Ecommerce and Information Technology in Hospitality and Tourism

E-commerce and Information Technology in Hospitality and Tourism Chapter 8 A Special Case Study: The Past, Present, And Future Of Travel Agents Copyright 2004 by Zongqing Zhou, Ph. D Niagara University

Learning Objectives l After you complete your study of this chapter, you should be able to: l l l Gain a historical perspective on the role of travel agents. Describe the attitude of travel agents toward the use of technology. Understand why travel agencies’ business models no longer fit the Internet age. Explain why travelers leave travel agents. Understand new strategies for the future of travel agents. Explain why marketing orientation, combined with individualized service, is the viable business model for the future of travel agencies.

8. 1 Introduction l Internet and Travelers l more than 59 million Internet users in the United States went online last year to gather information or to check prices and schedules, growing 395% over the past three years. l Over one third of all e-commerce transactions are now attributable to travel, and online travel advertising ranked fourth in 2002 l By year’s-end 2002, it will reach $8. 9 billion in online travel spending.

8. 1 Introduction (cont. ) l Why are travel agents in trouble? l l l They are being hit from all directions. Both the availability of online booking and the commissions cut and cap by travel suppliers and carriers third-party Online travel stores, such as Expedia. com, Travelocity. com, Orbitz. com, Priceline. com, and Travelweb. com are competing with them and takingcustomers away. The global distribution systems, GDSs, the former allies of the travel agents, are reaching out to consumers themselves. There is increasing consumer interest in e-commerce that, in turn, is fueled by consumers’ increasing online accessibility. Increasing consumers trust in various online payment methods as well as in credit card transactions over the Internet.

8. 1 Introduction (cont. ) l Why studying travel agents? l Shed light on the impact of the Internet on the hospitality and tourism industry as well as the underlying reasons for the impact. l Identifying these problems and issues can help travel agents as well as other sectors of the industry develop strategies to cope with new changes in the market.

8. 2 Historical Perspective l l l Historically, travel agents played an essential role in hospitality and tourism. They were a leading intermediary between the traveling public and travel carriers and suppliers. Travel agents were supposed to be trained professionals with extensive knowledge of the hospitality and tourism industry.

8. 2 Historical Perspective (cont. ) l l l They were there not only to sell tickets but also, supposedly, to provide advice and recommendations on every aspect of a trip, from planning to onsite visitation. They act as the retailer and promoter on behalf of the service providers, that is, the travel carriers and suppliers. Agents sell these products and services directly to the traveling public and in return receive a commission from the travel carriers and suppliers.

Travel Agents and the Value of Information Access l l Travel products are unique in that they are not tangible nature, travel is about the experience. Agents provide the key to an unforgettable travel encounter in providing critical travel information that leads to a satisfactory experience. In the past, travel agents were held in high esteem because they were virtually the most important, if not the only, medium through which consumers could gain travel information and make advanced travel purchases. The key to success was their access to travel information not available directly to the public.

Travel Agents and the Airline Industry l l Travel agents relations with airline carriers create many impacts within the industry. Travel agents relied heavily on the commissions they received from airline ticket sales to stay in business. At the same time, airlines conducted a majority of their ticket sales through agents. Many issues faced by agents have come about because airline commissions have such a great effect on travel agents.

Why airlines need travel agents? l The travel agents’ great popularity and visibility in the eye of the public.

How did this relationship develop over the years? l l l Travel agents have not always been present since the airlines began shuttling travelers around the world. Historically, airlines were dependent on any person who had contact with the traveling public to sell their tickets. In 1945, the Air Traffic Conference (ATC) was established by the airline industry to alleviate this unorganized method of distribution. l l The conference system was responsible for establishing agreements and standards that would regulate the activity of domestic airlines and the dispersion of their tickets. It also established the modern-day travel agent.

