• Share
  • Email
  • Embed
  • Like
  • Save
  • Private Content
Adapting and Persevering: Traditional Brick & Mortar Travel Agencies
 

Adapting and Persevering: Traditional Brick & Mortar Travel Agencies

on

  • 3,986 views

 

Statistics

Views

Total Views
3,986
Views on SlideShare
3,984
Embed Views
2

Actions

Likes
1
Downloads
16
Comments
0

1 Embed 2

http://www.linkedin.com 2

Accessibility

Categories

Upload Details

Uploaded via as Microsoft Word

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    Adapting and Persevering: Traditional Brick & Mortar Travel Agencies Adapting and Persevering: Traditional Brick & Mortar Travel Agencies Document Transcript

    • Adapting and Persevering Traditional Brick-and-Mortar Travel Agencies Mario Zelaya 5/24/2010 1
    • Table of Contents Introduction...............................................................................................................3 Definitions..............................................................................................................3-5 Airline Commissions Cuts.....................................................................................5-7 E-commerce...............................................................................................................7 Four Factors of Adaptation..................................................................................7-12 1. Opportunism.......................................................................................................8 2. Strategic Streamlining.....................................................................................9-10 3. Professionalization.......................................................................................10-12 4. Niche Selection.................................................................................................12 Conclusion...............................................................................................................12 Endnotes.............................................................................................................13-14 Bibliography.......................................................................................................15-17 2
    • Introduction Notable for incorporating evolutionary biology in his economic thought, Kenneth Boulding once advocated something he called a "polylithic" capitalist ecology. In such a place, "small organizations" vie and network, and the inheritance of the earth by the meek is "not merely a wishful sentiment of religion, but an iron law of evolution."1 This kind of bio-economic analogy is useful when examining how traditional brick-and-mortar travel agencies have continued to flourish in the US travel industry. While their customary habitat has both undergone radical alteration and been encroached by new competitors, they have nevertheless persisted by adaptive pluck. This is not to say that today's "meek" brick-and-mortars have come out on top. Since the mid-90's, many of them have been gobbled up by larger operations, and many more have shut their doors. Still, by "meek", Boulding meant "adaptable and serviceable."2 The purpose of this paper, then, is to demonstrate that numerous traditional brick-and-mortar travel agencies have proven admirably adaptable and serviceable. Specifically, in response to both the elimination of airline commissions and the advent of e-commerce, they have persevered through opportunism, strategic streamlining, professionalization and niche selection. In this way, albeit modestly, they have retained, won back and won over many travelers. Definitions Where the available data allows, I confine my examination to the following type of US travel agency, which I will term TBM (traditional brick-and-mortar): • single retail location • in business for at least 20 years • annual revenue ranging from $500K to $3M • accredited by ARC (Airline Reporting Corporation) 1 Kenneth Boulding, The Organizational Revolution (New York: Harper & Brothers),79-81, 252. 2 Boulding, 252. 3
