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Chpater 8 A special case study: The past, present, and future of travel agents.

LEARNING OBJECTIVES

After you complete your study of this chapter, you should be able to:

* Gain a historical perspective on the role of travel agents.

* Describe the attitude of travel agents toward the use of technology.

* Understand why travel agencies' business models no longer fit the Internet age.

* Explain why travelers leave travel agents.

* Understand new strategies for the future of travel agents.

* Explain why marketing orientation, combined with individualized service, is the viable business model for the future of travel agencies.

8.1 INTRODUCTION

According to the Travel Industry Association of America (2001), more than 59 million Internet users in the United States went online last year to gather information or to check prices and schedules, growing 395% over the past three years. Of that group, 25 million actually purchased travel products or services online, a 384% increase from 1997. Other research also supports the scenario that more travelers are logging on to the Internet for travel information, trip planning, and online reservations and purchasing of travel products and services (Zhou and Lin 2000).

In 1999, according to the search engine AltaVista, 10,602,880 Web pages contained the key word "travel." On July 22, 2001, there were 51,093,044 Web pages containing the key word "travel," a five-fold increase over 1999. According to Nielsen/Netratings (www.nielsen-netratings.com), over onethird of all e-commerce transactions are now attributable to travel, and online travel advertizing ranked fourth in 2002, reflecting the fierce competition in the online travel market for consumers. (www.nielsen-netratings.com, Dec. 2002) In just one month (March 2001), it was estimated that a massive $1.03 billion was spent on online travel--an increase of almost 60% over the March 2000 figure. It is estimated that by year's-end 2002, it will reach $8.9 billion (from www.nielsen-netratings.com).

Travel agents have never seen such a major challenge to their survival. They are being hit from all directions. Both the availability of online booking and the commissions cut and cap by travel suppliers and carriers put considerable pressure on travel agents. As if this was not enough, third-party online travel stores, such as Expedia.com, Travelocity.com, Orbitz.com, Priceline.com, and Travelweb.com are competing with them and taking customers away. The global distribution systems, GDSs, the former allies of the travel agents, are reaching out to consumers themselves.

Despite the event of September 11, there is increasing consumer interest in e-commerce that, in turn, is fueled by consumers' increasing online accessibility. In addition, there has been increasing consumers trust in various online payment methods as well as in credit card transactions over the Internet. A study of why and how travel agents have ended up in this situation and the future direction this might take can shed light on the impact of the Internet on the hospitality and tourism industry as well as the underlying reasons for the impact. Identifying these problems and issues can help travel agents as well as other sectors of the industry develop strategies to cope with new changes in the market. For those travel agents who can harness the new technology, the Internet can be a blessing in disguise. For others, it can prove to be a deal with the devil, costing both money and the life of their business.

8.2 A HISTORICAL PERSPECTIVE

THE HISTORICAL ROLE OF TRAVEL AGENTS

Historically, travel agents played an essential role in hospitality and tourism. They were a leading intermediary between the traveling public and travel carriers and suppliers. Travel agents were supposed to be trained professionals with extensive knowledge of the hospitality and tourism industry. They were there not only to sell tickets but also, supposedly, to provide advice and recommendations on every aspect of a trip, from planning to onsite visitation. Travelers recognized this knowledge as an asset and called on these agents for a variety of services, including the arrangement of transportation, preparation of itineraries, and booking accommodations and flight tickets.

Travel agents do not actually produce these travel products and services; rather, they simply act as the retailer and promoter on behalf of the service providers, that is, the travel carriers and suppliers. Agents sell these products and services directly to the traveling public and in return receive a commission from the travel carriers and suppliers. In essence, the travel public receives "free" service from travel agents.

TRAVEL AGENTS AND THE VALUE OF INFORMATION ACCESS

Travel products are unique in that they are not of a tangible nature. Information constitutes the bulk of travel products and transactions. In addition, travel is about the experiences and memories that tourists will have for a lifetime. Travel agents are therefore crucial in the tourism world, as they provide the key to an unforgettable travel encounter in providing critical travel information that leads to a satisfactory travel experience.

In the past, travel agents were held in high esteem because they were virtually the most important, if not the only, medium through which consumers could gain travel information and make advanced travel purchases. Travel service providers and customers alike rushed to their doors for business. In 1985, it was believed that "without travel agents, it would be practically impossible for the traveler or tourist to shop for the most convenient flights at the best price; for tours, cruises packages, hotel and resorts; or for any other travel related product" (Stevens 1989). At that point in time, travel agents were the "messiah" of the hospitality and tourism industry. Their expertise and vast array of travel resources kept people coming back repeatedly. The key to success was their access to travel information not available directly to the public.

TRAVEL AGENTS AND THE AIRLINE INDUSTRY

Travel agencies work in conjunction with a broad array of travel service providers, but one stands out from the rest. Travel agents relations with airline carriers create many impacts within the industry. In the past, one could not feasibly exist without the other. Travel agents relied heavily on the commissions they received from airline ticket sales to stay in business. At the same time, airlines conducted a majority of their ticket sales through agents. Although this was not the most profitable of alternatives, airlines did so because of the agents' great popularity and visibility in the eye of the public. Airlines and travel agencies have experienced many difficulties establishing their relationship, which remained relatively unchallenged before the advent of e-commerce. Many issues faced by agents have come about because airline commissions have such a great effect on travel agents. Any changes in the distribution of the travel and ticketing information would have directly affected travel agents as well.

