Bergin Seers TravelAgencyServInd

8/11/2019 Bergin Seers TravelAgencyServInd

1/18

1

THE TRAVEL AGENCY SERVICE INDUSTRY:

INDUSTRY TRENDS AND PRACTICES

Sue Bergin-Seers1, Barry OMahony

2and Regina Quiazon

3

Introduction

The need for this scoping study was identified by the Australian Federation of Travel Agents(AFTA). A current overview of the industry, including the changing trends of travellers, wasrequired by the organisation, with a specific request to source existing available data withregard to industry trends for travellers in seeking, booking and purchasing travel. It wasunderstood from the outset that data may not exist to answer all the desired needs and, hence,the scoping study would help to confirm the need for future primary research, as well as the

parameters and dimensions of that research. This paper describes the key findings of thescoping phase.

In identifying the current trends and practices in the Travel Agency Service Industry, theresearch was based on secondary data to specifically consider the following issues, asidentified by AFTA:

Travel agency reservations and bookings as compared to reservations and bookingsconducted over the internet;

Use of the internet for information sourcing for travel decision making as opposed toadvice from travel agents;

Variations in usage of the internet versus travel agents according to market segmentand length of stay;

Direct selling by airlines;

Reasons for traveller use of the internet; and Best practice competitive strategies by key travel agents.

Data Sources and Limitations

The data for the study were drawn from a number of sources, including IbisWorld, TourismAustralia, Roy Morgan, AC Nielsen, Australian Bureau of Statistics, Sustainable Tourism Co-operative Research Centre (STCRC) and various media sources. It should be noted that theIbisWorld (2005) data was used extensively as it provided regular updates on the travel agentindustry. The wide-ranging data provided by IbisWorld were carefully examined in order toselect and analyse relevant information for this report; however, numerous calls to their

research personnel were required to clarify conflicting information. Gaps in the IbisWorlddata were filled by other sources (some of which are dated). Additionally, primary analysis ofTourism Australias (2004a) international visitor survey (IVS) base data provided in CDMotaformat was undertaken to address the consumer-related research questions.

1Research Fellow, Centre for Hospitality and Tourism Research, Victoria University. Email: [email protected], Centre for Hospitality and Tourism Research, Victoria University. Email: [email protected]

3Research Officer, Centre for Hospitality and Tourism Research, Victoria University. Email:

[email protected]


2/18

2

Findings

The Overall Market

The overall marketwith regard to the Travel Agency Service Industry in Australia includesdirect selling by travel agencies (retailers and wholesalers), online travel agencies, online

wholesalers/consolidators, airlines, tour operators and other ground content (accommodation,attractions, event and show tickets, car hire etc.) operators. Internet travel reservations andbookings include transport (plane, ship, rental cars etc.), accommodation (hotels, motels,serviced apartments etc.), tourist attractions (theme, amusement parks, museums etc.) and

bookings made for business, personal and/or leisure purposes (IbisWorld 2005). It was theintention in this study that internet travel reservations and bookings would exclude travelagent websites; however, the secondary research drawn on did not always clarify whetherusage of the internet excluded travel agent sites or not.

As shown in Table 1, the number of enterprises operating in the Australian industry hasdecreased from 3,174 in 2000-2001 to 2,968 in 2004-2005. This decrease indicates thatconsolidation is occurring. In fact, significant industry consolidation has occurred recently, to

the extent that there are four major operators. These operators, who are shop front franchisedretailers include Flight Centre, Jetwet Travelworld, Harvey World Travel and Travelscene(which has completed a joint franchising arrangement with American Express). Beyond thisthere are a few smaller brands and some independent operators, but the industry is nowdominated by these major operators.

Table 1: Key market statistics

2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

Industry Revenue ($mill) *2,614.0 *2,352.0 *2,290.0 *2,315.0 *2,338.0

Industry Gross Product ($mill) *932.0 *828.0 *780.0 *808.0 *816.0

Number of Establishments

(units)*3,976.0 *3,857.0 *3,780.0 *3,742.0 *3,723.0

Number of Enterprises (units) *3,174.0 *3,079.0 *3,017.0 *2,986.0 *2,968.0

Employment (units) *23,368.0 *22,550.0 *22,100.0 *21,879.0 *21,660.0

Exports ($mill) *231.0 *219.0 *214.0 *250.0 *279.0

Imports ($mill) *471.0 *468.0 *463.0 *523.0 *571.0

Total Wages ($mill) *728.0 *726.0 *706.0 *686.0 *679.0

Domestic Demand ($mill) *2,854.0 *2,601.0 *2,539.0 *2,588.0 *2,630.0

Source: IbisWorld 2005* Constant prices

Based on the reported consolidated revenues for 2004-05, three of the top four companieswere estimated to account for over 40 % of total revenue, as listed in Table 2. The majorretailers compete with airlines and other ground operators through web-based information,reservation and bookings.