Travel Agency and Airline Regulations l l The ATC Passenger Agency Program was developed to determine the conditions for the authorization of agents. This system protected airlines from dealing with unqualified distributors. ATC accreditation was based on several standards: l l business practices financial requirements personnel training and agency location

Travel Agency and Airline Regulations (cont. ) l l A major provision of the Passenger Agency Program was the 20 percent rule. This rule required that an agent must do less than 20 percent of its annual air transportation business with itself or other businesses under its control. Which prevents large corporations from forming agencies to regulate distribution of their own business travel. Any price commanded by the CAB (Civil Aeronautics Board) was dictated to travel agents for sales. All airlines were required to charge the same fare for flight to and from the same city.

Travel Agency and Airline Regulations (cont. ) l l Not long after the establishment of the ATC, the International Air Transportation Association (IATA) was formed for the regulation of international air travel. The IATA has the same basic functions of the ATC: security, safety standards, and appointment of travel agencies to represent member airlines.

Travel Agency and Airline Regulations (cont. ) l The Civil Aeronautics Board (CAB) regulated air travel from 1938 to 1978. Among its duties: l l granting airline routes controlling fares protecting the interest of the public airline fares: Airlines themselves had little control in pricing their own tickets. Any price commanded by the CAB was dictated to travel agents for sales. All airlines were required to charge the same fare for flights to and from the same city.

Airline Deregulations l l In the winter of 1973, worldwide oil supply shortage almost broke the airlines By 1977, the CAB had implemented deregulation allowing discount fares and advocated total airline deregulation. From 1976 to 1978, a boom in the airline industry resulted from these changes spurred the growth and success for travel agencies. In the aftermath of the deregulation, airlines had the added freedom of allowing non-ATC agencies to sell tickets

Airline Deregulation Act and Its Impact The passage of the Airline Deregulation Act, signed by President Carter in 1978, removed all remaining obstacles to route entry by established carriers, opened up entry to new carriers, and phased out all fare regulations. l Major components of this law, the gradual dismantling of the CAB by 1985, thus eliminating any prospect of further airline regulation. The second is the scope of antitrust legislation that was entered into upon the freedom to competition and protection from monopolies gained by the industry. Ticket prices rose and fell based on individual instruction, competition accelerated. l

Airline Deregulations Act and Its Impact (cont. ) l The Act had two major components: The first was the gradual dismantling of the CAB by 1985 l The second was the scope of antitrust legislation that was entered into on the freedom to competition and protection from monopolies gained by the industry. l l Airlines experienced a period of unlimited freedom following deregulation. .

Airline Deregulations Act and Its Impact (cont. ) The importance of travel agents to the travel public was obviously increased since travelers were depending more and more on travel agents for deals and for understanding the complicated rules of airline ticket pricing.

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

The Rapid Growth of Travel Agencies l l Since CAB was dismantled and the validity of the ATC conference system were questioned, travel agent exclusivity and agency accreditation procedures were no longer abided by The travel agency industry experienced its own deregulation in December 1982.

Travel Agency Industry Deregulation l l The largest change resulting from agency deregulation was the implementation of the Airline Reporting Corporation (ARC), which, in 1984, replaced the ATC while maintaining most of its functions. The ARC allowed airlines to decide for themselves who represented them and their ticket distribution, giving the airlines gained enormous power in the distribution of air travel information and ticketing and also sowed the seeds for the strained and hostile relationship between the airlines and the travel agencies over the structure of commissions in the age of e-commerce

Impact Of The Deregulations On Travel Agents l l Both deregulations set the tone for the industry standards and practices that were followed up to the birth of Internet ecommerce. Without airline deregulation, the airlines may have had a much more difficult time jumping on the Internet distribution channel and freeing themselves from the influence of travel agents.

Commission and the Travel Agents l l l The commission structure of travel agents with travel carriers and suppliers as well as travelers is such that potential troubles for travel agents were already planted. Travel agent commissions are unique in that they are subtracted from the selling price of a ticket rather than added on the final cost for the customer. Travel agents’ monetary compensations come solely from the service providers, not the customers they work with.