Travel agents have not always been present since the airlines began shuttling travelers around the world. Historically, airlines were dependent on any person who had contact with the traveling public to sell their tickets. Obviously, this was not the safest or the most effective method. A major change occurred in 1945, when the Air Traffic Conference (ATC) was established by the airline industry to alleviate this unorganized method of distribution. The conference system was responsible for establishing agreements and standards that would regulate the activity of domestic airlines and the dispersion of their tickets. It also established the modern-day travel agent.

TRAVEL AGENCY AND AIRLINE REGULATIONS

The ATC Passenger Agency Program was developed to determine the conditions for the authorization of agents. This system protected airlines from dealing with unqualified distributors (Meyer and Oster 1987). Under this program, only agencies appointed by the ATC were authorized to sell airline tickets for member airlines. ATC accreditation was based on several standards, including business practices, financial requirements, personnel training, and agency location.

A major provision of the Passenger Agency Program was the "20% rule." This rule required that an agent must do less than 20% of its annual air transportation business with itself or other businesses under its control (Meyer and Oster 1987). This rule was essential for preventing large corporations from forming agencies to regulate distribution of their own business travel. Not long after the establishment of the ATC, the International Air Transportation Association (IATA) was formed for the regulation of international air travel. The IATA has the same basic functions of the ATC: security, safety standards, and appointment of travel agencies to represent member airlines. The ATC and IATA worked in conjunction with each other in many aspects.

For example, all revenue incurred from the IATA was deposited into banks that were established by the ATC.

The ATC and IATA were voluntary conferences governing air travel, but there was also regulation at the federal level. The Civil Aeronautics Board (CAB) regulated air travel from 1938 to 1978 (Stevens 1989). During its 40-year tenure, this branch of the U.S. government took on many roles, especially granting airline routes, controlling fares, and protecting the interest of the public. Airlines were under tight scrutiny by the CAB. The area of CAB's greatest control was airline fares. Airlines themselves had little control in pricing their own tickets. Any price commanded by the CAB was dictated to travel agents for sales. All airlines were required to charge the same fare for flights to and from the same city.

The CAB allowed minimal experimentation with discounts or promotional fares and controlled all revision of ticket prices. Thus, prederegulation procedures encouraged competition not by price but solely by the unique services they offered. Such was the climate of the airline and agency industries through the late 1970s. Regulation was enforced on every aspect of air travel, from airline routes to the agencies that dispersed tickets to the public. By 1973, with a majority of airlines on the brink of bankruptcy, it was evident that major changes were needed in the airline industry.

AIRLINE DEREGULATIONS

In the winter of 1973, worldwide oil supplies were condensed by petroleum exporters seeking to profit from exceedingly high prices (Foster 1990). Airlines had no choice but to surrender to these price increases in order to deliver their services to the traveling public. They were injured severely by this action. Under CAB regulation, airlines were not allowed to increase the cost to passengers to compensate for these unexpected operational costs. Caught in a frenzy of turmoil, the airline industry came close to collapsing.

Gradually over the next four years, the CAB loosened its grip on the industry. Recognizing the negative side effects of its tight regulation, by 1977 the CAB had departed from its restrictive policies enforced in previous years. This administrative deregulation allowed discount fares and advocated total airline deregulation. From 1976 to 1978, a boom in the airline industry resulted from these changes. Airlines were experiencing financial success as they had never seen before, in turn spurring the growth and success for travel agencies.

AIRLINE DEREGULATION ACT AND ITS IMPACT

The final step to the complete liberation of the airline industry came with the passage of the Airline Deregulation Act, signed by President Carter in 1978. The act removed all remaining obstacles to route entry by established carriers, opened up entry to new carriers, and phased out all fare regulations (Meyer and Oster 1987). There were two major components of this law that led to serious effects in the years following deregulation. The first was the gradual dismantling of the CAB by 1985, thus eliminating any prospect of further airline regulation. The second was the scope of antitrust legislation that was entered into on the freedom to competition and protection from monopolies gained by the industry. These changes brought both airline and agency into the realm of the modern business world.

Airlines experienced a period of unlimited freedom following deregulation. Ticket prices rose and fell on the basis of individual airline instruction, competition accelerated, and the general trend in air travel was overwhelming. With this independence came many positive and negative outcomes for both airlines and travel agencies. Along with the abundance of positive effects of airline deregulation mentioned previously, new selling techniques arose that gave way to major increases in airline ticket purchases. The variety of price and service combinations available to the public greatly expanded. Discounting, promotional events, and rebating became common practice. The importance of travel agents to the travel public was obviously increased since travelers were depending more and more on travel agents for deals and for understanding the complicated rules of airline ticket pricing.

Negative side effects that echoed throughout the airline industry were apparent as well. The harsh reality that airlines could indeed succumb to bankruptcy became evident in the years to follow. Airlines could no longer rely on the CAB to protect them, and many fell prey to this misfortune because of increased competition and price wars. Greater responsibility on the part of agents to protect their clients from minimizing personal losses stemming from airline's potential bankruptcy followed accordingly (Gregory 1989). Another downfall was felt mainly by travelers. Airlines no longer had the need to work with one another. Thus, passenger baggage would no longer be automatically transferred from one carrier to another, and airlines would no longer honor one another's tickets on same routes.

