The Washington Post
May 19 2002

               
Out of the Picture?
Travel Agents, Like Many Middlemen, Are Changing to Survive in a New Era

Today, hotels still pay commissions of 7 to 10 percent to travel agents, but some analysts predict those payments could be slashed anytime. As for airlines, the majors began to trim commissions in the late 1980's and kept at it until many eliminated them entirely in March.
"It was a zero-sum game," said Phil Bakes, who was chief executive of Continental and Eastern Airlines in the 1980s and is now chairman and chief executive of Far and Wide Travel in Miami. "The Airlines were of the view that they were the consumer-recognized name and their product was a commodity. For the airlines to pay agents large amounts for distribution costs didn't make sense." This, despite the fact that 70 percent of all airline sales are generated by agents, according to Boston Consulting Group.
 

Toll - Free numbers for potential fliers to call started making travel agents look like a distribution channel with little value in the 1980s. Enter the Internet in the Œ90s and then airlines' own Web sites, and travel agents were cut out of the picture, as far as carriers were concerned.  To earn the $1,500 a day they need just to keep their doors open, the Hansen's - now Bobbi and her son, Devin - have switched gears, from those business trips to specialized vacation travel for groups willing to pay 10 percent to 25 percent of the cost of the trip in exchange for Sunflower's services: nailing down an itinerary in Italy for a band on tour, perhaps, or making arrangements for a Rotary Club's visit to Belgium.
 

At the storefront level the Hansens handle details for families going to Walt Disney World, just like the traditional mom-and-pop travel agency. But on their Web site they offer do-it-yourself online hotel booking for the instant gratification crowd and, for the adventurous, one of the most lucrative parts of their business, a link to a site that sells travel packages to the South Pacific, both to individual tourists and, at wholesale rates, to other agencies.
Steve Fertig, president of Hotel Consultants in Atlanta, likened travel agents' commission to a government subsidy. "And now they have had to become self sufficient," he said.  "We've certainly had to adapt like a chameleon," Bobbi Hansen said.  Eventually the traveling consumers may have to as well.

"Disintermediation"
Before commissions from major US airlines died in March - in fact, years before - travel agents knew change was coming. They weren't the first middlemen, and won't be the last, to suffer "disintermediation," or elimination.

Once upon a time in America, banks were Americans' principle contact with the world of finance - the thrift institution for passbook savings and commercial banks for checking accounts. Transactions took place face to face or by mail.  Then, in the late 1970s, even before banks were deregulated and morphed to meet competition from an aggressive financial services industry, they adopted a dazzling innovation - the automated teller machine, with money available to cardholders 24 hours a day. "Technology," said Eric Clemons, a professor of operations and information management a the University of Pennsylvania's Wharton School, "allows you to disintermediate and drive directly to the customer."  And the friendly neighborhood bank teller, the middleman between customers and their money? Out of a job? Well, some are, to be sure. But others were trained in back office functions or graduated to the "platform," where they answer questions and, aggressively today, sell the bank's whole range of products designed to get hold of consumers' money.

Then there's residential real estate. For the past few years, articles in trade publications have urged real estate brokers and agents to get comfortable with computers and the internet while at the same time warning them of the online world's potential to displace them as middlemen. In many areas, the agent, keeper of the valuable listings of houses for sale, is inviting potential buyers in, allowing them to browse what's on the market electronically. The agents and brokers are hoping that their expertise in navigating transactions, which get more complicated every year, will keep them right there in the lucrative - generally 6 percent of the seller's final price - middle.  Where there's little value added by a middleman, he's sure to go, some say - go the way of the "Number, please," telephone operator in the days before direct dial, or the grocery clerk who fetched your items one by one. And in most states, motorists pump their own gasoline, a far cry from the service centers of the 1950s.


