Tourism and Travel Distribution: the Travel Agent's Perspective

By Dr Marion Bennett and Dr Dimitrios Buhalis, Centre for eTourism Research (CeTR), School of Management, University of Surrey, Guildford
Jan 2003
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Summary

The Internet has revolutionised the tourism industry and has generated a number of challenges and opportunities for all players. For travel agents, in particular, the Internet is changing the industry structure and consumer behaviour. Significantly, technology forms part of the strategy to enable travel agents to maintain a presence in the chain of distribution.

If agents are to survive, technology will have to become an essential tool incorporated in the future business strategy determining their competitiveness. In this sense, technology is both a threat and an opportunity, as travel agencies need to readjust to the new realities. Re-intermediation via the Internet and IDTV (Interactive Digital Television) present potential opportunities for innovative players who utilise the emerging tools.

This article analyses the key Internet trends in relation to the travel industry. It also considers strategies travel agents can employ to ensure their future survival.

It has long been recognised that tourism and technology are a highly compatible couple. The nature of service distribution revolves around the notion of intangibility and perishability, therefore, the manner in which information is communicated is highly important.

Historically, in the tourism chain of distribution, this role has largely been undertaken by the travel agent who acted as the information broker between the supplier of services and consumers. The travel agent was, therefore, the early beneficiary of developments in technology, such as the CRS and GDS. More recently, developments in Internet distribution and, in particular, e-commerce have threatened to take over the role of these systems.

The role of the travel agent has been to act as an intermediary and retailer, selling travel services on behalf of principals for a commission. They also had a significant role as advisers for consumers and providers of ancillary services, such as travellers cheques, currencies and travel insurance, as well as obtaining passports and visas. They also provide access both for the principal (access to the market) and the consumer (a convenient location to purchase travel services), as well as acting as a key source of advice in a customer-focused environment and on a person-to-person basis.

The first two elements of their role are gradually being eroded as ancillary services are increasingly available from other sources. Travel insurance, for example, can be purchased from high street outlets. Access to the product is also being eroded by technology, in particular the Internet, as a wide range of information is now available online. Both virtual travel agents and principals are now providing e-Commerce purchasing opportunities online, offering a highly convenient location for principals and consumers in both time (24-hour accessibility) and place (access from potentially anywhere).

Where travel agents remain unsurpassed is in their ability to offer a personal service. Naisbitt (2001) refers to it as 'high-touch', the antidote to 'high-tech'. It is becoming increasingly evident that agencies will need a 'high-touch high-tech' strategy to satisfy the customers of the future (see Table 1).

TABLE 1: ARGUMENTS FOR AND AGAINST THE DISINTERMEDIATION OF TRAVEL AGENCIES
Arguments for the disintermediation of travel agencies
  • Travel agencies currently add little value to the tourism product, as they primarily act as booking offices
  • Travel agencies merely manage information and undertake reservations
  • Travel agencies are biased, in favour of principals who offer override commissions and in-house partners
  • Experienced travellers are much more knowledgeable than travel agencies
  • Visiting travel agencies is inconvenient, time consuming and restricted to office hours
  • Commissions to travel agencies ultimately increase the total price of travel products
  • Personnel in travel agencies are often inadequately trained and inexperienced
  • There is a gradual increase of independent holidays and a decrease of package holidays
  • Technology enables consumers to undertake most functions from the convenience of their armchairs
  • Electronic travel intermediaries offer a greater flexibility and more choice
  • A number of themed/specialised web portals emerge to serve niche markets
  • The re-engineering of the tourism industry (eg electronic ticketing; no-frills airlines; airline commission capping; loyalty schemes) facilitates disintermediation
Arguments against the disintermediation of travel agencies
  • Travel agencies are professional travel advisers and offer valuable services and advice
  • Travel agencies use expertise to save time for consumers
  • Technology is difficult to use and expensive to acquire for individuals
  • A large part of the market is computer illiterate and unwilling to improve its skills
  • The more complex computers and the Internet become, the more people need experts to use them
  • Travel agencies offer free counselling services and add value by giving advice
  • Electronic intermediaries primarily serve the business market and are more expensive
  • There is currently limited provision online for the organised inclusive tourist
  • Travel agencies can achieve better prices through the right channels and deals and by buying in bulk or through consolidators
  • Travel agencies offer a human touch and a human interface with the industry
  • Travel agencies reduce the insecurity of travel, as they are responsible for all arrangements
  • Internet transactions are secured and reliable, yet consumers are not willing to provide credit card details
Source: Based on Buhalis, 2003

In an increasingly competitive world, suppliers are looking at more efficient and less expensive ways to distribute their product. The benefits to suppliers of cutting out the intermediary revolve around costs, marketing and marketing research.

Disintermediation is defined as the elimination of intermediaries within the distribution channel, propelled by electronic means that enable consumers to access and transact directly suppliers and destinations.

