The value-add being delivered by travel agencies is dwindling, fast - and this is more acute for so-called brick-and-mortar businesses.
NB: This is an analysis by Manu Agrawal, a senior business consultant with InterGlobe Technologies.
Airlines are also moving into hotel and ground transport bookings, and metasearch engines continue to increase their profile as a place to allow passengers to compare fares across both airlines and agencies.
The travel agent’s dilemma
Passengers who are older or perhaps less tech-savvy now have increased accessibility due to their ownership of mobile devices (besides probably having a younger relative more than happy to book a trip for them).
GPS has made in-destination car rentals a much more viable option, thus reducing the perceived value of a bundled package (with a taxi booking closing the loop between flight and hotel).
User-generated content on travel blogs and websites is substituting, in part, the specialist agent in terms of discovering new or niche locations and experiences.
No wonder then, with an apparent crisis at hand, almost every other article that I have read in the past year coming from an agency leader, focuses on how agents are experts in turning around bad experiences, specialists on specific destinations or have that important contact at a destination who can make things extra special for their customer.
What they fail to mention is that such unique favors can probably be arranged only for a small number of high-paying customers - otherwise how does it remain special in the first place?
In terms of commission, the future does not hold a promising picture as well.
Airlines have already stopped paying commissions in many countries, whilst hotels constantly grumble about the margins sought by agencies which greatly erode their bottom line.
Sooner, rather than later, hotels are going to optimise the cheaper ways to reach out their customers.
So, with both customers and commissions under threat, what can an agency do to retain its relevance in the traveler’s mind?
What – a new product offering
There is a new kind of supplier in the market who is trying hard to deliver a better experience, and will be happier handing out commissions to agencies for an increase in business.
This supplier is the new age airport, fast being developed as a retail destination-cum-business space-cum hotel-cum-tourist attraction, all-in-one.
Airports have traditionally banked on airline rents, parking charges and retail charges as sources of revenue.
Since passengers were captive audiences, the facilities were necessities but not with an intent to impress.
Passengers treated airports likewise - with the usual disdain, trying to get in and out as soon as possible.
However, airports are now realising that a passenger’s "experience" is as important as quick and efficient processing of boarding, baggage collection and security for customers.
Take Singapore’s Changi Airport as an example – there are gardens, free movie theaters, gaming consoles, children play areas, fitness centers, hotels, gourmet restaurants, popular retail brands and even free city tours.
Helsinki Airport in Finland offers sleeping pods, yoga classes, saunas, massages and hosts art exhibitions.
In short: airports are also keen on investing in keeping the traveler happy, and not just satisfied.
Why – key advantages
By recognizing the airport as a destination and a great experience, a travel agent can open up a lot of possibilities, just by thinking a bit more strategically.
For example, hotel check-ins happen around noon in most parts of the world, and travelers arriving very late at night or very early morning might need to pay room rent for the entire day.
By creating itineraries that allow the traveler to stay at the transit airport instead and arrive at the hotel exactly on time, the travel budget can be reduced.
Similarly, the agent now has the option to book flights which might be cheaper but with longer stopovers at good airports.
The money saved can be returned back to the customer in the form of coupons or airport cash.
Imagine getting booked for a trip via Singapore, with a free city tour and a $200 voucher to spend on goodies at the airport (your agency should probably book excess baggage on the flight out).
You add a bonus city to your existing itinerary and also get free cash to spend.
An all-inclusive holiday package with this element thrown into the mix is much more opaque, and customers will find it difficult to break down into individual elements like flights and hotels which can be booked separately.
Such a package also reduces imbalances in supply and demand (propelling passengers to low demand flights) and results in better customer experience due to higher take-up of ancilliary products.
For travelers in transit, the vacation starts earlier, even before reaching the destination. This increases the perceived value of the tour package and that of the travel agent.
From the airport's perspective, an agency guaranteeing customers will obviously increase footfall at a facility and, therefore, create some additional revenue opportunities.
Some of these customers might come with coupons which have to be mandatorily spent at the location.
Airport reward programs also get a boost and increase membership. These, in turn, increase the value of the property for both airlines and retail partners.
Commissions to be provided to the agencies can be in kind or in terms of brand engagement opportunities, which might not cost the airport a lot of investment.
Being named the preferred agency partner for an airport, with advertising opportunities, could be beneficial for the intermediary.
How – technology implications
For agencies peddling their wares online, adding a new supplier requires significant changes to their dynamic packaging systems.
However when compared with flights or hotels, airport offerings do not require real time inventory or prices to start with, and can be incorporated by simple additions to the content management system (while online booking systems for individual Airport offerings can be developed and integrated, the volumes cannot justify the cost).
Bookings can be handled over email and passenger coupons can also be handed over as QR Codes.
At the supplier end, technology integration might be required to honor passenger coupons and also to track all purchases made to track total passenger value and calculate agency commissions, if any.
Using existing airport reward programs or points instead of coupons can be one way to reduce the new technology footprint.
Remember, airports say they require passenger boarding passes for retail purchases which can help track the passenger spend.
Conclusion
Travel management companies and leisure agencies across the globe are looking at ways to retain and increase their margins, while dealing with growing resistance from suppliers trying to get into direct distribution.
While a lot of the focus is on delivering "more value" to the traveler, agencies can be innovative and also strive to deliver "new value".
All it takes is a willingness on the part of both intermediaries and airports to start talking and get into constructive agreements that can hopefully create a win-win situation for the travelers and suppliers, as well as the agencies.
NB: This is an analysis by Manu Agrawal, a senior business consultant with InterGlobe Technologies.
NB2:Airports image via BigStock.