Posted: May 25th, 2022
Tourism and Hospitality Industries: Management
Integration of Travel and Hospitality Companies
Vertical integration has been a major trend in corporate business in profit-based and consumer-based industries over the past several decades, particularly as more specialized and dynamic good and services are being offered with wider global distribution. There have been many examples of vertical integration in the travel and hospitality industry within the past several decades, although due to the volatility of industries based upon consumer activity with disposable income during the recession since 2008, it is a somewhat risky maneuver, particularly in the acquisition of transportation companies.
The general principle of vertical integration, however, leads to greater profit margins as two or more related ventures are purchased by the same entity, thus lowering overhead and eliminating external expenditure. Vertical integration is particularly of benefit for the development of travel and hospitality packages that seek to offer savings to customers in order to bolster business.
Horizontal integration is also a relatively common form of hospitality and business management due the vast proliferation of related business ventures within the industry, such as hotel chains or airlines. Horizontal integration is the acquisition of a business entity by another business entity with similar functions, such as the purchase of a luxury hotel chain by another luxury hotel chain. One example of this is the when budget airline Go! was bought out by EasyJet airlines, another budget airline. When horizontal acquisition occurs, the brand images may or may not merge under the parent company, depending on what marketing projections indicate will be most beneficial. On some occasions, the brand being purchased may be financially less viable than the purchasing business entity but have stronger brand recognition, meaning that the company is purchased for its brand rather than its material resources or financial assets.
In 2007, Four Seasons, a luxury hotel group, was bought out for $3.37 billion dollars by a group of investors including Kingdom Hotels International owner Prince Alwaleed of Saudi Arabia and Bill Gates. The Four Seasons Group was a massve real estate holding with immense brand recognition, with 74 properties in 31 different countries and more than 20 other properties in development at the time of the acquisition. As mentioned previously, the recession of 2008 was a difficult time in the hospitality and tourism industry and Four Seasons suffered, having to conduct its first corporate layoff in its history. Despite these setbacks, the brand has continued to expand, particularly in China and Russia in the past three years.
There are multiple philosophical approaches to the proliferation of acquisitions in the hospitality and tourist industry. On the one hand, a reduction in the number of major property and service holders reduces competition and over time can increase the appearance of monopolization of services or good-providers. It is also believed, however, that the proliferation of larger industry conglomerates may being improving the quality of goods and services through standardization and the ability for increased revenues to be pumped back in the companies.
Vertical and horizontal integration within the tourism and hospitality industry also allow for the consolidation of branding, for example, the expansion of the Virgin Group brand into more hospitality and tourism industries. Virgin Airlines is one of the best-known aspects of Sir Richard Branson’s Virgin Group Brand, but there are also hotel properties and hospitality and tourist services such as Virgin Hot Air Balloon, thus expanding the business operation and brand image of the Virgin Group. This offers customers the perception of standardization of quality and experience. Vertical and horizontal integration in the hospitality and tourism industry present financial risk as well as potential financial and marketing benefits.
Hargrave, A. (2011)”The Ownership of Travel and Tourism Organisations: Takeovers” http://www.bized.co.uk/educators/1619/tourism/business/activity/ownership.htm
George Lafferty, Anthony van Fossen, Integrating the tourism industry: problems and strategies, Tourism Management, Volume 22, Issue 1, February 2001, Pages 11-19.
John Tribe, The competitive, technological, political and sociocultural environment, The Economics of Recreation, Leisure and Tourism (Fourth Edition), Butterworth-Heinemann, Oxford, 2011, Pages 173-204.
Ludwig Theuvsen, Vertical Integration in the European Package Tour Business, Annals of Tourism Research, Volume 31, Issue 2, April 2004, Pages 475-478.
Pascal Tremblay, The economic organization of tourism, Annals of Tourism Research, Volume 25, Issue 4, 15 October 1998, Pages 837-859.
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