    • • at minimum in possession of one GDS (global distribution system, e.g., SABRE, APOLLO), internet access (dial-up or high-speed access), a website and a phone system with voicemail Thus, I exclude the home-based agent -- a recent, very low-revenue, and largely unpredictable competitor on the scene.3 I also exclude the higher-revenue multi-location chains, many of which have purchased failing TBM's over the years.4 It should be added that TBM's typically belong to consortia. Since the 1990's more than half of them have been affiliated with a consortium: by one count, 55% in 20045 and 61% in 2006.6 As Jeffrey R. Yost has explained, consortia allow smaller travel agencies "to remain independent but enjoy some of the economic benefits of consolidation in terms of combined purchasing power, efficiency and knowledge transfer."7 As for ARC accreditation: in order to sell airline tickets, an agency must be accredited by this entity. Making ARC accreditation a part of my definition further ensures the exclusion of home-based agencies. At the same time, it likely shrinks the true size of the traditional market. Still, as has been observed recently, "the actual number of non-ARC sellers" is nearly impossible to quantify.8 Arguably, excluding them cannot be helped. I will finally mention that my definition roughly lines up with the recent "psychographic analysis" of noted travel industry researcher Stanley Plog, who has been conducting this analysis since 2007. He categorizes travel agents as follows: 3 Dan Luzader and Bill Poling, "Home Alone," Travel Weekly, 12 February 2007, 18-28. 4 Arnie Weissmann, "The plot thickens for travel agents," Travel Weekly, 27 October 2008 (http://www.travelweekly.com/article_ektid183990.aspx?terms=*plot+thickens+travel+agents*). 5 Travel Weekly US Industry Survey 2004 (http://apps.travelweekly.com/specialreports/survey2004/hl1.html). 6 Travel Weekly US Industry Survey 2006, "Travel agents adjust to new realities, adapt by restructuring their business," October 23, 2006, 8. 7 Jeffrey R. Yost, “Internet Challenges for Non-media Industries, Firms and Workers: Travel Agencies, Realtors, Mortgage Brokers, Personal Computer Manufacturers, and Information Technology Services Professionals,” in William Aspray and Paul Ceruzzi, eds. The Internet and American Business (Cambridge: MIT Press, 2008), 318. 8 ASTA, "Frequently Asked Questions," 2008 (http://asta.files.cms- plus.com/MainSite/images/pr/PR805CFrequentlyAskedQuestions.pdf). 4
    • • Contendeds: love travel, value the perks more than the pay • Seekers: believe they have made a mistake in their career path and want out • Careerists: "highly focused on making travel a financially and personally rewarding career"9 Generally speaking, as agency size increases, so does the orientation toward business travel.10 Seekers typically work at multi-location chains and have more business clients than Contendeds and (to a lesser degree) Careerists do. This goes a long way in explaining why Seekers are unhappy. Business clients, having routine needs, require less engagement from the travel agent. To quote an old but relevant article in the Economist, "Such clients are not after romance, just efficiency."11 As will be touched upon, the emphasis on romance (leisure) over efficiency (business) has been an important tactic of the successful TBM. The same Economist article notes that amidst the profound changes of the 90's, travel agents on opposite sides of the spectrum -- those "in it for the perks rather than the profit" (Contenteds) and those with big business clients (Seekers) -- were the most vulnerable.12 As for those in the middle: as Stanley Plog's analysis indicates, today's successful TBM (Careerist) is handling the latest setback to the travel industry (i.e., the recession) in a manner consistent with its survival of the 90's. The proof is in the latest numbers: in both reports of decline (by revenue group) and in perception of decline (by psycho- graphic group), the TBM (500K-3M Careerist) is the more upbeat and less badly affected. 9 Stanley Plog, "Psychographics: A Selling State of Mind," Travel Weekly US Industry Survey 2009, October 26, 2009, 17-8. 10 Travel Weekly US Industry Survey 2006, 8. 11 The Economist, "Vanishing Breed?" January 8, 1998 (http://www.economist.com/surveys/displaystory.cfm? story_id=E1_TTDDTV). 12 The Economist, "Vanishing Breed?". 5
