Facelift: How the Internet Changed the Face of the Travel Industry - Internet Essay Example

Facelift: How the Internet Changed the Face of the Travel Industry

 

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In today’s global frontiers, the travel and tourism sector is a major contributor to the economy of most low- and middle-income countries. In the U.S., it is the third-largest retail sales industry (Harrell Associates 7).

For 2006, China’s travel and tourism sector contributed 13.7 % to its economy (in terms of GDP in U.S. dollars), yet it ranks at number 71 out of 124 of the 2007 travel & tourism competitive report presented at the 2007 World Economic Forum. (Blanke & Chiesa 198)

India, on the other hand, while classified under the low-income strata, as opposed to China’s classification under lower-middle income strata, ranks 65th in the same report. There are of course various reasons why India outranks China when it comes to the travel and tourism competitive index (TTCI), but perhaps the most observable difference is that India has more competitive advantages, or more indicators/factors that places it in the top 50 of the TTCI. China has 18 indicators among the top 50, while India has 27 (Blanke & Chiesa 198, 221).

Also noteworthy is that India ranks 31st in terms of “extent of business internet use” or the measure of Internet use by businesses in carrying out transaction, an indicator under the ICT infrastructure factor; China, meanwhile, ranks 75th in this indicator (Blanke & Chiesa 221, 198).

Indeed, many businesses in the travel and tourism industry are turning to the internet and its robust communication and information channels to boost their trade. Such was the case for Ashwin Damera, who started to set up a travel business in India while he was studying at the Harvard Business School. When he found India’s system of approvals rather hard to hurdle, he turned to the internet, where economic democracy is at work and no government approvals were required (Blanke & Chiesa 76).

In 2006, Damera established Travelguru, a travel service that offers customers the opportunity to compare hotel and air carrier prices through the internet. Today, his business is booming, selling around 500 airline tickets and hotel bookings worth U.S. $25,000 from the approximately 20,000 people who visit his site everyday (Blanke & Chiesa 76).

Such success stories only serve to strengthen the idea that the combination of the increased demand for Travel and Tourism, combined with new communication technologies, gives developing countries a significant economic boost.

 

Since the birth of the internet in 1991, the travel and tourism industry for most countries had been growing constantly over the last 16 years. A quick look at the table below shows how air travel has become more frequent for Canada and Mexico between 1990 up to 2005 (Statistics Canada, Banco de Mexico).
1990
2005
% increase
Inbound Air travel (Canada)
4,729.00
8,111.00
71.52%
Outbound Air travel (Canada)
7,315.00
11,411.00
55.99%
Inbound Air travel (Mexico)
4,313.00
9,936.00
130.37%
Outbound Air travel (Mexico)
1,272.00
2,574.00
102.36%
*Figures are in thousands of visitors.

In the U.S., the travel and tourism industry contributed 10.5% to its total 2006 economic GDP. The U.S. ranks 5th in the TTCI survey.

A country’s information and communications technology infrastructure is a key factor in the measurement of the TTCI. A “broad coverage of Information and Communication Technologies (ICT) services, such as television, telephones, and high-speed internet access” is an indicator of an advanced travel and tourism industry. “Information technology—whether it be e-booking services, travel and vehicle management systems, or Radio Frequency Identification (RFID) technologies for baggage and passenger tracking—plays a critical role throughout the T&T value chain, boosting efficiency and service quality” (Ringbeck & Gross 3).

Indeed, the travel and tourism industry had come a long way with the advent, and on-going developments in Information Technology. Suffice to say, the internet gave the marketing and sales practices in this industry a facelift.

 

Rewind to 20 years ago

In the pre-World Wide Web era, traveling means having to go to a travel agency and speak to a travel agent to book the travel preparations. If you’re lucky, you can get a pretty good travel agent who’ll do all the research for you so you can get the best value for your money.

In Barrett’s essay on the extinction of travel agents, he states that hotels, airlines, and travel agents used to work hand in hand. The hotels gave agencies a net rate. The agencies then sell the rooms and make profits, while the guest do not necessarily have to pay any more than they would if they had booked the hotel themselves. This partnership kept both the travel agencies and hotels in business. The airlines, too, thrived in a similar partnership, giving the agencies a net price from which they can make a profit on.

 

Fast forward to the 21st century

In August 2001, the number of travel agency locations had been reduced to 29,018, from 33,500 in 1995. This was mainly due to airlines cutting the commissions of the travel agencies, from which the agencies generate around 54% of their revenues (Hill & Hill 8).