Enter Incentives
As for travel agents, the game isn't over, but it's definitely changing.  "They didn't throw the agent out," said the Wharton School's Clemons. "They just kept her and had her doing the same work, promoting the airline, but they just don't pay her."  That's not quite true. Airlines have replaced commissions with incentive programs, whereby an agent gets a discount for selling a certain number of, say, Delta tickets. While that doesn't lower costs for airlines, it does allow them to drive market share, said Lorin Hitt, an assistant professor of operations and information management at Wharton.

And agents do move product. That 70 percent of airline sales they generate is no small amount of the industry's yearly $93.6 billion total. In hotel lodging, 25 percent of the $80.1 billion in room revenue a year comes through agents. Travel agents generate about half of the $19.4 billion in annual car-rental sales.  At Marriott International, about 30 percent of $7.7 billion in room sales booked a year come through travel agents - a number that was growing steadily but is now relatively flat as more travelers book through the chain's online sites. At Hilton Hotels Corp., 20 percent of the $8 billion a year in room sales comes through agents.
But there's a downward trend. Southwest Airlines, which pays agents a 5 percent commission, said it has seen the amount of business booked through agents go from being more than half to less than 25 percent of its ticket sales because of all the distribution channels consumers can now go through to book flights.
 

Cruise lines are the only remaining form of travel that depends almost totally on agents. Ninety-five percent of the cruise ship industry's annual $11.6 billion in revenue is generated by agents. Cruise lines typically don't allow consumers to book direct, forcing them to go to an agent or distributor. The ship operators don't want to deal with the costs of staffing and taking reservations when there are agents already out there doing it.  In fact, cruise lines pay agents between a commission of 10 to 15 percent for booking their ships. So if agents are still the main way consumers do their travel, why cut their commissions? Answer: economics.
"The costs of distribution have become phenomenal," said Malcolm A. Noden, senior lecturer in management marketing and tourism at the School of Hotel Administration at Cornell University.

Here's what he means. Take, for example, a Marriott Hotel where a consumer pays $100 in cash for a room. That means the hotel's distribution costs, taking out the fixed and variable costs such as wages, computer systems and advertisements, are relatively small.
The same overnight stay, organized through a travel agent, has a much higher cost to Marriott.
If the consumer calls his agent and asks for a reservation, the agent makes the reservation through the hotel's booking system, using the customer's credit card. The hotel's expenses, in addition to all the fixed costs, then also include the agent's 10 percent and the 3 percent charged by the credit card company ­ 13 percent of the $100 room rate.  "If I'm Marriott, these are not effective ways of distribution," Noden said.  The example for airlines is even starker, according to Forrester research. U.S. Airlines may collectively save about $750 million just this year by cutting their commissions, the research firm calculated.

Adapting to Change
Agents are finding ways to survive.
Rosenbluth Travel focuses on business travelers, and has retrained its traditional agents to be "knowledge based workers," said Hal Rosenbluth. His employees work either electronically or over the phone to find cheap fares. They set up systems for companies to make their own reservations. And their systems allow corporations to see when they are meeting certain volume levels to get discounts from preferred airlines.
 

Rosenbluth makes his money from charging companies a fee for setting up the system or for running the reservations. "We look more like an investment banking firm than a travel agent," he said.  Last year, Rosenbluth's company had sales of more than $5 billion worldwide. His clients include JP Morgan Chase, Oracle, Intel, Chevron, DuPont, and Credit Suisse First Boston.  Eventually, experts predict, travel will be done through an "online butler."
One's preferences ­ nonstop flight, window vs. isle, feather pillow or not, bars and restaurants near the hotels, a place to play golf after the meetings ­ will already be known by the computer.

