Will The Internet Drown The Travel Agents Tourism Essay

November 2009, Budget travel the largest tour operator in Ireland ceased trading and closed the remaining 17 of total 31 retail shops. The company was established in May 1975 and had a 30% share of the market.

“The internet is a tidal wave…. It will wash over the computer industry and many others, drowning those who don’t learn to swim in its waves.” (Bill Gates, 1995)

Travel agents used to be the purchase channel between the travellers and the suppliers; now travellers can bypass the travel agents and purchase directly from the suppliers by using the internet. Will the internet drown the travel agents, like Bill Gates predicted, or will they learn to swim in its waves?

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A lot of research in this area has focused on how travellers and suppliers use the internet to eliminate the middle man, this research examines how travel agents are evolving and surviving this ‘disintermediation’. This dissertation is important to the middle men (the travel agents) and will examine what future, if any, they have and what form that future will take. Also this is important to future researchers, due to the lack of recent research literatures on this topic.

Background to Study

Currently travellers demand more and higher quality travel services, products, information and value for their money. The internet serves as a new form of communication and distribution channel for the traveller and travel service suppliers. It enables tourism suppliers to improve their competitiveness and performance, by cutting out the middle man, bringing more profit to the tourism suppliers and allowing suppliers to provide lower fare to the travellers.

Before the internet, travellers had to book though travel agents. These bookings typically consisted of a large range of bundled products; each of the products within the booking was presented to the traveller in a sequential fashion. For example, the start of the trip would almost certainly consist of a flight product; at the destination airport the traveller would possibly collect their hire car and they would then go on to their pre-booked hotel. The industry relies on linking various products from various sources at specific times and locations to create a coherent package or product for the traveller.

As Longhi (2008) stated, the value chain of the travel and tourism industry could traditionally be split into five main types of actors or participants (Figure 1):

Figure 1

The Travel and Tourism Industry Supplier Chain

Suppliers

GDS

Tour operators

Travel agents

Traveller

Suppliers and service providers.

Global Distribution Systems (GDS), such as Galileo, Sabre and Amadeus, used for reservations, information search, client management and reporting.

Tour operators, who bundle the tourism products from suppliers.

Travel agencies, which distribute the different products from services providers and tour operators to the consumer.

Travellers, the actual customers.

In contrast to the traditional model above, the internet provides a way for tourism suppliers to sell their products globally to potential travellers. For these suppliers, this model represents lower distribution costs, access to a much larger market and therefore higher potential revenues. For travellers, it represents an ability to communicate directly with tourism suppliers and to purchase what they wish when they wish to; with no recourse to a ‘middleman’.

To some researchers, online booking sites significantly reduce the importance of travel agencies, a trend that could ultimately result in the permanent removal of travel agents from the supplier chain (Barnett and Standing, 2001). However, Palmer and McCole (1999) argue that travel agencies provide personal information and advice to traveller and that this is their key strength.

There has been a significant amount of research on how the internet has changed the way travellers purchase products, but very little has been conducted on how the internet impacts the intermediaries – travel agents. With the trend towards ‘disintermediation’, the elimination of the middle men between the suppliers and the consumers, travel agents would seem to be facing extinction. Bennett(1992) claims that changes to information technology in the travel industry over the past few years have worked primarily in favour of the suppliers and at the expense of the travel agents. Caywood, Loverseed and Murray (1999) support this view and suggest that these changes are aimed at encouraging travellers to bypass travel agents altogether.

It is certainly undeniable that the internet is providing the means for suppliers and consumers to communicate directly. Figures available from the Irish Central Statistic Office indicate that over the past 4 years, the number of travellers booking online has increased dramatically and, by the same token, the number booking through travel agents has substantially decreased.

Number of Trips by Irish Residents (Thousand)

Travel Agent

Internet

2006

1729

5510

2009

1046

7496

Despite these statistics, travel agents still exist within the marketplace. The fact that they are still here means that they are somehow managing to compete with the internet.

A number of arguments have been put forward to suggest why travel agents are still surviving and also what they need to do to continue to compete and flourish. Lowerngart and Reichal (1998) claim that there are opportunities available to travel agents provided they focus on specific markets and specialise their activities. Waksberg (1997) argued that travel agents should move from a focus on transaction processing to the provision of consultative services. Lovelock (1992) claims that travel agents will need to expand their advisory function and concentrate on the provision of information and details that are not available to the traveller through the internet. Beirne (1999) suggests that travel agents should become consumer advocates, finding the best deals for the traveller.