    • Adopted from Stanley Plog13 Plog's psychographic analysis underscores an important point: mere survival is a bleak business ; you need some joie de vivre. Airline Commissions Cuts As mentioned, the mid-90's brought big trouble to travel agencies. For 20 years prior they had enjoyed (collectively speaking) "a monopoly on two aspects of air travel: information and ticketing."14 Both the reduction and eventual elimination of airline commissions and the advent of e-commerce put an end to that monopoly. With regards to airline commissions: they were 10% with no cap, until • 1995: Delta's $50 cap on sales of roundtrip domestic tickets; other air carriers followed suit • 1997: commissions reduced from 10% to 8% of ticket price for domestic and international flights • 1998: $100 cap on sales of roundtrip international flights • 1999: commissions cut to 5% • 2002: elimination of airline commissions As noted in the graph below, the population of travel agencies dropped in lockstep with the cuts. 13 Stanley Plog, "Sturm und Drang of travel agencies," Travel Weekly US Industry Survey 2009, October 26, 2009, 22. 14 Amadeus, "Service Fees and Commission Cuts: Opportunities and Best Practices for Travel Agencies," June 2007, 4. 6
    • Adopted from both Emre, et al15 and Ionnides & Daughtrey16 I will note here that while traditional agencies are typically affiliated with consortia, the law prohibits group actions, so throughout this time they had no effective recourse against the airlines.17 This can be juxtaposed against the high concentration of the airline industry, which has generated much commentary. For example, Borenstein18 has observed that by the 4-firm and 8 firm concentration ratios, as well as the Herfindahl index, airline industry concentration increased between 1982-90. More recently, the Consumer Federation of America19 makes the case that the industry's average national HHI's (route-based) range from 4-5000. Not surprisingly, there have been accusations of airline collusion, particularly in the wake and the aftermath of commissions cuts. By and large, these accusations have come to nothing in the courts.20 The point is that the Careerist TBM does not get caught up with lawsuits and recriminations. As Stanley Plog has said of his research, the data tell a story of agencies that 15 Onsel Emre,, Ali Hortacsu and Chad Syverson. "E-commerce and the Market Structure of Retail Industries." University of Chicago and NBER, May 7, 2006, 32. 16 Dimitri Ionnides and Evangelia Petridrou Daughtrey, "Competition in the travel distribution system" in Andreas Papatheodorou, ed., Corporate rivalry and market power: competition issues in the tourism industry (London: London IB Tauris & Co, 2006), 134-5. 17 Amadeus, "Service Fees and Commission Cuts: Opportunities and Best Practices for Travel Agencies," June 2007, 4. 18 Severin Borenstein, "The Evolution of US Airline Competition," Journal of Economic Perspectives, 6:2 (Spring 1992): 47. 19 Mark N. Cooper, "Mergers Between Major Airlines: The Anti-Competitive and Anti-Consumer Effects of the Creation of a Private Cartel," Consumer Federation of America, March 21, 2001, 6. 20 Alan Fredericks And Nadine Godwin, "Ruden: Crying 'antitrust' is easier than proving it," Travel Weekly, August 24, 2001 (http://www.travelweekly.com/article3_ektid60960.aspx?terms=*crying+'antitrust'+easier+proving*). 7
    • "have been managing their businesses to be less and less influenced by things that are beyond their control."21 E-Commerce As is well-known, the arrival of e-commerce and online ticket-purchasing also correlates with a devastating decline in travel agency population: Adopted from Emre, et al22 The evidence, however, suggests that the impact of the Internet has been more ambivalent than malevolent for the TBM. Some have even claimed that it has benefited the TBM more than the traveling consumer.23 Suffice to say here that commissions cuts and e-commerce constituted a caducean shock on the travel business. Not only were the airlines eliminating commissions, they were "encourag[ing] travelers to bypass travel agents and book their flights with the airlines directly"24 21 Arnie Weissmann. 22 Emre et al., 22. 23 Jeanne Gustafson, "Travel industry on a bumpy ride," Journal of Business, 24, Jun 4, 2009 (Proquest). 24 Donald J. McCubbrey, "Disintermediation and Reintermediation in the U.S. Air Travel Distribution Industry: A Delphi Study," Communications of AIS, 1, June 1999, 5. 8