Although the number of travelers has increased and the demand for travel services has risen, a decrease in travel agents can also be seen from 1997 to 2004. In 1997, the Census Bureau of the U.S. reported 183,178 agents being employed by travel agencies (Hill & Hill 15). In 2004, travel agents held about 103,000 jobs, with 14 % self-employed (“Travel Agents”). This constitutes a decrease of around 43%, and employment for this sector is still expected to decline through 2014.

According to Kelly Monaghan, for a long while, employees of travel agencies were the most computer-savvy people to be found outside large corporations or the academia. However, when the personal computer rose to popularity, almost anyone with the right software could do what travel agents do.

Monaghan further states that the fax machine used to be the ultimate and revolutionary invention in the travel business, with its ability to transmit bookings quickly and accurately. Now, the internet has rendered the fax machine almost obsolete.

 

Emergence of E-commerce

The emergence of e-commerce has completely changed the business model of the travel industry and as Barrett puts it, is “accelerating the extinction of the local travel agent” and the personal relationship that the travel agent offers to his/her client.

In the old business model, the travel agents served as intermediaries between the customer and the airlines and hotels or what I shall refer to in this paper as “providers.” With the internet, providers can now bypass the travel agents and go directly to the consumers. The figure below illustrates how the business model has changed for the travel industry.

*Figure adapted from Hill & Hill 2001.

This new business model altered the relationships among the key players, eliminating interdependencies and increasing competition. Moreover, they now share the same two primary goals: (1) generate revenue and acquire customer loyalty through direct selling; and (2) improve profit margins by reducing transaction costs especially in marketing and distribution. Now, instead of sharing clients, the key players are competing for them (Harrell Associates 4).

 

Promotion and Marketing

The World Wide Web had revolutionized the modern exchange of information. Someone from a small resort in a remote island somewhere in the Pacific can post pictures in the internet, and someone from somewhere in the highlands of Europe can immediately view them.

According to Williams & Palmer, and Law, Law &Wai, the internet, aside from being a huge repository of information, is also a marketing and distribution tool enabling providers to communicate directly with customers and promoting equal competition.

Based on 2003’s U.S. Census data, 55 % of American households have computer and internet access. This is twice that of 1998’s value of 26% (“Households with Computers”). With this kind of statistics, travel companies are starting to realize the viability and market potential that the internet has to offer. The travel industry was one of the first business sectors to benefit from the popularity of the internet.

In the previous business model, customers had to go to travel agents to seek advice regarding travel destinations and hotel locations. Nowadays, not only can the customers get the information they need at a single web search, the information simply pops up on their computer screen through online advertisements.

Online marketing trends are also moving towards more effective and measurable methods such as Website design, search engine optimization, and e-mail marketing. Travel companies are investing more on online advertising strategies. Between 2004 and 2005 alone, in a survey of travel marketers conducted by New York University and PhoCusWright, Inc., 74% of respondents are spending more on Web site design and functionality; 73% are adding more capital to e-mail marketing; and 64% are putting search engine optimization on their marketing priority list.

 

Research

Twenty years ago, travel agents had all of the relevant information—the best hotels, the best prices, the best destinations—and were the most reliable travel guides a tourist of traveler could have.

However, along with the internet, came independent research through a large variety of Web sites offering all sorts of information. People no longer rely on travel agents to find the best hotels and prices for their travel needs; they simply log on to the internet and look for the information themselves.

Forced into cost-cutting measures, storefront travel agencies are decreasing in numbers and moving into home-based business, and so began the emergence of the home-based travel agent (Monaghan).

The travel agencies, at this point, also evolved, making use of the internet to provide multiple and better services. Some evolved into what is known as the online travel agency, a turf now dominated by large corporate agencies such as Expedia, Travelocity, and Orbitz.

 

Reservation and Bookings

The internet has also provided the grounds for a new player to join the travel industry. The need for remote reservations and booking services gave birth to the online ticketing and booking system, a service that is being provided by the “distributor.” The distributors are the developers of the Computer Reservation Systems or the “technology companies that consolidated supplier information, inventory and pricing data, and provided a way to electronically search, book, and issue tickets and documents” (Harrell Associates 10).

E-tickets greatly freed the airlines’ from logistical issues and costs such as shipping and variable tax collection schemes. This, coupled with the decreased need for intermediaries such as travel agents, allowed the airlines to decrease their rates, thereby granting customers the benefit of lower prices and faster service.

