With the announcement this month of further cuts in the commission rates that airlines pay their agents for selling tickets, the Internet is clearly starting to be a serious threat to the established retail business model. More than ever before, the airlines and high street travel agents are running scared of the new middle man.
A message greets you on the American Express Travel site as you complete registration. "United, Northwest, and KLM online booking is currently unavailable.We have been unable to reach agreement with these carriers regarding an acceptable commission structure for online bookings that will compensate us for the technology and other investment required to process these bookings," it states, before offering the alternative of using telephone booking that gives Amex the higher commission.
Disputes between providers and sellers of travel look set to increase. Travel agents will feel the pinch further from this week after British Airways announced it was joining other airlines in cutting the commission it pays agents. Commentators warned that the consumer may feel the effect as agents up their prices to cover the loss.
Some analysts suggest, however, that this is just the first strike in the brewing battle that will take place as the travel sector is forced to shift to an Internet and direct sales telephone model.
According to Forrester Research, Web-based reservation systems will account for nearly $3 billion in room reservations and $3.5 billion in airline reservations by 2001 - that's in just three years' time.
No one wants to talk about the possible changes to the existing business model because of the Internet. Airlines are worried about upsetting their agents by selling direct, Computerised Reservation Systems are worried about losing their unique grip on the market, and high street travel agents are worried about publicly discussing potential cuts in their branch network and therefore swathes of jobs.
The airlines spotted the threat from the Internet early and some have had caps on commissions for online sales for a while, but if they continue to cut general commission rates, agents will be forced to seek alternative ways of charging.
"Bottom line pressure forces travel suppliers to go directly to consumers, pushing out traditional middlemen. The Net provides another weapon in the travel industry's ongoing battle over distribution," said Seema Chowdhury, analyst at Forrester Research.
BA already sells a range of limited feature tickets on the Internet, while BA's budget airline to be launched next year will sell the majority of its tickets direct over the telephone.
One senior British Airways IT insider involved in call centre development said earlier this year that, with the company's large investment in call centres, it would be easy to shift to a more direct sales model including using the Internet. But he added that the company had to be very careful about jeopardising the 87 per cent of its business that currently goes through agencies.
Long term, he added, it was only a matter of time before travel agents began to feel the squeeze and BA would look to reduce the cut of the middleman, thereby taking all the money.
British Airway's business sales manager John Morgan predicted earlier this year that more and more of the airlines business customers would set up their own inhouse, online booking systems and that BA could not afford to ignore the massive growth of the Internet in favour of agents vested interests.
However, US travel agents' society ASTA said BA's attitude showed how relations between agents and airlines were at an all time low point. BA's attitude, according to Chairman Bob Ayling, is that agents will not be totally surpassed but will have to adapt to the new world and exist through adding value, not simply as a sales channel.
Lufthansa has had an Internet ticket service in place for a short time. In public a Lufthansa spokesperson said the Internet would "not have any impact on their agents at all" and yet the airline was one of the first to impose a lower commission payable to Internet sales of tickets.
The Computerised Reservation Systems (CRS), such as Sabre and Galileo, have proved one barrier to online sales. Used by the majority of agents to book flights, they are proprietary, difficult to interface with Web technology and heavily influenced by a small number of companies, often the airlines themselves.
One of the biggest, Sabre, recently launched an Internet site, www.travelocity.com, that links directly into its massive booking system used by more than 100,000 agents. In 1996 the site sold $95 million of travel but this is expected to be significantly higher this year.
Thomas Cook is one retail travel agency that at least is taking steps toward the changes Forrester warns are necessary. It launched an Internet site at the end of October to sell a selection of holidays and own-brand flights online, as well as peripherals such as currency and guidebooks. It plans a promotional push early next year.
A Thomas Cook spokesperson admitted the company was partly driven this route by predictions of #1 billion of retail travel business being online, and yet she denied there was any threat to the traditional store network.
But if it is not shifting from the high street then where is this vast amount of online business coming from? Thomas Cook, like all retailers is defensive over any suggestion that it might have to cut down its expensive and heavily staffed branch network, claims the business will come non-typical areas such as independent travellers or teletext users.
This is unrealistic according to Forrester's research, which shows that large US travel companies expected up to 20 per cent of their normal business to come from online sales within four years. Smaller companies averaged a lot higher. Of major US travel suppliers and related companies 96 per cent have Web sites, one-third already had online ordering, and two-thirds said the primary reason for being on the net was to generate revenue, not marketing.
On the way, of course, corporates are finding the really significant savings through using the Internet are coming from business to business applications, such as online cargo booking and tracking services, or Internet access to previously proprietary networks such as Sita's Aeronet.
In the long run, the middlemen look set to move online as the equivalents of bucket shops acting as amalgamators - if the airlines will allow sufficient financial incentive. They themselves will look to take advantage of the potential the Internet offers for direct sales and thereby a greater portion of the pie.
Travel agents will need to adopt a different pricing model to replace the lost income from sales of basic flights and hotel bookings that go online. Brands, such as Thomas Cook, may be able to retain that business if they themselves move on-line. Otherwise the Internet is likely to have the same impact on travel agent's branch networks as the phone and Internet is doing to the banks, whatever the agents want us to think now.
As a footnote, not all that is Internet is good as far as the airlines are concerned. One irate US traveller recently set up a popular Internet site, www.untied.com, where travellers can publish their horror tales from journeys on United Airlines, much to the dismay of that carrier.
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