Six strategies that six separate travel companies use to compete and thrive in the new economy.
Big-company partners putting the squeeze on. Technology undermining the value of your services. Sound familiar? As travel agents are discovering, the new economy can force you to find a whole new way to make money
On the surface, the plight of travel agents seems pretty simple. It also seems unusual, meaning that it's their problem and not yours. Hah! Life should be so easy. Our bet is exactly the opposite: what smart travel agents are doing right now -- learning how to make money in whole new ways, because the old ways don't work anymore -- is exactly what a lot of businesses will have to do over the next several years. Travel agents are just going through it first. See if you agree.
The basics of travel agenting are about as straightforward as business gets. Customers call for a flight, a cruise, a hotel reservation. The agent finds out what's available, maybe offers a little advice, and books the transaction. The bread and butter of most agencies has always been commissions on airline tickets, which account for three-fifths of the typical company's revenues. For years, agents pocketed a 10% commission on every ticket sold.
That moneymaking arrangement has never been a pot of gold -- most agencies are low-margin operations with maybe seven or eight employees -- but it has kept a lot of small companies in business (with the perks enjoyed by travel agents everywhere). It has also provided a foundation for some savvy, fast-growing enterprises. Aggressive, entrepreneurial agents could collect fat cash "overrides" from airlines they did a lot of business with. They could compete on price by offering discounts to good clients. They could compete on service by (for example) supplying a company's full range of travel needs.
Then, a year ago, came a temblor that felt to travel agents like 8.0 on the Richter scale of the marketplace.
The initial shock wasn't so bad. Delta merely announced it was ending the 10% commission. From then on it would pay agencies no more than $25 for a one-way domestic flight and $50 for a round-trip. No problem, said agents blithely, we'll just direct business to other carriers. But then the main quake hit. Nearly all the other airlines followed Delta's lead.
That's when the roof seemed to cave in. Local newspapers ran stories on the impending demise of mom-and-pop agencies. The American Society of Travel Agents predicted that up to 30% of agencies would be put out of business. (ASTA also filed a suit against the airlines for collusion. Don't hold your breath.) After a year the shakeout doesn't appear quite so devastating -- but it isn't business as usual, either. The commission cap "absolutely cost me a million dollars," moans Jeffrey Smith of Fugazy Executive Travel, in Boston, an Inc. 500 company in 1995. "If we had been a public company, our stock would have dropped from 10 to one -- and I wouldn't have told anybody to buy it at one." Meanwhile, the vultures are circling the industry's small players. "We see some major opportunities for our company," says Hal Rosenbluth of industry giant Rosenbluth International, who announced last spring that he would be hiring extra people to pick up business from failing small agencies.
If the commission cap were the industry's only problem, it would indeed be self-contained and thus uninteresting to anybody not related to a travel agent. It would probably lead to a modest shakeout, with the surviving companies being a little savvier, a little bigger, a little better at what they do. The reality, though, is that the caps are only the most visible sign of tectonic shifts in the marketplace -- shifts peculiarly characteristic of today's new economy. Those shifts are shaking the ground under a lot of industries, not just travel agents.
Consider what a travel agent really does, and you'll see the parallels.
At root, agents are brokers of information. They're like stockbrokers, real estate agents, consultants, publishers, and any number of other businesspeople. Their stock in trade is what they know and what they can find out. But the flow of information these days, as every fact- and opinion-monger knows, is being utterly reshaped and rechanneled by new computer networks. You hardly need a real estate agent if you can call up on the screen a fully indexed and illustrated list of all your city's homes for sale.
Agents are also distributors. Like any distributor, they occupy a niche on the economic food chain between producers and their customers. But distribution today is a notoriously perilous business. Producers may decide to muscle you aside. (Think of the pharmaceutical manufacturers that have bought up big mail-order drug-distribution houses, and be glad you don't own a local pharmacy.) Customers or other companies may figure out ways to bypass you entirely. (Ask a convention of supermarket owners how they feel about Wal-Mart's superstores.)
Right now, travel agents are facing a bevy of threats on both fronts.
The information they peddle -- notably about airline schedules and fares -- is more and more widely available, no travel agent required. Two years ago American Airlines introduced "Eaasy Sabre" on America Online. A simplified version of the system used by agencies, it lets people make reservations from their home computers. Other suppliers are following suit: United Airlines and Microsoft, for example, have announced a deal for an on-line service designed to turn PCs into "desktop travel systems." On the corporate side of the business, "agentless" software such as TravelNet's Resolution 2.0 helps companies do for themselves most of what a travel agent traditionally did for them: tap into airline booking systems, implement corporate travel policies, take care of travel-and-entertainment cost accounting, and so on. Bragged TravelNet chairman John Schoolery to an industry reporter, "We know that we can save 10% to 20% off T&E above and beyond what travel agencies can do."
