Travel Agency Management in the UK - Assignment Example

Travel Agency Management in the UK Could The Tide Be Changing? Travel Agency Management Travel agencies play an important role within the UK travel and tourism industry. They are the retail arm of the industry selling holiday products and travel services to the public. Yet travel industry analysts have been predicting the death of the high street travel agent due to the ever changing nature of distribution channels. The Association of British Travel Agents figures do suggest that 1,400 agencies have closed in the past decade. But could the tide be changing? 1. Introduction Tourism is one of the largest employers and major industry in the expanding market of overseas travel and its annual level is predicted to grow to an estimated 1.6 billion by 2020 (Swarbrook, J. and Horner, S. 2006). However the recent proliferation of the e-commerce business model has challenged traditional adage that “location, location, location” is critical to commercial success (Chaffey, D. 2006); effectively undermining the traditional travel agency distribution model, forcing travel agencies to re-develop and reformulate competitive strategies to sustain growth (Zhou, Z. 2003). This is further evidenced by the recent merger of package holiday specialists MyTravel and Thomas Cook in 2007 (Taylor, I. 2007). It was reported that the merger was driven by business necessity in order to ensure survival in the competitive nature of the market facilitated by the e-commerce business model (Taylor, I. 2007). Moreover, it was propounded that “the merger is predicted to save £75million a year by 2009/10 through cuts in duplicated services and assets including staff, shops, aircraft, offices and IT systems, particularly in the UK” (Taylor, I 2007). Whilst some analysts reacted to the merger as a further nail in the coffin of the high street travel agent, the alternative question posed is whether this in fact matters in the digital arena (Taylor, I. 2007). Moreover, it is arguable that the proliferation of the Internet and online growth could in fact have signalled a new tide against the recent trend of losses and closures within the industry. The focus of this analysis is to evaluate recent business analyst forecasts signalling the decline of the high street travel agency within the emerging online market as evidenced by the rapid growth of “virtual” travel agencies such as Expedia and lastminute.com (Evans, N., Campbell, D. & Stonehouse, G. 2003) Whilst, the Association of British Travel Agents (ABTA) figures indicate a significant reduction in high street travel agencies (www.abta.com), this analysis will evaluate whether such losses can be addressed by exploiting opportunities via the e-commerce business model and whether the tide is in fact changing to enable further openings in the market. It will be necessary to undertake a comparative analysis of the pre e-commerce business model in context of the new business model in context of new methods of distribution; and further consider whether the new growth online can sustain the losses to the high street trader in recent years. Alternatively, I will also evaluate whether the proclaimed death knell of the high street travel agency is premature and the potential market opportunities for the high street agency in the future. 2. Traditional Travel Agency Business Model and Immediate Impact of E-Commerce Boom At the outset, it is submitted that the proliferation of the Internet and e-commerce business model has played a vital role in reshaping marketing and distribution channels in the travel business, thereby reformulating the nature of supply and demand within the travel industry (Poon, A 1993). Within the conventional business model prior to the e-commerce boom, the role of the travel agency has been well defined as a key intermediary in acting on behalf of both buyers and sellers (Renshaw Bottomley, N. 1997). Moreover, whilst traditional figures demonstrate that business travel accounted for the higher share of the market, private travel is expected to continue to flourish (Swarbrook, J. and Horner, S. 2006). However, notwithstanding the growth of the private traveller market, consumer habits have continued to evolve outside the traditional marketing strategies of the high street travel agency. Indeed, a central underlying basis for the MyTravel and Thomas Cook merger was the declining popularity of the package holiday (Taylor, I. 2007) where it was asserted that competitor Thomson would be “counterbalancing the drop in pre-packaged sales by actively pushing its new strategy of uber-dynamic packaging” (Taylor, I. 2007). Furthermore, the Office of National Statistics indicated that package holidays accounted for 42.3per cent of overseas travel by UK residents in 2005, which is a marked difference from the 54 percent ten years ago (www.statistics.gov.uk). This in itself suggests that whilst Internet growth is undoubtedly an important contributing factor to the decline of the high street travel agent, the influence of evolving consumer habits cannot be ignored (Swarbrook, J. and