Cannibalizing Travel Markets
<B> Cannibalizing Travel Markets</B>
By John Caldwell
Merrill Lynch's move to online brokerage stunned the financial services industry as a classic case of the cannibalization of traditional high margin, full service markets. Travel suppliers too, including agencies, have no choice but to adapt to the dramatic appeal of on-line services. Standing in line, waiting on the telephone, or dealing in paper are not acceptable for most travelers.
The earliest example of cannibalizing travel distribution was the repeated cutting of commissions that threatened to drive out of business thousands of agencies on which airlines still rely for unmanaged corporate travel and discretionary leisure sales. It is easy to remove sales distribution channels by cutting their pay. It may not be so easy to replace them.
Having cannibalized their historic distribution channel, airlines are taking advantage of the Web aggressively without any negative consequences so far. They are lowering costs, selling more seats, and even investing for Net returns. Airlines are undercutting traditional reliance on CRS, reducing equity ownership, and moving partially to online distribution. In some cases, they are offering "agentless" direct connections.
As carriers dump seats online, start- up distributors who have innovative search engines can entice travelers with an increasing variety of fare choices. Whether restricted or not, these cyber fares cause large headaches for travel managers and agencies trying to prove they offer the lowest fares. In some cases, deeply discounted fares with Tuesday/Thursday windows and no Saturday stays are realistic options for business travel, and ironically undercut carrier yield management. Dedicated corporate reservationists cannot automatically find these Internet-based fares. Travelers are increasingly skeptical that anyone but them can find lowest cost travel options.
Agencies must offer Web-based commissionless cyber fares or prove them useless. Like they used to search daily papers for fare sales, they now must do the same for online fares that could apply for business travel. Establishing after the trip that the fare did not apply is too late. What value is the low fare guarantee today when limited to CRS fares? Agencies may have no option but to align with or become customers of the new breed of online distributors.
Agents are experiencing a real identity crisis. Their pay is cut severely, cash flow down and many customers resist paying fees, especially where there are lower cost options from third parties.
Customers are demanding agency lite for self-booking fulfillment and want to know why they should pay as much when the traveler does most of the work. Although self-booking migration has been slower than predicted, partly due to Y2K preoccupation, this trend will accelerate fast and soon.
Who pays for Internet-induced obsolescence? Most customers are unwilling to underwrite leases for large centers, pay for retraining or severance if people leave due to self-booking and the restructuring of internal processes.
CTDs offer some customers a viable option to sole-source services, forcing agencies, again, to cannibalize traditional business. They help the customer insource and then compete for some of what they had all of before the change. It's like the Industrial Revolution. The pain of migration to the new world is daunting.
What should be a travel manager's priorities during all this turmoil?
Deal aggressively with cyber fares by requiring the agency to offer Internet fare searches and/or access through on-line providers. Audits may not be a solution. One usable fare found by a surfing traveler undermines credibility for low fares. This could add cost to QC unless airlines stop sending mixed signals on accessibility of Web-based inventory.
Corporate/agency Web pages offer the basis for an entirely new value equation for both traveler services and travel management. Press your agency for Web-based communication links to cut down on the telephone calls and endless meetings so prevalent today.
Decide whether to run the risk of shortfall in delivery through technological innovation or to wait and see what really works and is adaptable in your culture.
As you migrate to Web-based travel solutions, charge back departments and/or travelers to recover costs and reverse the mind set that travel services are free. Higher fees for traditional services encourage self-booking.
People will leave the labor-intensive part of the business. But before they do, they'll demand and pay only for improved customer service and less turnover, and direct agency incentives to those producing results.
Refuse to pay twice for technology, once for development in overhead and again through unbundled pricing.
Be careful of the allure of insourcing unless you have the time and management support for this approach. Will you be competing in large agency-dominated labor markets? Will you end up outsourcing what was outsourced before and be back where you started, but with multiple suppliers to manage? Watch airline commission tactics and override realignments. But always keep this option open.
More commission cuts are likely. Most agencies have been dangerously reactive to the opportunities for e-commerce related to business travel. They must reengineer and develop Internet solutions or lose out to other providers.
The good news for commercial customers is that they now have an unprecedented variety of options for purchasing and managing travel. But companies have to balance carefully the risk of moving too fast to unproven technologies, including Net solutions, against the greater risk of losing credibility with management that expects cost reductions immediately.
Balanced judgment was never more in demand. The constant is that the Internet will not be denied.
<I>John Caldwell is principal of Caldwell Associates in Washington, D.C.