But then came the lawsuits, the grassroots lobbying efforts and the sheer tenacity of an industry that refused to die. Instead of lying down in the face of the commission caps, the travel agent industry reformed itself into a business at the cutting edge of technology.
Once considered 'brick-and-mortar' operations, travel agencies evolved with on-line technology to let consumers purchase travel products unconstrained by time, place or form. Significantly, these virtual travel agencies cut labour costs and let the agents discover ways to leverage their 'knowledge capital' of the consumer in ways that airlines, with limited flight-specific information on their customers, could only envy.
Now, in 2005, travel agents have become a literal lifeline for airlines around the world, controlling 95 per cent of all airline booking activity while dictating terms on more popular flights . . .
OK, relax. This is nothing more than a summary of every airline executive's nightmare, though it could still become reality. In 1995, the evolution of the airline industry's sales and distribution channels is in flux. What may be conventional wisdom today - eg on-line technology and ticketless travel freeing airlines of their agency commission burdens - could easily turn into tomorrow's example of a fanciful prediction.
In fact, there are already early indications that such a 'Travelmart', offering integrated one-stop shopping and travel management for individuals and corporations, is developing. Travel agency loyalty programmes are now drawing repeat customers as well as providing agencies with key marketing information. Travel agent-owned distribution technologies and processes are being developed and the industry is consolidating.
Should such a consolidation accelerate, airlines may align with major travel agent groupings - a new twist to the alliance-building trend between airlines currently in vogue. In this way, carriers may lose control of the distribution pipeline and access to the increasing amount of customer specific information available, but sales and marketing objectives - eg ticket sales - will still be achieved.
As frightening as Travelmart sounds to airline executives, they can take comfort in the knowledge that little has been decided about the future shape of the distribution pipeline. Industrial and social factors will decide future trends, but sufficient marketing activity and technological development already exists to establish four distribution scenarios for 2005. Travelmart is only one of those.
The good news for airlines is that, with highly evolved computer reservation and yield management systems available, they are well positioned to maintain control of their customers. The focus on reducing costs and the emergence of new technologies have enabled carriers to cut their distribution expenses. Innovations such as electronic ticketing, self-service kiosks, 'smartcard' travel and on-line sales have already begun to alter irrevocably the way airlines perceive customer service and marketing. In a decade, it is probable that their development will dovetail with a projected growth in consumer acceptance of on-line technologies. But it is also possible that tradition - or making airline reservations through a travel agent - will refuse to bow to technological progress. This warns against ignoring the Travelmart scenario.
At the other end of the spectrum is the concept of 'Reconfirmation,' or the possibility that the major airlines will control distribution via a global distribution system (GDS). The carriers will create and offer products directly to the public, including reservation options that capitalise on the technologies of personal computers, personal digital assistants, self-service kiosks, interactive television and voice recognition.
Yield management will have evolved to the point of one-to-one marketing, where fares are tailor-made to individuals based on loyalty, yield potential and other components that will be determined by the carrier's complex marketing technology - and demanded by the travelling consumer. As carriers gain more personal knowledge of their passengers - the result of powerful databases that interconnect throughout the company - they will wrest control of the passenger relationship from travel agents.
This scenario, in line with the airline industry's expectations in 1995, will mean that travel agents will exist only to serve niche markets, leaving them with no more than 20 per cent of all booking activity. Early indications that airlines are attempting to develop closer relationships with passengers and offer solutions that meet their needs better are evidenced by the range of new booking products - from point-to-point yield management systems to the potential of on-line services like CompuServe and America On-line (AOL).
Certainly, both the commission caps initiated by Delta Air Lines and the advent of electronic ticketing point towards Reconfirm ation, as does the development and sale of systems that track individual customer preferences in every detail.
But it is the near mythic potential that is often ascribed to the Internet and its online gatekeepers like AOL that also points towards a third possibility, in which the passenger controls distribution. Termed 'Reformation,' the consumer will 'pull' travel information and products directly from the online universe, controlling all elements of distribution - time, place and potentially price. It is entirely conceivable that passengers will not only make their own reservations directly, but that they will also want more control over the product as technological understanding grows. Instead of depending on airlines or travel agents, consumers will 'own' the information that forms the basis of their travel decision-making.
An early indication that Reformation may be on the horizon is the prevalence of personal computers, personal digital assistants, interactive television and the advent of the 'electronic' personal travel agent - software programmes that will comb through on-line travel listings. Recently, Official Airline Guides and telecommunications giant AT&T formed a joint venture to make flight listings and changes available to just about anyone with a computer and modem - a significant event in the empowerment of the travelling consumer.
The implications of the Reformation scenario are daunting. In this brave new world, airlines will not only be forced to open their proprietary information systems to various technologies, they will also be forced to develop sophisticated sales messages and marketing initiatives that have the ability to penetrate the electronic barriers inherent when the consumer controls the information received. Airlines unsuccessful at understanding and offering what the buyer wants in a simple format will fall behind or go out of business.
Finally, there is the doomsday-like 'Implosion' scenario. This is based on the premise that by 2005, the percentage of gross domestic product attributed to transport and travel services will have shrunk considerably from the current 11 per cent level globally. A contraction of the industry could result from the advent of substitute products that have long been predicted, and which in the next 10 years could well become reality. Video conferencing and the growth of electronic forms of commerce are already being seen as contributors towards the loss of business traffic after the Gulf war. The technologies have certainly hit intra-company travel.
Though some insist that video conferencing will never replace the intimacy of face-to-face meetings and the need to travel, improved technology could discount this argument. Desktop video conferencing, for example, is well on the way to reality with computer manufacturers beginning to place video technology in computers and as real-time data links become increasingly popular. In this environment, business travellers will plan travel more strategically as resources begin to be shifted to the purchase of advanced communications equipment. Industry survivors will focus their marketing efforts on winning the highest-yield passengers.
The truth, as always, is never clear cut. Though any of the four outcomes is possible, customer segmentation could lead to a mix of more than one development. What is inevitable is that the power structure and leverage within the current distribution pipeline will change with technological advancement, growth of the global economy, customer demands and varying degrees of government deregulation.
Regardless of the final outcome, the changing sales and distribution environment will have a significant impact on airline corporate structure. GDS will impose a need to centralise power within a company, increasing the importance of a primary system manager. This centralised management structure will come about in the next 10 years as market access becomes easier around the globe and regional differences have less effect on a more uniform global product. Already, partner carriers like KLM and Northwest Airlines have joint global fare sales and marketing initiatives.
At the same time, sales and marketing functions will become less labour-intensive, requiring fewer human intermediaries through advances in interactive technology. The evolution of the interactive and possibly self-directed process will affect marketing and advertising expenditures dramatically. Also, training and operations will become increasingly decentralised. Customer service and reservations call centres could spread over a 'work-at-home' pool of labour. Taking this several steps further, it is not unimaginable for airlines to become 'virtual organisations' in which the majority of corporate staff are no longer centrally based.
In the end, customer information management will become a valuable competitive weapon and the battle between the airlines and travel agents will be won by the side which 'knows' its customers.
Source: Airline Business
