SAN DIEGO UNION TRIBUNE
Fare game | Airlines, travel agents duke it out over the Web
Pam Dixon is the author of seven books about technology, including “Virtual College” and “Job Searching Online for Dummies.”
You won’t find too many travel agents advising customers to point, click and fly the friendly skies.
New technologies, particularly those relating to the Web, are turning the travel-agent business upside down and inside out — and not always in positive ways.
Though savvy travel agents are quickly turning to the Web to increase business, they have competitors with deep pockets: the airlines.
Airlines are eyeing the Web not only as a way to sell tickets, but as a way of restructuring how consumers go about the business of traveling.
“The issue the industry is facing is whether the disruptive technology, the Internet, is going to have positive or negative effects on travel agents,” said Paul Ruden, senior vice president for legal and industry affairs for the American Society of Travel Agents (ASTA). “We’re not afraid of the Net. We’re afraid that the airlines will interfere with our ability to communicate with consumers.”
Because of the Web, airlines can go directly to the consumer and skip travel agents. Now consumers have direct access to information that only travel agents used to have. But the price of knowledge is steep. Consumers may find more ticket information online, but it’s coming from suppliers — not necessarily an entity interested in finding the best deal.
The ax descends
Travel agents have historically occupied the role of neutral comparison shoppers and advisers, pointing consumers to the best deals. Airlines haven’t always liked having travel agents around, but airlines needed the agents as a conduit for ticket distribution. That is, until 1995, when the World Wide Web gave airlines a new and powerful way to communicate directly with consumers.
Not coincidentally, it was in 1995 that the airlines made the first cuts in commissions they paid travel agents for booking airfare — the proverbial first shot in the battle. It was the year that most major airlines capped commissions on tickets for round-trip domestic flights at $50.
“In the early throes of commission cuts, one of the initial results was that marginal travel agents appeared to take that opportunity to get out of business,” said Allan Muten, spokesman for the Airlines Reporting Corporation (ARC), the agency that tracks airlines and accredits travel agents.
“They were the hobbyists, those who may have retired from another line of business and were in it just for the fun of it. They were ill-prepared to deal with the increasing competitive demands of that industry.”
More cuts came in 1997, when the base commission rate was slashed from 10 percent to 8 percent. In 1998, commissions on international flights were capped, and then in October 1999, the major airlines dropped base commissions down to 5 percent. The culmination has been a “precipitous decline of commissions,” said Muten.
And a steady drop in the number of travel agencies. After 1995, the agents who were going out of business weren’t just the hobbyists.
According to ARC statistics, there were 5,080 ARC accredited travel agencies in 1964. The number grew consistently to a high of more than 33,700 agencies in 1996.
Between 1996 and 1997, the growth of the travel agent industry stopped for the first time since 1964, said Muten, noting that the number of retail travel agencies dropped by about 215 locations.
“It wasn’t a huge drop, but the fact that it dropped for the first time was significant,” he said. The number of retail agents has continued to drop by about 3 percent a year since, Muten added. Not surprisingly, as the number of travel agencies dropped, the number of tickets being booked online directly through airlines soared. According to Forrester Research, a leading Internet research firm based in New York City, leisure trips booked online in 1998 totaled $3.1 billion. In 1999, that number jumped to around $7.8 billion.
That’s a lot of cash diverted from travel agencies. Forrester and others predict those numbers will continue climbing rapidly. By 2003, online bookings are expected to reach $38 billion and account for more than 32 percent of business and leisure travel. Ouch.
“A lot of functions the agents used to perform are not necessary anymore,” said Seema Williams, an analyst at Forrester Research. “You used to have to talk to a travel agent to book airfare; now you can go online and do it yourself.” Travelers also can book their own seat assignments, order special meals — and often get bonus frequent-flier miles by booking online.
“Agents’ commissions have dropped by more than half, and many now have to charge a fee for booking travel,” Williams said. “Why would someone want to pay a booking fee when they can go online and book the same ticket for free?”
It didn’t take long for the Web to be seen as the primary battlefield between the travel-agent industry and the airlines. Web sites for American, Delta and United airlines each attract millions of visitors every month and have raised questions among travel agencies about Internet price discrimination.
In November, the battle escalated when four major airlines, Delta, United, Northwest and Continental, announced plans to collaborate on a massive Web portal for selling air travel. The site was to debut by March of this year.
“The site is going to give access to the airlines’ online products and allow you to make reservations,” said Matthew Triaca, a spokesman for United Airlines. “We’re excited about this, and we think it’s going to be the most comprehensive site on the Web in terms of travel.
“One of the unique aspects is that it will feature published fares, and it will feature Internet-only fares as well. The plan is for it to cover fares for all airlines,” Triaca said, adding that United is putting a lot of hope in the Web. “The possibilities are limitless right now.”
Ruden, who questions limitless possibilities, has filed an antitrust lawsuit against the four airlines on behalf of ASTA.
“From our point of view, the joint Web site is another attempt on the airlines’ part to collaborate, not compete, and to take back business that travel agents have,” he said.
ASTA has also made some high-level legislative jabs against what its members see as unfair pricing practices online. In October 1999, ASTA filed a complaint with the Department of Transportation, citing 16 airlines, including United, American and Delta. (Southwest Airlines was one of the only major U.S.-based airlines that was not named.) The stage is now set for the Inspector General to investigate Internet fare discrimination and to report back to Congress.
