A Long-haul Destination:

European Management Journal Vol. 24, No. 6, pp. 381–395, 2006 Ó 2006 Elsevier Ltd. All rights reserved. 0263-2373 $32.00

doi:10.1016/j.emj.2006.07.001

A Long-haul Destination: Sustainability Reporting Among Tour Operators JEROEN VAN WIJK, Rotterdam School of Management, Erasmus University WINIFRED PERSOON, Rotterdam School of Management, Erasmus University Tour operators are the main players in the tourism industry and can use their market power to improve sustainability in the tourism sector. This study analyses the sustainability reporting of 42 internationally operating tour operators. It is concluded that, in comparison to other industry sectors, tour operators perform weak at best. Considerable differences in reporting behaviour were detected within the sector. Large tour operators report far better than medium-sized and small firms, and traditional tour operators report better than their online competitors. Little difference was detected in reporting between UK, German and Dutch tour operators. Ó 2006 Elsevier Ltd. All rights reserved. Keywords: Tour operator, Tourism industry, CSR, Sustainability reporting, Implementation likelihood, Pro poor tourism

Introduction The tourism sector is growing significantly, judging from the continuous annual increase in international arrivals to nearly 800 million in 2005 (WTO, 2005a). Growth in travel is particularly high in developing countries accounting for around forty per cent of all international arrivals. This development is thought to affect the economy positively, not at least because tourism is a job machine, generating a great number of new jobs worldwide. The sector is therefore identified by the United Nations as a means in ‘the war on poverty’. UNCTAD and the World Tourism Organization have initiated a Sustainable Tourism for Elimination of Poverty (ST-EP) programme,

and tourism has been given a key role in the overall achievement of the Millennium Development Goals by 2015 (WTO, 2005b). The downside of the tourist sector is that its operations are often not very sustainable, neither environmentally or economically. Tourism development contributes to the depletion of natural resources, such as water or wood, causes multiple forms of pollution, and may have a deep physical impact. For example, the high number of visitors is presently the largest threat of mountain communities and environments. Tourists deplete local forests, trample fragile vegetation and strew litter. The ‘Coca Cola trail’ in Nepal is a notorious example (Cavlek, 2002; UNEP, 2005). Tourism may also not be the money earner that it is supposed to be. On average half a tourist’s money spent in developing country destinations leaks away because goods, services and staff are imported. In small economies, such as island states, this figure may be up to over 90 per cent (Mowforth and Munt, 2003: 175). Mass tourism development gives rise to upward pressure of prices for consumer goods, land and housing, and may take a disproportionate part of public budgets for the building of physical infrastructure, such as roads, airports, and harbours (Mak, 2004). Tourism may also affect the local way of living. Destinations that are swamped by hordes of tourists suffer from congestion, and accommodation and infrastructure often do not fit the local landscape (Cavlek, 2002). Whether the tourism sector becomes more sustainable depends to a large extent on the tour operators, which are main players in the industry. Tour

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operators connect suppliers in the tourism value chain by assembling various elements of a holiday trip into one package that is sold to the consumer. On the one hand, the tour operator serves as the sales office of individual tourism service suppliers. It has the knowledge of market trends, provides front-end and promotion budgets, and accepts a part of the risk of primary suppliers. The latter is particularly essential for suppliers as tourism is a perishable product (Bastakis et al., 2004). Tour operators can lever their potential for the implementation of improvements upstream in the production chain because suppliers often have no alternative marketing or distribution channels (Buhalis, 2000; Bastakis et al., 2004; Klemm and Martı´n-Quiro´s, 1996; Carey et al., 1997). On the other hand, as an intermediary, tour operators can influence the consumer’s choice of destination and accommodation (Bastakis et al., 2004) as well as the perceived image and experience of the destination (Carey et al., 1997). Because operators buy tourism products in bulk, they benefit from scale economies and can offer whole packages at prices that are usually lower than consumers could negotiate individually. Apart from reducing transaction costs, tour operators bring convenience and familiarity through their local presence at the destination. Even though sustainable tourism depends on the strategies of both tour operators and destinations, the level of influence on the demand is far greater from mass tour operators than from the destination’s own marketing (Carey et al., 1997). Their central position in the tourism value chain provides tour operators with power and bargaining dominance over individual suppliers at the destination (Buhalis, 2000; Bastakis et al., 2004; Carey et al., 1997; Klemm and Martı´n-Quiro´s, 1996). This also puts them in the spot light as it comes to improving the sustainability of the sector at large. It is the tour operator that can choose the suppliers who seriously try to recycle their ecological and social impact, while enhancing the economic multiplier effect. However, little data is available on whether and to what extent tour operators are involved in efforts to improve sustainability of their sector. This paper addresses this gap in knowledge by exploring sustainability reporting of tour operators. Reporting may be perceived as mere PR and window dressing, but it is also an indication of the corporate response to societal expectations (Van Tulder with van der Zwart, 2005). Reporting may even be a measure for performance if verifiable performance indicators are included that increase the ‘‘implementation likelihood’’ of the good corporate intentions (Kolk, 2004). We explore the sustainability policies in annual reports and websites of a sample of 42 international tour operators. The research focus is on three questions: (a) In what manners do tour operators report 382

about their sustainability policies? (b) To what extent does the sustainability reporting by the tour operating industry differ from that in other industry sectors? (c) To what extent do company size, nationality and business model influence sustainability reporting of tour operators? This paper is organized as follows. First we review the literature of tour operators’ sustainability efforts. Then we move on to the research framework and methodology. We subsequently present and analyse the results of our study, and conclude with a discussion of the results.

