The Travel Agency and Services Industry comprises of businesses that are primarily engaged in acting as agents in selling travel, tour, and accommodation services to the general public and commercial clients. The products and services that are primarily sold in this industry are travel accommodations such as domestic and international airline, railroad, vehicle, and cruise reservation; packaged tour experiences and activities; and lodging reservations in hotels and various types of resorts.
The first travel agency was established in 1758, with the first modern agency that packaged tours and had relationships with the individual companies appearing in the second half of the 19th century[ii] This industry is estimated to generate approximately 11 billion dollars of revenue during 2010, which would be the first positive growth year since 2007 (see exhibit). Like many other industries, the travel industry has been affected by the recent economic and financial downturn.
After the recession in 2008, there had been a steady decline in the amount of revenue and products and services that are available in the travel network; but from the projected revenue numbers you can see that they are predicting a turnaround this year due to more people traveling for work and pleasure. This industry is very volatile because the product that they are selling is highly elastic; as people have less and less disposable income, their frequency of travel decreases as well.
It is estimated that about 87% of the total revenue for the industry is derived through the reservation services that are provided to clients; with the main areas being in order: domestic airline reservations, international airline travel reservations, cruises, packaged tours and lodging reservations (see exhibit). There has been a shift towards airline travel over the past few years following a huge decline after the September 11th attacks when people were frightened to travel due to terrorism. Around 60% of the sales are for leisure travel and vacationing and 40% are for corporate travel and relations.
The major market segments for traveling have a breakdown of 61% being for domestic travel and 39% for international travel. The highest rates of travel occur during the months of July and August, with the months of May, June and December also being popular travel times. [iii] Travel agents can be divided into three types: shop-front agencies, online agencies, or direct providers. The major player analysis portion of this paper will be focused on the online agencies; however, the others will be discussed briefly also. Over the past years, the amount of industry players has decreased about 1 – 4% each year.
The declining amount of available income, frequency of travel, and increased use of technology has created a very tough environment for any company to compete and survive in. Many companies are failing, being bought out or merging with various others to try and stay alive and profitable. Almost all shop-front agencies have ceased to exist because people are looking for the convenience and amount of options that internet provides. The main thing that is keeping the agencies with physical locations, or shop-front agencies, open is that there are a lot of travelers who are frustrated by online services and want to deal with an actual person.
There are more outlets for a customer to buy their travel accommodations and services directly from the provider now due to information technology and the internet. It is estimated that in 2007, there were sales of 94 billion dollars for US online leisure and unmanaged business travel; however, the amount of revenue that the travel agencies saw in that year was only 12 billion dollars. The available amount of revenue that people are going to be spending on the travel accommodations and services is believed to be increasing to over 162 billion dollars by 2012, so the travel agencies have a growing chance to capture that business and revenue.
[iv] Customers are going directly to the provider to try and avoid paying commissions or higher prices for the same product or service, also it is more convenient to make changes, alter a product, or ask questions when you are working with the provider personally. The online travel agency area is very competitive. The barriers to entry for this area are very low and the level of regulation is very light, so there a ton of companies in this market. The top six competitors make up 67% of the market share, some of which will be discussed and analyzed further; the remaining 33% of the
market share is comprised of the various other websites. The top players in order are: American Express Company, Carlson Companies, Expedia Inc. , Priceline. com Inc. , Sabre Holdings Inc. , and Travelport. [v] American Express is a global travel, financial and network services company. The Global Travel Services segment of the company operates their travel services through American Express Business Travel, which has a focus on corporate clients of any size. In 2009, they had 26 billion dollars in global travel sales. They have their own network and partnerships links with other companies.
Their travel solutions are offered online and offline, with about half of their sales through each. American Express has grown from commission-based fee model to a fee-for-service model. [vi] Information technology has helped them to enhance their customer service greatly. They have recently launched (aXcess), which is an afterhours servicing program, and PreTrip Approval, which gives companies a better visibility and control over their travel expenses. They introduced AXIOM, which can assist companies with managing travel and entertainment beyond the basic air, car, and hotel accommodations.
An enhanced management information solution used to deliver improved business intelligence to clients and a social networking site called BusinessTravelConneXion made to connect buyers and agents were also launched. [vii] Carlson Companies Inc, or Carlson Wagonlit Travel, is the second largest global travel company, operating in nearly 150 countries. The company had annual sales of 21 billion dollars in 2009. They are privately owned by JP Morgan affiliate, One Equity Partners, who have a 45% stake and Carlson, who have 55% ownership.
CWT operates through Carlson Hotels and five other brands, including the Radisson, Carlson Restaurants, and the Radisson Seven Seas Cruises. CWT provides online and offline services through customer service centers and technical support. They have a lot of large business customers, like American Red Cross. They grew their business through acquisitions, joint ventures and the use of technology greatly over the past 5 years, The company has recently increased their online presence and sales performance, especially internationally.
