State of the Nation – Trade report

Travolution’s research reveals decreasing margins and changing booking habits are increasing the pressure on the trade. Juliet Dennis reports.


Ask travel industry staff what their biggest concern is this year and the answer resounds loud and clear across all sectors – decreasing margins.


In a year plagued by plummeting holiday sales, traditional travel agents, online agents, tour operators, hotels and airlines all cite falling profits in their top two major worries for 2006.


The depressed state of the market, described by experts as the worst summer trading conditions for 30 years, has led to a climate of doom and gloom among travel company workers industry-wide.


But in an environment of declining high-street footfall and rapid technology advances, it is the bricks-and-mortar agents who are the most worried about their company bank balances – 44% of those surveyed name decreasing margins as their major concern of 2006. This compares to 28% of online agents, 29% of operators and 29% of hotels and airlines.


Another major worry for this year is changing booking habits, according to 35% of traditional agents, 28% of online agents and 29% of operators questioned. This goes hand in hand with the view that more than half of all industry staff believe their clients are more knowledgeable than they were just 10 years ago.


Travolution’s research reflects how holidaymakers are becoming the trade’s toughest customers to date – more sophisticated, savvy and demanding than ever in the industry’s history. A far cry from the 1970s package tourist, consumers are confident, book later, often favour component bookings over packages, and demand more specialised trips – all at a better price than a decade ago.


It is hardly surprising that, when asked, most respondents said working in 2006 is harder than five years ago – more than half of all agents and operators strongly agreed they now have a tougher job, while half of airlines and hotels slightly agreed.


Across the board, respondents are adamant the role of the agent needs to change – 67% claim agents need to specialise more in the next five years. The skill most industry staff (64%) believe agents will need in this new digital age? In-depth product knowledge.


Faced with an increasingly competitive marketplace, in which new online travel companies surface almost daily, it’s hardly rocket science that developing a niche and knowing your product inside out is the best way to survive, as the survey suggests.


In comparison, very few respondents from all sectors (14%) suggest the most important skill for agents now is being technologically savvy, which is somewhat ironic as technology issues and search engines are the biggest factors to impact on travel consultants’ daily lives.


Search engines are a greater concern for agents as consumers turn to the Internet to search for holidays rather than, or in addition to, their local travel agent. In total, 35% of traditional agents named search engines as having the greatest impact on daily business, followed by technology issues at 32%. Technology came top for online agents, with 46% citing it, followed by search engines (43%). Just under half of operators, 48%, agreed technology issues hit day-to-day trading the hardest.


Just over half of airlines and hotels questioned (52%) also agreed technology has the biggest impact on daily business, while 24% named staff – a reflection of the size and scale of their businesses.


The trade is less united on what will have the biggest impact on the industry over the next five years. Their differing views clearly highlight the way travel companies have adapted to – or in many agents’ cases have yet to – new forms of distribution.


More than one third of traditional agents, 36%, believe the problem of operators selling more business direct will hit them the hardest. The age-old concern for agents mirrors the current mood of the trade, with major operators such as Thomson for the first time making no bones about the fact they are less interested in agents’ business by actively and openly targeting consumers direct.


However, online agents believe advances in technology will have the biggest impact on their business in the next five years (46%), followed by operators’ direct-selling tactics (25%).


Both traditional and online agents share the view that meta search and price-comparison sites will have a significant impact in the next five years, a factor named by just under 20% of both sectors.


For tour operators, hotels, airlines and support staff in the e-commerce, search engine, marketing, web design and advertising sectors of the travel industry, technology will be the dominant factor over the next five years; it was named by 38% of operators, 40% of hotels and airlines, and 45% of support staff.


Unsurprisingly, the sectors which say technology will have the biggest impact over the next five years are also the ones who, to date, have embraced it into their business models the most. Half of hotels and airlines questioned estimate they are already selling between 21% and 40% of their product online – a figure most of them (64%) believe will rise to between 41% and 60% in the next two years.


Traditional agents and operators are still catching up, according to the research. Just under half the agents and operators questioned claim up to 20% of their sales are currently online. All of them expect this to increase within the next two years, with varying degrees of confidence. Most believe online sales will reach between 21% and 40% of sales by 2008 – although in both cases almost as many are hopeful it will hit 41% to 60% in the same timescale.


Interestingly, the majority of those questioned across all sectors – apart from the existing online players – say web sales only account for 20% of company revenue, with service fees and commission also still making up to 20% of revenue. For hotels and airlines, this suggests that despite selling more products online this has yet to translate into a higher proportion of revenue from web sales.


With travel one of the biggest consumer purchases online, the whole industry is likely to see enormous change, which explains why most people surveyed agreed that companies need to change their business model and employ staff with different skill sets.


Staffing stands out as a dominant issue for agents, operators, hotels, airlines and support staff; 41% of traditional agents, 50% of online agents, 30% of operators, 35% of hotels and airlines, and 53% of support staff surveyed strongly agree employees with different skills are needed.


Undoubtedly this is linked to the need for agents to concentrate on a niche area to succeed, and highlights the importance of employing staff with expertise that is second to none.


The biggest challenge appears to lie in the hands of the industry’s biggest doom and gloom merchant – the lowly agent.


But the good news is that operators, airlines and hotels still consider the relationship with agents important; 45% said their business relationship with agents is still valuable.


Clearly the bridges aren’t burnt yet, but are there other avenues which agents need to pursue by raising their game online and improving the level of staff expertise in their companies.


If agents can outwit an Internet-savvy public with their product knowledge and service, the more likely it is holidaymakers will return to them. But unless company bosses think more carefully about who they employ and how they train them – which could require better pay, conditions and recognition – there is little chance of agencies escaping the vicious circle they appear to be stuck in.



Matt Cheevers Teletext Holidays, online commercial director


Our industry has changed dramatically since the birth of the web, and the future will be very difficult to predict. Without doubt, technology will continue to evolve and impact our business. But will consumer habits continue to change, will there be more consolidation, and will margins decline even further? While these questions will need to be addressed, in times of uncertainty it is wise to revert back to basic principles.


First of all, the product needs to be right and there is a range of good accessible product at the moment. Price will always be important and will largely be determined by capacity and demand. The third important principle is the ‘promotion’ of the product and this is where you must utilise the distribution channels that currently exist. Put trust in those companies that can distribute your product to the right consumers.



Guest editor David Soskin, Cheapflights


This year has not been the easiest for the travel trade. No wonder the market is depressed.
The flipside is that Britons love to travel. The economy is in reasonable shape and some things remain a constant to ensure that travel will recover. Long winters, a dreadful transport infrastructure and the high cost of domestic tourism will ensure that any downturn will be short-lived.


But one factor that is here to stay is the Internet. As this research shows, more and more travellers will be using it to research and buy travel. And it is making consumers much more knowledgeable than ever before.


So how should bricks-and-mortar agents cope? Do not believe that the Internet will wipe out these retailers. The need for human expert and informed advice has never been greater. But the key words here are ‘expert’ and ‘informed’. That is what the travelling public require – because the Internet can often do the easy stuff.

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