3/18

3

Table 2: Market share

Agency Market share range

Flight Centre Ltd 34%

Jetset Travelworld Ltd 6%

Harvey World Travel 3%

Figures are based on company reports of annualrevenues and industry revenue of $2338 million.

With approximately 34% of the market share, Flight Centre dominates the travel agencyindustry. The closest rivals to Flight Centre are Jetset Travelworld and Harvey World Travel.Travelsceneis also a key competitor, but revenue figures are not currently available.

The total Travel Agency Service Industry revenue for the year ending November 2005 was$2338 million which represents an estimated real growth of 1% from the previous year. Thetotal revenue is derived from three components: Australians travelling overseas (imports);international visitors travelling to Australia (exports); and Australians travelling within

Australia (domestic). Imports are estimated at $571 million and exports at $279 million(IbisWorld 2005).

Within this product segmentation, the industry is broken down into four servicecomponents, as shown in Table 3. As indicated, the retailers account for nearly 50% of thetotal revenue.

Table 3: Industry service components and market share

Service Share of total revenue

Retailers less than 50% (2003-04)

Tour Wholesalers/Consolidators 30%

Inbound Tour Operators Over 20%

Tourist Bureaux less than 1%

Source: IbisWorld 2005

Industry Market Share: the Internet Compared to the Overall Market

In 2005, direct bookings by Australian travellers with travel providers continued to be themost popular method of booking a trip and are double that of travel agents (see Figure 1).

Additionally, for the three-year period from 2003 to 2005, Internet bookings increased from17% to over 28%, airline bookings increased from 12% to 15% and travel agent bookingsremained stable.

These trends suggest that there is no major shift in the sale of travel by travel agents overthe past three years, despite the increase in internet bookings. These findings may indicatethat some consumers are using both providers in a complementary way and may notnecessarily be choosing between the two.


4/18

4

Figure 1: Top six service providers where last trip was booked

Source: Roy Morgan 2005Base: Respondents who booked their last trip (excludes those who were unsure about their booking method)

Market Share: the Internet Compared to Travel Agents

Technological developments regarding travel purchases have affected the industrydramatically. Direct bookings and reservations by travellers via the internet, using specialistsoftware and GDS sites have increased the opportunities to book both travel andaccommodation. Internet booking by travellers has grown and will most likely continue togrow with the spread of other technologies, such as the optical fibre network, online visual

presentations of travel product and CD-ROMs. Furthermore, ticket-less travel using smart(computer chip imbedded) credit cards or e-tickets is also a key factor influencing electronic-

based purchasing by travellers (IbisWorld 2005).Research suggests that, with the growth of online travel bookings, the internet, in certain

situations, is now almost equal with travel agents as the most preferred means of bookingtravel. This trend is not surprising given that Australia has one of the worlds highestincidences of consumer purchases on line (Roy Morgan 2004).

The internet also plays an important role as a low-cost and efficient means of sourcinginformation about travel and travel destinations and is used to help travellers in their traveldecision-making. As a result, in particular circumstances the internet is taking the place of thetravel agent. However, the usage of the internet (although growing) is not overtaking allaspects of travel. The use of the internet for bookings and sourcing information varies

according to type of trip and market segment. Additionally, best practice by the leadingtravel agents suggests it is feasible for agents to compete with the internet. Strategies for howthis has been achieved are discussed in a later section of this paper.

In summary, and as detailed further, the market share for travel booking for travel agentscompared to the internet is as follows:

For domestic travel (including both short and long trips), the internet has overtakenbookings with travel agents;

For international long-trip travel (three or more days) by Australians, travel agents arestill the preferred booking mode (60% for agents compared to 23% via the internet);and

For international visitors to Australia, there is a growing trend to book travel via the

internet (grown from 7% to 18% from 2001 to 2004).

52%

17%

24%

12%

2% 2%

50%

23% 24%

14%

2% 2%

50%

28%

25%

15%

2% 2%

0%

10%

20%

30%

40%

50%

60%

Booked directly with

provider

Internet Travel agent Airline Tour operator State Tourism

Authority/Government

Travel Centre

Jun-03 Jun-04 Jun-05


5/18

5

With regard to the market share for the sourcing of travel related information the followingtrends have been observed:

For domestic travel, the use of the internet is slightly more than for travel agents; and For international visitors, the internet has overtaken travel agents as a source of

information to support consumer destination choice.