For suppliers, costs of marketing and distribution can account for a quarter of operating costs, as is the case for 'full service' airlines, when Global Distribution Systems fees and commissions are taken into consideration. The Internet reduces the cost burden for suppliers by lowering booking and distribution costs. For airlines, additional cost savings are generated via e-ticketing so saving on the cost of printing and distributing a ticket. The benefits of online commerce are such that BA aims to increase Internet sales to 50% by 2003.

From a marketing perspective, the Internet and the emergence of e-mediaries generates increased exposure in a cost-efficient manner. New intermediaries, such as Expedia, are actually broadening the number of channels available to suppliers for distribution.

The other main advantage for suppliers in accessing customers directly relates to marketing research and customer loyalty. Suppliers are fine-tuning their service by tapping into customer data directly to help enhance customer loyalty. The advantages of the Internet for suppliers are enhanced by little or no capital investment (presenting opportunities for smaller establishments) and effective distribution via video clips, virtual tours and images, in addition to standard information.

A lot of research has been undertaken into the profile of the typical Internet purchaser, ie aged 26-55 with high incomes and employed in managerial, professional or computer-related organisations. Current figures for Internet usage/commerce are extrapolated year on year to suggest exponential growth. Interestingly, when GDS launched products directed at experienced business travellers, the tendency was to use the GDS for research purposes and then book off-line.

More recent research undertaken by MORI in 2002 helps to illustrate this point. In a survey of over 2000 adults, it found that 829 people used the Internet. When viewed from the perspective of information gathering, travel/holidays received the most attention (51%), followed by educational information (40%) and entertainment sites (34%).

The survey asked the same people about their intention to purchase products, and here again travel was the top category but the percentage dropped to 31. The survey then sought information on actual purchases made from the Internet in the last three months. Beyond 'none' which was the top category (40%), the next most significant category was travel at 17%, followed by books (14%) and videos and DVDs (10%).

What these figures illustrate is that travel is by far the most popular category on the Internet for information collection and purchasing, so underlining the view that technology and travel are readily compatible. More interesting is the evidence to show that the percentage for booking travel is two thirds down on the percentage for collecting information on travel. Clearly for disintermediation of traditional travel agents to occur, much higher conversion ratios from looking to booking are necessary.

According to research undertaken in 1999, there are four main barriers to adoption of the Internet by consumers: security, scepticism, perceived uncertainty and loss of personal service. An interesting finding of the MORI research (2002) was that for those who purchased travel (flights/holidays) over the Internet, 49% had spent in excess of £301, with 14% spending more than £1,000. Given the predominance of low-cost carrier flights booked on the Internet, one might have expected the average expenditure to be much less.

What is clear is that those individuals that have overcome the problems identified in the research mentioned previously are evidently at ease in embracing the Internet for major purchases. So if a major proportion of the public were to adopt a similar stance in purchasing habits, then the long-term potential for booking travel on the Internet would, indeed, be enormous.

To date, research on the use of the Internet for travel purchases has shown that travellers have a tendency to 'look' on the Internet but still 'book' via more traditional channels. This was mainly due to immaturity of Internet interfaces and also due to the fact that most travel enterprises were reluctant to offer their best prices online.

Until the summer of 2002, airlines offered their published rates online and distributed discounted rates through consolidators and traditional intermediaries, so the consumer had little alternative but to shop around and purchase their tickets off-line. The redesign of airlines' web pages, the reduction of fare restrictions, as well as financial incentives for booking online, together have increased the number of purchases concluded online.

Although a number of market segments find the Internet difficult to navigate, cluttered and confusing, newer generations are emerging who have the skills to use the Internet and other digital devices almost more easily than face-to-face communications.

However, there is clear evidence that re-intermediation is gradually emerging in the marketplace.

Re-intermediation or cybermediation is defined as the utilisation of ICT and Internet tools for the development of either new intermediaries or new methods for existing intermediaries that enable them to re-engineer the tourism distribution channel.

In this sense they either redefine their role or they create new products and services, capturing a significant proportion of the market. Re-intermediation is evident through the development of new electronic intermediaries such as Expedia and lastminute.com, as well as through the online expansion of existing intermediaries such as thomascook.com and ebookers.com. The emergence of airline portals, such as Orbitz and Opodo, and a whole range of new services from new players, such as Priceline.com, Rough Guides or whatsonwhen (www.whatsonwhen.com) clearly demonstrates this trend.

In this respect, several market segments still require online and off-line travel agents as human interfaces with the industry, offering 'free' advice and saving time and effort for the consumer. Younger generations and more experienced travellers increasingly use online facilities to search and purchase their travel arrangements and only resort to travel agencies for extraordinary and complex trips. Hence, there is clearly a role for travel agency services of this type in the future.

However, these services will be dramatically different from the traditional agency we have experienced in the past. Therefore, there is an opportunity for re-intermediation and this is already evident with the success of online intermediaries, notably Expedia, Travelocity, Lastminute etc. While these portals differ to some degree in their marketing, their main thrust is price competitiveness and added-value services. Interestingly, in research undertaken by MORI, the factor most identified by consumers in encouraging them to book online is 'cheaper prices than the high street'.