    • Four Factors of Adaptation According to ASTA (American Society of Travel Agencies), the population of ACR- accredited single retail agencies has appeared to stabilize at around 18,000.25 Fittingly, the Bureau of Labor and Statistics expects little change in travel agent employment over the 2008– 18 period.26 Talk has even arisen that such stabilization signifies a veritable comeback.27 In any case, today's TBM's persevered through the 90's, went on to survive 9/11 (which exacerbated and finalized the shocks of the 90's) and continue to thrive (again, modestly) in the current recession. I attribute four factors to their endurance: opportunism, strategic streamlining, professionalization and niche selection. 1 Opportunism: With the airline commissions cuts, TBM's turned evermore to selling services that still offered commissions (cruises, hotels, etc). In 1998, the Economist observed that contrary to initial worries, "Disney, most hotel chains and the cruise lines intend to go on paying commission to travel agents."28 Ten years later, the Journal of Business could report that "these companies [cruises, tours and packages] are still paying commissions."29 When examining what TBM's receive from various providers of tourist services, what is most striking is the fall of airline revenue and the ascendancy of cruise revenue over the last few years. 25 ASTA, "Frequently Asked Questions." 26 Bureau of Labor and Statistics, "Travel Agents." Occupational Outlook Handbook, 2010-11 Edition (http://www.bls.gov/oco/ocos124.htm). 27 Stephanie Chen, "Are Travel Agents Making a Comeback?" CNN, August 12, 2009 (http://www.cnn.com/2009/TRAVEL/08/12/travel.agent.comeback/index.html). 28 The Economist, "Vanishing Breed?" January 8, 1998. 29 Jeanne Gustafson, 1. 9
    • Adopted from Travel Weekly Industry Surveys 2004-9 To be sure, after 9/11, the cruise business bounded, both out of fears of flying and the craving on the part of US travelers to solidify connections through multigenerational travel, which cruises excel at.30 There is no doubt that 9/11 triggered the remarkable expansion of cruise ship home ports.31 At the same time, however, as a former president of ASTA contended on the fifth anniversary of 9/11, airline ticket sales had already become irrelevant for travel agencies.32 You might say, then, that 9/11 catalyzed revenue trends that had been set in motion in the 90's. Nowadays, cruises "account for the largest share of the average agency’s revenue pie, by a solid margin."33 Naturally, TBM's push more cruises. 2 Strategic streamlining: Through the years, successful TBM's, while vigilant about costs, have been less likely to make significant cuts in staff, staff hours and operating hours and more likely to increase marketing and to develop new sales training programs.34 Sometimes these investments are made over several years, as in the case of Certified Travel Counselor programs. 30 Kate Rice, "The 9/11 Effect," Vacation Agent Magazine, February 2010 (http://www.vacationagentmagazine.com/Article.aspx?n=1734). 31 Arnie Weissmann, "Goodbye, good riddance to 'the aughts,' industry's Decade of Fear in the US," Travel Weekly, December 21, 2009 (http://www.travelweekly.com/article_ektid207830.aspx?terms=*goodbye+good+riddance*). 32 Richard Copland, "Sept. 11, five years later: How terror changed us," Travel Weekly, September 12, 2006 (http:// www.travelweekly.com/article3_ektid83812.aspx?terms=*terror+changed+us+richard+copland*). 33 Travel Weekly US Industry Survey 2009, "Problem? It's the economy, agents say," October 26, 2009, 10. 34 Stanley Plog, "Sturm und Drang of travel agencies," 24. 10
    • The success of this approach is borne out by recent research. By percentage of agents surveyed, those who made cuts reported more declines, while those who invested reported more growth/stability. Adopted from Stanley Plog35 A note on marketing: while TBM's have websites, they are usually maintained with DIY half-heartedness. They are in no way fueled by a vigorous pursuit for web presence. At the same time, TBM's have largely abandoned newsletters, fliers and newspaper ads. Above all they rely on email. In 200836, they reported that 76% of their marketing was handled through email, in 2009 they reported 80%.37 Similarly, TBM's have at best flirted with instituting booking tools on their websites.38 Barriers to entry are in large part to blame. Yost observes that "the relationship between travel and computer networking is long and profound."39 In this sense, the advent of e-commerce in the 90's shares a common trajectory with the advent of GDS in the 60's and 70's. However, when GDS was introduced, the airlines footed the bill; the cost to TBM's for GDS installation entailed 35 Stanley Plog, "Sturm und Drang of travel agencies," 20. 