Sustainability and the Tour Operating Industry Like firms in other industry sectors, tour operators have to cope with an increasing public interest in corporate social responsibility (CSR) issues. CSR refers to the private firm’s responsibility for sustainability of the financial, environmental and social dimensions of the firm. The Tour Operators Initiative (TOI, 2002) speaks of ‘sustainability’ instead of ‘CSR’ and we follow this language when we address the tour operators’ reporting in this paper. The meaning of both terms is essentially similar, however. Until recently, sustainability issues in tourism were thought to be the responsibility of destinations. Local norms and regulations were to determine, for instance, environmental and labour standards. While the local authorities continue to be in charge in guarding their destination’s sustainability, tour operators have proven to be key stakeholders as well (Carey et al., 1997). Due to concentration in the tour operating industry and growing consumer power over the past decade, tourism has evolved into a demand-driven industry sector with tour operators playing a key role. The public pressure on tour operators to act more responsible and to push for more sustainable tourism is ambiguous, however. On the one hand, various non-profit initiatives have emerged that address the need for sustainable tourism products that are environmentally friendly and contribute to solving severe poverty problems in the developing world. 1 On the other hand, a clear market demand for more sustainable tourist products is, as yet, absent (Budeanu, 2000; Forsyth, 1997). Tourists tend to shop around for the lowest possible price; consumer loyalty is not often seen in the tour operating industry (Miller, 2001). The Dutch tour operator Holland International (part of TUI) stopped offering sustainable tourism packages because of a lack of demand (CBI, 2003). The tough market conditions of the tourism business are also not helpful in achieving more sustainability. The first years of the 21th century showed a strong pressure on prices due to the worldwide fall in traveling, resulting in overcapacity (CBI, 2003), and

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reduced profit margins of tour operators to 2–3 per cent (Van Marwijk and Van der Duim, 2004). The likelihood of sincere sustainability engagement among tour operators is therefore low. Empirical research on sustainability policies of tour operators is scarce and limited to European situations. One study reports of negative tour operator images among tourism service suppliers in the Eastern Mediterranean (Bastakis et al., 2004). The tour operators would not be willing to cooperate, were preoccupied with prices, and acted in an impersonal manner in their relations with suppliers. Contractors employed by tour operators were mostly young people with limited experience and training, and being paid low wages, and who reportedly had little knowledge of the destination’s economic, environmental and social backgrounds. In another study, hoteliers on the Greek island of Corfu were found to be very critical of tour operators. Their complaint concerned the one-sided legal coverage of contracts, bankruptcy of tour operators, misleading and misdirecting of tourists to competing accommodations, payment delays, requests for high quality services without compensation, and the late release of unwanted allocation and allocation upon arrival (Buhalis, 2000). Other studies report that tour operators themselves tend to put responsibility for the effects of tourism with the host destination authorities (Forsyth, 1997; Budeanu, 2000), or mention the tough competition in the tourism sector as a hindrance to sustainability-enhancing measures (Hoogeslag, 2000). Firms may also feel powerless to change the situation at a destination level (Forsyth, 1997; Miller, 2001). Especially small tour operators indicate they lack the means to enforce sustainable measures with suppliers (Hoogeslag, 2000). A few studies that focus specifically on tour operators’ sustainability performance in relation to internal operations and customers offer a somewhat more positive picture. Holden and Kealy (1996) and Forsyth (1997) studied respectively 39 UK specialist and 36 UK general tour operators. They found that the operators did have policies for the recycling of brochures, for providing customers with information leaflets, for training of staff and guides and for performing beach-cleaning activities. Moreover, the specialised tour operators perceived themselves as sustainable or very sustainable firms. Tepelus (2004) and Budeanu (2000) also report of European tour operators that inform consumers on sustainability issues, sponsor local projects and collaborate with non-governmental organizations (NGO’s). However, Holden and Kealy (1996) found only half the tour operators actually attempted to monitor progress of implemented measures. Furthermore, few tour operators had adopted an Environmental Management System (EMS) approach, hardly ever accompanied with ISO 14001 certification (Tepelus, 2004). Hence, the EMS is used as an informal internal instru-

ment rather than a strong, externally certified, environmental measure. Another study, involving Dutch tour operators, reported only ‘‘soft’’ environmental measures in response to a Product Environmental Planning (PMZ) programme, which is compulsory for members of the Dutch tour operator association ANVR (Van Marwijk and Van der Duim, 2004).

Initiatives to Enhance Sustainability Performance Governmental regulations stimulating the private sector to improve its social responsible behaviour hardly exist. In Europe, the steering opportunities for the European Commission are restricted by the principle of subsidiarity in the Maastricht Treaty. The Tourism Unit, an agency under the DG Enterprises of the EC, is therefore merely an advisory body without authority in designing and implementing regulation (EU, 2004). The only specific EU regulation on tourism is the EU ‘travel package’ directive 90/314/EEC, adopted in 1990 to protect consumers against misleading information, changing prices, bankruptcy of the tour operator and other conditions. Moreover, the EC Commission is reluctant to design compulsory CSR regulation, and promotes the voluntary adoption of CSR practices by firms instead (Minder et al., 2006). Tourism policies within the European Union are consequently very local in character with little, if any, regulation on sustainable behavior of outbound tour operators. In the UK, Germany and the Netherlands, regulation concerning international travel or tour operators is minimal and mainly addressing the protection of consumers. Few international initiatives to improve sustainability of the tourism sector have been initiated by non-governmental organizations and tour operators (Exhibit 1). The most prominent is the Tour Operators’ Initiative (TOI), which encourages individual companies to improve and report on its sustainability activities (TOI, 2002). Membership of the TOI requires a tour operator to implement a corporate policy for sustainable tourism development, to communicate regularly on results and progress, and to sign and adopt the Code of Conduct for the Protection of Children from Sexual Exploitation in Travel and Tourism (ECPAT). The TOI has a Memorandum of Understanding with the Global Reporting Initiative (GRI) in respect of the ‘‘Tour Operator’s Sector Supplement’’ for sustainability reporting.

Research Framework To get a better insight in the sustainability reporting of tour operators, our research includes four angles: (a) firm size, (b) industry sector characteristics, (c) nationality of the firm, and (d) the firm’s business model.

