Nouvelle Frontiers

Nouvelles Frontieres, with over 40 years of experience, is the first French tour operator. Nouvelle Frontieres was created in 1967 by Jacques Maillot, then a college student, and four of his close friends. It was initially created as a student association that organized low price holidays and has since then, it has grown very rapidly to become the largest tour operator in France.

Nouvelle Frontiers has remained both a tour operator and a travel agent, since its inception. With the goal of being the cheapest tour operator in all travel categories, this company has a vastly diversified product range from budget holidays to luxury tours & trips. Nouvelle is presently the market leader in France with reported net profit of 23 million euros (of year 1999) & has considerable presence in countries like Spain, Italy & UK.

The company has undergone aggressive vertical integration into both airline and hotels and the issue of concern for the CEO,in the case, is how investors view this integration as the company is about to go public. The CEO is worried as to how the company should go public. Another issue that bothers Jacques Maillot is how the rapidly growing use of Internet in Europe will affect the travel industry as a whole.

PESTEL Analysis

Political
* Airline industry was deregulated in the US in early eighties and in Europe in early nineties. The deregulation still applied to flights within European Union

Economic
* The stabdard of living in Europe has increased and this has led to an increase in the development of the tourism industry & demand for air travel. This has benefitted Nouvelle Frontieres greatly.

Social

* Consumers preference varied from country to country. People of different nationalities & culture had different favourite holiday destinations to suit their tastes.

Technological
* Introduction & then rapidly growing use of internet offered a very good platform for Nouvelle Frontieres to offer its services through another channel. It helped Nouvelle increase its customer base.

Environmental
* Weather and climatic conditions of some destinations are favourable for tourism and some are not. The climatic conditions also the influence the choice of destination made by customers and hence effect travel rates & Nouvelle’s business.

Legal
* Due to increase in length of legal holidays( a minimum of four to five weeks in most countries), tourism & associated air travel greatly benefitted.

SWOT Analysis
Threats| Opportunities|
Airlines Low Cost companiesTravelling packages that comprise: flight ticket, hotel and other services.Travel Websites as govoyages.comThey propose to the customer to form his own travel by assembling a ticket flight and a hotel.The increase in the use of internetTerrorist threats| Advanced New technologiesNew technologies like smart phones and tablets can positively improve the use of the e-commerce. Government Support| Weaknesses| Strengths|

Unsteady demand The demand is dependent on major variables (meteorological conditions, geo-political environment etc) * Some destinations are attractive in some seasons while it isn’t on other seasons. | Exclusive & specialized distribution system. * Exclusivity of the products * Better understanding to consumer preferences.Offering the Lowest price in the market and still making money * Vertical Integration: Backward integration. Corsair & Paladien resorts * Competitive price setting system * NF is lowest price competitor in the market place.|

Strengths:
Exclusive and specialized distribution system.
One of the important strength of NF is having its own exclusive distribution system. NF products are sold exclusively in NF agencies. This make the company close to its customers and the market demand, and therefore it allow to the firm to better take into account, in developing its products, the up-to-the-minute trends and changes in consumer preferences. Offering the Lowest price in the market and still making money NF firm has a cost advantage over its competitors on the tour operating. Studies has shown that the cost of operating activity was 10% to 15% lower compared to small sized companies, and it was 2%to 5% lower compared to the major competitors. This lowest price is due to costs cuts when air transport and/or accommodation are acquired internally by either Corsair or Paladien. However, even if NF is offering the lowest price it still getting large profit margin in some cases and this is thanks to its good price setting system. This price system consists on adjusting the costs on the flight and the hotel to the market prices (which are usually high than the costs if it is procured internally) and therefore proposing lower price than the competitors while maintaining a large profit margin. Threats:

Airlines Low Cost companies
Airline low cost companies as EasyJet or Ryanair propose more and more complementary services as: accommodation in hotels, rental cars of other services that might meet the needs of the traveler, ensures his comfort and all this at lower prices too. Travel Websites as govoyages.com

Travel website that propose to the customer to choose and assembly his own travel ticket and hotel. The increase in the use of internet
The travel business is shifting to internet channel on which NF was a leading travel services companies in Europe. NF might lose this competitive advantage. Weaknesses:

Unsteady demand
The demand is dependent on major variables as meteorological conditions, geo-political environment, Some destinations are attractive in some seasons while it isn’t in other seasons.

Backward Integration
Nouvelles Frontiers moved into backward integration of the organisation by acquiring a controlling stake in the equity of Corsair(a small charter airline) and developing a chain of hotels and resorts by the name of ‘ Paladien’. The statistical data of the case indicates that the no of customers of Nouvelle frontiers increased from 500,000 in 1985 to 1,200,000 in 1990 of which almost 75% of the customers acquired Air transport services and 25% of other services. This shows that the customer base of the company increased by almost two folds in the late 80’s and by integrating into Air travel the organisation wanted to provide the best possible travel solution and the lowest possible price as the air travel cost embarked to nearly 50% of the total tour cost. By this the company also intended to save some extra cost which it had to incur by outsourcing the travel purchases from other Airlines at times when the requirements were high and could not be met by other operating airlines. Accommodation in the Paladien represented only a small portion of all tourist services sold by the company but by operating its own facilities made it possible for the company to better control the quality of services provided to the customers. By developing its own facilities the organisation had a benefit of offering a choice and a basis for comparison to the consumer while making any offer to them.