THE RAPID GROWTH OF TRAVEL AGENCIES

Travel agencies experienced unprecedented economic gain as airlines prospered in the wake of deregulation. The number of travel agencies around the country multiplied at an alarming rate. Increases in commissions were a result of the confusion that airlines felt with their newfound freedom and were readily accepted by agents. For the time being, the travel agent industry was a prosperous one that appeared to have limitless opportunities.

Disputes arose in the agency industry not long after deregulation planted its roots. Before the CAB was dismantled, issues dealing with the validity of the ATC conference system were discussed. Travel agent exclusivity and agency accreditation procedures were greatly disliked. Despite efforts made by trade associations to support the longevity of the conference system and its components, the travel agency industry experienced its own deregulation in December 1982 (Stevens 1989).

TRAVEL AGENCY INDUSTRY DEREGULATION

In the aftermath of the deregulation, airlines had the added freedom of allowing non-ATC agencies to sell tickets. Business travel departments would be permitted to function as full agencies, and protection from antitrust would become obsolete for agencies. The largest change resulting from agency deregulation was the implementation of the Airline Reporting Corporation (ARC). In 1984, this corporation replaced the ATC while maintaining most of its functions.

One major difference resulting from this switch involved the representation of airlines. The ARC allowed airlines to decide for themselves who represented them and their ticket distribution, a function formerly controlled by the ATC. As a result, the airlines gained enormous power in the distribution of air travel information and ticketing. This also sowed the seeds for the strained and hostile relationship between the airlines and the travel agencies over the structure of commissions in the age of e-commerce.

IMPACT OF THE DEREGULATIONS ON TRAVEL AGENTS

Both airline and travel agency deregulations affected every facet of airline-agency relations in the late 1970s and early 1980s. Many hardships and opportunities ensued for both industries, but travel agencies were affected most adversely. Both deregulations set the tone for the industry standards and practices that were followed up to the birth of Internet e-commerce. In fact, deregulation was the largest issue faced by airlines and agencies throughout their history. Without airline deregulation, the airlines may have had a much more difficult time jumping on the Internet distribution channel and freeing themselves from the influence of travel agents.

COMMISSIONS AND TRAVEL AGENTS

The commission structure of travel agents with travel carriers and suppliers as well as travelers is such that potential troubles for travel agents were already planted. In many service-oriented businesses, it is customary for some sort of service charge to be added on to the final total cost for the time and effort made by the service provider. Such is not the case for travel agents. The commissions accumulated from the products sold are the primary means of revenue for an agent. Travel agent commissions are unique in that they are subtracted from the selling price of a ticket rather than added on the final cost for the customer. Travel agents' monetary compensations come solely from the service providers, not the customers they work with. Therefore, agencies are at the mercy of those who direct commission payouts; these people determine the financial success of an agency. With heavy reliance on airlines, the greatest effects of agent revenue are generally felt by the decision of air travel suppliers.

Airline commissions account for approximately two-thirds to nine-tenths of a travel agency's total income (Foster 1990). Over time, commissions have risen and declined to fit the changing desires of the airline industry. In the earliest days of commercial air travel, the typical commission was set at 5%. In the 1960s, a series of studies were conducted, revealing agents' strong belief that they were being undercompensated. Regardless of agents' pleas for higher commission rates, airlines forged ahead in their mission to decrease commission costs to 3% (Stevens 1989). By 1969, a somewhat complicated formal structure for commission rates was established that was more realistic than former rates. Typical commissions under this structure ranged from 5% for point-to-point domestic flights to 13% for flights arranged for advertised tours (Stevens 1989).

Deregulation freed airlines from structured commissions. Contrary to what one might think, rates typically rose following this change because of the increasing competition between the airlines for customers. Since the agents were almost the only effective channel of distribution, the rise in the commission structure was not surprising. Soon, a commission rate of 10% became the industry standard, though it was subject to frequent fluctuations because of varying airline ticket prices that spawned from deregulation. The increase in commission was necessary for airlines to stay competitive with rival carriers and keep partner agents loyal to selling their product. This is the philosophy behind the frequent fluctuations and changes of the airline ticketing commissions.

In the heyday of air travel, airlines were very generous with travel agents since airlines depended on travel agents to move the flight seats. Overrides and incentives became commonplace for agents. These systems provided the means for agents to receive additional income. Overrides are rewards presented to agents when they show exceptional sales performance. Incentives come in the form of cash bonuses and reduced-rate tickets for agents, which inspires the determination for excellence on behalf of the travel agent. These programs are the airlines' way of saying thank you to travel agents for showing exemplary selling skills and helping such airlines make considerable profits.

THE FAILURE OF A BUSINESS MODEL

Commissions have always been a high-priority issue for agents. Without a reasonable commission structure, agencies would surely come face to face with bankruptcy. Amicable conditions permeated the airline and agency industries throughout the 1980s because of the airlines' reliance on agents. However, relationships between travel agents and the airlines have been dictated largely by the airlines since it is the airlines who control the commission structure, not the agents. In other words, when airlines feel they need travel agents, they will try to improve the relations, typically by increasing the commissions they pay out to the agents.

On the other hand, when airlines feel they do not need travel agents for their success, they can decrease and cut the commissions. There is strong incentive for airlines to reduce the commissions since it is a considerable part of their operating expenses in selling tickets. It is not surprising that when the Internet provides an alternative for airline ticket and information distribution, airlines were the first ones to capitalize on it. A commission cut seemed to be a logical step for airlines since they were relying less on their old-time partners, travel agents, to complete sale transactions.

