TomTravel2

The world as we know it now revolves around the Internet. The world of travel is no exception to this rule of thumb. People look to the Internet for information about hotels, cruises, and destinations. Many have become comfortable with booking their own travel directly with vendors or with online travel agencies (OTAs). Yet even in the age of Internet omniscience, the traditional travel agent survives. In some cases offline booking is thriving and possibly growing faster than the OTAs.

In my previous career as a stock trader and analyst, I learned to examine a business. Is it growing? Is it profitable? Is it’s business model sustainable? What is the competition? What are the prospects for future growth? What I saw when I looked at the business of booking travel was an odd picture. The traditional business was a disparate collection of small agencies and a few larger ones. The business had been moving to a home-based outside agent model for some years, further diversifying the business model. The OTAs seemed to be advertising dependant and fueled by venture capital and stock issuance cash.

Despite the huge ad spends by the big OTAs, small players in that niche have been stealing market share. How long can they keep buying TV, magazine, and SEM ads? In the online booking of travel the consumer is king. Those who book travel online seem to be driven by price not loyalty to one brand. Further complicating things for online travel agencies is new competition from the vendors themselves. The vendors control the inventory and the price. For the consumer it makes little sense to add a middle man unless there is value added. OTAs’ notorious poor service adds little value to the transaction.

Many consumers assume that the visible growth of the OTAs must have been a death blow to the traditional travel agent business. This is far from the truth. Ask any veteran travel agent and they will cite two factors that hurt their business far worse than competition from garden gnomes; the airlines cutting commissions in the 1990′s and the drop off in travel after the 9-11 tragedy. Travel is a fast growing market segment (although 9-11 and the current deep rescession put the brakes on that growth). The market share of traditional agents has held it’s own in recent years and the OTAs growth has slowed appreciably.

Travel agents have through all the battles with the online industry “held the high ground.” The vast majority of cruises and tours are still booked offline by individual agents. The more complex and expensive the travel, the more likely that travel agents are still the dominant means of booking said travel. Many agents will no longer book air travel alone, or will charge a booking fee to do it. Almost any travel agent will be happy to book your next cruise.

As for us, business is good. I see room for multiple models of booking travel. Most of our clients are seasoned frequent travelers who seek expert advice and high touch customer service. Many return for the value we add to their trip by our close relationships with the vendors. Some have come to count on the extra amenities that come with a Virtuoso booking. Most of our business comes from our existing client base. There is a high loyalty rate in our business model, while the OTAs have a very low rate. The prices paid on our bookings are most often identical to the price online, but if you pay the same for less it is not such a great deal.