment



T ravel Agencies must drive out costs and build efficiencies:-

Build on products that fit well with core competencies and create customer delight I mproving technology and sharing routine functions with other players Leveraging data to increase accuracy, build volume or purchase bulk inventory at discount

Porters Five Force Analysis-Gaurav Arya (07)

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