Even though travel agents have been hit hard by the combination of direct online booking and commission cuts, they do have options. Analysts agree that the travel agencies that will survive in the coming decade need to specialize, get extra certifications, form partnerships with complementary agencies, and use their own Web sites to broaden their market reach. But most importantly, travel agents need to provide customer service like never before.
“To add value in the future and to continue to have a business, travel agents need to provide services that are valuable to their customers. They need to be the opposite of a reservation agent processing data. They need to be true consultants in tourism and be in the business of making dreams for their customers,” said Bob Lepisto, president of the Institute of Certified Travel Agents (ICTA).
Muten has watched travel agencies struggle to find ways to make positive changes.
“They’re not complacently sitting back,” he said. “Everybody is changing, either by changing their mix, by introducing service fees, or by introducing Web and e-ticket technology. What remains today are the extremely serious travel professionals.”
That description neatly fits Judy Clarkson, president of Windward Travel in Mission Valley.
“The days of just sitting at a desk and waiting for someone to walk in and buy an air ticket are over,” said Clarkson, who uses her Web site to draw customers from as far away as Sweden. “Now, I don’t just sell travel. I sell customer service. I take care of all the problems that come up, no matter how small the problem may be.”
As soon as she saw the airlines providing online booking, Clarkson knew she had to reinvent her business from top to bottom. In 1997, she launched her Web site, dropped most of her general travel efforts, and specialized. She earned a certificate in travel to Australia and in several types of Caribbean and Jamaican honeymoons and tours. Clarkson can tell you the color and texture of the sand at just about any exotic beach, and she can advise you on which hotels are the best match for your personality.
“In this Internet age, you have to provide information that you can only get from being there,” Clarkson said. “That’s how to be competitive. A computer can give you airfare information, but a computer can’t tell you where to find the best pina coladas in Jamaica. And a computer can’t help you when you get in trouble and you are a hundred miles from civilization. But I can.”
Another option some travel agencies are pursuing is to create conglomerate Web sites that assertively spread the their business nationwide. Some travel agency sites are funded in part by the airlines. But others, such as Bestfares.com, are independent and work to offer neutral advice to consumers.
Bestfares.com’s corporate offices are in Arlington, Texas, but their Web equipment and 14-person team of technical experts are in San Diego. The CEO, Tom Parsons, travels constantly, doing hundreds of radio and television appearances a year to spread the word about Bestfares.com.
It seems to be working. Bestfares.com is ranked among the top 35 travel sites, and it competes well against the cash-rich Travelocity and Expedia sites.
“We usually have about 3 million to 3 1/2 -million visitors a month,” said Steve Kosier, the San Diego Web master for Bestfares.com. “We’ve been growing by roughly 70 percent a year. In the first six months of 1999, we doubled what we had done in the previous 14 years.”
And that’s fine with Parsons.
“Travel agencies as we knew them in the ’80s and ’90s are being pounded by the airlines,” he said. “Airlines now believe they should own the world. Their biggest competition is the travel agent, so they’re trying to get rid of us. But the consumer today is very price-sensitive, and that still gives us an edge.”
On the horizon
One area agents are focusing on as a way to stay in business is “complex travel,” or travel with multiple destination points — such as cruises and tours.
“Travel agencies have the lion’s share of the cruise business — 98 percent,” said Ruden. “That business is expected to grow by 50 percent in the next three to five years, and it’s not a product that is easy to sell on the Internet.”
“What travel agents are doing is migrating in very significant ways to selling tours, vacations, and developing specialized itineraries to exotic destinations,” Lepisto said.
Lepisto, Williams and Ruden agree that cultural heritage tours, Caribbean vacations, adventure tours and travel for those 55 and older are areas of specialty that look most promising.
Even though some cruise lines offer direct online booking, so far, Renaissance Cruises is the only line that has cut travel-agent commissions. None of the other lines appear to be moving in that direction.
“There’s a very different culture on each ship,” Ruden said. “The cruise lines are well-served by having a body of professional people available to help consumers make comparative decisions.”
Tour operators are also experimenting with the Web, but they are taking an entirely different online approach. This month, the United States Tour Operators Association (USTOA) is launching a new electronic program called Package Power. It gives travel agents instant electronic access to contact and product information.
“Package Power is a Web-based system that will allow tour operators and travel agents to access each others’ information instantly and easily,” said Andrew Burnes, a spokesman for USTOA. Package Power will also allow travel agents to book electronically. But the emphasis is that travel agents, not consumers, do the booking. We are only accepting bookings from travel agents.”
At the end of the day, Ruden concedes that the technology he calls “disruptive” does have a positive impact on a portion of the travel agents’ business. Package Power is an online bright spot for travel agents; so are sites such as Bestfares.com and other individual travel agency sites. And Ruden isn’t worried about the mega-travel agencies such as American Express, saying that they have enough clout and corporate-travel business to stay afloat.
What worries Ruden is the loss of information, especially about airfares, flowing to consumers through neutral parties such as travel agents.
“As long as our people have access to the consumer on a free and open basis,” Ruden said, “we are confident our people will get plenty of business.”