Disintermediation and Reintermediation of the Travel Agents Essay

1. INTRODUCTION Nowadays, the travel distribution channel is very complex and characterized by the presence of many different kind of intermediaries which operate in a very competitive market. Since the beginning of the travel industry, intermediaries have always played an important role for the development of tourism products and services. Indeed, intermediaries have the ability to organize and aggregate a large amount of data into one price. Moreover, they have a fundamental role for counseling and delivering a personalized service according to the specific need of customers (Kracht and Wang, 2009). Before the advent and further development of communication technology, the market was dominated by the large suppliers such as airlines, hotel chains and resorts. Travel agents were the conventional intermediaries which were independent from each other and represented a portion of the dominant players in a non-competitive market (Gharavi and Sor, 2005). Later on, with the high spread of ICT and the need of cutting costs the position of the travel agents has been threatened. New kind of middlemen emerged adding additional layers of intermediation, disintermediating certain players by bypassing the traditional intermediaries (Buhalis and Law, 2008). Technology has also allowed suppliers to directly communicate with consumers who have seen their choices enormously increased. This has increased the competition and the complexity of the market and has raised an important issue for the presence in the market of traditional travel agents. The aim of this paper is to investigate how disintermediation and re-intermediation have affected the way travel agents operate and whether there is still a place and a prospective of growth for travel agents in the market. 2. DISINTERMEDIATION AND RE-INTERMEDIATION OF THE TRAVEL AGENTS In the last twenty years several changes occurred in the tourism distributional channel. Every component of the chain value has been affected and particularly travel agents. Traditional travel agencies are being threatened not only by integrated tour operators, which control their own distribution channels, but also by the expansion of alternative distribution channels such as the Internet, Teletext, call centers, and even travel TV channels. This process is called disintermediation (Kracht and Wang, 2009). According to Bennett and Buhalis (2003) disintermediation is the process of eliminating intermediaries within the distribution channel driven by electronic means that enable consumers to access and transact directly with suppliers and destinations†. Before 1993, the traditional tourism system consisted of consumers, traditional retail travel agents, corporate travel agents, tour operators, GDS’s and suppliers. The 1993 was the year of the first commercial usage of int ernet. After that year many changes occurred and many more players enter into the market thanks to the reduction of barrier entry costs. However, the starting point of disintermediation was in the 1960s, when the American airline lunch the first GDS allowing consumers to buy tickets directly from the airline company (Kracht and Wang, 2009). Travel agents’ main source of revenue at the time was commissions paid to them by the airlines on tickets sold by them on the airlines’ behalf. Pressures to reduce costs in an increasingly competitive industry caused airline companies to look for ways to reduce their payments to travel agents. Initially, airline companies progressively reduced the amount of commission paid to travel agents while, at the same time, they opened up new channels and expanded existing channels to reach travelers directly. Airline companies encouraged travelers to book direct channel by various means with a very successful results. For instance, easyJet, a successful British low-cost carrier, in 2002 was already selling 90% of its seats through its own site (The Economist, 2002). After the public debut of the web, suppliers began establishing web sites to connect directly with customers, thereby beginning the disintermediation of traditional retail travel agents(McCubbrey, 1999; cited by Krac ht and Wang, 2009). For example, Hotels  also created their own websites to reach their customer. Establishing a direct relationship with clients allows suppliers to put in place various price polices and loyalty schemes. Suppliers believe they no longer need an intermediary to sell their products. They discover the internet to be a powerful and cheap distribution channel, and not just an online brochure (The Economist, 2002). Indeed, using information technology to develop supply chain relationships can reduce costs and bring higher quality of travel products into the market. Internet, perhaps, has been the most powerful means of disintermediation and it has radically changed the travel industry, adding more layers of intermediation and more players (Kracht, 2009) The travel industry, in fact, is undoubtedly one of the most interesting sector in terms of the possibilities offered by the internet. Internet travel reservations have increased dramatically in the last years with more and more users confi dent with the technology, and it represents the fastest growing segment of electronic commerce (Bernstein and Awe,1999; cited by Anckar, 2003). The success of internet in this respect, is perhaps due to the nature of the tourism product, which is a little more than an information product, easy to convey through the web (UNCTAD, 2000; cited by Anckar, 2003). However, as stated by Palmer and McCole (1999; cited by Bennett and Lai, 2005) â€Å"the internet does not change the principal role of intermediaries who exist to simplify buyers’ choice processes†. Indeed, even though internet allowed suppliers and consumers to communicate directly bypassing the travel agents, there were some important issues related to the internet. According to Bloch et al. (1996, cited by Wynne 2000), when potential tourists try to book directly with suppliers on the internet, they face a wide range of problems. For example, they require to know in which website to look. It takes at lot of time considering different options and prices. Often, it is not possible to book online. Thereby, the necessity of one stop-shopping, aggregation of information and comparison of price led to the formation of new e-mediaries or cybermediaries. Disintermediation indeed, push back to re-intermediation with new players coming into the markets and existing ones which re-intermediate themselves by reinventing their business. Re-intermediation has been defined by Bennet and Buhahs (2003) as â€Å"the utilization of ICT and internet tools for the development of either new intermediaries or new methods for existing intermediaries that  enable them to re-engineer the tourism distribution channel†. Re-intermediation is evident through the development of new electronic intermediaries such as Expedia, Yahoo Travel, lastminute.com and Travelocity which are based only online. Based on the premise that intermediaries exist because they provide value added services, these e-mediaries have the potential to pass economies of scale directly to the