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Travel Agency Distribution Landscape: 2006–2009
PhoCusWright, April 2008
As the online channel matures, its growth has also slowed. While more travel continues to be booked online, there remains a significant portion of travel that is purchased offline. In 2007, PhoCusWright undertook a comprehensive study of the travel agency marketplace in the U.S., conducting both a market sizing exercise and travel agency survey. The purpose was to acquire a rich and complete picture of the total market size and opportunity, as well as to identify the key trends and dynamics shaping this important distribution channel.
The Internet has been a significant area of growth and central driver of change in travel distribution over the past decade. However, the traditional travel agency segment (excluding online travel agencies) remains significant, compelling and deserving of careful study and consideration. U.S. travel agents sold nearly $110 billion in travel in 2006, representing 41% of the total travel marketplace. Including online travel agencies, that figure exceeded $140 billion, more than half of the total travel market.
The dramatic shifts upending travel distribution have both imposed and facilitated tremendous change among agencies. Once the primary means by which consumers purchased travel, agencies have seen a substantial amount of their business – primarily sales of stand-alone flights, hotels and car rentals – shift online and supplier commissions erode. As a result, agency owners and managers have had to rethink their strategies, retool their businesses and reinvent their tactics. The typical leisure agency today is focusing on more complex travel such as cruise, vacation packages and independent itineraries, where commissions are still relatively high and more experience and expertise is needed to facilitate the consumer’s purchasing decision. Many of these agencies now charge fees on air or try to avoid selling air at all.
These changes have also created opportunity for new travel agency models, such as cruise-only, home-based, specialized (focused on a particular destination or type of travel, such as adventure, family or honeymoons and weddings) and host agencies. The latter, for example, enable other travel agencies and home-based agents to forgo the cost of GDS contracts, ARC accounts (Airlines Reporting Corporation, the settlement service between airlines and travel agents; in order to issue airline tickets, an agency must register with ARC) and other agency requirements by piggybacking on the host agency’s booking, fulfillment, accreditation and other services.
Changes on the corporate side of the agency business have been no less dramatic. The Internet’s impact on pricing and content, as well as the aggressive efforts by the largest online travel agencies to enter the corporate market, have generated tremendous competitive pressure on travel management companies (TMCs) large and small. Corporate agencies have responded through cost-cutting, investment in technology and consolidation. American Express’ 2003 acquisition of Rosenbluth and Carlson Wagonlit Travel’s purchase of Navigant in 2006 created two TMC behemoths, each more than twice the size of its next largest competitor.
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