TNCs and global tourism

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On this page, we look at the role of TNCs in expanding international tourism destinations, including the costs and benefits of TNC involvement for different stakeholders.

  • Have you heard of any of these? The World’s Largest Travel Companies, 2016. Source: Travel Weekly, 2016.

Global travel companies

The world’s oldest travel company is Thomas Cook, which began in 1841 in England (Thomas Cook, 2018). Since then the concept of tourism as an activity for large numbers of people has grown and today’s travel companies can be very large. Many travel companies have grown into Transnational Companies, or TNCs. TNCs are companies that operate in more than one country.

Some of these companies are household names, such as Thomas Cook and Expedia, while other companies have several brand names all owned by one group. For example, Priceline Group owns booking.com, agoda, KAYAK, rentalcars.com and several other brands, with a gross worldwide income of over US$60 billion (Priceline Group, 2018).

How have TNCs affected international tourism?

TNCs such as Expedia and Priceline have affected international tourism by making it cheaper, simpler and more accessible.

Cheaper travel

International travel is cheaper partly because TNCs have an economy of scale. This means that as they become larger, they can save money. This can happen, for example, by having the same website to deal with several different countries and simply changing the language that appears on the screen. For example, Skyscanner enables over 60 million customers to view identical information in over thirty languages each month (Skyscanner, 2018), but it is the same website that is being accessed regardless of the country the person is in. Skyscanner further benefits from being based in China with offices in just ten cities: Barcelona, Beijing, Budapest, Edinburgh, Glasgow, London, Miami, Shenzhen, Singapore and Sofia (Skyscanner, 2018). This saves money because the TNC doesn’t need to have offices in every country it operates in.

TNCs also deliver cheaper costs to the consumer because they encourage competition. Through price-checking sites (such as Skyscanner, Kayak, Agoda, Booking.com and so on), people can easily compare the prices for flights and hotels.

Simpler travel

TNCs have also made it simpler to be a tourist by offering package holidays. For example, Thomas Cook offers full package tours that include everything from the point of the airport departure all the way to the destination and back. By operating the travel agency in the country of origin, as well as the airlines and hotels in the destination, the difficulty of travelling is removed. The customer doesn’t need to speak the local language, or even convert money before arriving, because the travel company does everything for them.

Even if tourists do prefer to book their flights, accommodation and so on separately, the tourist can still have an easier experience by using a TNC for part of the booking. Groups such as Exodus and Intrepid are organisations that offer ‘local’ tours in different countries. These tours are sometimes offered as a package, but sometimes the tourist is still expected to purchase meals, drinks and excursions separately. However, the company offers the ‘bare bones’ of the tour (accommodation and transport) for the tourist. The tourist will have a similar experience regardless of the country they are in – from Cambodia to Canada – because the travel company offers tours in these different countries that operate to the same international standards.

More accessible travel

Travel is also more accessible thanks to TNCs. By definition, international airlines are TNCs and they are constantly expanding. New and larger airports are being developed in most countries. International airlines are helping this process by moving to smaller ‘hub’ airports.

Historically larger airports, such as Heathrow in London and Chek Lap Kok in Hong Kong, were preferred by airlines because they offered passengers the ability to switch flights and thereby access more destinations. However, as the number of travellers has increased, it has become economical to operate from smaller airports with fewer destinations. Ryanair and Easyjet in Europe have been joined by airlines in other parts of the world such as Air Asia. These TNCs operate a simple flight schedule at low cost, often to and from small airports that mean it is easier for people to travel regardless of where they live.

Horizontal versus vertical tourism integration

A major factor affecting TNCs in the travel industry is the nature of integration. This can be split into vertical integration and horizontal integration.

Vertical integration means that the same company owns each stage of the tourism. This would include the travel agent, the airline, the coach company (transferring tourists from the airport to the hotel), the hotel, and the tour guides. For many years, it was easier to make a profit by offering the full package tour because a small profit at each of these levels meant a larger profit at the end.

Horizontal integration means that a company owns several companies offering the same level of the tourism. For example, airlines are frequently owned by airline groups. The International Airlines Group owns Aer Lingus, British Airways, Iberia and Vueling airlines (IAG, 2018). This allows them to make a profit by combining parts of each business. For example, when purchasing new aeroplanes, they can negotiate a bigger discount by buying more planes at once.