consumer, offering reduced fares as well as the convenience of making reservations 24/7 (Lai, 2005). As a result of both disintermediation and re-intermediation travel agents have been reduced in numbers and have to face a very competitive market. In fact, from one side they are threaten by the disintermediation put in place by the suppliers, and from one other by online reservation and therefore, by the e-mediaries or cybermediaries. The latter, in particular, with no established high-street presence, threaten established retailers by changing the distribution channel for consumer products. Reservations made online are probably the most important danger that traditional intermediaries like travel agents have to face. Figures show an increase of online bookings over the years both in Europe and United States but also in other markets (http://www.emarketer.com). According to Cheung and Lam (2009), to secure their position in the marketplace, and avoid disintermediation, travel agents must be able to acquire the new technology and be able to compete into the new channels as electronic -able intermediaries, without losing their advantage in the conventional market. To minimize the risk of disintermediation, travel agents need to reduce their dependence into simple transaction and increase revenues by focusing on more complex activities, like counseling and personalization of the service. 3. TRAVEL AGENCIES RESPONSES TO A CHALLENGING MARKET Despite the severe competition, and the possibility for booking online, many customers still prefer to purchase from travel agents. TTI chairman, Tony Allen stated that there would always be people who â€Å"didn’t trust the internet† and wanted face-to-face advice (Taylor, The Guardian, 2003). Indeed, travel agents have still many cards to play and can benefit from several advantages in the marketplace: * They are situated wherecustomers come, in shopping centers and in high streets; * Aggregation of the offer from various suppliers into one package; * They can offer a personalized service; * Human relationship; * Travel agents can offer an advisory service, and assist the customers in making a decision before processing with transactions; * Less time spent by the customers to buy a travel product. It can also be argued, that not all the effects of the disintermediation and re-intermediation have had a negative effect on travel agents. Gharavi and Sor (2005) have suggested, in fact, that because of internet and other forms of disintermediation, the bonds between the small travel agents and the dominant large suppliers like the airline companies, hotel chains and resorts owners, was finally broken. As a result of that, many independent travel agents, which continue to based their business on conventional methods such as commissions from suppliers, were pushed out of the market. However, many others entrepreneurs were stimulated to reinvent their business. Travel agents were allowed to deal with a variety of suppliers and organize into cooperative. Moreover, others entrepreneurs developed fran chises or merged, in order to have more bargaining power against competitors. Therefore they fight back the disintermediation and re-intermediate themselves. Organizing into franchising or into other forms of collaboration has allow several advantages to travel agents. First of all, it leads to gain more bargaining power which make more convenient for travel agents to dealing with suppliers. Second of all, it helps travel agents to focus only on the front office activities, while the centre office is in charge of the administrative procedures and of the marketing activities, such as brand building and advertising. Another reason, why this kind of collaborations are successful is that they can allow a better training of human resources and lead to better prospects for income. A great example of travel agency organized into franchising is definitely Harvey World Travel with over 170 stores in Australia and more than 70 in the UK which offer to its branches a very sophisticate software to create a very personalized package for customers (Harris and Duckworth, 2005). In order to fight disintermediation many travel agents differentiate themsel ves and/or focus on niche markets. They try to offer something different that clients could not find online. EuroTravel is a great and successful example of how a small independent travel agent can compete in the market. This company was able to leverage technology effectively in order to specialize and fight back against disintermediation. It specializes in sales to only the European destination, but has used the internet as its primary communication channel in order to acquire customers from a broader geographic area. This strategy seems to have paid off. In fact, in 2004, sales were  £ 6.5 m and in 2008 they reached more the  £8.5 m (Haris and Duckworth, 2005). Similarly, Thomas Cook is another successful experience. By being the first travel agent in the UK, Thomas Cook can count on a very long history and tradition. Over the years it has experienced many changes in order to adapt to a competitive market. In 2007, it merged with the competitor MyTravel, and nowadays Thomas Cook is the UK’s largest retai l travel network. It aims to dominate both, conventional and innovative channel (Williamson A., 2001). Thomas Cook has indeed, a very strong position online and continues to open new branches every year. Therefore, Thomas Cook demonstrates not only how a travel agent can fight disintermediation, but also how to grow and prosper in the marketplace. CONCLUSION Upon the introduction of Internet technology, travel industry has been strongly affected by electronic commerce that contributed the most to the disintermediation of the channel. This is true in particular for travel agents. It is clear that disintermediation and re-intermediation exist in the travel sector. In the intermediate phase, traditional travel agencies dominate the market. However, as new EC-only travel agencies emerge in the market and build up their competitive abilities, traditional travel agencies lost over 50% market shares (Cheung and Lam, 2009). As a result of that many travel agencies merged or organized themselves into some form of collaboration such as franchising. In order to survive in this competitive travel market, agents need to reposition themselves as travel consultants, but also must be more technologically oriented. They must focus on consulting and niche markets. As suggested by the Economist (2002), travel  agents future will be based on helping custo mers to buy what they want, rather than selling what is left unsold by suppliers. They now must look out for consumers’ best interest by using IT resources to help them find the best product. Indeed, it is necessary an integration of conventional business with the new opportunities offered by the web, in order to add value for the client. That is probably one of the most difficult challenge that travel agents have to face. ICT must seen as an opportunity more than as a threat which allows travel agent to reach more customers, get more information and therefore, adding more value for the latter. 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