The Research Questions

The primary research objective is to recognize how the internet is changing the travel industry and what strategies or techniques travel agents are adopting to evolve and sustain their positions.

The key research question maybe posed as “How does the internet impact travel agents?”

From the key question than expand to sub questions as following:

How has the internet changed the business of travel agents?

What threats does the internet present for travel agents?

How are travel agents using the internet to run and improve their businesses?

In what ways are travel agents competing with online travel providers?

How will travel agents utilize the internet in the future to enhance their business operations and increase their profits?

Timeframe of the Study

The study was conducted over a nine months period from December 2010 to August 2010. The initial proposal was established during December to February, when the research topic was decided. The main body of work commenced in March 2010.

Roadmap of Chapters

The dissertation is split in to five major chapters followed by reference, bibliography and appendices.

A summary of the subsequent chapters is outlined below:

Chapter 2 contains a brief history of travel reservation system, as well as a discussion on existing research in the area and predictions concerning the future of travel agents.

Chapter 3 discusses what methodological approach has been taken, the methods used to design and develop the research instruments, detailing the rationale for selection of the focus group, interview and online survey questions.

Chapter 4 contains analysis on the primary secondary data and the findings.

Chapter 5 presents the conclusion of the research and future work needed in this area.

Chapter 2 literature review

2.1 Introduction

“November 2009, Budget travel the largest tour operator in Ireland ceased trading and closed the remaining 17 of total 31 retail shops. The company was established in May 1975 and had a 30% share of the market.”

This chapter sets out to examine how travel agents operated before the widespread use of the internet. It contrasts this historic, or traditional, mode of operation with the way that they operate today; placing particular emphasis on how the internet has directly impacted travel agents in the modern marketplace. There is a lack of recent and current research on this very specific topic, as a result most articles cited within this chapter are quite old. However, the lack of pertinent articles is also indicative of the importance of this research.

This chapter draws on selected research identified during the literature review. It outlines the relationship between the internet and travel agents and it is from this literature review that the research questions for this dissitation emerged.

2.2 Exploratory Research

A list of relevant articles and other sources were initially established through searches in selected computer science, communications and social sciences databases. Additional articles were found by following references from the initial list to their sources.

The following databases were searched for the keywords “Travel agents”, “Internet vs. Travel agents”, “Reservation system”, “Distribution channel”, “Tourism and travel”, “Information system”, “survival of the middle man” and “travel agency”.

Electronic journals

http://atoz.ebsco.com

IEEE Online Journal Index

http://ieeexplore.ieee.org/xpl/periodicals.jsp

Stella catalogue

http://stella.catalogue.tcd.ie/iii/encore/home?lang=eng

Science Direct

http://www.sciencedirect.com

Emerald

http://www.emeraldinsight.com.elib.tcd.ie/

SAGE Journals Online

http://online.sagepub.com.elib.tcd.ie

ISI Web of knowledge

http://apps.isiknowledge.com.elib.tcd.ie

Google Scholar

http://scholar.google.com

Fig 2 Selected database table

2.3 History

Any discussion on the history of the travel industry is necessarily complicated by large scale conflicts or wars. These are events which profoundly restrict any and all international travel, effectively shutting down the travel industry. For this reason, this document will consider the history of travel industry from the late 1940s onwards. Events prior to this are outside of the scope of this research.

During the period under discussion, the late 1940s, travellers were few and fares were tightly regulated. The customer would telephone the travel agent, giving them details of the required travel arrangements. The agents would then call or telex the suppliers, on receiving these details the supplier would store them on a ‘reservation card’ and then file that card.

The number of air travellers steadily increased during the late 1940s and 1950s, in response to this; the airline schedules grew more complex. The existing simplistic system of booking travel products had to evolve to meet the increased size and complexity of the travel marketplace.

In 1959, IBM developed a Computer Reservation System (CRS, also known as a Global Distribution System (GDS)) called Semi-Automatic Business Research Environment (SABRE). Initially developed for American Airlines, it was an answer to the problem of how to scale the reservation process to match the increased demand for travel.

By 1964 it was the largest civil data processing system in the world (DUNCAN G.1995). Other airlines followed suit and introduced their own CRS or GDS systems.

To book an air itinerary, travel agents had to call a reservation agent within the specific airline; the airline reservation agent would then make the flight reservation though a GDS terminal. The travel agent would then book any other additional travel products, such as hotel accommodation or a rental car, again using the telephone.

