Courting the recently irrelevant agent

By Johanna Jainchill
Johanna JainchillAs hoteliers have begun to very publicly back away from online travel agencies, the OTAs have been expanding their cooperation with traditional retail agencies.

The trend is notable because as OTAs and traditional travel sellers engage in more cooperation than ever, it signals a thaw in a relationship that has often been contentious at best and at times downright hostile.

Last November, Orbitz.com and the American Express Retail Travel Network announced a deal that will give agencies access to the OTAs' hotel rates along with a guaranteed 12% commission.

Both Orbitz and Expedia launched programs in 2010 that offer travel agent commissions. Expedia's initiative pays agents a 10% commission to book products through its Travel Agent Affiliate Program, which has grown significantly; it is now used by 16,000 agents worldwide.

The OTAs cite different reasons for this increased cooperation, from the buying power of networks like American Express to the customer service they can offer the Expedia customer.

But that's not the only reason. A recent PhoCusWright study described the market that travel agents have successfully tapped into as the "oldies but goodies" segment of travelers.

According to the report, leisure storefront agencies indicated that 67% of their sales come from clients age 45 and older, and nearly a third (32%) come from customers who are at least 60 years old.

Of the general U.S. traveler population, PhoCusWright said, only half are 45 or older.

But what the report found most striking was the "remarkable differences in spend" between the OTAs and traditional agency customer groups.

Leisure travel agents said that 70% of their bookings have a per-person spend of at least $1,000 and that 35% spend at least $2,000, the study found. By comparison, the average U.S. traveler's per-person spend is well below $1,000.

PhoCusWright said these numbers made sense, given travel agents' market share across segments: They account for a smaller percentage of the leisure air, hotel and car rental market but have more than two-thirds of the cruise and tour operator market, a segment more likely to involve higher-spend trips and international travel.

For suppliers, the benefits of travel agent bookings are obvious. Looking only at air sales through ARC, PhoCusWright reported that the largest 65 travel management companies (TMCs) account for 25% of all sales but 21% of transactions, while other agencies account for 47% of total sales but 41% of all transactions.

OTAs, by contrast, account for 28% of sales but 38% of transactions.

For both TMCs and other travel agencies, the average fare booked more than $200 higher than the average OTA fare.

This means that agencies, which have access to the same pricing as the OTAs, are managing to sell their clients on more than price: on schedule, shorter flights and better seats.

The report says that travel agents' customers are less price-sensitive and more brand-loyal, but the other factor at play is that the agents train them to see value, while many online bargain shoppers only see price.

Suppliers that have invested a lot of time and money courting these traditional travel agent groups -- and in many cases have stuck by them and helped them remain viable over the last decade as OTAs surged -- are spooked by the increased cooperation agency groups have with OTAs.

That is especially true of hoteliers, who are increasingly trying to wean themselves off the OTAs and their heavily discounted rates.

In January, six major hotel companies partnered to launch RoomKey.com, a booking website, in what analysts described as an attempt by hotels to reduce distribution costs associated with OTAs, which pay the hotels rates reduced by as much as 20%.

The drive to do this has been compounded by studies such as a recent report by Smith Travel Research and the American Hotel and Lodging Association that was published by Hospitality Sales and Marketing Association International.

That report stated that U.S. hotels paid about $2.7 billion in the form of the discounted rooms sold to OTAs in 2010, up from about $2.4 billion in 2009 and more than double the $1.3 billion in commissions paid to travel agents through GDSs.

The hotels argue that if the OTAs can pay travel agents up to 12% of their cut, that cut is too big.

Last week, Hilton Worldwide, one of the hotel companies that launched RoomKey, revealed that it had chosen not to renew its multiyear agreement with Orbitz Worldwide, saying it was "in the best interests of our guests and our more than 3,800 hotels around the world."

Hilton chose to let the agreement expire even though it meant that its hotels would be less prominently displayed on Orbitz websites.

The concern these hoteliers cite is that if major travel agencies are booking hotels through Orbitz and Expedia, those hotels will lose out on the better pricing and commission structure that traditional agents offer them.

Moreover, many hotel companies have long recognized that traditional agents bring in better rates than the OTAs and so have spent millions developing agent booking portals and courting consortia and agency groups at their sales and marketing events.

Travel agencies, which for more than a decade have been told that the OTAs were making them irrelevant, are now suddenly being courted and allowed a share in their success. And the offer is tempting.

Johanna Jainchill is Travel Weekly's editor at large, focusing on retail and distribution. Contact her at jjainchill@travelweekly.com, and follow her on Twitter @JJainchillTW.
 
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