A light at the end of the tunnel

By Charlie Funk
Charlie FunkIt's tough trying to figure out when exactly this profession we have chosen became so complicated.

Thirty or so years ago, a travel agency considered the five-mile radius around its physical location to be "its" territory. If you were a really aggressive agency, you had a big Yellow Pages ad, one of those portable lighted signs advertising your business or a marquee sign advertising the latest specials. All you had to do was sit back and wait for the clients to come in.

Average agency sales were in the range of $1.5 million to $2 million.

On Sept. 10, 2001, there were about 33,000 travel agencies in North America. Today there are about 13,000. The average agency today sells about $5 million annually. That isn't because agencies are prospering. It's because the retail channel travel sales pie is smaller and spread over fewer agencies.

The pie is smaller because of the growing amount of business booked direct by suppliers today. And, granted, there are some really large retailers today that skew the average, as well.

How about a single agency that had sales of about $1.5 million in 1998 and is a $1 billion agency today? Expedia and other online travel agencies (OTAs) measure revenue in billions, not millions.

It looks pretty hopeless for all those "average" agencies, doesn't it? Maybe not.

One of the biggest challenges the average agency owner faces today is how to go to market. There are literally dozens, if not hundreds, of online sites that beckon to the agency owner to spend money to attract clients.

Some OTAs spend more than a billion dollars a year on advertising. Expedia spent $870 million on advertising in 2012 and averaged a $22.28 core ad spend per hotel room night. Put simply, an average agency cannot compete with OTAs for online advertising exposure.

Silly me, I scoffed at the big OTAs some years back that were spending millions to advertise that they had the best hotel prices. How were they ever going to make a profit on 10% hotel commissions and a few dollars in air ticket fees? My naivete didn't comprehend negotiated hotel rates that were 25% to 40% less than those offered on the hotels' websites.

But the dynamic is changing, even for the mega OTAs that have the budget to buy one of the top three spots on a search results page. That change is especially true for the OTAs with lots of hotel content on their website.

It turns out those substantial discounts the OTAs commanded from the hotels have squeezed margins for even some of the large hotels and chains to the point that something had to change.

That came when sites such as TripAdvisor announced in July that they would begin using something called metasearch to display hotel choices to a visitor rather than having OTA popup ad links that took that visitor from TripAdvisor to an OTA's website. (Kate Rice had a good piece in the Jan. 6 issue on metasearch, and I urge you to read it.) 

But here, I'm focusing mainly on the impact of metasearch as it relates to the hotel industry and, by extension, to other suppliers.

The switch to metasearch meant that the actual hotel now had an opportunity to bid on the top three search results when a TripAdvisor visitor looked for a hotel. As a result, the visitor would be taken not to an OTA but to the hotel's own site for a direct booking, greatly improving the hotel's profit margin. It was so significant that Expedia's share price dropped 20% on the day the program was announced.

Given that TripAdvisor owns Cruise Critic, it is not too great a stretch to see a similar business model adopted on that site, as well, nor that the example set by hotels on TripAdvisor will go unnoticed by other suppliers.

So how can all this possibly be the light at the end of the tunnel and not an oncoming train?

Just this: It is one thing to buy a $125 hotel room or a $350 airline ticket and quite another to spend $5,000 or more on a vacation based only on information on a website.

Robert Cole, CEO of RockCheetah, a hotel marketing strategy and travel technology consulting company, nearly a decade ago pointed out seven stages in the travel process: inspiration, research, planning, validation, booking, travel and sharing.

Today, Cole suggests that those who don't have the budget to compete with suppliers and OTAs use social media to inject themselves into the inspiration process. It's still going to be all about getting the prospect to visit your website for the research and planning phases. That prospect, on average, will visit 3.6 websites just to purchase an airline ticket.

The next step in the process is the key. Agency owners must become validators. Someone searching the Internet for what to them is an expensive vacation is very likely to want someone knowledgeable to talk to about their vacation plan and validate their choices.

Many large OTAs, especially those that rebate heavily, don't have a business model to support offering this service. Indeed, there are suggestions that some of these same agencies refer clients to the supplier to have questions answered.

Also become involved in the sharing process. Invite clients to post their travel photos on your Facebook page or website. Be a part of their community.

Suppliers consistently say they want travel retailers to be information sources -- experts, if you will -- to provide a value-add to the client. Here's a way for average agencies to do just that and to begin taking back the ground lost to OTAs and price shoppers.

Charlie and Sherrie Funk own Just Cruisin' Plus in Brentwood, Tenn., and have provided agent and agency-owner training throughout North America on every facet of travel agency operations. They are the authors of several books, including "A Recipe for Travel Agency Success," "Creating a Blueprint for Growing Your Agency" and "You're Invited," a complete guide to hosting consumer travel events. 
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