8.3 TECHNOLOGY AND TRAVEL AGENTS

It is not only in recent times that airlines have felt the effects of advances in information technology. With the extensive amount of information that airlines deal with on a daily basis, from flights and fares to seat inventory and passengers, information technology has become critical to organize and maintain every aspect of the industry. In the years preceding such information technology advances, agents had to access information through various channels. Phone calls to central locations, using wall-sized availability boards, and a manual method called the "lazy Susan," which stored colored cards with pencil markings on them to record bookings, were the norm of the past (Sheldon 1997).

COMPUTER RESERVATIONS SYSTEMS

Obviously, these manual methods had their inefficiencies and led to the researching of computerized methods. As for the airline industry, computer technology was first introduced in the 1950s with the advent of the computer reservations systems (CRS). These systems have traditionally been organized by individual airlines to handle reservations, ticketing, schedules, and seat inventories and have created great advances in speed and accuracy for the booking of airline flights.

The first CRS was officially introduced in 1953. Organized by a partnership between American Airlines and IBM, this system later became known as Semi-Automated Business Research Environment, better known as Sabre (Sheldon 1997). Sabre is both a CRS and a global distribution system (GDS) of travel information and ticket reservations. A GDS is basically a computer reservations system that contains a vast database of inventories and travel information of participating travel carriers and suppliers who pay a fee to subscribe to the GDS service (see Figure 8.1).

[FIGURE 8-1 OMITTED]

Soon, other airlines followed suit and developed their own CRSs. While CRSs were beneficial to agents compared to the old methods of researching information and securing flights, it was impractical for travel agents to subscribe to different CRSs owned by different airlines. A system would be needed to collect all airline information into one mass database. These systems are the GDS systems.

There are four main GDS systems existing today: Sabre (www.sabre. com), Galileo/Apollo (www.galileo.com), Amadeus (www.amadeus.com), and Worldspan (www.worldspan.com). Travel agents typically use only one of these systems to connect to airlines and other suppliers of travel services, such as resorts, hotels, and car rental companies. These GDSs serve as central repositories for all kinds of data and information, ranging from databases of reservations to information about the travelers who made reservations with them (see Figure 8.2).

Today, all these GDSs have set up Web sites that are linked to their databases, allowing travelers to view their booked reservations and itineraries (Table 8.1). For instance, a traveler who made a reservation through Orbitz.com and Expedia.com, which use Worldspan GDS, or through travel agencies that subscribe to the Worldspan GDS can go to www.mytripandmore.com to view their reservations and itineraries. Similarly, reservations made through travel agencies subscribing to Sabre can go to www.virtualthere.com to view and print their itineraries (see Figure 8.3).

GDS has enabled agents to access complete information listings for all airlines through one system. However, in the whole process of adopting technology, travel agents have always been passive receivers: They will use whatever is given to them and tend to resist new technological changes since they require new training and expenses. Most of the travel agents are operating under thin margins, and cost of the technology is a barrier to their adopting new technologies.

[FIGURE 8-2 OMITTED]

[FIGURE 8-3 OMITTED]

8.4 TRAVEL AGENTS AND THE INTERNET

Facing this new challenge, travel agents had several different responses. The first was to blame the airlines, accusing them of breaking the traditional partnership and practicing bad business ethics. The second was to shrug their shoulders and shut their eyes to the changes by saying that people will never leave travel agents since they always need live, human help. They claimed that Internet was a fad and that it would go away as the frenzy died down. The third was to simply give up, claiming that doomsday had come for the travel agents. The final one, this time positive, was to look for ways to survive, compete, and ride the tidal wave of e-commerce.

While all these reactions have some facts to support them and may be justified in specific circumstances, there are three things travel agents need to do before they subscribe to any particular visions or claims. First, they need to ask the questions about their business:

* Why are customers leaving us?

* Are we meeting the changing needs of our customers?

* How can we keep and grow our customer base?

Second, they need to ask questions about the use of technologies:

* What can the Internet do for us and our customers?

* What can I do to take advantage of the Internet to meet the needs of my customers?

Finally, they need to come up with strategies. Table 8.2 summarizes answers to the first two questions. Travel agents have to realize and admit the following facts about themselves before they can realistically comprehend their current situations:

* They have always been passive receivers.

* They have always been at the mercy of suppliers and technology.

* They are not receptive to technological innovations.

* They have not really defined their roles. If they have, however, they have incorrectly done so.

What is behind this rush to online travel shopping? First, the Web is revolutionizing the way consumers plan and buy their travel. For the first time, Web technology makes it possible for intangible hospitality and tourism products and services to be tangible, that is, only a click of the mouse away. The richness and instant accessibility of travel information online has made the Web more appealing to the travel consumers.

Second, the novelty of multimedia and the interactive capacity of the Web captures the imagination of millions of computer users. Consumers can now "fly" the skies, "cruise" the seas, "climb" the mountains, "sleep" on the hotel bed, "drive" the road, "hear" the roar of tigers, and "explore" the cities, towns, and countries around the world and then book their trips instantly from the comfort of their personal computers.