The online reservation and booking systems provided more convenience to the consumers as they no longer have to personally visit the travel agencies, or airline offices to claim their tickets. All they have to do is to print out the confirmation or the electronic ticket, and present it upon departure.

 

Payment

Capitalizing on the online booking systems and destination Web sites, credit card companies are also joining the hype in the travel industry. “Credit card companies formed co-branded alliances with hotels and airlines to secure customer loyalty and supplier acceptance, and incorporated travel links into their online payment sites” (Harrell Associates 4).

Although online payment security and personal privacy are still main customer concerns, most customers still weigh the convenience heavier than the risk, and so online payments in the travel industry will likely be a continuing trend.

 

Impact on Government Roles

“E-commerce has introduced new business models and competitive strategies requiring government involvement to maintain a free, open, and competitive market place” (Hill & Hill 59).

Because of the demands and severity of competition in the modern travel industry, and perhaps the lack of policies regarding e-commerce (policies in this field are still at infancy), members of the industry are pointing out the bad things other members are doing, urging the U.S government to regulate some other member (Harrell Associates 41).

The government, to ensure customers are protected, now has the task to monitor the online travel systems to make sure that they are complying with the various policies that govern the e-commerce business. For instance, the government must make sure that the online travel Web sited display the full-fare advertising rule. This rule requires that the full-fare must be shown onscreen except for certain government-imposed taxes (Hill & Hill 60).

Government privacy and security standards had also been extended to cover internet transactions as well. This is to protect travelers from privacy and security issues, such an unauthorized access of personal information that might be stored in an agents’ or agency’s PCs.

 

E-commerce and the internet had successfully duplicated the capabilities and features of offline markets: good (even better) locations, strong retail activity, secure payment, fast delivery, and promptly available customer service. Web sites are now delivering the 5 “R’s” of travel agency services: recommendation, research, reservations, reporting, and relationships (Hill & Hill 8).

The internet has, indeed, opened a new world of self-service for tourist and travelers. With information right at their fingertips, consumers enjoy a wider range of choices, and have more decision-making autonomy than before.

 

References

Banco de México. “Dirección General de Investigación Económica”. Dirección de Medición Económica. Mexico City: Banco de México, various years.

 

Barrett, M. “Endangered Species: Travel Agents vs Hotels the Airlines and On-line Booking Sites”. Greektravel.com. 05 August 2007 <http://www.greektravel.com/endangeredspecies/>

 

Blanke, J. & Chiesa, T., editors. “The Travel and Tourism Competitiveness Report 2007”. World Economic Forum. Geneva Switzerland, 2007.

 

Harrell Associates. “The Internet Travel Industry: What Consumers Should Expect and Need to Know, and Options for a Better Marketplace”. New York, 2002.

 

Hill, K. & Hill, D. “E-commerce’s Impact on the Travel Agency Industry”. Office of Advocacy, U.S. Small Business Administration, 2001.

 

“Households with Computers and Internet Access: 1998 & 2003.” U.S. Census Bureau. Statistical Abstract of the United States: 2004-2005. 124th ed. Washington: GPO, 2004.

 

Law, R., Law, A., & Wai, E. “The impact of the internet on travel agencies in Hong Kong”. Journal of Travel Research. 3.2 (2001): 202-211.

 

Monaghan K. “Becoming a Home-Based Travel Agent, Part 2: The Home-Based Travel Agent revolution Begins”. The Wahm Connection. 05 August 2007 <http://www.thewahmconnection.com/Business/TAcourse2.htm>

 

New York University & PhoCusWright Inc. “Online Marketing Strategies in the Travel Industry: A Survey of Travel Marketers,” 2005.

 

Ringbeck, J. & Gross, S. “Taking Travel & Tourism to the Next Level: Shaping the Government Agenda to Improve the Industry’s Competitiveness.” Chapter 1.2 of The Travel and Tourism Competitiveness Report 2007. Booz Allen Hamilton, Switzerland, 2007.

 

Statistics Canada. “Number of international travellers entering or returning to Canada, by type of transport, monthly (persons)”.  CANSIM Table 427-0001. Ottawa, Ontario: Statistics Canada, 2006.

 

“Travel Agents”.U.S. Department of Labor. Bureau of Labor Statistics Occupational Outlook Handbook. 2006-2007 edition. 05 August 2007 <http://www.bls.gov/oco/ocos124.htm#addinfo>.

 

Williams, A.P. & Palmer, A.J. “Tourism destination brands and electronic commerce: towards synergy?” Journal of Vacation Marketing 5.3 (1999): 263-275.

 

 

 

 

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