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384

Requirements easy to meet; weak auditing possibilities Firms must appoint an environmental coordinator; publish environmental policy and set up environmental programme Compulsory sustainable tourism programme for ANVR members ANVR tour operators

Focus on information sharing, little external monitoring and verification Strong partners; minimum requirements for members; regular communication required Partners: UNEP, UNESCO, WTO, GRI Platform for tour operators on sustainable tourism Tour operators

In view of sustainable tourism this code has a rather narrow focus Strong and broad requirements; internal and external monitoring An ECPAT project funded by UNICEF and the WTO Tourism service suppliers, mainly tour operators

Confusing logo’s; low coverage in Europe Based on Agenda 21; Internationally recognized; strives for continuous improvement of members; external auditing Institutions involved: WTTC, national tourism associations, NGO’s, universities Various tourism businesses, including tour operators

Disadvantages Advantages Remarks Targeting

(a) Firm Size Previous research has pointed to the influence of firm size on CSR policy and reporting. Brammer and Pavelin (2004: 709) found a general tendency for larger firms to be more socially responsive than smaller firms. Larger firms would be more susceptible to public scrutiny because they have more and larger stakeholder groups, and their higher visibility makes them commercially vulnerable to adverse reactions. Due to their market power, the large corporate size may become a controversial issue in itself as well. Hence, the first hypothesis in this study is that larger tour operators publish more and better on sustainability issues than their smaller competitors.

(b) Industry-sector Characteristics Empirical evidence has indicated that industry-sector characteristics impact reporting behaviour of companies, resulting in some sectors reporting more and better than others (Kolk et al., 2001; KPMG, 2005). Sectoral differences may be explained by individual firm strategies of scrutinizing and copying the behaviour of competitors, and by sector-floral initiatives that encourage sector-wide harmonization of corporate governance. A relationship has also been suggested between the direct environmental impact of a sector and the degree of environmental reporting. Firms that create significant environmental externalities typically face strong scrutiny from local communities, regulators, and environmental NGOs, which expect such organizations to reduce such impacts. The higher effort in reporting is thus related to the expected reputation damage of the sector (Brammer and Pavelin, 2004; Kolk et al., 2001; KPMG, 2005). As mentioned above, the tour operator sector is highly competitive with low profit margins, and with little interest in sustainable tourism products on the part of customers. This holds tour operators back from implementing more sustainable measures within their organization. It is therefore hypothesized that, compared to other industry sectors, the tour operating business is likely to perform less well in sustainability reporting.

Source: Persoon 2005.

PMZ (Dutch compulsory certification scheme)

TOI (Global platform for tour operators on sustainable tourism)

The Code (Global code of conduct on child sex tourism)

GreenGlobe 21 (Global accreditation scheme)

(c) Nationality

Name

Exhibit 1

International Industry Initiatives For Sustainable Tourism

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Multinational firms remain products of their home societies as markets, domestic structures and economic ideology of the home economy continue to affect organizational and strategic characteristics of firms (Gilpin, 2001, p. 279; van Tulder and van der Zwart, 2005, p. 261). Empirical research showed that the home country of a company influenced CSR reporting of the 250 Fortune Global firms (Kolk et al., 2001). Firms from Japan, Germany, the UK and the Netherlands published more than average on environmental matters compared to firms from the USA and France that published less than average.

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These differences were attributed to public interest in social and environmental issues in the home market. In the UK, societal pressures to report on social issues is relative high, while in Germany and the Netherlands environmental reporting seems to be more important (Kolk et al., 2001: 19). These findings lead to the third hypothesis that the home country of tour operators influences the depth and content of sustainability reporting. (d) Business Model New players in the tourism industry have increasingly challenged the business model of the traditional tour operators. Internet-based travel firms, such as Expedia.com, Lastminute.com, and Travelocity.com, sell directly to customers at low prices. Rather than standardized, all-inclusive packages, they offer flexible tour arrangements that are tailored by consumers themselves. New dynamic packaging software enables online booking that let travelers build their own vacation by dynamically mixingand-matching the purchase of airline tickets, hotel rooms and rental cars into one bundled price. In the UK, 50 per cent of holidaymakers are expected to book their arrangement through the Internet over the next two years (Garrahan, 2005). The business model of the new firms, with the focus on automatic packaging and low prices, may influence the priority that these firms give to sustainable relationships with their consumers and suppliers. Hence, the final hypothesis in this study is that the new web-based tour operators perform less well in sustainability reporting than their traditional competitors.

Methodology We have selected a sample of in total 42 tour operators, consisting of 5 sub-samples, including the global largest ten tour operators, the global eight largest online tour operators, and the ten largest firms in three European countries: Germany, the UK and the Netherlands (Table 1). A firm was defined as a tour operator when at least half of its revenues came from selling holiday packages. Online tour operators were defined as companies that assemble travel/holiday packages for sale to customers online as their core business activity. The location country of the company head quarters defined the nationality of the firms. Six companies are included in more than one sub-sample, and only eight firms with significant sales met our definition of online tour operator, therefore the total number of firms in the sample is 42. The rankings are based on the 2004 sales or the number of employees in those few cases where sales figures could not be retrieved. Data on sales and nationality was collected through corporate websites and several online industry databases, such as Thomson One Banker, Thomson Research, and Hoovers