This process created constrain on the travel agents, so they began pushing for a system that could automate their side of the process. In 1976 all airlines start grant travel agents access to their reservation system, allow agents to book ticket through their systems directly. At the same time in the UK , British Airways, British Caledonian and CCL launched Travicom, the world’s first multi-access reservation system, it has 49 airlines subscribing to it, it enable the travel agents and airlines communicate via a common distribution language and networks. From its success Travicom start implement similar system in different country, later when British Airline chose to participate in the development of the Galileo system ; Travicom changed its’ trading name to Galileo UK and a migration process was put in place to move agencies from Travicom to Galileo (B. Schmid, 1994). By the end of the 1990’s there are nine major GDS’ of which 6 are still been used today. The GDS allow travel agent to access its data using a terminal window through the network. Now travel agents can book flights directly with the GDS, they quickly realised that the computer terminals they are using everyday could be a convenient tool for booking other services as well. The GDS soon realised to fulfil the travel agents requirements; they need to add booking capabilities for rent cars, accommodations and other travel products (HSMAI Marketing Review, 1996). Finally travel agents can now book itinerary though one source within a network.

When the internet becomes more and more popular, airlines and travel agents like other corporations start to use internet to improve their business. All GDSs can now be accessed through internet, travel agents can simply log on to the GDS’s website to make search and reservation, most of the communications are done by email, the internet allows the travel agents operate more efficient. It also enables airlines to discard paper tickets, allow travellers to check in online, and travel agents will no longer has to worry about if the paper ticket will not reach the traveller on time.

At the same time the internet also enable the traveller to book trips bypass the travel agents (Jo Cheyne et. Al, 2005).

2.3 Existing research of internet and travel agents

Examining the key findings of some of the major studies on the relationship between the internet and travel agents.

2.3.1 The advent of the internet and disintermediation in the travel industry

The internet has changed the traditional distribution channels; various studies have shown how well the internet is suited to the travel and tourism industry (Buhalis and Licate, 2002; Chirstian, 2001). With advent of the internet, suppliers can provide information on their products online, timely, up to date, to the travellers to assist their decision making. This , in turn, necessitates the balancing of perishable tourism products and changeable tourist demand, furthermore, the tourism industry is diversified, with a plethora of different suppliers that operate independently, even as tourists expect travelling to be complete experience. The resolve this mismatch, the internet offers an effective means for developing a single and sustainable electronic infrastructure for information gathering and business transactions for both travellers and suppliers. A natural outcome of this is that the suppliers can carry out one-to one marketing and mass customization. In other words, travel supplier an now understand each customers needs, and therefore target each customer individually and deliver tailor-made products. More importantly, travel suppliers can understand how to deliver information and sell their products and services to customers directly through their website (Law, 2002).

Travel services and product suppliers see the internet as an opportunity to save money on distribution costs. Inkpen (1998) stated that the internet allows the suppliers to sell their product directly to the travellers, bring them a significant cost savings. As Law (2000) contends that the internet allows the tourism suppliers to control and update their service remotely with electric speed, reaching global travellers anywhere, anytime. The benefits of an online website bring lower distribution cost, higher profit, and larger share of the market to the tourism suppliers. For the travellers, the internet allows them to bypass the travel agents, book directly with the chosen suppliers anytime, anywhere (Olmeda and Sheldon, 2001). The suppliers can reach the travellers directly, which allow suppliers reduce cost on distribution channel, hence cheaper price are offered to the travellers, this seems like a Win-Win situation for the travellers and the suppliers, which bring uncertainty to the future of the travel agents.

2.3.2 Advantage of the internet for travellers

Jo Cheyne et al (2006) attested that travel agents are the key intermediary between travel suppliers and travellers; with the advent of the internet travellers and suppliers could interact directly, internet offer more information then travel agents and often provide cheaper price. Long (2000) summaries it in 4 points:

The internet provide convenient and instant access for availability enquiries and bookings at times when consumers want o research and purchase travel

Ability to access easily information that is detailed and also up to date, helping decision making.

A cost advantage in purchasing travel online as results of the market becoming more competitive, as well as the ability for consumers to take advantage of substantial online discounts that cannot be obtained via any other traditional distribution channels and possible cost advantages for consumers as result of decreased distribution cost

Avoid travel agent fees and charges.

