Marketing Review — Summer 2008 - (Page 55) 53 200514499-002/FRANK SCHWERE/GETTY IMAGES 53) Institutions are undergoing a bimodal distribution: the big get bigger, the small survive, and the mid-sized are squeezed out. Economies of scale enable the largest companies to win out over mid-sized competitors, while “boutique” operations can take advantage of niches too small to be efficiently tapped by larger firms. We see the result in a wide range of industries throughout the developed world. In agriculture, banking, auto manufacturing, telecommunications, and many other sectors, the largest firms have been buying up their mid-sized competitors or driving them out of business. At the same time, hundreds or thousands of tiny operators have arisen in each industry to get rich by serving markets beneath the notice of the giants. ASSESSMENT: Thanks in part to technology, this trend is likely to be a permanent feature of the business scene from now on. IMPLICATIONS: No company is too large to be a takeover target if it dominates a profitable market or has other features attractive to profit-hungry investors. No niche is too small to attract and support at least one or two boutique operations. Thus far, industries dominated by small, regional, often family-owned companies have been relatively exempt from the consolidation now transforming many other businesses. Takeovers are likely even in these industries in the next decade. This consolidation will extend increasingly to Internet-based businesses, where well-financed companies are trying to absorb or out-compete tiny online start-ups, much as they have done in the brick-and-mortar world. However, niche markets will continue to encourage the creation of new businesses. In Europe as of 2006, no fewer than forty-eight small, no-frills airlines in twenty-two countries had sprung up to capture about 28 percent of the Continental market share. Only fifteen offered more than fifty flights per day. IMPLICATIONS FOR HOSPITALITY AND TRAVEL: FI expects airlines to continue merging for as long as there are airlines available to do so. At the same time, small startup airlines are appearing almost constantly, taking advantage of routes other niche opportunities that their predecessors either have not recognized or did not consider sufficiently attractive. In the United States, Delta and Northwest should be the next major union, as soon as their respective pilots can work out seniority concerns. United and Continental are likely to follow soon after. In Europe, Easy Jet has just completed its acquisition of GB Airways and TUI Travel’s TUIFly is merging with Lufthansa’s Germanwings airline. Air France wants a piece of the merged Delta/Northwest giant, if U.S. regulators will allow the deal. We have long seen the same trend in the cruise industry. Royal Caribbean and P&O Princess joined forces in 2001. Four years later, diminutive Clipper Cruise Line announced its pending merger with Australia’s Peregrine Adventures. And last year, Royal Caribbean/Celebrity spun off the new, upscale Azamara Cruises to compete with Oceania Cruises. There will be more such examples in the future. Hotel chains have been merging constantly at least since Bowman-Biltmore bought United Hotels back in 1924. There is no sign the deal-making will stop in the near future. Given the weakness of the dollar, and of the American real estate market, we expect to see a wave of offers by European hospitality firms for their peers in the U.S. In this aspect, the restaurant industry parallels hotels almost exactly. Mergers and acquisitions, startup and failures, change the industry almost too fast to follow. This is truly a universal trend. The implication for travel is the same as for all these sectors: Large companies will continue to snap up mid-sized competitors or, by outcompeting them, drive them out of business. At the same time, new companies will prosper in niche markets. Some will remain small and highly profitable for their owners. Others will grow until they attract the attention of the giants. A very few may become giants themselves. Look for the fastest turnover in the online travel search and marketing operations, where niche startups abound. All segments of hospitality and travel have been in ferment for as long as we can remember. They will remain in ferment long into the future. SUMMER 2008 • 55 TRENDS FOR TRAVEL & HOSPITALITY 55
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