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The Future of Travel Agents

Douglas Quinby 05/09/2008

PhoCusWright recently released a landmark study on the travel agency channel – PhoCusWright's Travel Agency Distribution Landscape: 2006-2009. At the end of a Webinar this week where we presented some of the findings from the research, one attendee asked a great – and greatly obvious – question: “so what happens to travel agents after 2009?” (As you might gather from the report title, our projections for the market only extend through next year.)

The question may be simple, but not necessarily simple to answer. Our research found the traditional agency landscape, while still accounting for a significant share (38% in 2007) of the total travel market, is continuing to decline, albeit incrementally (projected to slide to 33% of the total market by 2009). There are important pockets of growth (corporate, complex leisure), but also clear pockets of concern. I have my own ideas on the future of travel agents, but I’m really interested in some of your ideas.

Here are a few discussion starters. Some from the report, some not… Have a look, and tell us what you think about the future of travel agents (or anything else about travel agents).

• Travel agents booked nearly $10B (as in billion) in air via the Web in 2006, and it’s growing. That’s $10B in air bookings that didn’t pass through a GDS.

• Half of all agents in the leisure marketplace (home-based and brick and mortar) are over 55. In 10 years, will half of all leisure agents be over 65?

• 28% of leisure agencies (about 4,600) produce under $1M in annual sales, which means annual gross revenue under $150K. After rent, utilities, other costs, how much is left for the 1-2 agents per location?

• Only one in five agencies reported an increase in profitability.

• Of some 24,000 agency locations, just 65 agencies account for 47% of all agency bookings. Most of those 65 are TMCs.

• Expedia Corporate Travel reported gross travel bookings of $1.3B (as in billion) for 2007. That’s $1.3B in bookings that no longer go through a traditional agency.

So check out the report, and tell us what you think the future holds for travel agents.

comments

On 12 May, 2008, Norman Rose wrote:
The research reinforces that difference between corporate and leisure, but there is a difference between types of TMCs. Large mega-TMCs have built or are building their own agent POS to free the agent from sole GDS cryptic formats, increasing productivity and more closely linking the consumer activity with the agent support platform. Second and third tier TMCs are most vulnerable to threats from the mega-TMCs at their high end of the market and from the ITMCs (OTA corporate versions) from the mid-market.

On 12 May, 2008, Joe Buhler wrote:
There will be a further medium term decline in the number of travel agents, especially small/medium leisure agencies. The rate of decline will depend not only on the demographics, with the existing agents already in a high age bracket, but on the development and successful introduction of new technologies that allow for the web based sale of complex travel products. As the research clearly shows, this is the marketplace travel agents still control and will continue to control, as long as the experience of researching, planning and booking complex trips is as tedious, time consuming and often frustrating as it is today. It remains to be seen how strong the staying power of some of the new search, social media / networking based initiatives we see appearing today will be and how they will impact the main stream OTA business, as well as that of traditional travel agents.

On 12 May, 2008, Douglas Quinby wrote:
I received this question via email from Dominique Zhao, Interaction Designer at Sabre Airlines Solutions, regarding a finding in the research about a significant difference (higher) in the average air ticket value from travel agents vs. online travel agencies: "Did the research distingush between domestic travel and international travel? Since the price of international travel is much higher than domestic travel, the revenue that is generated could make a difference if traditional travel agency's transactions are primarily international travel." My response: our research didn’t specifically capture international vs. domestic travel, but it’s quite clear that corporate travel, international travel and more complex itineraries are key factors driving up the average transaction value for traditional travel agencies vs. OTAs, while the simpler flight purchases (domestic, point-to-point, price-sensitive market) are moving online. So it’s not that travel agents can’t book lower fares or do not have access to lower fares, so much that the traditional agency community is serving a higher-yield market.

On 12 May, 2008, Joe Buhler wrote:
Agree with Douglas' analysis of the reason for the higher average ticket value from travel agents. This better yield is one more reason why OTAs are challenged to tackle the technology issues facing complex travel and get a piece of that potentially huge and profitable pie. The recent change in revenue model from transaction fee to ad based revenue shows that they need to produce higher margins down the road.

On 14 May, 2008, Maju Jacob wrote:
Travel agents would need to move up the value chain, if they have to survive in future due to their shrinking margins. There's already a pressure on the small and medium sized travel agents for their existence as most of the domestic and non-complicated international travel bookings are done online by the passenger himself. So where's the business and the margin for them? I would say, travel agents need to move to the consulting/advisory mode for travellers if they have to make their money and survive, rather than counting on their cut for each booking made. Travel agents would eventually be un-interested in making a regular domestic booking, and would advise the traveller to book online as it would not be economical for them to make small bookings if they have to meet their expenses like staff charges, real estate costs etc, which brings down their revenue-per-office space. A travel agent would rather make use of the same resource to serve a more complex travel booking, which involves visa processing, hotel stays, sight seeing etc, bringing in more revenue for the agent. Thus, essentially travel agents need to deal with complex itenaries if they have to surive, afterall there's still a substantial crowd which needs a physical intereaction with their travel agent before they trust and decide on their travel. So in short, only travel agents who evolve would continue to survive, only if they continue to add value to the travel itenary by taking care of complex travel needs. For this, they need to be technologically ready, if they have to link up with their global partners.

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