Industry Trends

The two issues explored in relation to industry trends are concerned with how the internet isimpacting on Travel Agency Services. These issues include current booking patterns andinformation sourcing by travellers for decision-making. These trends vary according to lengthof stay as well as market segment.

Booking Patterns

The market segments explored in relation to booking patterns include Australians travellingdomestically, Australians travelling overseas and international visitors travelling to and within

Australia. International travel by Australians contributes significantly to the industry, as it isestimated to account for around two-thirds of the industry total revenue, as summarised inTable 4.

Table 4: Contribution to industry total revenue by market segment

Product/servicesContribution to industry

total revenue

International travel by Australians 65.0%

International visitor arrivals in Australia 20.0%

Domestic travel by Australians 15.0%Source: IbisWorld 2005

The international market

Trends for the booking of travel within the international market consider both overseas travelby Australians and international visitors to Australia.

Trends in overseas travel by AustraliansThe profile data on Australians travelling overseas indicates that only around 10% of the

population take an overseas trip and less than 1% take more than one overseas trip in thatperiod. In 2004-05, Australians travelling overseas increased by just over 8.5%. This increase

is related to improved industry conditions, such as reduced fears about safety and improvedeconomic conditions. It is the 40-54 year age group and higher socio-economic groups thathave the highest incidences of overseas travel (IbisWorld 2005).

Surveys conducted from April 2000 to September 2005 (Roy Morgan 2005) revealed that,for Australians, travel agents were still the preferred booking mode for international long-triptravel (three or more nights). As shown in Figure 2, 66% of Australian travellers booked withtravel agents compared to 23% who booked on the internet. This trend is most likely due tothe complexities related to such bookings. According to Roy Morgan, international travel

bookings are more likely to require human interaction, due in part to complex pricing and lackof destination knowledge; however, the long term trends indicate that internet bookings foroverseas travel of three nights or more are increasing, while travel agent bookings aregradually decreasing.


6/18

6

Figure 2: Booking of last long international leisure trip (three or more nights) %

Source: Adapted from Roy Morgan 20 05

Base: Last international long trip travellers n= 11,203

International visitors to AustraliaThis segment is relevant to inbound tour wholesalers and tour operators. There is a trend forinternational visitors to Australia to purchase travel and accommodation (other thaninternational airfares) prior to arrival. Approximately 50% of all international visitors toAustralia are pre-purchasing their travel (IbisWorld 2005).

There is also a growing trend for international visitors to book their travel via the internet.From 2001 to 2004, internet bookings for travel have more than doubled (from 7% to 18%).

Items booked over the internet

As shown in Figure 3, in 2004 accommodation in Australia and international air travel toAustralia were the most common items booked over the internet by international visitors.

Figure 3: Items booked via the internet for international visitors (2001-2004) %

Source: Tourism Australia 2004a

0

20

40

60

80

100

Mar-01Jul-01

Nov-01

Mar-02Jul-02

Nov-02

Mar-03Jul-03

Nov-03

Mar-04Jul-04

Nov-04

Mar-05Jul-05

Internet Travel Agent Total booked last trip

0 10 20 30 40 50

International air travel to

Australia

Air travel w ithin Australia

Organised tours in Australia

Rental or leasing of cars or

campervans in Australia

Accommodation in Australia

Other

2001 2002 2003 2004


7/18

7

Package Tours

The 2004 IVS data suggest there has been little change in package tour travel for internationalvisitors over the past five years. The percentage of international visitors to Australia arrivingon packaged tours is around 30%. There is a greater tendency for travellers in the 20-30 yearsage group (14%) to purchase travel packages. It is also apparent that a high proportion ofAsian travellers from Japan and China use inclusive packaged tours and group tours

(IbisWorld 2005).

The Domestic Market

There has been little growth in the domestic tourist market over the last two decades. Thismarket has grown at around half the rate of real GDP (i.e. 2% compared with 3.4% for realGDP) and with growth of only 1% for pleasure/holiday trips.

During the 1990s the growth of holiday/pleasure travel slumped further to averagearound 0.5% per annum. While there has been some growth in interstateholiday/pleasure travel (mainly by the higher income individuals), intrastate

pleasure/holiday travel declined. The visiting friends and relatives (VFR) market had,however, expanded, possibly due to its relative cheaper overall cost. (IbisWorld 2005)

The low contribution of this market to the industry total revenue is based on the lowcommission rates that agents receive from airlines for domestic travel and, more recently,from the significant reductions in airfares which travellers have taken up via airline websites.

