The travel industry is an increasingly difficult atmosphere in which to operate a profitable business, even putting aside for the moment the recent problems with the global economy.
Agencies have been hit especially hard by changes in distribution, including the shift to online sales and the changes in commissions. Based on the many statements made by suppliers early in 2008, hotels and cruise lines were gearing up to decrease commissions to bring down distribution costs. The current economy has brought about a reprieve as suppliers struggle to bring in sales and are once again wooing travel agents.
We all know this reprieve will not last. Inevitably, the economy will improve, and the discussion about distribution costs will resume. This makes the time ripe for travel agents to make the transition to a consulting-fee-based business model.
Travel agents who remain fearful of adding service fees and consulting fees beyond air booking fees need to realize that other agents have successfully made the transformation. ASTA's Service Fee Report has found that more than a third of ASTA agencies charge consulting fees for custom travel packages, and 93% charge some type of service fee.
Last fall, ASTA commissioned the Travel Agent Usage and Price Sensitivity Report, a consumer study to look at the traveling consumer's attitude toward travel agents and service fees.
The study found that 43% of respondents were willing to pay a fee for any travel agent product or service without an explanation of the benefit. Were travel agents to delineate the value of their services, that figure would rise substantially. More transparent pricing that reflects the expertise, effort and value-added services that travel agents provide would go a long way toward seeing more consumers switching over from a do-it-yourself model to working with a travel agent.
The second significant finding was that consumers, regardless of income, are much more willing to pay for a travel agent's services if they see themselves as getting new suggestions and travel advice. Convenience, although cited as being the second most important motivator overall, was not the primary driver.
Messaging that focuses only on discounts or deals might not be as successful as a message that includes the value of a travel agent's knowledge. The consulting business model, if properly marketed, is about agents providing knowledge such as new suggestions. Agencies can successfully make the transition to a consulting-fee-based business model by marketing the skills consumers are looking for in an agency.
Additionally, the consumer survey found that travel agencies must not write off the 18-to-34-year-old segment. This study shows they do use travel agents and they are most likely to pay a service fee for travel consulting and planning vs. all other age groups. A younger traveler will often use a travel agent for the first time for an international trip or a honeymoon. In any new business and marketing plan, agencies need to include a way to encourage younger clients to return.
Many of the respondents were willing to pay a fee for services when asked directly in the survey, even without explaining the advantages of using a travel agent. If an agency updates its marketing and branding campaign to explain the advantages of using an agent, then the percentage willing to pay fees would increase. The range of fees that respondents found acceptable was very broad, suggesting that consumers are not sure what is appropriate to pay, enabling the agencies to define the pricing by defining the value.
The movement toward a consulting-fee business model makes sense for agents and consumers. Agents will have a clearer forecast for income since they are no longer dependent on commission rates and commissionable products remaining the same. Consumers will get the knowledge they desire.
ASTA will be taking the results from the Travel Agent Usage and Price Sensitivity Report and developing an online course to assist agencies in shifting their business model and marketing themselves as consultants. The course will also use data from ASTA benchmarking reports to assist agents in clearly understanding the value of the consulting fee model. We want to assist agencies in making a business model shift now, so they are ready to serve clients when the economy rebounds.
Bill Maloney is the CEO of ASTA.