Horner, S. 2006). In fact, it is imperative that agencies acknowledge the interdependence of these factors if the new e-commerce model is to be exploited with maximum commercial success to address declining profits in the industry. As such, the changing nature of travel habits and market shares has also impacted the previous monopoly of the travel agency as prime intermediary (Buhalis, D. & Costa, C. 2005). This is further evidenced if we consider the traditional business distribution model between service provider and consumer in figure 1 below: Figure 1 The evolution of the traditional business model from deregulation of the travel business in 1978 to online business evolved an integrated group of players in the tourism industry; namely, airlines, online reservations, search engines, systems, travel agents companies. As such, the success of each player was interdependent (Lubbock, M. and Krosch, L., 2000). However, the growth of the web has enabled sellers such as airlines to have direct access to the consumer online, effectively shifting the balance of the role of the travel agent as intermediary having primary contact with the consumer as indicated in figure 1 (Swarbrook, J. and Horner, S. 2006). Conversely, prior to the e-commerce boom, travel agents were the key players in the distribution channel with access to the GDS and in which they can check availability of the inventory entries (Poon, A. 1993). However, the online business model has fuelled a competitive market, taking high street travel agencies outside their monopolistic comfort zone (Buhalis, D. & Costa, C. 2005). It is further arguable that the symbolic role attached to the travel agency as intermediary has been replaced by the importance of the search engine in the online business model, which will be further evaluated in section 3. Additionally, outside of the obvious reduction to high street trade, the shifting business models and emergence of a competitive market has resulted in pressure for travel agents to change their revenue models from charging commissions on service providers to charging customers for service (Buhalis, D. & Costa, C. 2005). Indeed, prior to the e-commerce boom it was asserted that “Electronic Business will affect virtually every type of marketing expenditure. It will also affect every aspect of marketing itself from the creation of material to its distribution”. (Cunningham, P. and Froschl, F., 1999 179). I shall now consider the role of the traditional travel agency in context of the digital revolution. 3. Long term Impact of E-Commerce Boom and Future Outlook It has been argued that the Internet continues to revolutionise tourism and overseas travel ((Swarbrook, J. and Horner, S. 2006). According to the Association of British Travel Agents, it is forecasted that 53% of UK adults will have booked a holiday online by 2008 (www.abta.com). The primary driving force behind the augmentation in online agencies is the low overheads in advertising and online booking and the long term trend in shifting from package holidays (Taylor, I. 2007) Accordingly, it would appear far to dogmatic to attribute the recent decline of the high street travel agent solely being as a result of online commerce. For example, the private traveller market share is significantly increasing and the demands of the private traveller have shifted. Individuals prefer tailored holidays and consumer demands have developed outside the parameters of the narrow format of the package holidays. Therefore the development and rapid growth of online agencies such as Ebooker, lastminute.com, Expedia, Orbitz and Travelocity have left the high street firms in their wake in offering flexibility denied by the high street travel agent ((Swarbrook, J. and Horner, S. 2006). Moreover, the availability of alternative outlets for travel purchase online has rendered the monopoly of travel agents redundant, forcing travel agencies to alter their pre-existing business and marketing strategies. For example, as mentioned above, airlines are expanding services available, thereby negating the importance of the intermediary travel agent. The British Airways website has a “manage my booking” facility allowing passengers to make travel plans, email itineraries, thereby bypassing the role of the travel agent whether online or high street. As such, the travel agency monopoly has been quashed ((Swarbrook, J. and Horner, S. 2006). For example, it has been argued that “the expedia philosophy is about putting the customer in the control seat” (Taylor, I 2007). Expedia for example, allow customers to personalise packages of accommodation, flights, attractions, car hire and guarantee savings, prices which arguably cannot be sustained by high street travel agency overheads (www.expedia.com). Conversely, it has been argued by the AAP report in relation to Australian tourism that “people will always like to walk into a store and get personal services” (www.aap.com.au). Furthermore, according to the Phocus Wright ANZ online travel overview under the Australian Bureau of Statistics, Australians spent $29.2 billion on travel, however, locally