Third, the competitiveness of the hospitality and tourism industry requires, on the one hand, that companies better manage their information systems with less of their financial resources and, on the other, that they are pressured to increase the speed of responding to customers and raise the satisfaction level of their customers. The central issue is how to reach customers with the most efficiency and cost effectiveness, and the Web is regarded as such a possible solution to this age-old problem. A Web site for a specific travel destination can be created with relative ease and for a fraction of the cost of advertising in a major national magazine.

Fourth, the perception of getting a deal by bypassing the middleman, in this case, the travel agent, and buying directly from service suppliers has generated plenty of excitement among consumers. Combine this with the awareness and publicity generated by increasing competition between online travel services, and it is not surprising that the Web has attracted so many consumers to the market.

Finally, the traditional travel agents' business model needs to be revamped. A business model that was based totally on commissions and at the mercy of a single source was pitiful at best and vulnerable and risky at worst. Travel agents need to change from a ticket retailer to a travel information and service provider, from a product-oriented business to a service-oriented one. Each travel agency must redefine its role and relationship to its customers.

The impact of the Internet is far reaching and can be felt by many sectors of the travel industry, but the travel agencies feel it the most. Recall that airlines have not always particularly enjoyed having travel agents around, but agents have been a necessary intermediary for ticket distribution. In 1995, this essential role became antiquated when the Web gave airlines a new and powerful way to communicate directly with consumers.

Many alarms have been sounded as to the survival of the travel agent in the face of this technological shake-up. The truth is that travel agents will probably never go away, but not all travel agents will survive this tidal wave. Travel suppliers will continue to seek ways to save money and market directly to their customers. It is true that the Internet will not replace the value of human service, but, like any other technological innovation, it will reduce the dependence on human service.

8.5 STRATEGIES FOR TRAVEL AGENTS IN THE AGE OF THE INTERNET

In previous sections, we mentioned that travel agents are vulnerable in several areas. First, they are almost totally at the mercy of travel suppliers for their revenue. Second, they have never been active participants in any technological advancement. Third, they have never clearly defined their role in relation to consumers. By changing their attitudes toward technology and defining their new role, travel agents can create strategies to take advantage of the Internet and better serve the needs of their customers.

Many strategies arise based on the understanding and the answers to the questions asked in the previous section. In fact, travel agents have many competitive advantages in terms of understanding customers' needs and wants. They have their existing customer database that they can use to market their services. To do this, however, they need to change from the old product-oriented sales approach to a service-oriented sales and marketing approach. The Internet has created a new demand for better service and service alternatives. If consumers were considered to be kings in the past, they are now the kings of all kings. This new found freedom of choice and ever increasing consumer power is not necessarily good or bad to anyone in the travel industry. To a large extent, it is unbiased toward anyone. The difference it makes is in the responses travel agents take to harness this power of freedom to choose.

STRATEGIES

Understanding customers is the first step in deriving strategies. To serve customers' needs and wants, travel agents need to understand what technologies can do for them in servicing customers. Why do customers leave for the Internet? Travel agents must ask that question of themselves. If customers want convenience, give them convenience and in the way they want it, in this case, with Internet service. If they want the instant gratification of being able to search travel information and buy tickets online, give them that gratification. If they want perceived cheap online fares, give them the power to do so and educate them about the ability of travel agents to give them that power with a special touch of human service.

Trying to prevent customers from using the Internet is like trying to prevent a person from ordering french fries when they are at McDonald's. It is better to harness the power of consumers than to stop them from using their power. The initial reaction of many travel agents to the Internet was exactly trying to stop people from using the Internet. Table 8.3 presents some strategies for travel agents to compete and succeed in the new marketplace.

8.6 THE FUTURE

MARKETING ORIENTATION COMBINED WITH INDIVIDUALIZED SERVICE

Despite all the hoopla about the death of the middleman caused by the Internet, many travel agents are still surviving and, in fact, doing quite well. This is not to dispute the fact that many small mom-and-pop travel agencies have closed their doors since Internet reservations became available. We have to admit that even until today, the Internet is just beginning to be understood and its power and potential revealed. There are no certain ways to predict the future of its development and impact on travel agents. However, we can use some general guidelines to help us better cope with the future. We can, as a general rule, predict the following:

* Technology will not totally replace human service, but it will considerably reduce dependence on it. Travel agents are not going away, but they will feel the pinch from now on.

* The travel information distribution system will undergo major shake-ups, and so will travel agents. Restructuring and forming new partnerships are inevitable. Fee-based and value-added services will be combined. Only the fittest will survive.

* Travel agents must find their niches in customer service--areas where human service is superior to nonhuman interaction--to find new customers and at the same time to keep the old ones.

Consumers are not using the Internet for cheap tickets and inexpensive reservations. They are looking for value and experience in their total travel package--the travel information search, travel planning, and the actual purchase of travel products and services. Whoever can provide value and good experience will win the minds of the consumer.

With the currently strained relationship between airlines and travel agencies, agents can no longer rely on airlines for their revenues. Lower and zero commissions from airlines and higher Internet bookings have helped reduce the ranks of traditional U.S. travel agencies by 16% in the past six years (Reckard 2000). Airlines have discovered the advantages of the Internet and e-commerce and are milking it for all it is worth.

There is really no single party to blame for the current situation. In any industry, increasing profits and lowering the cost associated with marketing has always been a central issue, especially in a competitive environment. To a large degree, the quest to cut costs is not an impulsive one for businesses but rather a way of life. E-commerce has provided the tool to endorse this way of life.