36 Travel Weekly US Industry Survey 2008, "Travel agents adjust to new realities, adapt by restructuring their business," October 27, 2008, 15. 37 Travel Weekly US Industry Survey 2009, "Problem? It's the economy, agents say," 14. 38 Poling, Bill. "Agents: Multitasking on the Internet," Travel Weekly US Industry Survey 2009, October 26, 2009, 41. 39 Yost, 317. 11
    • relatively low use and leasing fees. Historically, then, barriers to entry for a budding TBM have been low.40 With e-commerce, contrarily, TBM's are on their own; they must finance everything. To compete online, then, size matters. An Economist article quotes Brent Hoberman (co-founder of the unprofitable Lastminute.com) who in 2005 observed of online operations, “The barriers to entry are a lot bigger than people thought in the beginning." 41 The online industry has consolidated. E-commerce battles are largely fought between airlines and online travel agencies (e.g., Orbitz, Expedia). TBM's in the meantime compete quite some distance from the ring.42 In 2005 the Economist declared the titanic struggle a draw.43 Still, in its latest consumer study, Frost & Sullivan discovered that while consumers prefer to use OTA's for information-gathering, they usually wind-up purchasing tickets through airline web- sites.44 The latest shocker is that two OTA's, Orbitz45 and Expedia46, have begun offering commissions to traditional travel agencies. So it appears that as a part of strategic streamlining, TBM's have been smart to do what some scholars have urged:47 refrain from competing with the online big boys and instead rework and refine traditional offline activities. 3 40 Heartland Information Research, Inc., "E-Commerce’s Impact on the Travel Agency Industry." October 3, 2001 (submitted to the Office of Advocacy): 18. 41 The Economist, "Flying from the computer," September 29. 2005 (http://www.economist.com/business-finance/ displaystory.cfm?story_id=E1_QQVVGJN). 42 Clayton M. Christensen, Carl Johnston and Amy Barragree, "After the Gold Rush," Innosight, LLC, 2000, 29. 43 The Economist, "Flying from the computer." 44 Frost & Sullivan, "Despite Use of Travel Websites for Search and Information, Consumers Ultimately Purchase Tickets on Commercial Airlines' Websites, According to Survey by Frost & Sullivan," May 7 2010 (http://www.frost.com/prod/servlet/press-release-print.pag?docid=201281742). 45 Anonymous, "Orbitz offers to pay travel agents commissions to book on site," National Post, Feb 18, 2010 (Proquest). 46 Jeri Clausing, "Expedia launches program for U.S. agents," Travel Weekly, May 06, 2010 (http://www.travelweekly.com/article3_ektid214120.aspx?terms=*expedia+launches+program*). 47 Jasminko Novak and Gerhard Schwabe, "Designing for Reintermediation in the Brick-and-Mortar World: Towards the Travel Agency of the Future," 21st Bled eConference on eCollaboration, 2008: 7. 12
    • Professionalization: From 1998 to 2006, the number of TBM's charging service fees increased from 64% to 93%48, dropping slightly lately to 89.5%.49 TBM's might charge for cruises, hotels and car rentals, but by far airline tickets comprise their chief service fee.50 This fee has itself increased over time: from ASTA's "Service Fee Report," July 200951 Initially, the service fee was considered another nail in the coffin for TBM's.52 To this day, however, traditional agencies account for around half of all ticket sales, despite the fees, and in part because consumers do not want to deal directly with any airline.53 Amusingly, service fees are no longer limited to TBM's. Nowadays, all OTA's charge service fees (except on airline tickets, so as to compete with airlines), while the airlines charge fees for phone and in-person reservations.54 It is true that half of leisure-oriented agencies cite commissions not fees as "their primary revenue model."55 Nevertheless, all traditional agencies have "expand[ed] their service fee model, whether it be the amount charged or the number of services for which they charge."56 48 ASTA, "Frequently Asked Questions." 49 ASTA, "Service Fee Report," July 2009, 1. 50 ASTA, "Frequently Asked Questions," 2010 (www.asta.org/News/content.cfm?ItemNumber=1985). 51 ASTA, "Service Fee Report," 2. 52 Dimitri Ionnides and Evangelia Petridrou Daughtrey, 134. 53 Larry Hochman, Relationship Revolution (London: John Wiley and Sons, 2010), 134. 54 ASTA, "Service Fee Report," 1. 55 ASTA, "Service Fee Report," 3. 56 ASTA, "Travel Agency Service Fee Study Results Are In," Press Release, 2008 (http://www.asta.org/News/PRDetail.cfm?ItemNumber=5670). 13