Trends in domestic air: internet versus agentsThe percentage of domestic travellers using the internet to book leisure travel has grown byapproximately 14% from 2000 to 2004 (see Figure 4) (Roy Morgan 2005). In the past fewyears there has been a general preference for domestic holiday travellers to handle their ownarrangements or to book direct with operators rather than using standard packaged tours.Currently, word-of-mouth recommendation is the favoured method for travellers to sourceinformation and book travel (IbisWorld 2005). However, travel agents still handle asubstantial amount of business/corporate travel for both domestic and international travel. Formost agencies this is their main source of income and overall the industry has profited fromthe outsourcing of travel arrangements by the private and government sectors. Yet travelagency services are now threatened by the airlines which are competing directly with agentsand are securing some of the larger business/corporate travel contracts.

Figure 4: Booking of last domestic trip: travel agent vs internet (%)

Source: Adapted from Roy Morgan 2005Base: Total travellers (travelled in the last 12 months), n= 70,224

0

24

68

10

1214

16

Sep-00

Dec-00

Mar-01

Jun-01

Sep-01

Dec-01

Mar-02

Jun-02

Sep-02

Dec-02

Mar-03

Jun-03

Sep-03

Dec-03

Mar-04

Jun-04

Internet Travel Agent


8/18

8

For the year ending September 2005, the internet was used by 12% of Australian travellersaged 14 years and over to book their short (less than three nights) domestic trip (Roy Morgan2005).

Furthermore, the use of the internet to book long (three nights or more) domestic holidayshas also shown considerable growth and has overtaken travel agents as the primary bookingmethod. As illustrated in Figure 5, the use of the internet as a means of booking domestic

leisure trips of three nights or more has grown more than ten-fold, from 2% in March 2001 to21% in September 2005. Whilst there is evidence of some growth in the booking of longdomestic holidays, overall the results suggest that travel agents have not been able tocapitalise on this growth (IbisWorld 2005).

Figure 5: Booking of last domestic leisure trip (three or more nights) %

Source: Roy Morgan 20 05Base: Last domestic long trip travellers n= 63,681

Trends in domestic holiday packagesAlthough there is some move away from using standard packaged tours, domestic holiday

packages continue to be popular with travellers over 55 years of age and with peopleinterested in the newer tourist discovery areas of Australia such as Northern Territory, farnorth Queensland and outback Western Australia (IbisWorld 2005).

To meet the trend of consumers seeking new experiences, the wholesale domestic packagemarket is developing modular type units which cater for more personalised needs.

Trends in land-based sales and (drive) vacationsThere is little research on consumers views of land-based sales (Carson, Waller & Scott

2002).

However, with threats of war and terrorist attacks, interstate travel (particularly in thelarger population states) has increased, while intrastate pleasure/holiday travel has declined.This increase has occurred especially around the December/January holiday period, as peopletravel closer to home and use land-based transport modes. This increase has occurred despiteincreases in overseas travel. In 2004-05 there were 4.591 million Australians who travelledoverseas; a 14% increase from 3.937 million for 2003-04 (IbisWorld 2005).

Travel Information Sourcing

Even though both the internet and travel agents are influential sources for holiday decision-making for both international and domestic travel, word-of-mouth referral is still the most

important source of information for travellers (Tourism Australia 2004a). Nevertheless, theinternet has drastically changed tourism distribution channels and booking patterns. Theinternet is a means of booking travel tickets and accommodation, as well as a key information

0

10

20

30

40

50

60

70

Mar-01Jul-01

Nov-01

Mar-02Jul-02

Nov-02

Mar-03Jul-03

Nov-03

Mar-04Jul-04

Nov-04

Mar-05Jul-05

Internet Travel Agent Total booked last trip


9/18

9

source for holiday planning, and is increasingly influencing the travel choices of Australianleisure travellers (Roy Morgan 2005).

Although there are some differences in the level of growth of the internet as a source ofinformation, there is agreement that it has grown rapidly. For example, the Roy Morgan(2005)data (as illustrated in Figure 6) indicate that for international visitors the internet hastaken over from travel agents as a source of information to support consumers in their choice

of destination.

Figure 6: Sources of information for travellers (%)

Source: Adapted from Roy 2005Base: Travellers 14+ (last trip) n=94,281

The use of the internet by Australians as an information source has shown rapid growthsince 2001. Of those who had travelled (in Australia and overseas) in the past 12 months, over15% had used the internet for pre-travel planning, compared to 4% in 2001 (Roy Morgan,

2005). (Note: The IVS data indicates that the use of the internet for travel information

sourcing has grown from 17% in 1999 to 33% in 2004.)Additionally, as shown in Figure 7, IVS data indicate that 17% of international visitors to

Australia sourced information about Australia on the internet. This figure is slightly more thanthe 16% who used travel agents as a source of information (Tourism Australia 2004a).