While research may be lacking in some areas of the travel industry, there is no shortage of estimates on the size, value and growth prospects of the e-travel industry. Interestingly, though, estimates vary enormously according to source. For example, according to Carl H. Marcussen of the Centre for Regional Tourism Research in Denmark, it is estimated that by 2006 total sales for e-travel in Western Europe will hit E14 billion. An alternative and vastly different estimate is provided by Forrester at E38 billion. Meanwhile, Jupiter MMXI forecast a rather more conservative figure of E20.7 billion sales in 2006. According to the Economist (2001), currently, e-travel sales in Europe account for only 3% of total travel sales.

The speculative nature of forecasting is such that disparities in figures are inevitable. Universally acknowledged, however, is that e-travel will continue to grow. Forrester research, for example, predicts that 67% of Europeans will be online by 2006, equivalent to 200 million Internet users.

Two further developments are likely to have an impact on the future potential of the Internet: Interactive Digital Television (IDTV) and mobile devices. Of the two, it is the former that is likely to have the largest impact, especially for the leisure market. According to Allied Business Intelligence, worldwide sales in digital set top boxes were projected to reach 45 million units in 2002, compared with 28 million in 2000. Jupiter Media Matrix expects that shopping on IDTV will account for 44% of all TV-based shopping by 2005. Such a surge in growth in IDTV will inevitably facilitate further Internet usage.

The gradual development of ambient technologies and the 3G mobile devices will also enable customers to access the "Internet on the move". This will empower consumers further by providing location and time dependent information, offers and services. Not only will travellers be able to search the entire inventory of a destination or a town but they will also be able to access travel services regardless of their location.

Travel websites are the most visited on the Internet. What is less obvious is how willing and how quickly consumers are embracing e-commerce for travel. The proliferation of electronic devices as well as online access via PCs at home, work and increasingly IDTV and mobile devices provide the infrastructure to enable consumers to interact electronically with all players.

Business models will gradually emerge to support these new electronic realities in the marketplace. Consumer attitudes are also shifting as consumer interfaces are becoming more user-friendly. Consumer attitudes and behaviour are influenced by a variety of factors of which product complexity is a notable one. Equally, familiarity with booking online (ie experience and confidence) and the convenience of access outside hours are also significant factors. It is also evident that supplier incentives in the form of discounts and lower prices encourage consumers to use the Internet as a viable source of information and booking.

A key challenge for the industry is still to look at ways to convert the competent but less confident lookers into bookers. Incentives appear to be the obvious way forward, at least initially, and several organisations provide discounts for completing transactions online. Call back and calling centre services are additional strategies that many suppliers and intermediaries employ to compensate for the apparent lack of personal service offered by more traditional off-line channels or for troubleshooting. This hand-holding exercise may well prove to be the solution to the problem of consumers needing reassurance and to encourage further adaptation.

In the off-line market, the number of traditional travel agents will almost certainly diminish as a consequence of increased competition from other channels. Equally, offline travel agents will be able to assert their presence on the Internet, as demonstrated by the large chains, and so compete more effectively.

However, disintermediation has largely been replaced by re-intermediation and cybermediation. Web confusion and frustration on the part of consumers provides travel agents with the opportunity to reengineer their role in the chain of distribution. Primarily, this is effected by transferring the strain and effort of researching and booking from consumer to agent, by offering a competent, professional and personal approach to customer service – the 'high touch' strategy. In this respect, travel agents will then be seen as a value-added channel. Re-intermediation is also apparent in the form of online travel agents that are, in effect, competing with the traditional offline travel agents.

The future will almost certainly see some consolidation and integration between online and offline travel agencies, resulting in fewer, more comprehensive service providers. Agents will need to adopt the role of expert adviser, and consumers will consult them as they do lawyers and consultants.

Instead of commission, the agents of the future will charge fees for their expertise and time. They will also employ a wide range of channels to attract and serve their customers. They will adopt, therefore, multi-channel strategies, including the Internet, mobile, Digital Television and Calling Centre channels, in addition to the high street presence, in order to address the needs of the marketplace. Their competitiveness will depend on their ability to effectively manage multi-channel strategies and to support commerce through all potential channels and e-Commerce opportunities, namely:

  • iCommerce: Internet empowered Commerce
  • tCommerce: Interactive Digital Television Commerce
  • mCommerce: Mobile devices Commerce
  • cCommerce: Calling Centres empowered Commerce
  • wCommerce: Walk in Commerce to traditional shops.

Those online and off-line travel agents that survive will need to focus on a value-added strategy that differentiates them from their online channel competitors. Central to this strategy is the utilisation of sophisticated technologies, including Customer Relation Management systems, for the provision of a quality service and personal approach, which is arguably what travel agents were set up to do originally.

  • Buhalis, D., 2003, eTourism: information technology for strategic tourism management, Pearson (Financial Times/Prentice Hall), London
  • Naisbitt, J., 2001, High tech/high touch: technology and our accelerated search for meaning, Nicholas Braely Publishing