Will the Advent of Online Intermediaries Diminish the Need for Travel Agents Totally in the Near Future?

Will the Advent of Online Intermediaries Diminish the Need for Travel Agents Totally in the Near Future?

Will The Advent of Online Intermediaries Diminish the Need
for Travel Agents Totally in the Near Future?
Erin Toh
Temasek Polytechnic
Abstract
This paper will focus on the comparison between Retail Travel Agencies (TA) and Online Travel Agents/Intermediaries (OTA); and how the rise of technology has affected the business model and operations of traditional agents. Traditional TA in this paper refers loosely to those with a brick and mortar store, selling travel related services with human touch; while OTA are also selling travel related services, but without a brick and mortar store and solely relies on internet as a selling medium (Bottomley, 1997). The paper will start with an overview of the booming travel industry, followed by the main challenges facing the travel industry, namely labour crunch and human touch, discussed in the context of TA and OTA. An analysis of current consumers behaviour factors as identified by Zhou, Dai, and Zhang (2007), affecting purchase decisions will also be discussed. In addition, traditional TA roles have evolved throughout the years to offer differentiated services in order to keep within the competition. The distribution of travel products has undergone changes and in order to remain competitive, TA must take a page out of OTAs, adapt to technology and online platforms in order not to be rendered obsolete.
Keywords: Travel Agents, Technology, Internet, Online Intermediaries, Online agents
Will The Advent of Online Intermediaries Diminish the Need
for Travel Agents Totally in the Near Future?
The travel and tourism industry is a million dollar trade. Many countries in the world have seen the value in promoting Travel and Tourism, pushing it to be one of the strongest sectors in the world. In 2013 the Travel and Tourism industry direct GDP (Gross Domestic Product) stands at $US2.1 trillion; representing almost 2.9% of the global GDP; larger than the other sectors like education and manufacturing (WTTC, 2013). This shows the potential and value of this industry to many countries (refer to Appendix A for more information).
In Singapore’s context, the GDP at current market price as of 2012 is SGD$345560.5 million. Out of the Service industries; Accommodation & Food Services, Other Services and Wholesale & Retail Trade; contributes SGD$99108.8 million, almost 30% of the GDP (Department of Statistics Singapore, 2013). The outbound visitors in Singapore are also an important indicator of travel. According to Department of Statistics Singapore (2013), more than 8 million Singaporeans travelled out of Singapore, a 17.8% increase as compared to 6.8 million in 2008. This suggests that the market is seeing an increasing demand (Singaporeans made more than 8 million overseas trips, 2013).
Traditionally, many placed their travel bookings by being physically present at a travel agency, discussing various itineraries and even special packages. However, the change in technology has come even faster than what businesses are able to catch on. It has involved in such a speed and manner that, consumers are now able to skip the travel agents as a middlemen and go directly to suppliers instead; thus further eroding the market share of TA.
The global online travel market is valued at almost US$256 billion in 2010 by PhoCusWright; accounting for 30% of the market share (WTTC, 2011). This signifies the immense broad reach that online bookings have managed to attain, threatening and challenging the current business models of many local travel agents. In addition, as travel agencies receive a majority of their income from commissions, they found themselves in difficulty in 1995 when seven airlines joined forces to force a cap on airline commission. Many airlines soon followed suit and there was a sharp decrease in the number of travel agents (Amadeus, 2007). Therefore the rise in the number of OTA has pressurised many TA to rethink their operations and offer differentiated services.
Travel Decisions – The Consumer Behaviour/Pattern
It is important to understand the consumer’s behaviour when purchasing their holiday. This section will cover the important factors that influence the decision to select a medium to purchase travel products. Over the years, travel products have evolved. From simple services such as purchasing air tickets, accommodation and application of visa, it has now been extended to other value added services such as restaurant reservations, customized itinerary and even professional advise. Similarly, consumers have also evolved. As time advances, technology becomes more advance and so do their needs and requirements. They are now well informed about their choices and with the advent of technology and internet, a whole new world of research and do it yourself (DIY) holidays arises.
As services are getting more consumer driven, the advancement of technology has also evolved to such an extent that human has also started to take these novelties for granted (Johnstone, 2013).