They formed strategic alliances and acquired online travel booking websites and travel software development firms. Carlson just redeveloped their CWT Portal, their one stop it for travelers and travel managers. They launched a CWT Program Management Center in 2007. In 2006 they went into an agreement with GetThere, an online corporate travel reservation system to offer flexibility in their choice of online booking systems. Since 2006 they have continued to grow their online sales.
They outsourced their mid- and back-office technologies to Amadeus to achieve cost benefits. With the help of their information systems, they are striving to become the “leanest travel transaction processor, in terms of cost, quality and service, the most efficient travel management consultant, systems integrator and business process outsourcer and the preferred provider of high-touch assistance and security related services to business travelers”[viii] Expedia, Inc. operates through websites that include: Hotels. com, Hotwire.
com (discount focus), Worldwide Travel Exchange, Interactive Affiliate Network, Classic Vacations (luxury focus), ExpediaLocalExpert(destination activities provider), Expedia Corporate Travel, eLong (China focus) and TripAdvisor (a travel search engine which they charge to advertise on). They also acquired companies such as a cable travel channel in the US and Ticketmaster. In 2003, they went through a 3 billion dollar merger with InterActive Corp and purchased the 75% of Expedia Travel from Microsoft which they did not previously own. Two years later IAC spunoff and is now a completely separate company.
Expedia had 3 billion dollars in revenue for 2009 off of 22 billion dollars in bookings; 70% of which comes from the US[ix] The company is trying to increase their value proposition to clients by reducing their fees, improving their loyalty program and increasing their available global travel products. They created partnerships with many of the major airlines through their Partner Service Group. Expedia’s goal is to build the world’s largest and most intelligent travel marketplace, connecting more travelers with the best travel booking services and destination information. Collectively, the Expedia, Inc.
brands cover virtually every aspect of researching, planning, and booking travel, from choosing the best airplane seat, to reading personal travel reviews of hotels, to planning what to do in a destination once you arrive. [x] Overall the companies in this industry, like most other industries, are just trying to survive the recession that we are in and remain profitable as more and more online travel agents emerge and margins fall. They have been reducing commission rates, dropping prices on their packages and services, and trying to use information technology in any way that will reduce their costs and increase
customer satisfaction. The companies can benefit from the use information technology like computerized reservation systems, electronic processing and electronic transfer of funds. The CRS allows them to connect to real-time data from the airlines, hotels, and transportation providers instantly, which is helpful and convenient to customer because they know what is truly available. This also can reduce costs because you will not need an actual agent to research and find out what is available.
The electronic processing allows for up-to-date information and record keeping and instantaneous confirmation and satisfaction for the users. The EFT allows the payment to be received immediately and securely, so there is no accounts receivable and less risk involved. The industry peaked at about 15 billion dollars during 2000, which was the highest revenue point over the past twenty years. Since then, the competition has drove these companies to invest in product enhancement tools that add value, put more focus on advertising and marketing, and have critical success factors that set them apart from all the other companies.
The main CSF’s for this industry include being part of a group for buying, promotion and marketing schemes; having a clear market position; development of new products, having an appropriate pricing policy, the ability to provide goods/services in diverse locations; multi-skilled and flexible workforce; and finally, access to the latest available and most efficient technology and techniques. [xi] The outlook on the industry looks good; forecasts show a growth rate of 1. 5% to 3. 5% over the next 5 years, with the largest being in 2011. The general trend is moving towards online services and away from retail services.
As technology grows, the online agencies will become better connected with the travel needs and booking preferences of the average traveler. However, the increased internet use by customers is also increasing their confidence to book directly from the provider and cut out the travel agent. The online agents are going to have to offer services that will make the customer want to book through them rather than to do it themselves. The smaller agencies, which do not have the capital or networks to compete in this area, will soon be phased out and the larger agencies will dominate.
The online agencies will also continue to consolidate, which will broaden their networks and reduce their costs. [xii] ———————– [i] http://0-www. ibisworld. com. helin. uri. edu/industry/default. aspx? indid=1481 [ii] http://en. wikipedia. org/wiki/travel_agency [iii] http://0-www. ibisworld. com. helin. uri. edu/industry/default. aspx? indid=1481 [iv] http://0-www. ibisworld. com. helin. uri. edu/industry/default. aspx? indid=1481 [v] http://0-www. ibisworld. com. helin. uri. edu/industry/keycompetitors. aspz? indid=1481 [vi] http://0-www. ibisworld. com. helin.
uri. edu/industry/keycompetitors. aspz? indid=1481 [vii] http://0-www. ibisworld. com. helin. uri. edu/industry/keycompetitors. aspz? indid=1481 [viii] http://0-www. ibisworld. com. helin. uri. edu/industry/keycompetitors. aspz? indid=1481 [ix] http://0-premium. hoovers. com. helin. uri. edu/subscribe/co/fin/landscape. xhtml? ID=ffffjrykxf [x] http://www. expediainc. com/phoenix. zhtml? c=190013&p=home [xi] http://0-www. ibisworld. com. helin. uri. edu/industry/keyfactors. aspx? indid=1481 [xii] http://0-www. ibisworld. com. helin. uri. edu/industry/outlook. aspx? indid=1481