Figure 7: Sources of travel information for international visitors to Australia

Source: Tourism Australia 2004a

0

5

10

15

20

25

Mar-01Jul-01Nov-01Mar-02Jul-02Nov-02Mar-03Jul-03Nov-03Mar-04Jul-04Nov-04Mar-05Jul-05

Internet Travel Agent Total Friends or Family

0 2 4 6 8 10 12 14 16 18

Internet

Travel Agent

Friend or relative living in Australia

Previous visit(s)

Travel book o r guide

No informatio n obtained

Friend or relative who has visited A ustralia

Somewhere else

Travel Art icle in Newspaper or Magazine

Advertising on TV or Radio

Airline

Films or TV or Radio Program

Tour o perator

Advertising in Newspaper or Magazine


10/18

10

International visitors to Australia use the internet for a variety of travel purposes, assummarised in Table 5. The main reason is to find out more about Australia once the decisionhas been made to make the trip. However, information sourcing may not necessarily convertinto bookings.

Table 5: Reasons for international visitors to Australia for using the internet

Reasons for using the internetInternational

visitors to Australia

To find out more about Australia after you decided to visit 21%

To find out about accommodation in Australia 15%

To help plan your Australian trip itinerary 14%

To find out about events or activities within Australia 14%

To look for airfares or air schedules for travel to Australia 10%

To help plan other transport options (eg. car rental, public transport, etc) withinAustralia

7%

To look for airfares or air schedules for travel within Australia 5%

Other reason (specify) 4%

To help decide whether or not to visit Australia 3%

To find a travel agent for Australia 3%

Source: Tourism Australia 2004a, n=3,787,000Note: These responses are for all people who were asked either the question did you use the internet to obtain info? and/or

the follow up question about reasons why.

It is interesting to note that of the small proportion (3%) of international visitors who usedthe internet to find a travel agent, over one-quarter started planning their trip one to threemonths before arrival. This finding suggests that last minute bookings are more likely to becarried out via a travel agent.

The accessing of information and the conduct of business over the internet has increasedconsumer knowledge about travel prices. As a result of the easy access to information,travellers are also becoming more knowledgeable about destinations. These findings indicatethat the internet is becoming fundamental in assisting travel decisions for both the planningand booking stages. The use of the internet, with the exception of the outbound market, isoften to the detriment of travel agents. There is evidence that usage of the internet iscontinuing to increase (IbisWorld 2005).

With the increased availability of online providers and the choices they offer to consumers,

it is likely that internet communications will continue to grow in importance for the tourismindustry. Therefore, pressure continues for travel agents to maintain a competitive advantagein this changing environment. As a result of these changes it is crucial for agents to offer notonly online communications and booking methods, but also a point of difference (IbisWorld2005).

Direct Selling by Airlines

Distribution versus product offering

Strong competition in the distribution of travel products from various travel service providers,

such as banks, airlines and member clubs, has affected travel agents. Distribution of productsis compounded by growth in the usage of the internet, which has opened the way for directselling by airlines.


11/18


12/18

12

A solution to the direct selling of airlines is for travel agents to develop niche markets andto provide specialist advice and information that would not be available via direct contactwith the provider (Rutledge, Black, Clarke & Bauld 1999).

The review of existing research regarding customers views of current distributionchannels and product provision and the value they place on them indicate these issues havenot been explored. The lack of knowledge about the needs and wants of customers makes it

difficult for travel agents to fully understand how to strategically place themselves in themarket; therefore, future customer-based study is essential.

Customer View of Intermediaries Travel Agents versus the

Internet

Whilst there is considerable research into why consumers generally use the internet, there isless information about why they use the internet for travel. Available research suggests theinternet is used for travel because of related efficiencies, ease and the low cost in makingtravel enquiries and purchases. There is also a view that the internet is a good source of cheapand discounts deals. As already highlighted, the internet is largely used by domestic travellersfor booking air travel and accommodation. Scant information available about travellers use ofthe internet suggests that specific study is needed, with an exploration of current use and plansfor future use.

Impact of Loyalty Programs

Although loyalty programs were prominent in the 1990s, current research suggests that theirpopularity has since waned. Various programs have received considerable press in the lastfew years. These programs include those offered by banks, retailers and airlines. AustraliaScan research indicates thatFly Buys, credit card reward schemes and airline frequent flyer

programs are the three most popular scheme varieties (Sydney Morning Herald, Press report,30 March 2002).