A look at the brief history of commissions will show that efforts to reduce cost is a new phenomenon. In 1991, commissions held steady at about 10.83%. By 1999, those rates had nose-dived to an approximate 6.43%, if not lower (Reckard 2000). In 1994, 32,913 brick-and-mortar agencies were in operation, but this number dwindled to 27,729 in 1999 (Reckard 2000), four years after the Web first enabled online booking.

The travel agency industry was partly to blame for this initial decrease in agency numbers. Deregulation in the travel agency industry loosened the accreditation requirements in the ownership of travel agencies. Hobbyists--people who had retired and conducted their business mainly as a leisure activity--operated many agencies. These agents were simply selling tickets rather than providing meaningful services. When the Internet was able to provide avenues for travel information and booking capability, these agents were the first to close their doors. But without good service, active participation in technological changes, and sound marketing strategies, travel agents may soon become an endangered species.

8.7 CONCLUSION

The Internet acts only as a change agent, not as a technological barrier, as some people would like to think. It is the attitude toward change that makes the difference. Travel agents have realized that denying or ignoring the change will not do them any good. They need to reexamine their relationship with travel carriers and suppliers and with their customers in a totally new Internet environment.

A historical perspective is important to travel agents since history can help shed light on both the current situation and future directions. History has shown that a business model based on commissions and depending too much on one source of suppliers is subject to the mercy of the controlling party and will not fare well in a time of radical change.

Travel agents have much to offer consumers in hospitality and tourism. Their knowledge of the industry, their human touch and personal relationship with consumers, their vast base of existing customers, and their traditional role of being a neighborhood store provide them with a solid foundation to play competitively in the market. It is critical for travel agents to bring out these strengths while avoiding their weaknesses. A willingness to take advantage of new technologies will help them catch up with the times and with consumers' needs and wants. Travel agents must learn how to turn their human touch to a golden touch in an ever increasingly competitive world.

KEY WORDS AND TERMS

Traveling Public

Retailer

Promoter

Commission

Tangible Nature

Air Traffic Conference

Accreditation

International Air Transportation Association

Civil Aeronautics Board

Prederegulation

Deregulation

Airline Deregulation Act

Airline Reporting Corporation

Commission Structure

Overrides

Incentives

Computer Reservations System

Sabre

Galileo/Apollo

Amadeus

Worldspan

Business Model

Product Oriented

Service Oriented

SUMMARY

There are many developments in travel e-commerce that travel agents should be worried about. These developments include the increasing number of online travelers, the desire of travel suppliers to market directly to travelers, and the increasing amount of money spent on online travel transactions.

A historical perspective revealed that travel agents have always been at the mercy of travel suppliers (airlines in particular) because of their commission-based revenue structure. The role of travel agents with their customers has never been clearly defined. Many agencies are product and sale oriented rather than service and marketing oriented.

Travel agents have never been active technological participants and fail to understand the implications of technological advances. Their slow and often resistant attitude toward the Internet contributes partly to their less popular position with consumers.

Strategies can be derived to cope with changes by looking at the roots of the problems. The most fundamental change that travel agents need to take is to shift from a product-oriented business model to a service-oriented one. Travel agents will probably never go away, but their roles will certainly change and be reduced to meet the new changing needs and wants of consumers.

WEB RESOURCES

* www.astanet.com

* www.counciltravel.com

* www.asiacyberholidays.com

* www.nielsen-netratings.com

* www.travelmole.com

CASE STUDY: The Only Way to Travel, Inc.

The Only Way to Travel, Inc., was established in 1991. Donna and Arthur (Art) Wickerham started the business as independent contractors working part time from their home. In 1994, Donna began working as a travel agent full time. In 1995, The Only Way to Travel became a member of CLIA and began operating as an independent agency. In 1995, the agency brought on its first employee and in 1996 moved into an office space. In 1998, the agency was endorsed by IATAN as a Travel Service Intermediary. In August 1999, the agency moved into a retail location.

Today, the agency employs two full-time travel counselors in addition to Donna. Art works full time as an electrical engineer and spends his "free" time working as the agency's Webmaster. The agency is 100% leisure based, with annual sales under $2 million. In 1999, total Internet sales revenue made up 36% of the agency's sales. In 2000, the agency's Internet sales revenue was up 80% over 1999, comprising 40% of its total sales.

In 1997, The Only Way to Travel was trying to decide what it should do about this thing called the Internet. Embrace it? Ignore it? Would it go away? Then Donna, the president of the agency, went to the annual meeting of the agency's consortium. Another agency owner stood up and said that her cruise-only agency had done $3 million in sales the previous year and that $1 million of it had come from the Internet. Wickerham was sold. She went to the phone at the next break, called the agency's vice president, and told him to go to the other agency's Web site and see what they were doing because The Only Way to Travel needed to do it, too.

The vice president took the time to learn HTML and created The Only Way to Travel's Web site. One year later, in May 1998, the agency's site, www.onlywaytotravel.com, was launched. "We thought we were going to be really smart and give away a cruise. We just knew that would bring people to our site. We were right. People came in droves. We were getting 500 entries an hour for the free cruise," said Wickerham.

The agency had not anticipated this kind of response and was not adequately prepared to handle the flood of e-mail. It knew it had to capture the information it was receiving, and it took some time to figure out how to automate the process. But it was accomplished.