2.3.3 Disadvantage of the internet for consumers

Lang (2000) also identified the disadvantages that stop customers purchase online:

Difficulty in finding the website and information they require

Time consuming

Online security issues

Information overload

Lack of trust in the technology

Lack of human interaction

Standing and Vasudanvan (1999) indicated that some researchers are mainly focusing on the impact of internet and threats of disintermediation, there are very littler work carried out on the strategies travel agents has adopted and the internet marketing models they are using. A large survey of Australian travel agencies’ website has been carried out, the findings shows that the major of agencies use internet as a yellow pages or online holiday brochure, a small percentage of websites allow the travellers to make booking, around half of the website capture the data on the travellers, but only few captured the traveller email address. The paper also suggested that travel agents should use internet as a marketing tool.

2.3.2 Implications of the internet for travel agents

The internet has changed the traditional distribution channels; customers can buy products directly from the suppliers anytime anywhere. Travel services and product suppliers see the internet as an opportunity to save money on distribution costs. Inkpen (1998) stated that the internet allows the suppliers to sell their product directly to the travellers, bring them a significant cost savings. As Law (2000) contends that the internet allows the tourism suppliers to control and update their service remotely with electric speed, reaching global travellers anywhere, anytime. The benefits of an online website bring lower distribution cost, higher profit, and larger share of the market to the tourism suppliers. For the travellers, the internet allows them to bypass the travel agents, book directly with the chosen suppliers anytime, anywhere (Olmeda and Sheldon, 2001). The suppliers can reach the travellers directly, which allow suppliers reduce cost on distribution channel, hence cheaper price are offered to the travellers, this seems like a Win-Win situation for the travellers and the suppliers, which bring uncertainty to the future of the travel agents.

Lawton and Weaver (2009) did in-depth interviews with 19 owners of successful US-based travel agencies, the paper did SWOT analysis over the 19 travel agencies, and identified that the negative public perceptions of travel agencies is the main external threat.

2.3.2 Demands for travel agents

One of the most recent study on this topic, tried to identify the tourist perceptions of the potential for the elimination of travel agencies in the presence of the internet. Law et al (2004) conducted a questionnaire on selected experienced travellers, who had visited at least one travel Web site were asked to participate. The answers of 413 travellers on preference on book through internet-based or traditional distribution channels were analysed. The results show that travellers still ask travel agents for advice and their professional services. The paper proposed that from the findings both online and travel agents can coexist in the future. This is probably the most cited recent piece of research on the relationship between travel agents and internet, although some of its findings have subsequently been contested, it must still be regarded as one of the seminal works in the area.

Jo Cheyne et al (2006) attested that travel agents are the key intermediary between travel suppliers and travellers; with the advent of the internet travellers and suppliers could interact directly. Main finding was the factors that influence traveller’s choices on using a travel agent or the internet when booking an over sea holiday, the factors are: services reliability, managing complex itinerary, guarantee, attractive deal and payment security.

2.3.2 The changing roles of travel agents

Lowerngart and Reichal (1998) claim that there are opportunities available to travel agents provided they focus on specific markets and specialise their activities. Waksberg (1997) argued that travel agents should move from a focus on transaction processing to the provision of consultative services. Lovelock (1992) claims that travel agents will need to expand their advisory function and concentrate on the provision of information and details that are not available to the traveller through the internet. Beirne (1999) suggests that travel agents should become consumer advocates, finding the best deals for the traveller. Michael Bloch and Arie Segev (1997) has contend travel agents should adopt the IKEA concept, the Swedish furniture giant transformed from a traditional store to a family destinations, with restaurant, kids play ground ,etc. Travel agents can do the same, with each area set to different destinations, or type of travel products. Each area has an information point, that travel agents could provide information on the particular destinations, supported by video clips of the main attractions. The experience of shopping might be the only thing that internet could not replicate.

2.3.5 Importance of internet technology for travel agents

Barnett and Standing (2000) have identified two major threats that the internet has on the traditional travel agents; they are disintermediation of retail agencies by the product suppliers, and the emergence of new online intermediaries. It argues that the traditional travel agents are not aligned with the demand of new travel economy, travel agents has to establish web present.

Standing and Vasudanvan (1999) indicated that some researchers are mainly focusing on the impact of internet and threats of disintermediation, there are very littler work carried out on the strategies travel agents has adopted and the internet marketing models they are using. A large survey of Australian travel agencies’ website has been carried out, the findings shows that the major of agencies use internet as a yellow pages or online holiday brochure, a small percentage of websites allow the travellers to make booking, around half of the website capture the data on the travellers, but only few captured the traveller email address. The paper also suggested that travel agents should use internet as a marketing tool.

2.5 Research questions and objectives