The Travel Industry

Overview


  At first glance, the travel industry might appear to be the poster child for disintermediation:
    • Travel agents provide an information service and seem to offer little additional value to consumers.
    • Most major airlines already offer a website that allows travelers to book cheap flights directly, eliminating the intermediary.
    • Hotels, car rental agencies and other travel providers are following suit.
A closer examination reveals that there is more to the story, as there often is with the issue of disintermediation.

Are consumers going to the internet?

Consumers ARE going to the internet to obtain travel information and make reservations (Travel Industry Association of America) more frequently. Online travel revenue is expected to be nearly $9 billion this year, up from $3.1 billion in 1998. Airline reservations accounted for 90% of online travel revenue in 1996 but are expected to only account for 73% in 2002 as consumers use the internet more frequently to book other travel sales, such as hotel rooms and car rentals.

What does this mean?

Despite the predicitions that the internet would cause rapid disintermediation of the travel industry, much of the online travel revenue is actually not from direct transactions. Instead, cybermediaries such as Travelocity or Expedia have filled the intermediary role in the online world. 60% of the 1998 estimated travel revenues actually went to TravelYahoo.com.

Travel agents have not yet been left in the cold, either. $3.1 billion was less than 1% of total travel revenue in 1998 ($496 billion). No wonder many travel agents are not concerned about disintermediation. Although some have reacted by putting up websites, a majority do not believe that they will be deriving much business from the internet even five years from now. They seem to delight in thumbing their noses at the doomsayers.

Are they blind to an inevitable fact or do travel agents add value to travel transactions that direct online transactions or cybermediaries cannot completely duplicate? Sarkar's framework can give some insight.

 
     

Intermediation Needs

Search and Evaluation
 

In the past...

Historically, travel agents provided a great deal of search and evaluation services. For example, agents have access to a computer reservation systems (CRS), such as SABRE, not available to the public. This used to be the best source of information on seats available on the various airlines and agents could use it to quickly find a flight that met the specific criteria of a customer. Consumers could contact the airline diretly but the pricing structure was confusing and making individual calls to each airline was time consuming and frustrating.

Although the number one source of travel information is friends and relatives (43%), travel agents are not far behind (39%). Agents screen the travel information they received to determine what would be of interest to their customer base. In addition, they offer opinions and advice to help customers choose among the various options. With the tremendous amount of travel information available, this screening can be very valuable, especially if it is customized.

Now...

With the internet, most of the search function is easily performed directly by the consumer. For example, flight schedules and pricing is easily available, either directly from the airlines or from a cybermediary that will search airline sites to find flights that meet designated search criteria. The fragmented nature of much of the travel information online makes the use of an intermediary (online or offline) desirable to at least consolidate the information.

Travel agents and online services are still arguing over which service is more valuable.
     
Needs Assessment
  

While many travelers have a specific destination or type of travel in mind, some have needs that are much more vague. Travel agents have provided a service of assessing the desires of a consumer and making travel suggestions that would be appealing, based on the agent’s own knowledge and experience and on the information the agent has from various sources. For many consumers this service will be important, especially for non-repetitive travel situations. Needs assessment can also be provided online through a new infomediary, especially if they utilize current technology to collect information on their customers and use it to customize information and suggestions to match known habits and preferences.
     

Risk Management

   Travel agents, in theory, can reduce consumer risk by providing a neutral, third party evaluation of the information from providers. In reality, this evaluation is likely not to be entirely neutral for reasons such as special commissions or other incentives, so the risk management services of a travel agent may hinge on the degree to which the agent emphasizes the needs of consumers versus the needs of travel providers. Travel agents, however, can reduce the risk of booking a vacation with a fraudulent party. It is more likely that travel agents will be careful to screen the vacation packages they offer to reduce the risk of fraud. The open availability of the internet can increase this risk, although it is lessened if a well-known cybermediary is used.
     
Distribution   .Travel agents provide an important service in consolidating much of the travel information from a variety of services, saving consumers time and effort. Although travel information is available through the internet and offers the benefit of not restricting consumers to time or place, the volume is tremendous and consumers can incur very high transaction costs trying to sort through all of it. New online infomediaries reduce these consumer transaction costs while preserving the advantages of improved consumer access and control that the internet provides.
     
Information Dissemination Service   As mentioned in the Distribution section, prior to the internet travel agents were the key source of travel information for consumers. As such, they were crucial to providers for dissemination of product information. The internet has made this service much less important to travel providers, who can now directly distribute their information without the costly process of printing quickly outdated literature. Because new infomediaries provide a consolidated source of information to consumers, they also provide dissemination services to travel providers.
     
Purchase Influence  

Travel agents used to be the primary distribution channel for almost all travel services, making their influence critical to travel providers. The influence of travel agents could be subtle, such as their choice of which products to display and how to present travel options, or direct, such as specific recommendations. Travel agents can have longstanding personal relationships with their customers. Given these relationships and the limited availability of information from other sources in the past, the influence of travel agents was very high.

The internet has changed this influence in many ways. First, information is now widely available and free or very inexpensive. Second, travel agents are no longer the only distribution channel for travel providers. Thus, while travel agents may still have a great deal of influence with customers who come to them, the value of this influence to travel providers has been lessened. The convenience of new online infomediaries is likely to shift more influence to this channel. It is still too early to know which infomediaries will prevail.
     
Customer Information   As the primary, if not only, distribution channel for most travel providers, travel agents have been a valuable source of customer information to those providers. With the advent of direct online sales and the technology currently available, providers can get some of this information themselves. Even if travelers do not book their travel, their browsing can give travel providers some information on their travel interests. Infomediaries are likely to be an important source of consumer information to travel providers also. Consumers are likely not aware of the magnitude of information providers or infomediaries may be able to collect during their online browsing. If they were aware, privacy concerns might prompt them to return to offline intermediaries.
     
Risk Management for Providers   Risk management is primarily available to travel providers who sell directly to consumers through the use of credit intermediaries, such as credit card companies.
     
Transactional Economies of Scale   Intermediaries aggregate transactions thereby creating a larger base over which to allocate costs in information systems and other process investments. While some large airlines can achieve this scale by providing intermediary functions internally, much of the travel industries relies on intermediaries to accomplish this.
     
Integration of Consumer and Provider Needs   Travel agents have had to manage the sometimes conflicting needs of consumers, who want advice from a neutral third party, with those of travel providers, who want their product(s) shown in the most favorable light. In the past, consumers had only limited information on their travel options, making them dependent on the trustworthiness of their agent. The internet has made this information more accessible, giving consumers many different information sources to compare, a big plus for consumers.
     

Trends and Generalizations
   

There is no doubt that the internet has had a tremendous impact on the travel industry and will continue to do so.

Disintermediation has occurred, especially in relation to airline reservations, but this is not the major trend.

Instead, we see more diverse intermediation. Cybermediaries will continue to battle for a bigger piece of the travel pie. In this battle, similar to the portal wars, participants will look for ways to differentiate, as they have already begun to do, becoming infomediaries and offering consumers more than just a booking service.

Travel agents, as seen in the analysis with Sarkar's framework, offer some value to consumers are not likely to entirely disappear if they focus on providing unique services to niches that are difficult to duplicate in an online environment.

     

Reference List
   
     
Online e-Commerce Sites  


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