Through research, Zhou, Dai, and Zhang (2007) have identified 9 factors (Demographics, Internet Experience, Normative Beliefs, Shopping Orientation, Shopping Motivations, Personal Traits, Online experience, Psychological Perception, Online Shopping Experiences) that affects a consumer purchasing services during an online shopping session (refer to Appendix B for more information) Although research was not done specifically for tourism and travel, the same can be applied to consumers as it is the factors that influence the decisions. Summarising the findings by Zhou et al. (2007), it is suggested that shopping for products online depends mainly on the perception of value and convenience.
In travel context, the rise of OTAs has brought major convenience to shoppers online as they are able to purchase services at any time of the day. As the internet does not have any operating hours, travellers are able to conduct their research at any moment and purchase it with a simple credit card transaction. Technology has also made online payment fuss free as well as safe. This brings travellers the much coveted convenience, as they do not have to be at the travel agency physically to complete the transaction. According to a research done by Millward Brown Digital (2012), a traveller will typically visit twelve websites on average before making an online purchase. More than half of the visits will occur during the week of booking itself and more will occur within the last 48 hours of booking (Millward Brown Digital, 2012). Consumers spending behaviour has changed rapidly and internet technology has allowed OTAs to rise above.
WTTC (2011) also noted that from spending hours at a physical TA, consumers now makes last minute bookings online, often with a much shorter lead time than before. In addition, according to research conducted by hotelbook.com, one out of five travellers purchase a holiday online less than five days before departure; while for business segment, Carlson Wagonlit suggested that most business trips are often made less than 2 weeks in advance (WTTC, 2011). There seems to be a shift in the way consumers are now purchasing their products; they are now looking more at the convenience that OTA are able to offer as compared to the brick and mortar TA.
Main Challenges in Travel Industry
Although the travel industry is thriving and booming, there are certain glaring challenges at hand. These challenges as identified by various industry experts are obvious and already present in the industry. This section will focus mainly on the two biggest challenges in the travel agent industry; Labour Crunch and Human Touch.
Labour Crunch
Every industry faces a challenge regarding manpower; however this is more so for the travel industry as it is essentially a human business. Research and interviews conducted by Lawton and Weaver (2007) also suggested that lack of manpower is one of the major concerns in the travel trade. An interview with industry owners revealed that there is a lack of young blood going into the industry, and young blood is needed for the industry to carry on and thrive. One owner even attributed this gap to education. It was suggested that education affects the job decisions. One example quoted was that a newly-employed fresh hospitality graduate claimed the travel trade was strongly frowned upon. However, this paper believes that it was more of a personal opinion and should not be generalized. Another owner also mentioned that if manpower permits, the travel company will be able to expand further. Although different owners have different viewpoints, it is generally agreed that lack of manpower is indeed the main issue and challenge.
Another form of labour crunch also exists in current markets. The industry requires manpower but often, the travel agency trade is associated with low pay and long working hours (Jazz Travels, 2012). This creates an undesirable profile of the job nature, thus deterring people from joining. Many hospitality students graduate but they are off to other sectors such as hotel industry or even airlines. According to the 2013 Singapore White Paper, it is discussed that foreign talents are needed especially in non-PMET (professional, managerial, executive and technical jobs) positions to keep the industry going, so as not to sacrifice standards. Thus, in light of the manpower shortage, many governments especially in a small country like Singapore, turn to the usage of foreign talents. As suggested by Ross Eisenbrey (2013), Vice President of EPI (Economic Policy Institute in US), this is however temporary. By inviting foreign talents into a country without fully utilizing current pool of local talents will ultimately “narrow the educational pipeline that produces these skilled workers domestically”, thus bring negative long term effects (Eisenbrey, 2013).