Commission and the Travel Agents (cont. ) Therefore, agencies are at the mercy of those who direct commission payouts; these people determine the financial success of an agency. l Airline commissions account for approximately two-thirds to nine-tenths of a travel agency’s total income (Foster 1990). l

The Failure of a Business Model l l Relationships between travel agents and the airlines have been dictated largely by the airlines since it is the airlines who control the commission structure, not the agents. There is strong incentive for airlines to reduce the commissions since it is a considerable part of their operating expenses in selling tickets. It is not surprising that when the Internet provides an alternative for airline ticket and information distribution, airlines were the first ones to capitalize on it. A commission cut seemed to be a logical step for airlines since they were relying less on their old-time partners, travel agents, to complete sale transactions.

8. 3 Technology And Travel Agents In the years preceding such information technology advances, agents had to access information through various channels, phone calls to central locations, using wall-sized availability boards and a manual method called the “lazy Susan, ” l Travel agents depend on the airlines to provide technology support l

Computer Reservation Systems History l l The first CRS (computer reservations systems) was officially introduced in 1953 by a partnership between American Airlines and IBM. This system later became known as Semi. Automated Business Research Environment, better known as Sabre These systems have traditionally been organized by individual airlines to handle reservations, ticketing, schedules, and seat inventories Soon, other airlines followed suit and developed their own CRSs

Global Distribution Systems History l l l Sabre is both a CRS and a global distribution system (GDS) of travel information and ticket reservations. A GDS is basically a computer reservations system that contains a vast database of inventories and travel information of participating travel carriers and suppliers who pay a fee to subscribe to the GDS service It was impractical for travel agents to subscribe to different CRSs owned by different airlines. A system called GDS would be needed to collect all airline information into one mass database. These GDSs serve as centralbrepositories for all kinds of data and information, ranging from databasesbof reservations to information about the travelers who made reservationsbwith them

Major GDS systems Sabre (www. sabre. com) l Galileo/Apollo (www. galileo. com) l Amadeus (www. amadeus. com) l Worldspan (www. worldspan. com) l

Table 8. 1 A Brief View of Global Distribution Systems Company/Website Sabre www. sabre. com Galileo/Apollo www. galileo. com Amadeus www. amadeus. com Worldspan www. worldspan. co m Internet Gateway for corporate &/or travel agents www. getthere. com Internet Gateway for individual travelers www. virtuallythere. com www. travelgalileo. c www. viewtrip. com om www. e-travel. com www. checkmytrip. c om www. tripmanager. c www. mytripandmor om e. com

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

Travel Agents and the Internet (cont. ) l Three things travel agents need to do before they subscribe to any particular visions or claims. 1. ask the questions about their business: l l l 2. ask questions about the use of technologies: l l 3. Why are customers leaving us? Are we meeting the changing needs of our customers? How can we keep and grow our customer base? What can the Internet do for us and our customers? What can I do to take advantage of the Internet to meet the needs of my customers? come up with strategies.

Table 8. 2 Questions and Answers for Travel Agents factor (not accessible 24/7) l. Illusion of cheaper fare l. Glamour of shopping online l. Image problem: agents and low tech l. Customer Service(unhappy agent service) l. Curiosity of technology l 24/7 accessibility Motivating l. Information, rich, and updated Factors for the use of the l. Seeing/comparing options l. Global reach Internet l. Control over decision, Dollar driven Why travelers Leave Travel agents l. Convenience

Travel Agents and the Internet (cont. ) l l l Travel agents have to realize and admit the following facts about themselves before they can realistically comprehend their current situations: They have always been passive receivers. They have always been at the mercy of suppliers and technology. They are not receptive to technological innovations. They have not really defined their roles. If they have, however, they have incorrectly done so.