only 20 per cent of bookings were made online (www.phocuswright.com). From the UK perspective, a study by YouGov in online travel trends demonstrates that online bookers often come though family or friend referrals or online reviews then travel agents when seeking advice regarding travel (www.yougov.com). “However, the need for travel agents should not be underestimated as 46 per cent of online holidaying respondents still visit travel agents to collect destination brochures, which will impact online travel decisions” (www.yougov.com). As such, travel agents need to change their approach and exploit the manner in which online and offline consumer habits interweave and capitalise on this to drive offline consumer traffic to their online sites instead of competitor sites. As such, the e-commerce boom can potentially be utilised as tool to drive growth both online and offline. Accordingly, travel agents need to invest online and make the planning and booking process user friendly and utilise customer generated content to build consumer trust relationships ((Swarbrook, J. and Horner, S. 2006). Additionally, search optimisation is essential. Search engines themselves are vital and the future of the travel agent and website content is intrinsically linked to the power of search and relationship with the search engines (Zhou 2003). For example, niche search engines such as CheapFlights, Travel supermarket and Dohop are companies that are undertaking the search and suggest function on behalf of customers, effectively acting as a cybermediary. As such, they are effectively negating the role of the travel agents’ “search and suggest” function altogether ((Swarbrook, J. and Horner, S. 2006). Therefore it is critical to combine the functions and get all the offline agents to invest online. It is further propounded that sales rates could be improved at a significant rate if websites enhances their design and navigation to become more user-friendly and start using search optimisation can benefit them and websites to increase click to conversion rates (Zhou 2003). Accordingly, the above analysis demonstrates that changes in consumer habits and trends mean that an online presence is not sufficient per se. Indeed on the cusp of the digital revolution Poon commented that “Tourism involves the movement, accommodation, entertainment and general servicing of clients from one geographical location, to another. These activities must be combined differently, integrated and “packaged” to suit complex and rapidly changing consumer requirements” (Poon 1993). Accordingly, “The agent who can get you on that sold out flight, or who can knock US $4,000 off that international business class ticket, will not only survive but will prosper because they know how to add value” (see www.aap.com.au). Accordingly, the key for travel agencies going forward is to reformat marketing strategies, which in turn must identify consumer needs at a profitable margin, with an appropriate interweaving of product, price, placing and promotion as part of the strategy. Conclusion The above analysis demonstrates that whilst declining profits and mergers driven by necessity clearly point towards the reduction in importance of the high street travel agent, it is far too premature to signal the death knell of the agency within the tourism business. The Internet has clearly been a central factor in opening the market and the e-commerce business model has reduced the monopoly of the travel agency as central intermediary in the distribution chain to consumer. Moreover, the evolution of travel demands and consumer habits has moved away from the bread and butter income of the package holiday, yet statistics still demonstrate a significant marketplace wanting personal service offline. Accordingly, whilst the roles in the traditional business model have changed, the interdependency of the factors in the pre e-commerce boom is still essential to success. Far from being redundant, the growth opportunities afforded by the online market place should be used to capitalise on the pre-existing position in the offline marketplace to drive growth tailored to changing consumer needs going forward. Bibliography Buhalis, D., & Costa, C., (2005). Tourism Business Frontiers: Consumers, products and Industry. Butterworth-Heinman. Chaffey, D., (2006). E-Business and E-Commerce Management. FT Prentice Hall. Evans, N., Campbell, D. & Stonehouse, G., (2003). Strategic Management for Travel and Tourism. Butterworth-Heineman. Renshaw Bottomley, M (1997). The Travel Agent (2nd Edition). Business Edition Publishers Pog, S., (2003). Leisure Travel: A Marketing Handbook. Pearson Poon, A., (1993) Tourism, Technology and Competitive Strategies. CABI Publishing. Swarbrook, J. and Horner, S. (2006). Consumer Behaviour in Tourism. 2nd Edition Butterworth-Heinemmann. Taylor, I., (2007). Analysis: Thomas Cook and MyTravel merger was inevitable. Travel Weekly 15 February 2007. Zhou, A. (2003). Travel and Hospitality in Cyberspace: E-Commerce and E-Marketing in the 21st Century www.abta.com www.aap.com.au www.statistics.gov.uk Read More