Human Touch
The second challenge the paper will address is the human touch. Hospitality services require human touch and the interaction can often make or break the service perception. Traditionally, services are carried out and purchased by travellers physically and during that time, the various service characteristics may or may not be experienced by a traveller. For instance, Kotler, Bowen, and Makens (2014) defined the four characteristics of services; Intangibility, Inseparability, Variability and Perishability. These four characteristics are essential in understanding service. Kotler et al. (2014) mentioned that services cannot be separated from service providers. However, this notion changed when OTAs made their appearance in the travel market. Without directly dealing with a person, consumers are able to purchase what is required. Indisputably, the actual service, depending on what is purchased might still be provided by a person. This itself, is a double-edged sword as without human touch, consumers might have a better perspective of service. However, the irony is that services in the hospitality pride itself on the aspect of human touch.
Discussion
Traditional roles of TA
The notion of a TA first appeared when Thomas Cook organised tours and sold them for profits back in 1845. He started a brick and mortar store and came up with various exotic itineraries for high-spenders, prevalent at that time (Thomas Cook, 2007). Soon, many companies were formed, following the business model of Thomas Cook. With time, TA became stronger in terms of market presence and people relied on them for holiday trips. This section will discuss the various roles identified by Osborne, Nagendra, and Falcone (2001).
Osborne, Nagendra, and Falcone (2001) identified six traditional roles of TA. A traditional TA will act as an information source and specialist, providing travellers with pertinent information about a destination. Traditionally, holiday makers were only able to obtain information through travel agencies and word of mouth. A TA also acts as a reliable persona, providing confidence to the traveller that someone will be there for them before, during and after the trip. Conventionally, most TA also sells travel products and services that are mostly undifferentiated – accommodation, air tickets and transfers. They are also usually associated with a broad network of hospitality suppliers and a brick and mortar store.
The Evolution
Undoubtedly, technology is changing the face of how business is conducted in the travel trade. Consumers are now able to go online; conduct research on their own and even purchase an entire holiday online. Consumers are so exposed to the new form of buying; it seems to be a threat for the existence of TA. The one stop service that is the main selling point of TA is now accomplishable with internet and sites that support such activities. One example is Expedia.sg , which is branded and identified as the largest online travel agency. It has evolved in a way that information and booking confirmations are accessible right at the fingertips of consumers.
TA are also moving on to focus on the interaction rather than the traditional transaction. It is not just booking of hotels, arranging transfer, or handling visas anymore. They are now moving on to more personalized service by appealing to the consumer’s personal needs and fulfilling their wishes. TAs realise that this is something that cannot be accomplished by the internet, as there is no human interaction. Similarly, many TAs are starting to adapt to the market and introduce online booking on their websites. One example is Dynasty Travel in Singapore. Channel News Asia (2014) reported the same with Alicia Seah, Director of Marketing Communications in Dynasty Travels, in one of the articles concerning TA’s online presence. It was reported that they spent more than SGD1million dollars just to invest in an online booking system as well as mobile application (Hu & Adriana, 2014). It is also noted that mobile as well as internet penetration into the market will require time.
In addition, the notion of being associated as a TA is also slowly shifting to being undesirable. Notably, FlightCentre has recently re-positioned itself as a travel retailer; a transition from a TA. FlightCentre’s 2013 Full Year Report suggested that being a travel retailer is different from being a TA. They would wish to change their position from a middleman to a brand that is easily identifiable. They repositioned their services and created unique products targeting at current market gaps (Flight Centre, 2013). This shows that TA must adapt to common and future trends, in order to stay within the competition and not be obsolete in the future.
Aside from traditional phone or physical bookings, the purchasing process is also seeing a huge shift. With reference to an info-graphic compiled by SuperMonitoring in 2013, 56% of people in the world possess and have easy access to a smart phone (Infographic, 2013). This opens up a whole new world for online bookings. According to a study done by IATA in 2012, it is expected that 50% of online bookings will be made on smart phones by 2017. As smart phones are portable and easily accessible, there will also be more ancillary purchases (IATA,2012).
In the aspect of human touch, TA might still have an advantage over OTAs. Destini Copp, a business professor with South University suggested that the main difference between a TA and OTA is the amount of human interaction. He also noted that there will still be a segment of the market that requires traditional human touch services (Jerpi, 2012). TA could tap on the gap that OTAs do not possess and use it to their advantage.