Consumer dissatisfaction with such schemes started several years ago with the demise ofAnsett when thousands of consumers did not receive any compensation for the loss of reward

points (70 billion reward points were lost). A recent survey by the advisory serviceFrequentflyer.com.au found that as many as 55 % of frequent flyers have lost confidence inairline reward schemes since 2001 and 10% are no longer interested in loyalty programs(Sydney Morning Herald, Press report, 30 March 2002).

Over time, the value of loyalty programs has been questioned, with the average rewardpoint now costing $1 while it is worth about 1 cent when redeemed (Herald Sun, 11September 2005). A number of issues affecting consumers views and uptake of travel related

schemes (Sydney Morning Herald, 6 August 2005) include: The cost of membership fees for frequent flyers; Not getting point for point when transfers are made to Qantas frequent flyers; The poor value in redeeming points for free flights; Additional costs due to airport taxes and fuel levies; Obtaining the desired flights through Qantas (due to availability of seats); and Tightening of programs so that it is harder to get upgrades whilst also increasing the

number of points needed to redeem tickets on long routes.

The available data relates to credit card and airline loyalty schemes. This information isgeneral in nature and has not specifically addressed the current needs and future plans of

consumers. Additionally, there is a knowledge gap regarding the newer schemes which needsto be addressed (e.g. Flight Centre).


13/18

13

Impact of Taxes and Charges

Taxes which affect the travel industry include the GST, accommodation taxes and airporttaxes, whilst other travel-related charges include fuel costs and passport charges.

Since the introduction of GST at a rate of 10% from 1 July 2000, domestic travel continuesto be more expensive for Australian residents relative to international travel. GST does not

apply to international travel by Australians. As outlined earlier, although the VFR market hasexpanded due to its relatively cheaper overall cost, there has generally been little growth inthe domestic tourist market over the last two decades.

With fuel cost more than doubling in the past few years, pressure has been placed onairlines to introduce a fuel surcharge on ticket prices. In early March, Virgin Blue wasconsidering its third fuel surcharge increase in less than a year. Any further increases couldmake vulnerable those airlines who are new carriers or who have not hedged their fuel at thelower price. There is fear that these costs will become too expensive for consumers and airline

purchases will drop.It is too early to assess the impact of the imposition of GST on the accommodation pre-

purchase elements of travel by international visitors to Australia. The tax, which was imposed

from 1 April 2005, charges inbound operators 10% GST on their margins in this area (around1% of the pre-purchased hotel room component of packaged tour prices). Plans for furtherstudy should be considered with regard to accommodation taxes, impact of the GST ondiscretionary spending, passport charges and fuel surcharge impacts on travel.

Best Practice

Competitive Strategies

For most operators in the Travel Agency Service Industry, the overall profit margin is small,which means that financial viability is an issue. Viability is threatened by a number of

changes.

Threats

Firstly, the introduction of new technology has had a significant impact on the industry. Infact, online booking services and travel agency services websites have become the mostcritical factor in the competitive environment. Technological changes can be seen to be themajor driving force behind the operation and growth of the industry. The availability ofGalileo Southern Cross and International Expedia, mega-computerised reservations systems,on the internet (and in the case of Galileo, shortly on interactive TV technology), isencroaching on the growth of travel agents revenues, along with the direct booking facilities

offered by travel operators (IbisWorld 2005) and the emergence of travel recommendersystems and simulators.

Secondly, as there has been too much reliance on airlines for revenue (Rutledge, Black,Clarke & Bauld 1999), little attempt has been made by the small agencies to undertakeaggressive marketing. Transport operators (such as Jetstar) no longer offer travel agentscommission on sales, as online ticket booking and information services can now be accesseddirectly from airlines (IbisWorld 2005). (Instead of a commission, Virgin Blue pays anincentive payment of up to 8% in certain circumstances.) This means that many travel agentswill need to rethink how they conduct business.

The increased competition due to technological advancements and airlines selling ticketsdirectly has encouraged discounting and price cutting as a means of attracting new customers.

Although competition has become mainly price-based, other non-price-based elements areimportant to the competitive environment. The agencies who compete on price work to offercustomers (usually private rather than business travellers) the best price for travel. However,


14/18

14

there is concern that this approach may cause problems as new technologies such as onlineticket prices and booking services are increasing consumer knowledge of travel prices,thereby introducing more price-based competition (especially for holiday travellers). Price-

based competition is therefore unsustainable.

Opportunities

There are opportunities, particularly for small to medium sized travel agents, to employstrategies that are non-price based. Important non-price elements in the competitiveenvironment include the quality of service provided; staff with intimate knowledge ofdestinations and products on offer; ease of access to the service, particularly by corporateclients; and word-of-mouth recommendations. The pursuit of quality service and repeat

business has led some agencies to consider introducing fees for service rather than operatingon a commission basis only for payment.