Database. In addition we used the databases of three national travel business associations: the Association of British Travel Agents (ABTA), the Deutsche Reisebu¨ro- und Reiseveranstalter-Verband (DRV), and the Algemeen Nederlands Verbond van Reisondernemingen (ANVR). The research involved a content analysis of corporate annual reports, explicit sustainability reports, and websites of the total sample of tour operators. Our analysis framework is based on that of Kolk and van Tulder (2002) and Kolk (2004) who developed a model to analyse the implementation likelihood of CSR reports. ‘‘Implementation likelihood’’ is developed out of the notion of ‘‘compliance likelihood’’ to explore the chance that words reflect actual performance. The inclusion of detailed performance indicators, time frames and external verification opportunities are thought to increase the implementation likelihood of sustainable policies (Kolk, 2004). The Kolk & van Tulder framework was later elaborated by Persoon (2005) who used the Tour Operators Initiative’s Sustainability Reporting Guidelines (TOI, 2002) to make the framework fit the tour operator’s business. The eventual analysis model is summarized in Table 2, together with the aggregated results of the analysis. To explore our hypotheses we have proceeded as follows. (a) As regards firm size, we subdivided the total sample into three categories: large firms with sales of over US$1.5b. (N = 11); medium-sized firms with sales between US$0.5–1.5b (N = 9); and small firms with sales below US$0.5b (N = 17). Five firms were eliminated because of lacking sales figures. (b) To compare sustainability reporting in the tour operator sector with other industry sectors we used a recent international survey of corporate responsibility (CR) reporting by KPMG (2005). This survey includes the top 250 companies from the Fortune 500 list as well as the top 100 companies from 16 countries, and ranks the CR reporting by industry sector. The KPMG report does not single out the tourism business. In view of the expected influence of firm size on sustainability reporting, we have limited the comparison to the global largest tour operators (N = 10). Since only a few of them publish explicit sustainability reports, our analysis was extended to annual reports and corporate websites. One tour operator is also included in the G250, but the effect of this bias is negligible. (c) The influence of nationality was analyzed through a comparison of three equal samples of firms from three different countries in the sample: Germany, the UK and the Netherlands (N = 30). (d) To analyze the influence of business model, we compared the set of online tour operators (N = 8) with all other firms in the sample (N = 34).

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Table 1

Ranking Tour Operators (2004 sales, in USD billion) Global 10 Tour Operators

Company 1 2 3 4 5 6 7 8 9 10

Sales US$b

Tui Thomas Cook MyTravel Group Rewe Toeristik First Choice Grupo Iberostar Expedia.com/Inc. Kuoni Travel Holding. Club Mediterranee Transat A.T.

15.7 8.9 5.7 5.0 4.2 2.8 2.5a 2.4 1.9 1.8

German 10 Tour Operators

1 2 3 4 5 6 7 8 9 10

Company

Sales

Tui AG Thomas Cook Rewe Alltours ¨ ger group O FTI Touristik Aida Tours Studiosus Schumann Reisen Lernidee

15.7 8.9 5.0 1.2 0.8 0.7 0.4 0.2 0.04 n.a.f

Global 8 Online Tour Operators Home

Company

Germany Germany United Germany United Spain United States Switzerland France Canada

1 2 3 4 5 6 7 8 9 10

Expedia.com/Inc. Cendant Priceline.com Sabre Holdings Opodo.com Ctrip.com Elong.com Travel24.com

Dutch 10 Tour Operators (in €)

1 2 3 4 5 6 7 8 9 10

Sales US$b

Company

Sales

OAD Reizen B.V. De Jong Intra Vakanties B.V. Sudtours Reisorganisatie B.V. E.R. Travel Group Aerofun Travel B.V. SNP Natuurreizen B.V. Peter Langhout Reizen B.V. Sunair Vakanties B.V. Wereldcontact Reizen B.V. Gogo Tours B.V.

0.6 0.08 n.a.f 0.06 0.04f 0.03 n.a.f 0.02 n.a.f n.a.f

a

2.5 1.78b 0.9 0.83c 0.05 0.04d 0.02 0.003

Home United States United States United States United States United Kingdom China China Germany

UK 10 Tour Operators

1 2 3 4 5 6 7 8 9 10

Company

Sales

Mytravel Group PLC First Choice PLC Trailfinders LTD Virgin Holidays LTD Holidaybreak PLC The Really Great Holiday PLC Shearings Holidays LTD Cosmos Holidays PLC Kosmar Holidays PLC Gold Medal Travel Group PLC

5.7 4.2 0.8e 0.8 0.5 0.2 0.2g 0.2 0.1 0.1

a

The quarterly results of 2004 (Iac/Interactivecorp, http://library.corporate-ir.net/library/19/190/190013/items/160985/ IAC_10K2004.pdf) indicate that 40.9 per cent of total revenue is provided by Internet retailing (online operators). The full year revenue over 2004 was around $ 6,193 million. Thus, estimation of 2004 revenue for Expedia Inc., which span off from IAC/ Interactive Corp in august 2005 is: 0.409 * 6,193 = USD 2.5 billion. b Travel Distribution Services Revenue of Cendant (includes among others the brands Orbitz, CheapTickets and Ebookers.com). Revenue of Cendant in Hospitality, Vehicle and Real Estates Services has been left out. c Figure of 2005; Revenue of Travelocity (includes Lastminute.com). Revenues of Sabre Travel Network and Sabre Airline Solutions have been left out. d Revenues from combined activities (also other travel related services besides online tour operating). e Figure of year 2003. f Selection based on number of employees. g Figure of year 2002.