The agency's site also had a form that people could use to request pricing for up to three different cruises at a time. The agents in the office did not feel as though they were getting well-qualified leads from these forms. An analysis was performed, with the result that the agents thought that perhaps they were not getting the requested information back to potential clients quickly enough.

As a test, an additional agent was hired to come into the office for three months. That agent's job was solely to respond to those forms. As a result, each inquiry was responded to within 24 hours. This test was an eye-opener. No sales were closed from those leads. The agents surmised that the anonymity of the form allowed people to request prices, even if they were just curious and not truly interested in purchasing a cruise. The request form was removed from the site.

On the other hand, the agents found that people who called the agency as a result of finding its Web site were much more interested in purchasing travel. Agents were closing sales with at least 30% of the people who called. The agents found that if they could get people on the phone, they had a much better chance of closing the sale.

After the request form was removed from the site, the agency was still getting e-mail from people. Usually the e-mails were vague and did not provide enough information to get a price quote. The agents developed a form letter that was used to cut and paste into a reply e-mail. The responses were customized, depending on what the clients had included in their first inquiry. The reply requested the names and ages of the travelers, and a phone number was required for a response. If clients did not provide the required information in two replies, they were not provided with the information they requested.

The information requested by e-mail is always provided by phone. This allows the client to realize that it is not a computer on the other end just spitting out prices. Most important, it allows agents the opportunity to build a rapport with the client and increases the odds of closing the sale.

The Only Way to Travel continued to give away a three-night Carnival cruise each quarter for a year. At the end of the year, the giveaway program was reevaluated. The agency's owners realized that the people who were entering to win the cruise were interested only in winning a cruise. They had no desire to purchase a cruise, but if they could get one for free, they would take it. They were not the prequalified shoppers the agency was looking for. Whenever an entry for a free cruise was received, a reply would be sent to confirm the entry and then ask the person if he or she wanted to receive a free monthly travel e-newsletter. Many people did, but surprisingly a number of people responded with an emphatic, "No! And don't contact me again unless I have won the cruise!"

The Only Way to Travel had just made a video--"Prepared for Your Cruise ... The Only Way to Travel"--for first-time cruisers and decided to give away one video each month. As a result, all the people who entered this drawing were interested in taking a cruise. Almost every one of these entrants responded yes when asked if they wanted to receive the monthly travel e-newsletter. The agency had prequalified its audience.

People could sign up for the free travel e-newsletter without entering the drawing for the video. There is a form on the Web site where people can easily sign up for the e-newsletter, which has purposely been kept informational in nature. It is not a place where travel specials are advertised. In fact, there is no advertising in this e-newsletter. The agency has had numerous businesses requesting information on charges for advertising in the e-newsletter. The Only Way to Travel has steadfastly refused any advertising, and it has paid off. Many subscribers of the agency's e-newsletter forward it on to others who in turn have subscribed.

In the summer of 2000, the agency members had a staff meeting and did some brainstorming. The vice president asked the agents, "When you talk to someone, what is it they are asking for?" A common theme was discovered: People always want to know what kinds of good deals are out there. As anyone in the retail travel industry knows, agencies receive many faxes each day from cruise lines and tour companies. Sometimes, these faxes have some really great prices. How could The Only Way to Travel get this information out to potential clients? Then the answer came to the staff. They had thousands of names on their e-newsletter list. In the next e-newsletter, each recipient would be asked if they wanted to sign up for the agency's last-minute-deals e-mail.

This idea really hit home. At least one last-minute deal is sent out daily. The people who are on this list must request to be on it. (It is easy for subscribers to unsubscribe if they choose.) The last-minute-deals list quickly built up to over 10,000 e-mail addresses. The response was exactly what the agency desired.

People were responding to these great deals, deals to which every other agency in the country had access to. The difference was that The Only Way to Travel was getting this information out to potential clients. The agents were somewhat hesitant as to whether the really cheap cruises should be sent out as specials. The agents did not know if it would be worth their time. They found that people were purchasing four or more cabins at these great prices. So even though the commissionable portion or the fare was less than the port charges and taxes, the volume of sales made it worthwhile.

Contrary to what most people believe, people searching for travel on the Internet are not looking for cheap products and services. What they are searching for is a good value and good service. To prove this point: The Only Way to Travel's average Internet sale is approximately $400 more than its average non-Internet sale. Clients who come for service as a result of the Internet come from all over the world, including local communities. Internet clients purchase everything from the upscale Radisson Seven Seas Cruises to budget-priced Carnival Cruises.

The Only Way to Travel continues to use the Internet as a primary source of marketing the agency. The agency continues to look for more ways to successfully use this medium to grow its business.

SOURCE: Donna Wickerham, President, The Only Way to Travel, Inc.

QUESTIONS TO PONDER:

1. How was the owner of The Only Way to Travel convinced to adopt the Internet into its business operation?

2. What types of research did The Only Way to Travel undertake to understand its customers?

3. How does The Only Way to Travel use the Internet as a communication and marketing medium?

4. Do you agree that people use the Internet not for cheap tickets but because what they are searching for is a good value and good service?

