Travel-related Services-Competitive Advantage through the Internet

by Bill Deatherage 
The Amos Tuck School of Business Administration 
last edited: March 7, 1997

Table of Contents

  1. Introduction to Traditional Travel-related Services

  2. Competitive Advantage through the Internet

  3. Current Travel Sites on the Internet-Extension of Traditional Business Models

    1. The Agency Model

    2. The Information Model

  4. Conclusion: A New Business Model-Tracking and Understanding Customers’ Information Needs

1. Introduction to Traditional Travel-related Services

This paper pertains to companies that provide a broad-base of indirect travel-related services to individual consumers. The paper does not focus on direct providers of the services (e.g., hotels, airlines). In addition, this paper is not meant to address companies that primarily provide services to business travelers (although some Internet sites reviewed here operate business-related services).

The companies that fit this category provide information to consumers. Some companies also execute a transaction between consumers and travel service providers. There are two primary types of companies that provide these travel related services:

  • Travel Agencies. There are tens of thousands of travel agencies throughout the United States, most of which only serve their local community. Travel agencies act as brokers of travel-related services (i.e., they reserve and make arrangements for airline flights, cruises, cheap car hire, hotel rooms, and/or complete vacation packages). Once reservations have been made, consumers pay the travel agency, which in turn pays the actual provider of these services. Travel agencies generate revenue through commission charges for each service arranged. These commissions are not paid directly by the consumer; instead they are usually built into the pricing structure provided to the agency.

  • Providers of In-depth Information and Critical Reviews. Far fewer companies act as publishers of detailed travel information. Publishers supply either travel magazines or books, which usually contain recommendations and critical reviews. Although publishers are likely to be national in scope, the books and magazines that are printed often focus on specific activities or geographic locations. Travel magazines are usually supported by advertising while travel books generate revenue from sales to consumers.

2. Competitive Advantage through the Internet

For a business to compete, regardless of whether it is on the Internet or not, it must establish a competitive advantage in either cost or quality of services over its competitors.

The traditional travel agency sector is highly competitive. Although the quality of service varies from agency to agency, the products being brokered-airline flights and hotel rooms-are the same as those offered by competitors. The industry is computerized, and through the use of relatively low-paid workers, most companies are able to operate with low overhead. Because of this, Internet-based travel agents are unlikely to be able to provide a lower cost position. Traditional travel agents are extremely easy to contact and interact with over the phone. Therefore, unless properly implemented, Internet based services also may be considered less convenient.

Information providers incur significant printing costs. Therefore, it is theoretically possible for a web-based service to gain a cost advantage over traditional publishers. Unfortunately, consumers generally have been unwilling to pay for information over the Internet (even though they pay for the same information in a magazine or book). In addition, many advertisers believe that readers of information on the Internet are a less valuable group of consumers than those that subscribe or purchase magazines.

These factors make it nearly impossible to try to compete on the Internet in these businesses through low cost. In addition, it appears as if it is difficult to charge consumers for the information that is provided to them over the Web.

Then, how can profits be made in these businesses on the Internet? Consumers on the Internet do purchase direct services, such as airline tickets, hotel rooms, vacation package as well as a vast array of other services. For this reason alone, Internet consumers are valuable to many other companies that would like to be able to reach them and understand their needs and wants. Therefore, to develop a viable Internet travel-related site, a company should develop a business model that attracts, identifies and retains profitable customers-in this case, heavy travelers. This can only be done by providing unique and high quality service or information and by developing a good reputation with every customer. Once the consumer learns to trust the business, a long-term relationship will develop that will be difficult for any other business to break.

3. Current Travel Sites on the Internet-Extension of Traditional Business Models

Many travel-related businesses have been tempted by popularity of the Internet (see Yahoo! listing of travel agents for a list of over a thousand web based travel agents). As these companies-and several newer ventures-have rushed onto the web, they have generally tried to simply extend their current business model.

Most travel agencies on the web hope that they will be able to reach beyond the customers in their local community by providing services over the Internet. In doing this, they ignore the competitiveness of their industry. By extending their current business model and providing the same services at the same cost over the Internet, they are not making a distinctive offering to consumers. Therefore, distant consumers are unlikely to switch away from their local travel agents, which are just as convenient and competitive, to another agent on the Internet. Providers of information also have tried to support their business by extending their business model onto the Internet. The following sections describe some how some companies currently utilize the Internet.

3.1 The Agency Model

The companies that follow this model continue to generate revenues primarily through commissioned sales. In addition, most provide a greater array of dynamic travel-related information.

American Express Travel is different from typical travel agencies because it is national in scope. With its well known brand name, the company has the opportunity to jump ahead of all of its competitors by providing the best services and building a superior reputation. Unfortunately, this site has limited services and falls far short of this goal. The American Express site offers airline tickets and a very limited selection of “special” travel packages. In addition, the site gives telephone numbers for American Express offices and basic travel information.

The Internet Travel Agency (ITA) is a on-line only agency that exemplifies the web services provided by many travel agencies. ITA provides both individual and corporate services and requires its users to fill out a free membership form before providing access. It’s individual services include reservations for airlines, rental cars, hotels, cruise, and complete vacation packages. The site also provides a number of links to other informational web sites (e.g., Visa and Passport information, travel warnings, weather, currency conversion). ITA’s service offerings are limited. For example, hotel listings are limited to Westin hotels and the Best Western chain. ITA has a travel shopping center (where currently only luggage can be purchased); nevertheless, the business appears to follow the typical travel agency model of generating revenue from commissions. Because users log-on to ITA, the company is able to track user movements through the site.