    • This is as it should be, according to Addison Schonland (of CIC Research). Back in 1998 he argued that "if they want to call themselves a profession, travel agents should start acting like one by providing clients with expert service and charging fees for it."57 It seems that consumers are coming to terms with this professionalization, even favorably, especially when TBM's shift away from mere transport and offer "concierge-like services"58 -- in other words, becoming "more like professional-services firms rather than second-hand car dealers."59 Interestingly, ASTA's 2008 Travel Agent Usage and Fee Sensitivity Study reveals that GenXer's and Millenials are both more likely to use TBM's and more accepting of service fees than Baby Boomers. They are also coming to TBM's better armed with information - an intrusion on the traditional monopoly that successful TBM's have learned to accept and develop.60 4 Niche selection: On the whole, TBM's that specialize have fared better than the generalists, particularly in the realm of internet competition.61 The gravitation toward leisure sales (stressing romance over efficiency) speaks to a trend toward specialization, given that leisure is less routine and requires more expertise. TBM's have certainly become more leisure-oriented.62 Part and parcel with this orientation is the emphasis on international, or at least more complex, travel arrangements. Fittingly, according to Forrester Research, in the US today "long-haul travelers spend 58% more than domestic leisure travelers, but are more than twice as likely to use an offline agent to book their trip."63 It is doubtful if travel search engines can even handle 57 The Economist, "Vanishing Breed?". 58 Lynda Schauf, "How should you purchase travel in today's business environment?" (Proquest) Oct 10, 2009. 59 The Economist, "Fit for DIY," May 30, 2002 (http://www.economist.com/business-finance/displaystory.cfm? story_id=E1_TTVJVTT). 60 ASTA, "Travel Agent Usage and Fee Sensitivity Study," September 2008. 61 Geri Bain, "Russo: Internet Can’t Compete with Specialization," Travel Market Report, March 04, 2010 (http://www.travelmarketreport.com/content/publiccontent.aspx?PageID=861&articleid=2846&LP=1). 62 Travel Weekly Industry Surveys, 2004-9. 63 The Economist, "Flying from the computer." 14
    • complicated travel arrangements.64 The argument goes that by specializing, the TBM has played to its traditional strengths and is able to offer what online services cannot: "detail and context". 65 Conclusion In sum, through opportunism, strategic streamlining, professionalization and niche selection, the successful TBM has survived both airline commissions cuts and the Internet age. I should reiterate that this is not a tale of triumph. What was once in 1995 a 37,000-strong segment of the travel industry has dwindled to 18,000 less lucrative outfits. To be sure, there is evidence that consumers are returning to traditional agencies. The cause this time seems profound dissatisfaction with online travel. 66 But they are not returning in droves, even those needing complex arrangements.67 Perhaps ASTA's current president and chair, Chris Russo, put it best at a recent travel fair in New York as to why people are coming back to traditional agencies. "They need us," he said gleefully, "they need someone to yell at!"68 64 Robert L. Mitchell, "Why travel search engines suck," Computerworld, April 9 2010 (http://blogs.computerworld.com/15902/why_travel_search_engines_suck). 65 Nadine Godwin, "Study indicates dissatisfaction among online travel shoppers," Travel Weekly, August 09, 2009 (http://www.travelweekly.com/article3_ektid198982.aspx? terms=*study+indicates+dissatisfaction+among+online+travel+shoppers*). 66 Larry Hochman. 67 Nadine Godwin. 68 Geri Bain. 15