Analysis Overall Results In the tour operator industry only three firms, including TUI AG, First Choice Plc and Kuoni Holding Travel Ltd produce explicit sustainability reports. Club Mediterranee and HolidayBreak Plc offer limited sustainability information in their annual reports. Both TUI and First Choice mention the GRI guidelines as a reference for the content of their reports. Kuoni is ISO 14001 certified, and HolidayBreak Plc is listed in the FTSE4good index. ClubMed does not refer to any standard for its sustainability policies in its annual report. When tour operators address sustainability in their communications, including websites, they focus mostly on internal management issues (60%) and 386

customer relations (55%). They remain general and vague in the specification of goals and commitments. Only 15 per cent quantify measures in support of improved sustainability, with only 10 per cent mentioning any time objectives. The 42 tour operators also score rather low on compliance. A quarter of them mention monitoring systems and processes, and half of this group in vague terms. The German TUI AG is the only tour operator that offers clear insights into its monitoring systems. About half of the tour operators receive information on sustainability issues from external organizations, mostly their industry associations. Other external sources are customer feedback, third party reports, information supplied by destinations, dialogues with competitors (e.g. TOI) and stakeholder consultation. Only TUI and First Choice, and to a lesser extent Studiosus, Kuoni, ClubMed and HolidayBreak, seem

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Sustainability Reporting by 42 Tour Operators: Research Framework and Research Results

Criteria

AREAS Product Management & Development

Internal Management

Supply Chain Management

Customer Relations Cooperation with Destinations

Short Elaboration

Global (n = 10)

Anticipating, considering, measuring, or monitoring of impacts of tourism services, including nunter of visitors, building of infrastructure, and transportation on the destination. Total number of tour operators adressing area: Policy considerations of all operations in the headquarters or country offices, and training of personnel. Total number of tour operators adressing area: Policies related to the selection and contracting of service providers to improve sustainability performance in the destination. Total number of tour operators adressing area: Informing customers on, and raise consumer awareness sustainability issues. Total number of tour operators adressing area: All efforts to engage in dialogues with destination operators and local stakeholders on impacts of tour packages, and philanthropic activites. Total number of tour operators adressing area:

80%

Proportion of Theoritical Maximum MEASUREABILITY Quantification Which part of measures taken or mentioned by TO are quantified? Majority Few None Time Are time objectives mentioned? Horizon Yes No

Online (n = 8)

UK (n = 10)

GER (n = 10)

13%

60%

40%

90%

63%

60%

70%

13%

90%

NL (n = 10)

TOTAL (n = 42)

Total ex. online (n = 34)

>1.5 billion sales (n = 11)

0.5–1.5 billion sales (n = 9)

<0.5 billion sales (n = 17)

50%

43%

50%

73%

33%

29%

50%

50%

60%

59%

91%

67%

41%

30%

40%

30%

31%

35%

64%

33%

12%

38%

50%

50%

70%

55%

59%

82%

56%

35%

80%

25%

30%

40%

30%

38%

41%

82%

44%

18%

82%

30%

46%

44%

46%

45%

49%

78%

47%

27%

10% 30% 60%

0% 13% 88%

0% 10% 90%

10% 10% 80%

0% 0% 100%

5% 10% 86%

6% 9% 85%

9% 27% 64%

0% 11% 89%

6% 0% 94%

30% 70%

0% 100%

20% 80%

10% 90%

0% 100%

10% 90%

12% 88%

27% 73%

11% 89%

0% 100%

387

(continued on next page)

A LONG-HAUL DESTINATION: SUSTAINABILITY REPORTING AMONG TOUR OPERATORS

European Management Journal Vol. 24, No. 6, pp. 381–395, December 2006

Table 2

European Management Journal Vol. 24, No. 6, pp. 381–395, December 2006

Criteria

Short Elaboration

Information source on issues

What kind of information sources on sustainability issues does the tour operator use? Own research (internal source) External sources, such as third parties, stakeholder consultation, industry associations, destinations or competitors (external source) None defined for information from suppliers: Supplier self declaration (1st party) Spot checks by the tour operator (2nd party) Third party verification (3rd party) Environmental and social audits and certification schemes (4th party) None defined

COMPLIANCE Monitoring systems and processes

Memberships

To what extend are the TO’s sustainable policies and measures monitered? Good insights into system and process (clear) Some insights into system and process (clear to vague) Only general reference to monitoring without details (vague) No mention of monitoring systems and processes (none) Does TO have memberships to sustainable initiatives and/or certification schemes or ecolabels? Yes, PMZ (Netherlands) Yes, other No other than PMZ

Global (n = 10)

Online (n = 8)

UK (n = 10)

GER (n = 10)

NL (n = 10)

TOTAL (n = 42)

Total ex. online (n = 34)

>1.5 billion sales (n = 11)

0.5–1.5 billion sales (n = 9)

<0.5 billion sales (n = 17)

0% 80%

19% 45%

21% 50%

55% 64%

11% 44%

6% 29%

60% 70%

13% 25%

20% 40%

30% 30%

20%

75%

60%

60%

20%

52%

47%

27%

56%

71%

60% 30% 20% 20%

0% 0% 0% 0%

20% 30% 10% 0%

40% 20% 10% 20%

0% 0% 0% 0%

19% 12% 5% 5%

24% 15% 6% 6%

55% 27% 18% 18%

11% 22% 0% 0%

6% 0% 0% 0%

40%

100%

70%

60%

100%

79%

74%

45%

78%

94%

10% 30%

0% 0%

0% 10%

10% 10%

0% 0%

2% 10%

3% 12%

9% 27%

0% 0%

0% 6%

0%

50%

10%

0%

0%

12%

3%

9%

33%

6%

60%

50%

80%

80%

100%

76%

82%

55%

67%

88%

0% 30% 70%

0% 0% 100%

0% 20% 80%

0% 20% 80%

90% 10% 90%

21% 14% 86%

26% 18% 82%

0% 27% 73%

11% 22% 78%

29% 6% 94%

A LONG-HAUL DESTINATION: SUSTAINABILITY REPORTING AMONG TOUR OPERATORS

388 Table 2 (continued )

Position of monitoring actor

Sanctions

Membership of suppliers

Sanctions to third parties

Does the TO report on sustainability? Seperate sustainability report (explicit) Referance to sustainability issues in annual report (implicit) No reporting on sustainability issues What is the position of the monitoring actor? Firms themselves (internal actor) Independant actor, such as certification scheme, external professional, legal authorities, business support group or social interest groups (external actor) None defined Sanctions imposed on tour operator for non-compliance with sustainability measures Threat to business activities (severe) Measures have no large implications, e.g. warning or exclusion of membership (mild) No sanctions Products in accordance with an environmental standard? Yes No, none defined Sanctions imposed on contracted suppliers and third parties of the tour operator: Measures such as fines, or demands for corrective action (mild) Severance of relationship, cancellation of contract (severe) None defined