Traveler’s Net provides a slight twist on the generic travel agency model by charging lower commission charges. The company does this by providing information about flights and links to hotel chains. Then, when a registered user has chosen a flight and made the necessary arrangements for a hotel room (through the hotel chain’s web site or 800 number), the user provides all information to and pays Traveler’s Net, which then pays for all services. Once the company receives its commission from the service providers, it reimburses the registered user up to 70% of its commission as a rebate. Traveler’s Net also maintains an e-mail service that updates users on low cost flights as they become available.

3.2 The Information Model

Companies that follow this model generally provide their information to consumers for free. These companies generate revenue through advertising or by providing services to other businesses.

Reed provides travel information and links to a variety of travel service providers. Users of this service cannot directly book their reservations through this site, but instead must follow one of the links to a service provider. Reed generates revenue by building and maintaining web sites for travel services. The company charges its clients a setup fee and a monthly maintenance fee. In addition, all bookings made through its sites are transmitted by email and Reed charges it clients for each email reservation.

The Travel and Entertainment Network-Internet Operations (TEN-IO) also contains travel information as well as links to travel service providers. The scope of the businesses provided is greater than Reed but still limited (compared to general links available in Yahoo!, for example). TEN-IO also provides information and services to travel agencies, which is restricted to members of professional travel agency organizations. TEN-IO generates revenue by providing Internet services to business clients.

The Hotel Guide breaks the pattern of free information. This service allows some searches to be made online, but a more complete CD-ROM version of its listings is sold for $80. The Hotel Guide does have a very complete selection service that includes the starlevel rating of hotel class. The site generates revenue through sales of its CDROM. In addition, the company may charge hotels to be listed.

Fodor’s, the well known publisher of travel guides, has a free site that requires no registration to use. The sites most distinctive feature is its “personal trip planner,” which allows a user to generate a customized page with hotel and restaurant options for selected cities. Unlike other services, Fodor’s site provides critical analysis of the restaurants and hotels it lists, including a “suggested” list. The site also includes links to sites that contain travel information. Fodor’s generates revenue through banner advertising that is found throughout the site. In addition, the company may rationalize the existence of the site as a marketing tool for its books.

4. Conclusion: A New Business Model-Tracking and Understanding Customers’ Information Needs

Each of the listed sites and models reviewed above lack a competitive advantage. With the exception of the Traveler’s Net, none of the travel agency sites provide an advantage over existing travel agencies. Even Traveler’s Net is lacking when it comes to the convenience offered by calling up a local travel agency. Most of the information sites lack unique information that any Internet-savvy consumer could probably find elsewhere. This is exemplified by the fact that most of the offerings in these sites are simply links to other sites. Only Fodor’s provides a unique service, with its personal trip planner. Even more importantly, Fodor’s provides truly valuable information that would otherwise be difficult for a user to obtain freely: a rating system for the hotels and restaurants it lists. Fodor’s site falls short on how it leverages this advantage. The site does not require users to register or logon before they use the site. Therefore, the company cannot adequately track-for itself and its advertisers-how individual users utilize the information in its site.

As has been previously stated, the travel agency industry is already highly competitive. Therefore, little opportunity exists to profitably extend these services to the Internet. A successful new business model for travel related services would likely be more closely related to the traditional “information” model. The model would need to be altered so that:

  • Unique information is utilized, as Fodor’s has done,

  • Individual user registration is required, and individual consumers are tracked, and

  • A dialog between both the travelers themselves and travelers and the company can be developed (perhaps through an on-line bulletin board).

A site with unique information would be utilized over and over by frequently travelers. Furthermore, the information developed while operating such a site would become increasingly valuable to both advertisers and marketers, which should translate into higher revenues. Of course, in order to develop a trusting relation with its users, the site would need to develop privacy guidelines for how user information is used. But, many frequent travelers would welcome travel promotions, as long as they were only targeted to those that desire them.

An additional characteristic required to get such a site off the ground is a strong, positive brand image with existing travelers. Fodor’s likely has such an image and is a strong position to alter its site. Another company that is well known to travelers, especially younger budget-conscious travelers, is Lonely Planet, the publisher of the “on a shoestring” travel guides (e.g., Africa on a shoestring). Lonely Planet already operates a web site, but this site only provides information on its books and some specific travel destinations. In addition the site contains a bulletin board service that includes questions and responses from various users. Historically, the company has always utilized information from an informal network of customers/travelers to update its books. If the company moved its unique reviews to the Internet-with the features already described-it could more easily keep in touch with its customers and update its books while also providing advertising and marketing services to other companies.

A final caution to any publisher of travel information must be included here. Publishers must attempt to forecast as accurately as possible what effect the Internet will have on the sales of their future publications. Before establishing sites, companies such as Fodor’s and Lonely Planet must consider whether these sites will cannibalize sales of their popular books. These companies also must ask themselves-as travelers continue to gather information from the Internet- whether sales would drop even if they do not establish sites.

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