5. What lessons can be learned from The Only Way to Travel about small business?

REVIEW QUESTIONS

1. Why should travel agents be worried about their businesses?

2. What is the historical role of travel agents?

3. What made travel agents so valuable both to travel suppliers and consumers before the advent of Internet e-commerce?

4. What was the relationship between the airlines and travel agents before Internet e-commerce?

5. What was the impact of airline deregulation on travel agents?

6. Why did the travel agency industry grow so rapidly after airline deregulation?

7. What was the role of commission structure in the well-being of travel agents?

8. What was the business model of travel agencies in the past? Do you think it was a good one? Why?

9. Why is the traditional business model not a viable one in today's environment?

10. What is the difference between a CRS and a GDS?

11. What are the four main GDSs?

12. What are the major questions travel agents need to ask themselves in coping with Internet e-commerce?

13. What are the strategies that travel agents can use to take advantage of Internet e-commerce?

14. How can travel agents turn their human touch into golden touch?

REFERENCES

Foster, D. (1990). First Class: An Introduction to Travel and Tourism. New York: Macmillan/McGraw-Hill.

Gregory, A. (1989). The Travel Agent: Dealer in Dreams. Elmsford, N.Y.: National Publishers.

Meyer, J., and C. Oster, Jr. (1987). Deregulation and the Future of Intercity Passenger Travel. Cambridge, Mass.: MIT Press.

Nielsen/Netratings. (2001). www.nielsen-netratings.com.

Reckard, S. (2000). "Threatened by the Web, Travel Agents Adopt New Tactics," Los Angeles Times, p. C1.

Sheldon, P. (1997). Tourism Information Technology. New York: Civil Aeronautics Board.

Stevens, L. (1989). Guide to Starting and Operating a Successful Travel Agency. Wheaton, IL.: Merton House Travel and Tourism Publishers.

Travel Industry Association of America. (2001). www.tia.org.

Zhou, Z. Q., and Li-Chun Lin. (2000). "The Impact of the Internet on the Use of the Print Brochure." Proceedings of the CHRIE's 2000 annual conference, July 19-22, New Orleans.

Zongqing Zhou, PhD

Associate Professor

College of Hospitality and Tourism Management

Niagara University
TABLE 8.1
A Brief Overview of Global Distribution Systems

                    INTERNET GATEWAY     INTERNET
                    FOR CORPORATE        GATEWAY
COMPANY/            AND/OR               FOR INDIVIDUAL
WEB SITE            TRAVEL AGENTS        TRAVELERS

Sabre: www.         www.getthere.com     www.virtuallythere.
sabre.com                                com

Galileo/Apollo:     www.travelgalileo.   www.viewtrip.com
www.galileo.com     com

Amadeus: www.       www.e-travel.com     www.checkmytrip.
amadeus.com                              com

Worldspan: www.     www.tripmanager.     www.mytripand-
worldspan.com       com                  more.com

COMPANY/            OWNERSHIP
WEB SITE            IN 2000

Sabre: www.         Publicly owned;
sabre.com           former owner:
                    AMR

Galileo/Apollo:     Cendant, a large
www.galileo.com     franchising
                    company that
                    owns Ramada, Avis,
                    and other brands.

Amadeus: www.       60% publicly
amadeus.com         owned; Air France
                    23%, Iberio 18%
                    and Lufthansa 18%

Worldspan: www.     Delta Airlines 40%;
worldspan.com       Northwest 34%;
                    America Airlines,
                    Inc. 26% (inherited
                    from TWA)

TABLE 8.2
Questions and Answers for Travel Agents

Why travelers leave        * Convenience factor (not accessible 24/7)
travel agents              * Illusion of cheaper fares
                           * Glamour of shopping online
                           * Curiosity of technology
                           * Customer service (unhappy with travel
                             agents' service)
                           * Marketing of services (travel agents
                             neglect marketing their services)
                           * Image problem: agents and low-tech

Motivating factors for     * 24/7 accessibility
the use of the Internet    * Information: rich and updated
                           * Seeing/comparing options
                           * Global reach
                           * Control over decision
                           * Dollar driven
                           * Instant gratification

TABLE 8.3
Strategies and Opportunities for Travel Agents

QUESTIONS
AND ISSUES        STRATEGIES AND OPPORTUNITIES

Understand        1. Use your existing customer database to understand
customers            your customers' needs.
                  2. Ask your customers what you can do for them to
                     keep them as loyal customers.
                  3. Reassess your relationship with your customers.

Convenience       1. Have a presence on the Internet.
                  2. Try to make a portal for your customers.
                  3. Choose the appropriate Internet communication
                     tools.
                  4. Provide your own travel information and links to
                     all major travel information sites.

Perception of     1. Travel agents need to educate the public that
cheap fares          online travel service providers are not providing
                     cheaper fairs but simply an alternative.
                  2. Be pro-technology but emphasize travel agents'
                     "human touch."

Glamour of        1. Build your own online booking capability.
shopping          2. Link your home page to online booking
online               Web sites.
                  3. Provide valuable travel information online.

Marketing of      1. Change from product orientation to marketing
services             orientation.
                  2. Emphasize the human factor.
                  3. Add value to your service.

Image problem:    1. Provide better training.
low-tech          2. Be pro-technology.
                  3. Vocational schools revise curriculum to include
                     technology courses.
                  4. Geography is irrelevant on the Web. Companies
                     should think globally when they go online.

Improve           1. People who are not happy with customer service
customer             are always looking for alternatives.
service           2. The Internet offers excellent tools for improving
                     customer service.
                  3. Think globally but act locally.
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Author:Zongqing, Zhou
Publication:E-Commerce and Information Technology in Hospitality and Tourism
Date:Jan 1, 2004
Words:8681
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