The organisation can benefit from the facilities owned in the near future and can turn the venture into a more profit making business which can be turned into a separate business altogether at later stages. The integration helped the company by making them independent from the other service providers by providing air travel and accommodation services to its customers by forming its own supply chain. This integration benefitted the organisation financially by making a profit of 2 million euros through the hotel & resort chain and 2 million euro from the Corsair acquisition. It would help the organisation in long term by providing exclusive services through the Air travels and Hotel chain. The integration has increased the domain of the company through which it can diversify in more lucrative areas. This will make the organisations upstream value chain more structured and efficient. It will be an overall addition in the value chain of Nouvelle frontiers as by having a well-structured upstream value chain the company has a well-established exclusive and specialised distribution network which has created a significant source of competitive advantage for the company. The organisation is saving the commission amount which its competitors have to pay to the travel agents which is about 10-12% which is a profit to Nouvelle Frontiers. The exclusive distribution network also provided the company with the first-hand information and changing customer preferences and new trends in the industry.

PORTER’S 5 FORCES MODEL

1. Threat of new entrants-
* Deregulation of air travel may increase the number of tour operators in Europe. * There are very few Barriers to entry. There is no restriction on the available resources (airlines, hotels, restraints, other travel services etc). This can increase the number of entrants of new competitors. * On the contrary, new entrants may hesitate to enter the market because of the existing competition. It is often seen that it is more profitable to run the travel operating business at a larger scale than at a medium or low scale. * With the emergence of online business a new set of competition arrived. Airlines, hotels and other service providers started doing on line booking which reduced the travel agents’ business.

2. Threat of Substitute Products-
* Potentially there are no threats of substitute products because people will increase their travel as their standard of living will increase. * Air travel may decrease for business purposes with technological improvements (like web conferencing which can be done at very low price and saves the travel time).

3. Bargaining Power of Suppliers-Suppliers of tour operators are airlines, hotels and other service providers. * Airlines industry is itself running in losses with vacant seats in various flights which reduce their bargaining power. They can enjoy some kind of bargaining power during Peak season when there is huge demand for seats. But that is only restricted for small operators who do not have their own airlines. * Accommodation which is a small proportion of total expense of the package has very less bargaining power in terms of price. Hotels can bargain in providing different types of services or rooms but that may effect their own business as many other hotels exist which can crack the deal with the tour operators.

4. Bargaining power of Customers-Consumers have very high bargaining power as there are lots of tour operators providing the services. The cost of shift for the consumer is very low. They can bargain not only for price but also for service enhancement at low cost. Customers have easy access to information on internet which make them more aware about the individual price of different services being provided by the tour operators. They can now easily make their own trip by looking for prices on the net.

5. Competitive rivalry within an industry-
* There was a huge rivalry among the competitors in the industry. Although high operating operators possess threat to each other. * Online industry also posed danger. * Various companies are providing innovative customer services which may
pose threat.

Conclusion
* The main threat in the industry is from the rivals only which needs to be handled very carefully by the business. * If we consider Nouvelles Frontieres, the main threat is from growing online business and big travel operators from rest of the world. They have to decide whether to keep online business as an integral part or to outsource it. They have to devlope different packages catering the needs of each group of travelers.

TECHNOLOGY AND INTERNET USAGE

Nouvelles Frontieres should consider Technology as an opportunity in the long run and should look to convert this opportunity into its strength by having the best of technology in its business. With the introduction of internet usage in the travel industry, to be able to survive in the market it is crucial to have technological edge over the others. With the rapidly growing market superior technology is very much essential. Nouvelles Frontieres needs to always remain on its toes when it comes to technology in order to achieve its long term goal of providing cheap holiday packages along with a new and different customer experience periodically.

Over the years internet usage has revolutionized the way business is being carried out throughout the world in all industries. Travel Industry is no exception to it and Nouvelles Frontieres was quick to react to this by starting to sell its services online as early as mid eighties by using the ‘Minitel’ system. Through Minitel sales increased but never accounted for more than 2%-3% of total sales. The problem now which Nouvelles Frontieres was facing was from the dot.com companies. Location, distance and logistics were now no longer an issue of concern for these companies because of which Nouvelles Frontieres was now not being able to make the most of its competitive advantage. Hotels, resorts and airlines could now sell their services to the customers directly anywhere in the world. Nouvelles Frontieres with the launch of their own website increased their sales overall majorly and these would grow year after year as the online industry is one of the most attractive one.

Nouvelles Frontieres was benefiting a lot by going online as they were able to tap a large percentage of first time customers. Overall the company was able to use internet to its advantage but one key issue of whether to put its online business public along with the company or separately was still not clear. With the acquisition of Degriftour, the leader in online travel sales in France, it would be advisable for Nouvelles Frontieres to not have its online business as a separate business. Although being one of the major travel companies in France it still possesses threat from other big giants present in the European market. Companies like T.U.I and Airtours must be interested in establishing their base in France and Nouvelles Frontieres could face danger from such companies. By keeping it an integral part of the company it is important for them to make it as promising and attractive so as to always remain in the eyes of the customers and provide the best of services. This can be achieved by getting into partnerships or outsourcing their online business to the IT companies and making their online business as easy to use and user friendly possible. The workforce team of their own agencies should be put through extensive training programs so as to provide the best of experience to the customers.