You ask anyone, from consumers to travel professionals, about the travel industry status and they will say that the online travel agents (OTAs) will not allow the traditional travel agents to survive. Some even go to the extent of saying that travel agents will be totally wiped out. This is a ridiculous viewpoint, without any basis. Let me prove the opposite viewpoint and also demonstrate how the travel agents – David – can and will survive against the Goliath.
Whether they (OTAs) are travel agents or not is another point which I will cover later in this article.
If you consider USA and Europe as the most advanced internet penetrated markets then the market share of OTAs is only 44 per cent and 37 per cent respectively. And that too an unhealthy percentage of the turnover is for low profit margin products like airline tickets and hotel rooms.
After almost 15 years of heavy spending on marketing, client acquisition, discounting, etc, the OTAs have not achieved a majority market share. Most of the OTAs are yet to show a profit, let alone pay a dividend.
In a recent financial publication a noted venture capital’s (VC) fund manager commented that he cannot see a large India based OTA surviving in its present avatar due to continued losses and existing source of revenue streams. He predicted that they will either be gobbled up by a larger company or will be shut down.
In OTAs’ favour it has to be said that non-technical products like point-to-point airline ticketing and single destination hotel bookings have migrated to OTAs mainly due to ease of booking and sheer buying power funded by VC/ PE organisations.
However, when it comes to extended complicated multi-destination itineraries and destination expertise, the travel agents have a substantial lead over OTAs. And it is this lead that the travel agents have to capitalise on to exist in the tourism industry.
The OTAs have stated publicly that for them to achieve profitability, they will have to generate revenue from packaged tours and other ancillary products. Now these are products that the travel agents are already an expert on and haveexisting revenues in substantial numbers. The return on capital employed (ROCE) of travel agents would put any OTA to shame.
So why do the travel agents not capitalise on their existing advantage is a million dollar question.
The answer is the same million dollars that the travel agents lack for marketing and basic up to date infrastructure.
VC/ PE funds have been chasing OTA fund raising rounds repeatedly. They are ignoring the power of the travel agent and the travel agent in his/her blinkered mind is scared of the OTA shadow and is not willing to think outside the box.
Disruptive technology is an often used excuse by the VC/ PE professionals for not looking at the bricks and mortar model. However, I beg to differ. Technology is a tool that has to be harnessed by one and all. By itself technology cannot be disruptive. The OTAs are new business models that are using technology to distribute travel products. Hence, I refuse to call them travel agents. They can easily switch, with change of winds, from travel products to laptops and mobile phones to real estate. But they can never develop the skills required to sell high end travel products with the customer care that is required and offered by the travel agent.
It is true that travel agents who insist on surviving on traditional revenue channels are running towards their business career graves. For the travel agent to survive, they will have to concentrate on their following strengths:
1. Develop expertise either on destination(s) and/ or products: There are travel agents who have done well for themselves by acquiring knowledge of destinations that offer higher profit margins by visiting these places and exploring these on their own. Many tourism boards also welcome travel agents to join them at their roadshows and educational trips. South African Tourism is one of the most active boards in this respect. Products like destination weddings, soft adventure tours, honeymoon packages, family breaks and corporate events and meetings are some areas where a travel agent can develop expertise. Inbound tourism is also a sector that can be developed with extremely profitable results. Within our group we recently launched motorbike tours to Australia, South Africa and Oman with plans to add more destinations very soon. The basic theme of this is promoting soft adventure opportunities using a superbike (600 cc and above) as a mode of transport.
2. Product development on regular basis keeping in mind current market trends: The demographic dividend that our PM talks about is most relevant to the tourism business. The young Indian is always ready to explore new destinations and experiences.
3. Personalised client service: In a recent interview Purvi and Jyot Jhaveri said that the first meeting with the client is more like being a psychologist; as they first learn about the clients’ mindset and preferences before tailor making an offer to them. This approach has paid them handsome dividends.
4. Nimbleness of operations: This can be achieved with continuous training of self and team members. It is very essential to train key team members to multi-task and see the big picture on a regular basis. Periodical team briefs play an important role in this process.
5. Personal contact base: This has to be developed by attending networking sessions and social events. There are several professionally run networking organisations like BNI that should be utilised.
6. Harnessing technology: Travel agents have to ensure that they are up to speed with the latest technology tools. This does not require them to develop their own portal. In fact I would advocate strongly against this move. However, an informative mobile friendly website which is maintained on a regular basis (if not daily) would be a very useful tool.
7. Unique sales and marketing processes: Launching a company page on social media will not suffice. Everyone is doing that. What is your differentiator? Perhaps being part of a larger network would instil operational discipline, become a mutual self-help group and also allow bulk buying of various requirements and products. I urge the VC/PE community to consider the small ticket travel agents’ expansion projects rather than put all their eggs in a selective few high risk cash guzzling baskets. The smaller travel agent will seldom fail you and your expertise in selective areas (marketing, technology, professional business process techniques) can ensure that he/ she does not.
The author is MD of Pearl Traveuk which comprises of Pearl Travels, Adventure Bike Tours, Heritage India Tours, Extreme Events and Extreme Lounges. He has the experience of operating in UK, USA, Middle East & India