However, many OTAs soon realised the disadvantage that they face and have started to integrate human touch/interaction in their operations. OTAs such as Zuji, Creative Holidays and HotelClubs have implemented “real time” chat service in order to overcome this gap. This brings convenience to the customer by not necessarily be physically present but able to have someone to talk to as well. The paper feels that there are certain limitations to it. For instance, although Zuji.sg provides online chat, it is only available during office hours (refer to Appendix C). Therefore, there is an irony as the main idea of a real time chat is to provide consumers with that human interaction. However, limiting the timings that travel consultants are available does not fulfill the initial purpose. With that being said, there are still other OTAs such as HotelClubs.com that provide 24hour real time assistance.
Seeing a huge gap in the market for this aspect, Cheapoair.com was launched with the intent of filling that gap. Chris Cuddy, the CEO of CheapOair, mentioned that the stereotype of OTAs being only online, in a human-less world should be removed (Bachman, 2013). He also noted that travellers are still looking for that human touch when it comes to more complex itineraries and exotic destinations.
Booking with TA VS OTA. When a consumer book with TA, they usually are able to receive preferential contracted rates with various hotel suppliers. In addition, due to the strong vendor relationships with suppliers, TA are also able to value add their trip by bargaining for extras such as complimentary upgrades, amenities and honeymoon perks and so on (Jerpi, 2012). TA is also traditionally a one stop service centre, where the essential roles of a TA is being carried out under one roof; thus bringing convenience to consumers. TA also listens to traveller’s needs and create a customized itinerary that is able to fulfill their requirements.
On the other hand, recently OTAs have also established themselves as the ‘cheaper’ alternative to travel bookings. Sites like Expedia.sg uses marketing slogans and tactics such as “Cheap and discount travel” and “Best price guarantee” to secure and reach a wider market that are price sensitive (Expedia, 2014). It is however, up to individual’s perception on which has the better value and is ‘cheaper’. TAs are also slowly being displaced as they are no longer the only source of information. The World Wide Web offers 24 hour information and has provided consumers with transparency of hotel rates/value by breaking down information barriers (Sathyanarayanan, 2013). Sites like Tripadvisor also allow consumers to compare rates, thus getting the best value out of many websites. However, business professor Destini Copp again noted that despite the internet being a useful medium, there are simply too much choices and options out there. In this situation, a TA will take on that job to break down the information for the travellers perfectly (Jerpi, 2012). Technically, the internet has empowered travellers to reduce reliance on TA and plan their own holidays.
Challenges of TA VS OTA. As suggested by Lawton and Weaver (2009), the main challenge of TA remains as the lack of manpower. On the contrary, OTAs have little to be concerned about, as they are essentially working behind the scenes; although manpower is still required to operate. The rise of technology is able to cushion this impact as technology is now able to assist with greater efficiency through streamlining processes and management packages (Amadeus, n.d.). Therefore, instead of allowing OTAs to replace traditional TA totally, TAs are able adapt to current market conditions and turn to flexibility in operations.
Apart from the use of technology, TA should try to fully utilize the current talents in the market before turning to foreign talents. As Eisenbrey (2013) noted, TA should try to appeal to these talents to entice them to join the industry; alternatively, the ageing population of each country should also be maximized as they possess precious knowledge of the industry (Jermyn, 2013).
As mentioned earlier, one of the main challenge for OTAs will be the lack of human touch. As analysed, many still seek the peace of mind of conversing with a travel consultant in travelling, especially so for long-haul/exotic destinations.
Conclusion - The Future
Although initially seen as a threat, TA are starting to adapt to the market change and is slowly integrating internet into their operations as well. Osborne, Nagendra, and Falcone (2001) observed that The Economist noted that there will always be a demand for TA services even with the rise of OTAs. Similarly, although TA still has its own fair of market share, technology in online intermediaries is slowly catching up. With consumers having higher spending power and need for service, it is safe to say that TA will continue to survive by providing differentiated services. In light of what have been mentioned, in the near future TA will co-exist with technology and offer latest platforms and services according to market trends. OTA will also continue to grow strong with the extent of mobile and internet technology penetration. Quoting the America Society of Travel Agent’s (ASTA) slogan “Without a travel agent, you are on your own”, TA will continue to hold a special place in traveller’s heart even with the temporary dip in profits and business.

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