Online Travel Success Forces Offline Agents To Adapt

Through the years, many business people have justified their roles as "middlemen" -- and earned their paychecks -- by adding value to the space between the merchant and the end-user customer . And perhaps the ultimate middleman has been the travel agent.

Many travel agents have brought clarity, advice and peace of mind to travelers, while providing an effective distribution channel for travel merchants.

With the surge of travelers turning to Internet sites to purchase their airline tickets, however, many are asking about the long-term viability of traditional travel agents, and even predicting their eventual demise.

However, most analysts agree that a more plausible outcome is that the resilient brick-and-mortar travel agencies that are willing to provide a real service will always be around. Competitive forces will only crush those travel agents who have limited their services to mere order taking.

"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," Forrester senior analyst Henry Harteveldt told the E-Commerce Times. "The 'order takers' are as relevant to today's travel industry as the 707 is to airline transportation. [They] drag down the whole travel agency industry."

Bread and Traffic Jam

Brick-and-mortar travel agencies are indeed facing a firestorm of competition from the Net.

Their Web-based counterparts like Travelocity (Nasdaq: TVLY), Expedia (Nasdaq: EXPE), and Orbitz are becoming important stomping grounds for travel shoppers and are easily fingered by outsiders as the nemeses of traditional agents.

All told, year-over-year from February 2000 to February 2001, unique visitors to travel Web sites increased 23.5 percent, from 24.4 million to 30.1 million, according to Media Metrix ratings data.

Out of Respect

But even the leaders among online agencies, like Travelocity, acknowledge that multichannel competition has always characterized the airline industry and that offline agents have a place, filling the oft-expressed customer need for flesh-and-blood travel services.

"The days when the traditional agencies could claim a God-given right to commissions and profits are gone," Travelocity executive vice president of sales and service Jim Marsicano told the E-Commerce Times. "But [offline agents] will always be necessary and valuable for the huge population that values the human touch."

The Internet may be the best tool to quickly find inexpensive point-to-point fares, said Marsicano, but much of the offline population is more than willing to endure agents' service charges in exchange for having a trusted human being take care of their travel purchases.

Survival Tactics

"For most brick-and-mortar agencies, there will be three options: acquisition, specialization, or extinction," Gartner Group analyst David Schehr asserted in a recent report.

The latter of the three options seems unlikely to occur on a grand scale -- at least not any time soon. In 2000, Forrester estimated that of the $100 billion spent in the U.S. on leisure travel, just $8.3 billion was spent online. Looking ahead to 2003, Forrester expects the total travel expenditures to be $108 billion, with just $16.4 billion spent online -- a slight channel shift, but nothing of mutinous proportions, by any means.

The first two options suggested by Schehr -- acquisition and specialization -- comprise the core of many travel agency survival strategies, according to Kathy Sudeikis, national vice president of the American Society of Travel Agents (ASTA).

Traveling to Other Agencies

Sudeikis told the E-Commerce Times that consolidation has indeed reduced the total number of travel agency locations. But she says that the total amount of business has remained constant and now just flows through fewer locations.

She would argue that the former customers of the approximately 2,000 agencies that closed in 1999, per Schehr's estimate, will simply find other brick-and-mortar agencies to patronize.

Statistics from the Airlines Reporting Corporation (ARC) support Sudeikis' argument, indicating that 80 percent of airline tickets are still purchased through traditional travel agents. The percentage is even higher in other travel sectors like cruises (90 percent) and tours (95 percent).

Illustrating the co-existence of online and offline travel sales channels, Sudeikis pointed out that Terrell Jones, president and chief executive officer of Travelocity, booked his last vacation through a traditional travel agent.

Fine Print

Sudeikis does not dispute the increasing prevalence and value of online travel sites. In fact, she freely admits that she uses them routinely to find fares for her clients. But, she argues, travel Web sites fall short when a traveler is looking for anything more than just a point-to-point fare.

This is why specialization will be so integral to travel agents' long-term survival, she said.

"Travel agencies used to be one size fits all," said Sudeikis. "Now we're becoming specialists in lifestyle and hobby niche travel."

For example, there is marked customer demand for trips for gardeners, chess players, and other hobbyists, Sudeikis said. And lifestyle niches, such as seniors, families, and intergenerational, also define customers' travel needs.

Finding a Place

Efforts by Sudeikis and other agents to fine-tune their service offerings will go a long way toward sustaining their existence, according to Forrester's Harteveldt.

"Niche specialists -- cruise, ethnic, active, gay/lesbian, etc. -- will survive, but they'll face a tough business environment," said Harteveldt.

Cutting Corners

Toughening the environment for both offline and online agencies are recent cost-cutting initiatives launched by travel providers, especially airlines. These initiatives have come in the form of agent commission cuts and buy-direct campaigns aimed at consumers.

Airlines typically pay between $22 and $32 per ticket in commission and distribution fees, according to Harteveldt. In 2001, this will amount to about $380 million in transaction fees for a major airline like American.

To cut these costs, airlines are giving consumers incentives to buy directly from their own Web sites, with fare discounts and bonus mileage programs. They are gunning for per-ticket transaction fees closer to $6 or $8, which, by Forrester's estimate, is the case when an e-ticket is booked online from an airline's own site.

Strong Roots

Still, ASTA's Sudeikis remains "cautiously optimistic" about the future for brick-and-mortar travel agents, acknowledging that agents should actually embrace the Internet as a valuable purchasing tool for some types of travel.

"[The airlines] haven't figured out that customers have relationships with their travel agents and are not lured away by lower prices," said Sudeikis.

Clearly, there is still value to be rendered and livings to be made by those offline travel agents who are thinking strategically about how to capitalize on the offline customer base that will continue to co-exist with their online competitors.