According to research (IbisWorld 2005), the key success factors for the future operation ofa travel agency include:

Being part of a group buying, promotion and marketing scheme;

Proximity to key markets so as to be in a highly visible location. Closeness to marketsmay mean expansion of outlets domestically and overseas; A greater focus on inbound and outbound travel (as opposed to the less profitable

domestic airline travel); Access to the latest available and most efficient technology and techniques and to have

a computerised information, reservations and bookings system to provide customerswith easy 24-hour access;

Utilising technology to help increase labour productivity of staff and efficiencies; Expert knowledge by travel agents is a crucial means of accessing a larger market and

providing value-added service to customers who have increased travel knowledge as aresult of web-based technologies;

Improving customer service beyond existing services. Having a loyal customer basewhich is driven by the provision of a professional service to clients so as to generaterepeat custom. A fee for service approach to working with travellers is likely to bethe best option and more viable than working with airlines for commission. Minimumfees could be considered for customer amendments to travel, cancellations, use ofcertain credit cards, information gathering, re-confirmation and late bookings, forexample; and

Become a specialist and seek niche markets by working with specific organisations toprovide exclusive products.

For agents to survive and grow in the current competitive environment, lessons may belearnt from the market leaders. A case study of how Flight Centre has expanded and survived

tough times is outlined in Appendix A and provides a good example of how one agency hasmanaged its external environment.

Conclusions and Implications

The Travel Agent Service Industry is undergoing substantial change as a result ofenvironmental and technological changes. Internet usage was the main issue identified inrelation to trends and practices that are currently occurring within the industry. The issue,however, is closely linked to the issues of distribution and service. The internet has enhancedthe distribution of travel-related content, pricing information and travel planning tools for

consumers. In enhancing the empowerment of consumers to conduct their own research, aswell as to plan and book their own travel, it has also created transparency, which has resultedin more price-sensitive travellers. The internet also provides travellers with increased options


15/18

15

due to the growing number of sites available and the information and services offered.However, it is unsustainable for agents to continue to compete on price.

It is important to note that, although the study found a general trend towards the uptake ofonline bookings, travel agencies still remain the most popular mode of booking overseastravel. Nevertheless, the internet, whether perceived as a threat or a benefit, plays a pivotalrole in the distribution and provision of services. The increasing use of technology, both by

providers and consumers within the industry, highlights the need for travel agents todifferentiate themselves from the services offered through the internet. A refocus of the travelagents role, which places the emphasis on, for example, niche marketing, value-adding and

personalised services, could effectively meet the challenges brought on by the internet.Although this study confirms many of the issues that have affected the industry over the

last five years, the emergence of new travel providers, the changing needs of consumers andthe speed with which technology and internet usage has been taken up highlight the need forfurther research which is not only up-to-date, but more importantly considers the issues withindifferent and more specific contexts. Current available data, while identifying the internet as a

pervasive factor in booking trends and patterns, do not adequately account for the needs anddesires of consumers and the ways in which consumer views relate to distribution and service.

The recommendations put forward throughout this report are, therefore, also a reflection ofthe need to broaden the research parameters beyond the confines of internet usage and morespecifically within different markets.

Future Research

The gap in research largely relates to consumers and their current travel needs and purchasingbehaviours. At this point in time, the industry has little information to guide future directions.Therefore, it is recommended that research be undertaken to ascertain responses to thefollowing questions:

What are the consumers views of the internet in comparison to the travel agent inregards to their value and influence on travel-related purchases? What specific travel-related products (packaged, non-packaged and niche) do

consumers currently seek via the internet and via the travel agent? Is there any value in introducing and/or maintaining travel related loyalty programs? Which markets provide the greatest value (or greatest yield) for travel agents? What are the characteristics of both the domestic and international travellers who still

seek the services of the travel agent? and What value-added strategies have been implemented successfully by travel agents?


16/18

16

APPENDIX A

Best Practice Case Study: Flight Centre

Flight Centre Ltd. Australia commenced operations in mid-1981 and several years later traded onthe brand names of Flight Centre, Corporate Traveller, Great Holiday Escapes and Student Flights.From the beginning, Flight Centres strategy was to focus on quality rather than just price. Thechain started with 200 outlets which were largely located in CBD areas and popular strip shoppingcentres. Since that time, Flight Centre has grown to operate globally in the United States, UnitedKingdom, New Zealand, Canada and Asia, and in early 2005 had 1181 outlets.