Industry consolidation

Industry consolidation has occurred at both the vertical and horizontal levels. Many brands in travel – including airlines, hotel chains, travel agencies and so on – are actually owned and operated by the same parent company that most people have never heard of. For example, The Travel Corporation owns thirty tourism brands (Golan, 2016). Many of these TNCs are involved in buying their competitors to form larger travel companies. This is known as ‘industry consolidation’.

This has made it cheaper for tourists to travel. As a result of the lower costs, tourists now travel further, more frequently, and for longer. They have more confidence in travel because they trust the brands that offer a standardised service. Furthermore, large TNCs can divert more money to good causes, such as the The TreadRight Foundation which is supported by The Travel Corporation and has projects in over thirty countries (TreadRight, 2018).

However, critics argue that just a few companies control most of the branded travel opportunities, and that this can stifle competition. It can also mean that the TNCs are very powerful because they are in control of so much tourism, and this allows them to demand lower costs from their suppliers which harms local economies.

Costs and benefits of TNC involvement for different stakeholders

A stakeholder refers to a person with an interest in something. In this case, it means a person (or group of people) who are affected by TNCs in tourism.

Stakeholder

Possible costs of TNC involvement

Possible benefits of TNC involvement

Tourist

Lack of choice due to consolidation

Prices may be higher because of a lack of competition between TNCs

Lower prices due to economies of scale

Confidence in brands

Similar experience regardless of location

Can speak their own language when on holiday

Tourism employee at destination

Can be offered little choice of job opportunities as TNCs are the only employer

Vulnerability: a decision to reduce investment can leave local people without work at short notice

Leakage: much of the money spent by the tourist does not make its way to the destination but is instead repatriated back to the home country of the TNC

Job opportunities

Possible training e.g. language skills

International standards in terms of contracts (e.g. paid leave, fixed hours)

Local person (not employed in tourism) at destination

Loss of political power compared to the TNC due to the need to attract TNC investment

Loss of local culture due to foreign influences in language, food, architecture

TNC investment can create cumulative causation (e.g. investment in local airport stimulates overall economy)

People interested in development and environmental issues

More people travelling further and for longer means more environmental damage e.g. carbon emissions from flights

TNCs are brand image conscious and often have sustainability policies and support charities (Thomas Cook, 2018b.)


Sources

Golan, 2016. Meet The Biggest Travel Company You’ve Never Heard Of. https://www.forbes.com/sites/douggollan/2016/10/14/meet-the-biggest-travel-company-youve-never-heard-of/#725f47284de7 Accessed 15 January 2018.

IAG [International Airlines Group], 2018. Aviation Links. http://www.iairgroup.com/phoenix.zhtml?c=240949&p=aboutlinks Accessed 15 January 2018.

Priceline, 2018. No title. https://www.pricelinegroup.com/about/ Accessed 15 January 2018.

Skyscanner, 2018. Discover Skyscanner. https://www.skyscanner.net/aboutskyscanner.aspx Accessed 15 January 2018.

Thomas Cook, 2018. Thomas Cook History. https://www.thomascook.com/thomas-cook-history/ Accessed 15 January 2018.

Thomas Cook, 2018b. The Travel Foundation. https://www.thomascook.com/sustainable-tourism/the-travel-foundation/ Accessed 15 January 2018.

Travel Weekly, 2016. http://www.travelweekly.com/PowerList2016 Accessed 15 January 2018. [See also Chipkin, H. 2016. Power List 2016: Introduction. http://www.travelweekly.com/PowerList2016/Introduction Accessed 15 January 2018.]

TreadRight, 2016. No title. https://www.treadright.org/ Accessed 15 January 2018.


TNCs and global tourism: Learning activities

Questions

  1. What is a TNC? [1]
  2. Name three TNCs that are travel companies. [3]
  3. Explain why TNCs can offer cheaper tourism opportunities. [2]
  4. What is meant by ‘economy of scale’? [2]
  5. Distinguish between horizontal integration and vertical integration in the travel industry. [2]
  6. “TNCs have a positive impact on tourism.” With reference to different stakeholders, discuss this statement. [10]

Other tasks

Plan a holiday for yourself and your friends or family. Identify:

  • The names of the TNCs that you will use
  • Whether the TNCs are horizontally or vertically integrated, and what links they have to other travel companies

Suggest whether the inclusion of TNCs in your travel plans has a positive impact on you and other stakeholders.

Going further

Look at the following sites to get much more in-depth information in this issue.

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