MIAMI -- The chairman of Preview Travel, one of the nation's
leading on-line travel sellers, painted another of those bleak
pictures for the future of the average "brick-and-mortar" travel
agency. Preview chairman Jim Hornthal said a "sea change" -- one
involving Internet sellers replacing traditional agencies -- could
be under way.
Looking at the post-commission-cuts era, he told an audience of
automation executives at the annual Marketing Automation Conference
here that mass agency failures are possible, which Hornthal labeled
an industry "implosion."
"There might be a morning when the agents don't answer the phone
because the economics don't make sense anymore," he said. "Then
you'll see a fundamental shift."
Waiting in the wings, he said, are on-line intermediaries, who
are more economical for suppliers and more capable of meeting the
preferences of a new generation of consumers.
Implying that the industry's current cost structure is
untenable, the executive said, "You've got this wonderful phenomena
of rents going up, wages going up and compensation going down. The
longer you work to save your client money, the less you get paid
for that effort. It's a fascinating conundrum that is difficult to
get out of unless you redefine the economics and look at a whole
new way of delivering service."
Speaking, in particular, of the lowering of commissions for
on-line bookings to 5%, Hornthal called the development a "gift
that the airlines have given us."
Because the 5% commission level matches the airlines' own
distribution costs, he said, it is economically indifferent for
them if interline distributors handle the business, whereas the
airlines have an economic incentive to further lower agent
commissions.
Should airlines lower regular commissions to 5%, he said,
airline profitability, already at a record 7.1% of sales, would go
up by another 40%.
At the same time, Internet companies are in a position to step
in with such "long-term value" for suppliers as "targetted
marketing, higher yields and lower transaction costs," he said.
Utilizing databases, on-line distributors can offer suppliers the
advantage of "seeing everything our customer does, everything they
buy."
He explained, "Any of our reservations agents can know your
history and past experience with us." For today's "dissatisfied
consumers," he said, Internet companies can offer "new ways of
doing things."
Pointing to the current distribution system, he said, "Customers
don't want their information filtered. They want self determination
and full choice. They want it all in one place, and they want to
make sure they're getting the best value along the way."
Hornthal said the prospects for traditional agencies might be
different "if customers were happy with their current distribution
choices."
But he claimed, "If you go into a room this big and ask how many
people have a leisure agent they're in love with, maybe two people
raise their hands."
Calling leisure travel an "underserved channel," Hornthal argued
this was inevitable. "To give you the service you want, it takes
more time. The more time you spend, the less money you earn."
Looking at service fees as a possible solution, he said: "I
believe there will be a very small set of the market that will want
that."
Then, addressing the few travel agents in the audience, he said
of his gloomy outlook: "Don't take it personally; it's not about
you. It's about getting product to market, packaging it, servicing
it well, and bundling it in a way that the consumer finds to be
attractive."