Market Forces and Agency Competitiveness

By: David J. Wardell

Although they will tell you that fares and rates are too high, most travelers actually make out fairly well. The market is filled with products, such as cut-rate airline seats, that airlines and agents cannot make any money selling. The public benefits from pricing pressures that drive unit costs down and from competitive pressures that drive rebates up for big purchasers. Over time, such a situation is unsustainable. One part of a business transaction cannot continually win while others lose.

Something must change, either as pricing methods evolve or as vendors and distributors disappear.

Recent efforts by major airlines to cap domestic commissions demonstrate that compensation structures will evolve separately from unit costs. Also, low-cost airlines and other budget services do not appear to be losing their public appeal.

If ticket-price inflation is unlikely to bail agents out anytime soon, will technology come to the rescue? The answer is no.

Technology sometimes provides solutions to business problems, but it usually takes a long time and delivers results that are difficult to predict. Most of the travel industry needs to become much more efficient very quickly.

Efficiency can be helped significantly by technology. It takes far too much time and energy to assemble the information required to make reservations and to issue documents. New sales technology, such as the next generation of CRS tools, would be helpful. Unfortunately, these are unlikely to be developed in today’s travel business environment.

The business problem with much of travel technology is that most people are unwilling to compensate vendors and developers adequately for the value they deliver. The traveling public also is unwilling to pay for value. Many agents look for ways to lower their own costs by shifting work onto customers, either through electronic ordering systems or ticket-delivery technology.

Technology makes all this practical but not at a cost that the customer finds compelling. Most efforts to increase customer involvement in the reservations process go nowhere.

The only way to focus technology solutions on problems is for agents to resolve their own personal business issues first, as follows:

Change the way you operate from the ground up, with the goal of eliminating unnecessary costs at all levels.
Demand real, demonstrable value from your technology suppliers, and be prepared to pay for it.
Recognize that most of the technology now in use is an encumbrance, not an aid, to changing the way you do business and achieving cost reductions.
Work toward changing the customer’s expectations so that value is perceived and rewarded.

None of these steps is clearly defined or easily accessible. The alternative to positive action, however, is to allow the marketplace to put its own changes in place, for better or worse, which eventually will happen.