Economic downturns can herald periods of intense entrepreneurial creativity, and in the travel industry, some of that creative thinking is being applied to explore the nexus between travel agents and the Internet. The results might turn out to be very healthy for both agents and suppliers.
Various new approaches have come to my attention lately, and I'm particularly intrigued by a model put forth by Kensington Tours.
The company's CEO, Jeff Willner, has a technology background. A company he previously launched created a technology training center for Microsoft, and after he sold that company, he looked to the travel industry for opportunities. He was attracted to tour operations, and as he became familiar with them, he found what he perceived to be a glaring inefficiency that he felt he could overcome.
Only a small percentage of tour operators own the various components they sell as a packaged tour or FIT. Most don't own the buses, employ the escorts or necessarily even have local staff on the ground in destinations they're selling.
Instead, they rely on a network of inbound, receptive operators who actually deliver the experience. But receptive operators use a hodgepodge of software to track the availability of the various components and add-on options for their services. Because there is no standard system for them to book and track, most tours cannot actually be booked in real time; there typically is much that still must be confirmed (by hand, so to speak) before everything is finalized.
There have been various attempts to resolve this problem. Many so-called "dynamic packaging" efforts have tried to build tours on the fly, and there has been some success when the components reside in standardized real-time reservation systems (i.e., air, car and chain hotels). But even with standardized systems, the challenges increase as you add more components, which, like theater tickets, reside in real-time reservation systems. The lack of standards among receptive operators has been a formidable barrier to confirming tours instantly.
Listening to Willner, I had a sense of deja vu. Ten years ago I was a consultant to a former Microsoft executive who was investing significant amounts of his stock-options profit to develop a universal system that would address this problem. Receptive operator systems were even more rudimentary and fragmented a decade ago, and ultimately, he could not overcome the complications.
Willner, too, initially underestimated the scope of the problem.
"I thought it would be two programmers and $500,000," he said.
Five years later, he has spent 10 times that amount and employs an eight-person tech team. And he says he did succeed in taking Web-enabled, real-time bookings for his $30 million upscale tour operation. He did it by creating a system and then insisting that any receptive operator he works with load their inventory into it. As a result, he says, "we've ripped out a lot of costs."
He initially kept his system in-house. He would advertise a toll-free number direct to consumers, and then his operators would book in real time. He eventually simplified the program interface to a point where he felt even consumers could book an upscale FIT, in real time, by themselves. As the economy began to falter, he spent $3 million promoting his self-booking engine on Google.
"We were their largest spender in 2008," he said.
But shortly after he launched his campaign, he watched in dismay as his quote and sales volumes fell by 50%.
"I learned that international travel still confuses people," Willner said. "They still need someone to hold their hand. I decided to engage with travel agents."
So now he, his receptive partners and agents can all look into the same system and book in real time. Willner claims his efficiencies enable him to appreciably undersell his competition: "We've shaken up the market. With Kensington, you can go with a private guide for less than a group rate." And, he said, he has a lot more money to incent travel agents.
Interestingly, he wants to use that extra cash to move travel agents out of the commission model, which he feels is not really in their long-term best interest.
"If an agent wants a 10% commission, we can give them that," he says. "But we encourage them to mark it up themselves, instead. Those that do consistently see 20% margins."
The economic downturn has proved a boon to Kensington Tours, according to Willner. "It's given us [hotel] capacity that had not been available before. And the feedback we have from hotels is that they'd love more FIT business, because it has only a 5% cancellation rate. With escorted-tour room blocks, in good times they might have a 90% materialization rate [the percentage of the block that actually shows up]. In bad times, it can drop to 20%."
Willner would like to provide his FIT technology solutions to other tour operators, as well, and he says he's been in "advanced discussions" for his database to power a third-party solution for complete vacation packages online.
"We will unlock a new layer of mass customization in this decade," he predicted.
I had previously considered "agent-friendly" and "mass customization" incompatible. But perhaps the decade we're entering will be the one in which the strengths of travel agents and the Internet come together in ways that play to the strengths of both.
Email Arnie Weissmann at aweissmann@travelweekly.com and follow him on Twitter.