30% 40%

0% 0%

10% 20%

10% 10%

0% 0%

7% 12%

9% 15%

27% 36%

0% 11%

0% 0%

60%

100%

80%

90%

100%

88%

85%

64%

89%

100%

50% 50%

50% 25%

30% 20%

20% 30%

0% 90%a

29% 40%

24% 44%

55% 45%

44% 33%

12% 35%

30%

38%

70%

70%

10%a

45%

47%

27%

44%

59%

0% 40%

0% 0%

0% 20%

0% 30%

0% 90%a

0% 36%

0% 44%

0% 36%

0% 22%

0% 35%

60%

100%

80%

70%

10%a

64%

56%

64%

78%

65%

20% 80%

0% 100%

0% 100%

20% 80%

20% 80%

10% 90%

12% 88%

18% 82%

11% 89%

6% 94%

30%

0%

10%

10%

0%

7%

9%

27%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

70%

100%

90%

90%

100%

93%

91%

73%

100%

100%

All Dutch tour operators are actively informed by the ANVR on sustainability issues. When excluding the ANVR as an information source, only 30% Dutch tour operators would have an external information source and 70% not use any information source at all. Source: Corporate reports and corporate websites. a All Dutch tour operators that have a membership with the industry assocation ANVR are required to implement an environmental product system (PMZ). None compliance will lead to exclusion of membership (mild sanction). 9 of the 10 research tour operators are a member of the ANVR and thus have ANVR as a monitoring actor.None of the Dutch tour operators has other parties than ANVR as a monitoring actor or any other risk of sanctions other than loosing ANVR membership.

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to engage in active and repetitive dialogue with these sources. They participate in numerous sustainable activities, such as certification schemes and particularly in local multi-stakeholder projects to make tourism more sustainable. For example, TUI Nederland participates in a project, which also involves the Indonesian Ministry for the Environment, to develop a toolkit for designing sustainable holiday packages in Asia. The toolkit will be applied to existing tours of two of TUI’s Dutch brands. None of the tour operators use hard sanctions, such as cancellation of contract, when suppliers repeatedly refuse to respond to requests for corrective actions. Measures to implement sustainability plans seem limited to fairly general preferences, such as choices for environmental friendly airplanes or other less polluting forms of transportation. Few tour operators are more specific, for instance by explaining their collaboration with an environmental NGO in a certain destination. The quantification and time horizons on implementing sustainable measures are often lacking. Most tour operators only mention around three products that have been developed in a sustainable manner, a number that is rather low considering the total of often hundreds of products offered on their websites.

Firm Size The proportion of firms that mention sustainability issue areas differs considerably across the three firm size groups. The large tour operators with sales exceeding US$1.5 billion perform best. TUI A.G., First Choice, and Kuoni are the only tour operators that publish a separate sustainability report. The two tour operators that report sustainability issues in their annual report consist of one large and one mediumsized firm. The small tour operators in the sample either do not mention sustainability issues in their annual report or do not publish such a report at all. Analysis of other publicly available corporate communication also indicated that larger companies do better than smaller. The proportion of the theoretical maximum total score 2 for areas is 78, 47 and 27 for respectively the large, medium-sized, and small firms. This picture is consistent with the scores on all five individual issue areas. In measurement and compliance the scores of the larger firms are better then those of the medium-sized and small firms in the total sample. They quantify their sustainability activities more often, they are more specific about time horizons, and 55 per cent indicate they collect information on the performance of their suppliers, either through checklists, spot checks or by looking for environmental schemes or awards. The scores for medium-sized and small tour operators for information collection are 22 and 6 per cent respectively. In compliance, the large firms again have the better scores. They more often report on the monitoring of 390

sustainability measures, a higher proportion of them collaborate with independent organizations which monitor their performance, and they are most likely to face mild sanctions from external parties, such as loss of membership of sustainability initiatives and certification schemes in which they participate. They also more often set sustainability standards for their suppliers. In almost all aspects the small tour operators’ performance stays far behind that of the other two categories of firms. The mandatory membership of the Dutch PMZ programme for Dutch tour operators explains the exceptionally high score of small firms for memberships in the Netherlands.

Industry Sector Characteristics Figure 1 compares the publishing of explicit sustainability reports in 16 industry sectors (G250 companies) that were included in the KPMG survey (KPMG, 2005) with the tour operators industry (G10 tour operators). With only 30 per cent publishing such a report, the tour operators have almost the lowest score of all, although it is only a notch below that of ‘trade & retail’, another consumer market sector. In other sectors between 47 and 100 per cent of companies publish explicit CR reports. KPMG (2005: 27) found that 80 per cent of the reports mention supply chain issues and around 70 per cent some form of supplier declaration. These figures are comparable to those in tour operating. Table 2 shows that 70 per cent of global tour operators address supply chain management issues, while 60 per cent of global tour operators retrieve information on supplier sustainability performance through supplier self-declaration, mainly based on checklists provided by the tour operator. According to KPMG (2005: 27), only 16 per cent of companies report that they conduct supplier audits. The global tour operators do better with 30 per cent performing spot checks, next to the system of supplier self-declaration. A similar percentage imposes mild sanctions on suppliers for failure to meet performance criteria. These ‘sanctions’ usually consist of supplier consultation and information concerning environmental performance. Severe sanctions, such as the cancellation of a contract, are not envisaged, not even in case of deliberate failure to improve. KPMG (2005: 28) reports that in the consumer market sectors ‘trade & retail’ and ‘food & beverage’ 40 per cent of the CR reports covered consumer health and safety issues, including specific information on ingredients, animal testing, genetically modified organisms and pesticide use in agriculture. This percentage is lower than the tour operator sector where 90 per cent of the firms inform their customers on sustainability issues in tourism. However, these communications to the tourist customers are not very specific and include general tips for sound environmental or social behaviour, or information about

