What happened to the Travel Industry: The “One-Two Punch”

There was a time when travel agent professionals and agencies provided their expertise and services “free” to the public. It was not unheard of , at the time, for Mr. & Mrs. Smith to go to their favorite travel agent and sit down with him or her and discuss, at great length, a trip they wished to take. Deciding on what their destination was, how to get there, how much time to spend at each location , the scheduling, what was required as to documentation, etc. The agent would relate stories of the location because they had been there on a FAM ( Familiarization Trip) or someone they knew had traveled to that area of the world. The agent was truly a counselor in all aspects of the definition, because the agent provided the expectation of providing not only knowledge of the destination, but the best options for the price, scheduling, and specific vendors to be used. All this service for “free”. Then came the One-Two Punch…

THE FIRST PUNCH

Major changes in the industry came as a “one- two punch” to the agency community.

First, the airlines determined a significant way to cut costs was to reduce the number of travel agents for which they had to pay commissions. Every airline ticket issued by an agency was reported  and regulated by the Airline reporting Agency , or ARC. The standard commissions earned on each ticket was 10% of the face value of the ticket. Since the agency community represented 80% of the distribution of air line tickets in the country, it would be a logical assumption that a significant amount of expense would be reduced by greatly reducing commissions to the agency community. The appearance from the airline point of view, was all agencies were subject to the same ruling. The mega agencies dealing in substantial corporate travel would also be affected, however special arrangements were made to address the major revenue generated by these agencies and un- published agreements were created to address these big producers.

The air carriers simply phased out the commissions by placing minimum volumes needed to be in the commission programs. Initially, the rates went from 10%, 8% to 7% , then 5%, then were eliminated all together. The airlines left the agencies to explain why either the agency community was no longer interested in booking airline tickets( no commission) to considering charging each customer for every ticket issued.

A vast number of agencies were afraid to advise their customers that the airlines were no longer subsidizing them for the work they did and would need to rely on the customer to pay for this service. Some owners thought they could make up for this lost revenue with higher end sales of tours and cruises, but soon found that , dependent on the number of tickets issued , it was difficult to ” make up” the difference. The problem with a majority of them was their fear of change and the inability to treat their business as just that, a business. 

The airlines had predetermined  the 80/20 rule was true in the agency business; 20% of the population of agencies generated 80% of the revenue/sales. Through keen business acumen the airline industry would indirectly reduce the number of agencies to a more manageable number reducing not only commission expenses, but marketing, familiarization trips, agency reps, and the revenue sharing of the GPS segments produced.

The agencies that had a large portion of their business in the corporate travel business were now faced with the task of continuing not to charge their corporate accounts for fear of losing them to an agency that would provide “no fee services”, or present the facts and service levels to their accounts and ask them to make the choice of  accepting below average customer service without fees, or to pay service fees for the professional service they had come to expect. Some agencies were not successful in convincing the corporate managers that it was necessary to charge a fee, and lost the business. In some cases the corporation returned because the “free” service was not as effective. In other circumstances the agencies had to close or merge before the corporate accounts came back. Business was certainly changing in the travel industry, and especially in the agency business.

THE SECOND PUNCH

The introduction of the Internet into the travel industry created an alternative to the traveling public that eliminated the fees they had to pay to get an airline ticket, and as the industry of “virtual” on – line agencies evolved, from merely airline tickets, but also to include cruises, tours, hotels, cars, etc., sites as, Orbitz, Expedia, Priceline , to name a few, allowed the traveler to become a DYIer.

Consumers felt empowered to make their own reservations, not have to speak with anyone, or pay those “stupid” fees, and make their selections with what they didn’t realize was selections the hosts sites allowed them to make, obtaining boarding passes and confirmation numbers all from the comfort of their home at 2 a.m., if they so chose!

All was good for the trips that did not require Visas( not the card) ,or passports ,as the consumer had forgotten about how their agent included all those “details” for them. They also didn’t consider “bumps in the road” when the trip did not go according to plan. How many times during a trip does everything go as intended? Either the flight can be  delayed or cancelled, the hotel over booked the space, or the connecting flight was missed. A vast number of possibilities, and who would the DYIer call when these challenges came up? If they had used a travel agent , they would be on the phone while standing in line and by the time they got to the ticket counter the traveler would have the ticket agent pull up the record and see the passenger was already rebooked and only needed a boarding pass for the new flight.

Today, for an agency to not only survive, but thrive, management must utilize all aspects of the business and technology available to them. The travelers are more sophisticated, and the travel agent needs to use the Internet and other technologies as people use Facebook, LinkedIn  and others for more than one purpose. The agents and agency community must provide services that they never dreamed could be required for today’s sophisticated traveler.

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