In the early nineties, to save costs, an in-house ticket consolidation activity was established. FlightCentre Ltd was quick to move into internet-based booking systems which contributed to their

profits. In 2000, the company launched Flightcentre.com which was supported by a large call

centre. It also formed alliances with QANTAS and Virgin Blue Airlines to sell airline seats. In2003, as airlines continued to lower commission levels, Flight Centre continued to focus on land-

based transport sales and the cruise shipping market. Joint ventures with Chinese travel companiesassisted moves into Asia. The company targets the corporate market as well as young travellers.Acquisition of the Internet Travel Group in 2001 was undertaken to boost Flight Centrescorporate travel revenue to $800 million, which is about 20% of the corporate travel market.

Over the past two years, like most other travel agencies, the company has been affected by theincrease in competition and the lower commissions on discounted fares. Strategic changes have

been introduced to combat the changing environment. In 2003, Flight Centre decided to focus onsales of land-based transport to address the issue of lower airline commission rates. It alsoconcentrated on the cruise shipping market. In 2004-05, the company invested $10 million ininformation technology to make greater use of online bookings. This investment was undertaken inorder to move away from airline ticket sales and to move to a greater percentage of travel productsales. This strategy was supported by the purchase of the online booking company travelthere.com. (In February 2006 it was reported that in Australia flightcentre.com.au was thenumber one travel agency website.) By 2005, Flight Centre indicated that it may stop selling

budget airline tickets as a result of low margins and increasing costs. In October 2005, FlightCentre also completed its acquisition of India-based corporate travel business Friends GlobeTravel Ltd. In the past two years, the corporate market remained a key focus and the growth of thecorporate brand FCm Travel Solutions was supported by the introduction of CiEvents theconference, incentives and events brand.

In summary, the companys success is based on its ability to stay ahead of the competition. FlightCentre continues to expand globally in order to be close to its customers and has moved quickly totake on new technologies for booking travel. Despite Flight Centre reporting a pre-tax profit of$49.8 million for the 2005/06 fiscal year a number of losses offset this gain. The losses includedthe disbandment of the RewardPass customer loyalty program in January 2006 (which wasintroduced in late 2004), a $1.8 million loss from Air Paradises collapse and the airlinesincreased use of fuel surcharges and levies, which has increased the cost of tickets for consumerswithout giving commission to agents on this surcharge. However, the company continues to battleongoing changes in the travel industry. Remaining in touch with and in some ways shapingtravellers desires is important to its continued success.

Compiled March 2006


17/18

17

APPENDIX B

Research questions, as developed by AFTA

1. Benchmarking of travel agents

a. Define market share as compared to internet and overall market including directselling by suppliers.

b. Define and benchmark best practice.

c. Customer view of intermediaries travel agents versus the internet.

2. Industry Trends and Booking Patterns

a.

Trends in domestic air (internet versus agents)

b. Trends in domestic holiday packages is the package market breaking down from onepackage component to separate land and air components?

c. Trends in land-based sales and land-based (drive) vacations.

d. Trends in overseas reservations (agents versus internet and also in land packages (asper domestic above)).

e. Impact of loyalty schemes airline schemes, agents schemes such as Flight Centre

and other schemes such as Fly Buys.

f. Impact of taxes and charges including government taxes, fuel surcharges,passportcosts, etc. on overseas travel.

g. Latest booking patterns internet? Agents? Last minute, short breaks, etc. (andcompare to other industries).

h. Assessment of strength in the consumer mind does strength lie in distribution or inproduct offering?


18/18

18

REFERENCES

Carson, D.,Waller, I. and Scott, N. (2002). Drive Tourism: Up the wall and around the bend,Sustainable Tourism Co-operative Research Centre, Gold Coast.

Herald Sun, 11 September 2005, How to get your reward points to take off.

IbisWorld (2005). IbisWorld Industry Report: Travel Agency Services in Australia, I6641. 29November 2005.

Roy Morgan (2004). Online Travel Continues to Increase, available: http://www.roymorgan.com/news/polls/2004/3811/

Roy Morgan (2005). Qantas Tops Travel Websites as internet Continues to Shape Travel Market,available: http://www.roymorgan.com/news/press-releases/2005/436/

Rutledge, J., Black, N., Clarke, N. and Bauld, S. (1999). Travel Agents in Australia: Review,Sustainable Tourism Co-operative Research Centre, Gold Coast.

Sydney Morning Herald, Press report, 30 March 2002, Loyalty gets its just deserts.

Sydney Morning Herald, 6 August 2005, Frequent flying, not frequent calling.

Tourism Australia (2004a).National Visitor Survey and International Visitor Survey, CD Mota data.

Tourism Australia (2004b). December Fact Sheet:Information Sources and Booking Methods.

Bergin Seers TravelAgencyServInd

Documents

Transcript of Bergin Seers TravelAgencyServInd