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Online Travel Retail

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Tourism – Introduction to Retail Travel Sales
Online Travel Retail

Introduction
The internet has forever changed the landscape of the travel industry. The modern travel agency has its origins in the travel desks found in hotels in the early 1900s. Following the popularisation of jet travel in the 1950s, the travel industry became centred on the working partnership of tour wholesalers and travel agencies.

The industry remained this way for decades until the advent of online travel retail in the late 1990s. This unit will explain how online travel retail developed, how it benefits the customer and its effect on the travel industry as a whole.

Online Travel Retail
American Airlines were the first travel provider to create an “online” reservation system. Due to the huge growth in passenger numbers in the 1950s, airlines found that manual methods of booking seats had become slow, inefficient and confusing. American Airlines sought to find a solution to this problem by creating an online reservation system. In partnership with IBM they created SABRE (Semi-automated Business Research Environment). SABRE launched in 1964 and was made available to other airlines in 1976.

While it was an online system, SABRE pre-dated the internet and the World Wide Web and was accessed via telephone lines. SABRE provided a fast and convenient way for airlines to reserve seats and track these reservations. By the late 1990s, the vast majority of travel providers had stopped using SABRE and began using web-based reservation systems. However, unlike SABRE, web based systems were made available to the general public. Tourists could now reserve and purchase flights themselves without requiring the services of a travel agent. As well as airlines, bus companies, rail operators, car rental companies and hotels all began offering online reservation systems.

Online Travel Retail
Online travel retail has grown at an amazing rate. According to the Travel Industry Association of America, 15.1 million US tourists booked their travel online in 1999. Today, that number has risen to nearly 70 million people. Furthermore, 38% of travel organising is now done without the services of a travel agent. Most of this figure is accounted for by online reservation of air travel. Air travel is often the most expensive component of a vacation and airlines were quick to capitalise on the reduced expenses offered by online booking. By no longer paying commission fees to travel agents, airlines could offer customers better prices for flights. This has ensured that travel agencies could not compete with the airline fares offered online.

Online Travel Retail
As more and more people begin booking their flights online, airlines have begun lowering the commission fees they offer travel agencies. In 1995, The International Air Transport Association (IATA) put a limit on the commission fees airlines were allowed to offer travel agencies. A maximum of $50 was allowed for return trips while $25 was the maximum for one way trips. In the late 1990s, European and Asian airlines began reducing their commission rates. In 2002 Delta Air Lines announced that they would no longer be providing commissions to travel agencies in the US and Canada. Gradually, other US airlines have also begun to offer 0% commission.

Online Travel Retail
The growth of online travel retail is expected to continue at a phenomenal rate. While 62% of travel organising is still done through a travel agent, that number is falling rapidly. Consumer research groups have predicted that by 2022 over 75% of travel plans will be made online. However, travel industry associations have disputed these projections and feel that the growth of online travel retail is beginning to decline. Such groups are keen to point out that while certain travel agencies have gone out of business these were mostly “travel supermarkets” i.e. agencies that simply sold flights and/or packages and did little else. Such agencies did not provide the valuable travel advice found in upmarket agencies.

Online Travel Retail
It is also worth noting that in recent years agencies have begun embracing the web and understand that it provides a number of opportunities. Initially, the web reduced the knowledge gap between travel agencies and tourists. Tourists could become well informed about the hotels and attractions of an area and the demand for tourist agents’ expertise declined. However, in recent years more and more tourists are finding that they become confused by the information they find online. There is an overwhelming amount of information on each destination, which is often contradictory. Tourists now seek travel agents advice to gain information that is based on feedback and expertise.

Online Travel Retail
Clearly, online travel retail has had a substantial effect on travel agencies. In order to remain relevant, agencies must place a renewed emphasis on services they provide which cannot be found online. Travel packages continue to be a product which people prefer to buy from a travel agency. According to The ASTA (American Society of Travel Agents) 64 % of vacation packages sold in the US in 2012 were booked through a travel agent. Such packages are multi-beneficial; service providers are happy to have the guaranteed income from tour wholesalers, tour wholesalers are likely to receive a commission fee from travel agents and travel agents have a product that is desirable to customers

Online Travel Retail
It is also important to note that when online travel was initially rising in popularity, most travel agents were not familiar with the internet. People that were working in the industry for years prior were slow to realise the travel information and services that were available online. However, as travel agents became more web-savvy and younger people entered the industry, agencies began using the internet to their advantage.

Travel agencies are now using the web to ensure that they are much more knowledgeable than the customer, just as they were before. Tourists have only a certain amount of time to research trips on the internet. Travel agents can spend a portion of their working day conducting effective research online.

According to the American Express Travel study 52% of travel counsellors found that customers will come to them with a strong idea of the vacation they would like but need the services of a travel agent to make the final arrangements. They gained a sense of their preferences from online research but do not have the time or expertise to plan the entire trip.

Online Travel Retail
It is impossible to know the long term effect of online retail on the travel industry. What is clear is that tour wholesalers and travel agencies are still a integral part of the industry. 2012 was the first year in which international tourist numbers exceeded 1 billion people. In the same year there were 8,000 U.S. travel agency firms in the US which completed more than 143 million transactions. Furthermore, these agencies sold $86 billion worth of air travel, $15 billion worth of cruises and $9 billion in tour packages. Such numbers suggest that tour wholesalers and travel agents can remain relevant in the coming decades.

END OF UNIT:
Online Travel Retail