No need to talk to Louise at the mom-and-pop shop. And even American Express, with its corporate travel service, could be replaced just as easily.  But the online butler will come into being only if major players in the travel industry are willing to turn over their data to a shared area where all can consult it. It's a feat that critics say is unlikely to happen soon, given the splintering of the travel industry.  That would leave real live travel agents existing only for those seeking specialized trips. A trip that hops from Dallas to Rome and then to London, for example, might be a reason to pick up the phone to call an agency. A high-end safari in Botswana might be another.  "The travel agent can do for you what the internet can't," said Cathy Enz, executive director of the Center for Hospitality Research at Cornell. "She can provide a whole series of knowledge and hand-holding for those who want high customization."
Agents have begun to charge travelers a fee for that hand-holding. It's when those fees become too high that travel might go the automated route.  "It's hard to believe we won't have a digital butler," said Andrew McAfee, assistant professor in the technology and operations management area at Harvard Business School.  "Whether airlines run it or travel agents run it, personally I, as a consumer, won't care," McAfee continued. "I will just want to get my travel taken care of."

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International Herald Tribune
May 19, 2002

                           
U.S. Travel Agents cope with a fee drought

The airlines, which valued agents as promoters of travel, would pay the Hansens a 10 percent commission on the ticket price. The hotel in Chicago would kick in 10 percent of the overnight booking. The customer's company paid for the trip. The customer simply said "thank you" to the Hansens. With that system Sunflower became a $6 million-a-year agency.
Today, hotels still pay commissions of 7 to 10 percent to travel agents, but some analysts predict those payments could be slashed anytime. As for airlines, the majors began to trim commissions in the late 1980's and kept at it until many eliminated them entirely in March.
"It was a zero-sum game," said Phil Bakes, who was chief executive of Continental and Eastern Airlines in the 1980s and is now chairman and chief executive of Far and Wide Travel in Miami. "The Airlines were of the view that they were the consumer-recognized name and their product was a commodity. For the airlines to pay agents large amounts for distribution costs didn't make sense."  This, despite the fact that 70 percent of all airline sales are generated by agents, according to Boston Consulting Group.  Toll - Free numbers for potential fliers to call started making travel agents look like a distribution channel with little value in the 1980s. Enter the Internet in the Œ90s and then airlines' own Web sites, and travel agents were cut out of the picture, as far as carriers were concerned.

To earn the $1,500 a day they need just to keep their doors open, the Hansens - now Bobbi and her son, Devin - have switched gears, from those business trips to specialized vacation travel for groups willing to pay 10 percent to 25 percent of the cost of the trip in exchange for Sunflower's services: nailing down an itinerary in Italy for a band on tour, perhaps, or making arrangements for a Rotary Club's visit to Belgium.  Steve Fertig, president of Hotel Consultants in Atlanta, likened travel agents' commission to a government subsidy. "And now they have had to become self sufficient," he said.  "We've certainly had to adapt like a chameleon," Bobbi Hansen said.
 

Before commissions from major US airlines died in March travel agents knew change was coming. They weren't the first middlemen, and won't be the last, to suffer "disintermediation," or elimination. "Technology," said Eric Clemons, a professor of operations and information management a the University of Pennsylvania's Wharton School, "allows you to disintermediate and drive directly to the customer. "For Travel agents, the game isn't over, but it's definitely changing. Airlines have replaced commissions with incentive programs, whereby an agent gets a discount for selling a certain number of, say, Delta tickets. While that doesn't lower costs for airlines, it does allow them to drive market share, said Lorin Hitt, an assistant professor of operations and information management at Wharton.  And agents do move product. That 70 percent of airline sales they generate is no small amount of the industry's yearly $93.6 billion total. In hotel lodging, 25 percent of the $80.1 billion in room revenue a year comes through agents. Travel agents generate about half of the $19.4 billion in annual car-rental sales.

But cruise lines are the only remaining form of travel that depends almost totally on agents. Ninety-five percent of the cruise ship industry's annual $11.6 billion in revenue is generated by agents. Cruise lines pay agents between a commission of 10 to 15 percent for booking their ships.

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Multiple bookings are now achievable on Easybook’s
"Electronic Booking System"
 

Inbound Tour Operator New Zealand Easybook Tours is already receiving high acclaim from Travel Agents prior to launching their latest development, a fully dynamic "Itinerary Planner" adding another innovative feature to their "Electronic Booking System".