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Pharmaceuticals

100% 100% 100% 100% 92% 91%

Forestry, Pulp & Paper Construction & Building Materials Chemicals & Synthetics Utilities Electronics & Computers 85% 80% 75%

Automotive Oil & Gas Transport Finance, Securities & Insurance

57% 57% 56%

Metals, Engineering & other Food & Beverage 47% 47%

Communication & Media Other Services Trade & Retail Tour Operators Mining 0% 0%

31% 30%

20%

40%

60%

80%

100%

Source: KPMG 2005 added with data on tour operators Figure 1 Sustainability Reporting per Industry – 2005

specific customs, traditions and environmental circumstances (e.g. drought) in the destination country. Sustainability communications at the product level, i.e. a specific tour, are rare. Table 2 also shows that 80 percent of the tour operators address issues of product management and development on their websites or in their reports, while around 60 per cent of the ‘trade & retail’ companies discuss how they are improving the integrity of their product ranges, e.g. by means of the introduction of organic or fair trade products, or through local sourcing initiatives to support the local economy (KPMG, 2005: 28). Common measures for tour operators in this respect are choice of transportation, e.g. use of newest and least polluting airplanes, and not offering harmful excursions, e.g. only use certified dive schools, not offering harmful activities such as heliskiing. In monitoring and compliance results tour operators seem to resemble firms in other sectors. The KPMG study shows that, overall, the content of CR reports is most often (40 per cent) based on GRI Guidelines, while, 20 per cent of the reports mention stakeholder consultation. However, most reports lack specifics on how CR is structured and lack information on how policies are implemented within the organization (KPMG, 2005: 19–20). The conclusion that can be drawn from Table 2 is that the tour operator industry is not different. Monitoring systems and processes are often not defined, or vague at best.

Nationality Little difference exists between UK, German, and Dutch tour operators in mentioning sustainability

areas. Their proportion of the theoretical maximum total score for areas is respectively 46, 44 and 46 per cent. Dutch tour operators perform a slightly (20 per cent) better on customer relations, which must partly be explained by the compulsory PMZ system developed by the Dutch industry association ANVR. Nine of the ten Dutch tour operators in the sample are ANVR member. PMZ requires tour operators to undertake at least five sustainable measures, but some of these are easy to implement, such as the distribution of an ANVR booklet on sustainable tourist behaviour to clients. Nationality differences are also small in respect of measurability. Significant is that 80 per cent of the Dutch tour operators (versus 40 per cent for UK and 30 per cent for German firms) use an external source of information on sustainability issues. The high Dutch score must be related to the ANVR who actively informs its members on sustainability issues; only few Dutch tour operators use additional sources. None of the Dutch tour operators collects information on sustainable performance of contracted suppliers, while 30 and 40 per cent of respectively the UK and German tour operators do so, either through checklists, spot checks or by looking for environmental schemes or awards. None of the tour operators, irrespective of their nationality, perform well on criteria for compliance. For all criteria, be they subscribing to sustainability initiatives, sustainability reporting, the use of monitoring actors, or sanctions, the scores do not exceed the 30 per cent level. Slight deviations again for Dutch tour operators due to PMZ system, which causes their high scores for external monitoring actor

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G250 G10 Tour Operators UK N100 UK N10 Tour Operators GER N100 GER N10 Tour Operators NL N100 NL N10 Tour Operators 0% 0%

52% 30% 71% 10% 36% 10% 29%

10%

20%

30%

40%

50%

60%

70%

80%

Source: KPMG 2005 added with data on tour operators Figure 2 Percentage of Companies with a Sustainability Report (2005)

(ANVR) and mild sanctions. Non-compliance will result in the loss of the ANVR membership. Otherwise, Dutch tour operators most often score zero, although performance of German and UK tour operators is generally low as well. Finally, Figure 2 compares the publishing of sustainability reports of tour operators with the top 100 firms in 16 other industries within their home country. Striking is the difference in the UK where eight out of ten companies publish a CR report, while in the tourism business only one out of ten. The top ten tour operators in Germany and the Netherlands do not perform better, but the gap with the top 100 firms in their respective countries is less prominent.

Conclusion and Discussion

Business Model In all aspects of sustainability reporting, the scores of the eight largest online tour operators are well below those of their 32 brick-and-mortar counterparts. None of the online companies produce a sustainability report, or mention sustainability issues in their annual report. For the traditional tour operators these figures are respectively 9 and 15 per cent. The proportion of the theoretical maximum score for addressing sustainability issue areas is 30 for online tour operators, while this figure is 49 for the traditional firms. The difference between the two types of companies is particularly high in respect of product management and development, where only one out of eight online firms addresses sustainability aspects, against half of the traditional operators. Internal management is the only area where online firms score slightly better than the remaining firms in the sample: 63 versus 59 per cent. This finding may be explained by the fact that half of the largest online tour operators are U.S. based companies, where more attention is given to community investment programmes in the home country as well as to codes of business conduct and ethics as part of corporate governance programmes. Traditional tour operators outperform the online firms again in measurability of sustainability initiatives, although the difference is small. None of the 392

online tour operators has information on the sustainable performance of their suppliers, while a quarter of the traditional firms say they collect such information. The picture in respect of monitoring and compliance is not different. The online tour operators do not adhere to sustainability initiatives or certificate schemes and consequently do not risk any sanctions for non-compliance. Neither do they monitor suppliers for participation in or compliance to such initiatives. The 32 traditional tour operators in the sample do perform slightly better. Around a fifth are participating in a sustainability initiative, with some 40 per cent of participants facing the risk of (mild) sanctions for not complying.

