etail travel agents have little in
common with other retailers.
In most markets, a retailer buys inventory wholesale, marks it
up, and sells it to the public. The markup is determined by any
number of factors -- the wholesale price, competitors' prices, a
supplier's pricing rules and a target market's ability to pay.
At any point in time, a retailer may decide to have a "sale" to
get rid of excess inventory or stimulate cash flow.
As a result, the price on a given commodity is seldom exactly
the same in any two retail outlets.
The price on products that travel agents sell, on the other
hand, is, in most cases, rigidly determined by the supplier, which
also may be in competition with the agent. A supplier occasionally
may have a sale that, by and large, is available to all agents
The agent works on a commission that is unilaterally set,
altered or removed by the supplier. An agent can charge
supplemental fees for providing services (the same services,
incidentally, which the supplier may provide for free).
To be sure, there are advantages to being agents rather than
traditional retailers. First and foremost, an agent doesn't have to
invest in carrying inventory.
But the price they pay for that freedom is that they're
restricted by a narrow set of operational options and lack of
pricing flexibility to differentiate themselves from
There always has been one point of flexibility for travel
agents, however: marking up consolidator or negotiated air tickets.
It's about the only alternative to the commission box.
Vacation.com's president and chief executive officer, Dick
Knodt, believes his organization has put together a program that
attempts to broaden the options.
His consortium's online system, Travel Solutions, provides his
members with 4 million consolidator and negotiated air fares and
hundreds of thousands of close-in cruises and vacation specials at
a net rate.
Agents can mark them up and, like other retailers, keep the
difference between the price they pay and the price a customer
For an agent to do this successfully, Knodt told me, takes a
different mind-set: "You've got to understand margins. You've got
to understand your competition. You've got to understand your
The Travel Solutions program has a built-in calculator that adds
in either the margin the agency is striving for or a set dollar
Its engine also searches published fares so the agent can see
(and possibly purchase) the normal "retail" price. (Vacation.com,
it should be noted, is owned by the GDS Amadeus.)
To play successfully on this field, an agency must not only
understand principles of traditional retailing, but have a firm
grip on its own business goals.
When you operate on markups, there are no potential backup
commissions or overrides that can come from that sale.
For instance, agents may determine they can reasonably add an
11% margin onto a cruise offering, but must take something else
into account: If they sell that cruise, they're giving up a
productivity credit that otherwise may help them attain a 13%
override from a preferred cruise line.
To be sure, Knodt isn't suggesting that his members give up the
customary agent role. "This is about options, about alternatives,"
he said. "Understand the supplier landscape -- there's more than
one way to sell tickets."
One important component of the online system is that it doesn't
reveal the margin increase or dollar markup to a client.
Although service fees must always be run as separate credit card
charges, with Travel Solutions the traveler sees only the price he
or she is paying -- which is another parallel to traditional
retailing. Price tags on consumer goods don't include the wholesale
price a merchant has paid.
I think the approach Vacation.com is taking with Travel
Solutions is the first step in what may well be a major
evolutionary stage for travel agencies. The potential business that
can come out of this is huge.
And I think Knodt's right to suggest this is an alternative, not
the only route.
But it's an alternative that allows agencies to exercise more
control over their business, and in this environment, it's hard to
think of a more pressing need.