For multi-destination itineraries, two identical "Electronic Booking Systems" are being replicated for Australia and the Pacific Islands that will provide consumers and travel agents worldwide a complete "ONE STOP SHOP" for all their travel bookings to the South Pacific.

Easybook Tours Director Don Saunders agrees that there still exists some reluctance by consumers to supply their credit card details over the internet which is why the "System" has been designed to allow them to pay through their local travel agent if that is their preference.

Once agents see how easy and user-friendly the system is to operate, they quickly realize the potential the "System" has in generating large volumes of bookings he says.

Mr. Saunders says they have already received numerous enquiries from international travel companies who have expressed interest in adopting the "Electronic Booking System" to host on their own websites, and also to operate it under license in their own country.

As more companies around the world adopt the "Electronic Booking System", a global network will be established affording these companies greater access to distribution opportunities for their own products, and preferential rates when booking others.

For all enquiries, please contact Don Saunders
Tel: 025 289 7171
 

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  Wall Street Journal
May 22 2002

                       

Travel Agency Meets Technology's Threat

By Paulette Thomas
THE PROBLEM: For travel agents such as Barbara Hansen, it has been death by a thousand cuts.

For years, airlines have picked away at the commissions they pay to travel agents. The lifeblood for most agencies. Then, in March, the worst case struck: Delta Air Lines eliminated commissions altogether, and its airline brethren quickly followed. Why pay agents when passengers can book flights themselves on the Web?

The move capped off one of the worst travel years ever. High fares, the Sep 11^th terrorist attacks and the prospect of endless airport security lines gave Americans plenty of reasons to stay home. The phones were not ringing, says Ms Hansen, who owns Sunflower Travel of Wichita, KS with her son "Things were really, really bad."

But after 34years in the industry, she couldn't say that the commission loss was shocking. "There'd been gossip for years that the airlines would get it down to zero," she says. Already, commissions, which had once been more than 75% of her business, were below 40%. She had been charging customers a $10 service fee on airline tickets, but she doubted that would be enough to stay alive.

THE SOLUTION: Fortunately, she had made preparations that paid off when the ax fell. To stay in business, she raised her service charge to $40 a ticket-at the high end of the fees that most travel agencies now impose. But now, the incentive to find the lowest fare is stronger than ever. Working with consolidators she says. "we can often beat the fares customers see on the web".

She also established monthly sales targets, and when the agency hits the goal the employees split 20% of the revenue.

Most importantly, Sunflower began focusing on packaged tours in the South Pacific. An area that Ms. Hansen loves and has traveled to extensively. She established a strong business relationship with a wholesaler who works in Australia and New Zealand, and began promoting packaged tours. In addition to the Sunflower Web site she launched a new one: ANZtours.com She made certain that the New Zealand Tourist Office in New York had a link to her site.

To put together tour groups she began scouring web sites for wine stores, sending them information about food and wine tours through Australia. She's been in touch with garden clubs and florists, and is selling a package tour to Canberra, Australia's "Floriade", a horticultural show. Ms. Hansen knows the music director for a local chamber group who hails from New Zealand, and is making him part of a tour of musical performances Down Under.

"The internet is so neat", she says. "You can go and search for these groups, and let them know what you are doing".

THE LESSON: New technologies can put entire industries out of business. But the same technologies open doors, too, for entrepreneurs with the courage to walk through them.

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May 2003

How to Take Advantage of New Innovations

A lot of travel agents see the Internet as the innovation that is going to put them out of business.  But why not draw on people's belief that the Internet always delivers lower fares, and advertise you can beat Internet fares?  That bold statement draws customers.  Then you deliver low fares, and you have them.  We check our internal booking engines so frequently, we get better fares than the online sites.  Clients are shocked we can [beat] the Web, and they become repeat customers.

Bobbi Hansen is the president of Sunflower Travel.