Travel Agents and the Internet (cont. ) l What is behind this rush to online travel shopping? l First, the Web is revolutionizing the way consumers plan and buy their travel. l Second, the novelty of multimedia and the interactive capacity of the Web captures the imagination of millions of computer users. l Third, the competitiveness of the hospitality and tourism industry requires, on the one hand, that companies better manage their information systems with less of their financial resources and, on the other, that they are pressured to increase the speed of responding to customers and raise the satisfaction level of their customers. l Fourth, the perception of getting a deal by bypassing the middleman, in this case, the travel agent, and buying directly from service suppliers has generated plenty of excitement among consumers. l Finally, the traditional travel agents’ business model needs to be revamped.

Strategies for the Travel Agents in the Age of the Internet l Vulnerability of the travel agents: l They are almost totally at the mercy of travel suppliers for their revenue. l They have never been active participants in any technological advancement. l They have never clearly defined their role in relation to consumers.

Strategies for the Travel Agents in the Age of the Internet l Attitude and business model changes: l Proactive rather than reactive l change from the old product-oriented sales approach to a service-oriented sales and marketing approach. l The Internet has created a new demand for better service and service alternatives. l The consumers are the kings of all kings, the increasing power of consumers on freedom of choices.

Table 8. 3 Strategies and opportunities for the travel agents Questions and Issues Strategies and Opportunities Understand 1. Use your existing customer database to understand customers your customer’s needs 2. Ask your customers what you can do for them to keep them as your loyal customers 3. Reassessment of your relationship with your customers

Table 8. 3 Strategies and opportunities for the travel agents (cont. ) Convenience 1. Have your presence on the Internet. 2. And try to make a portal for your customers 3. Choose the appropriate Internet communication tools available 4. Provide your own travel information and links to all

Table 8. 3 Strategies and opportunities for the travel agents (cont. ) Perception of cheap fares 1. Travel agents need to be organized to educate the public that online travel service providers are not providing cheaper fairs, they merely provide an alternative. 2. Be pro-technology, but emphasize travel agents’ ‘human touch’.

Table 8. 3 Strategies and opportunities for the travel agents (cont. ) Glamour of shopping online 1. Build your own online book capability 2. Link your homepage to online booking websites 3. Provide valuable travel information online

Table 8. 3 Strategies and opportunities for the travel agents (cont. ) Marketing of services 1. Change from ‘productorientation’ to ‘marketingorientation’ 2. Emphasize the human factor 3. Add value to your service

Table 8. 3 Strategies and opportunities for the travel agents (cont. ) Image problem: low-tech 1. Better training 2. Pro-technology 3. Vocational School 4. Geography is irrelevant on the Web. Companies should think globally when they go online.

Table 8. 3 Strategies and opportunities for the travel agents (cont. ) Improve customer 1. People who are not happy with service the customer’s service are always looking for alternatives 2. The Internet offers excellent tools for improving customers’ service 3. Think globally, but act locally.

The Future Marketing Orientation Combined With Individualized Service l Prediction of the future: l l l Technology will not totally replace human service, but it will considerably reduce dependence on it. Travel agents are not going away, but they will feel the pinch from now on. The travel information distribution system will undergo major shake-ups, and so will travel agents. Restructuring and forming new partnerships are inevitable. Fee-based and value-added services will be combined. Only the fittest will survive. Travel agents must find their niches in customer service—areas where human service is superior to nonhuman interaction—to find new customers and at the same time to keep the old ones.

The Future Marketing Orientation Combined With Individualized Service (cont. ) l What consumers are looking for: l They are not using the Internet for cheap tickets and inexpensive reservations. They are looking for value and experience in their total travel package—the travel information search, travel planning, and the actual purchase of travel products and services. l Whoever can provide value and good experience will win the minds of the consumer.

The Future Marketing Orientation Combined With Individualized Service (cont. ) l Who to blame l Airline commission cut l The Internet l Travel agents’ loosened accreditation requirements in the ownership of travel agencies.