The sustainability reporting performance of the tour operator sector is as yet rather limited. Tour operators are prepared to write about their efforts to make tourism more sustainable, but when it comes to specification of the initiatives, monitoring and compliance, the industry remains vague at best. Hence, the implementation likelihood of the sustainable policies reported by tour operators is low. Very few tour operators report better than average with TUI clearly taking the lead. The data confirm our hypothesis that in comparison with reporting in other industry sectors tour operators perform less well. Tour operators rank almost at the bottom of the list of 17 industry sectors, because they seldom publish an explicit sustainability report. The low ranking is presumably related to the relatively small size of the global ten largest tour operators in comparison to the Fortune Global 250 firms, but is nevertheless positively biased. Inclusion of the entire sample of 42 firms would have resulted in a far lower score for tour operators. In respect of supply chain management issues, tour operators are slightly ahead of other sectors. They also better inform customers about sustainability issues, albeit not often on a product level. This result may be explained by the core business of tour operators, which is the packaging of various services

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offered by different suppliers. For improving its sustainability the tour operator must look at supply chain management, whereas for firms in other industry sectors it may be easier to address their own performance. Significant differences in reporting behaviour can be found within the tour operator industry. The data confirm our hypothesis that firm size influences sustainability reporting. In almost all aspects of sustainability reporting the largest tour operators performed (far) better than the medium-sized and small tour operators, while the medium-sized firms, in turn, clearly did better than small tour operators. This result, however, may underestimate sustainable initiatives particularly by very small, specialized tour operators who were not included in the sample. Differences were also detected between traditional and online tour operators. The latter are behind in sustainability reporting, which confirmed our assumption. Online tour operators seem more concerned with prices than with sustainability issues. Tourists turn to the online firms for low prices and may be less interested in the sustainability of the product. The ‘virtual’ tour operators are also less visible and perhaps therefore less vulnerable to reputation damage from ignoring sustainability issues. Few differences were found between tour operators from different home markets. UK and German tour operators perform more or less similarly, while the reporting behaviour of the Dutch tour operators lags behind, especially when considering the compulsory PMZ system for ANVR members. None of the researched Dutch tour operators is undertaking any voluntary initiatives, and they score lowest on most criteria of measurability and compliance. Again this finding may be related to firm size. Almost the entire top ten of Dutch tour operators fall within the category of small companies, whereas the top 10 UK and German tour operators are larger in size. Judging from the weak sustainability reporting, the tour operator industry, overall, lacks a proactive attitude in making its business socially, economically, or environmentally sustainable. Tour operators often point to the absence of a solid market demand for sustainable tourism products. Investment in such products is discouraged by competitive market conditions and uncertain returns. This position raises the question of the business case for sustainability or CSR, which is still not conclusively answered. In a recent article, for example, Salzmann et al. (2005) argued that it is uncertain whether a causal relationship exists between environmental and social performance on the one hand, and financial performance on the other. On the other hand, it is undeniable that tourism creates considerable negative externalities, i.e. social, economic and environmental costs that are not included in the cost price set by the market. In the

next 10 years these costs are likely to rise quickly when the rising middle class in the main emerging markets, such as Brazil, Russia, India, and China will join the tourism market. Millions of new tourists will trigger a booming demand for relatively cheap mass tourism products that impose a serious burden on holiday destinations. Ignoring this scenario may result in the tourism business cannibalizing on its own resource base and raises questions about the effectiveness of the present voluntary measures to improve sustainability of the sector. There is definitely a need for more research on how to put sustainability policies in this area into practice. Tour operators need tools, and guidance to put their intentions into action. A limitation of our research is the focus on the biggest firms. It is often suggested that small, specialized tour operators may operate much more sustainable, because of the better local embeddedness of their products. As these smaller tour operators are not included in our sample, their innovative sustainability practices are beyond the scope of this paper. The tour operator industry should be open to the experiences of these specialized firms, but to make lasting changes it is necessary to get the larger tour operators on board. Their market power is required to set new, international standards of sustainable operations. More verifiable performance indicators are to be included in the various corporate reporting media to increase the implementation likelihood of the firms’ good intentions. This would also reduce the risk of losing a reputation because of ‘‘green washing’’ accusations.

Acknowledgement The authors gratefully acknowledge the following RSM students for their support in collecting the data on tour operators: Wynanda Babb, Paulien Daniels, Leon Leijs, Arjan Pellis, and Niek Veldhuis.

Notes 1. See e.g. Trees for Travel (www.treesfortravel.nl), Tourism Concern (www.tourismconcern.org.uk), the International Centre for Responsible Tourism (http://www.icrtourism.org), ProPoor Tourism (www.propoortourism.org.uk), and the Hong Kong-based Ecumenical Coalition on Third World Tourism (www.ecotonline.org). 2. The theoretical maximum score for mentioning sustainability areas is calculated by the number of firms in the category multiplied by five (areas).

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JEROEN VAN WIJK, Department of BusinessSociety Management, Rotterdam School of Management, Erasmus University, Burgemeester Oudlaan 50, Rotterdam, The Netherlands. E-mail: jwijk@ rsm.nl Jeroen van Wijk is Assistant Professor at RSM, Erasmus University. His research interest is in Business and Devlopment issues, particularly supply chain management and institutional environment. His consultancy and publications focus on the role of tourism and dilemma’s concerning intellectual property rights protection in emerging markets and other developing countries.

WINIFRED PERSOON, Department of BusinessSociety Management, Rotterdam School of Management, Erasmus University, Burgemeester Oudlaan 50, Rotterdam, The Netherlands. Winifred Persoon has studied Business Administration at the Erasmus University with a major in Business Society Management. Her interest in tourism has increased after an exchange semester at the University of Otago in New Zealand, where she has taken courses in tourism management and ecotourism. She has written her thesis on the sustainability reporting of Dutch tour operators. She is currently working at KPMG, and has written the article on a personal title.

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