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Welcome to TechNotes for the year 2000. You are receiving this message because at some time in the past you subscribed to this newsletter. Throughout the year I plan on discussing timely subjects affecting travel technology, technology and e-commerce generally, and the overall business climate affecting travel distribution. The emphasis here is on strategy and how the events of the day fit into a larger picture. Also, you can expect the perspectives you'll be reading to be contrarian and certainly different from what the majority is saying. The 2000 schedule for this newsletter is monthly, or more often as circumstances and developing news or events may indicate. The emphasis he is on timliness as well as content. If you have not already done so, please take time to become familiar with: http://www.wardell.org, which is also constantly updated with new material, viewpoints, and reference material. You'll also find an archive of TechNotes messages and information on other lists that may interest you. Thanks again for your interest and support. Please feel free to e-mail comments or suggestions to me at:
Best wishes for the New Year,
At the end of 1999 it’s wise to reflect upon what happened this year and make certain the most important business trends are clearly fixed in our minds prior to speculating about what 2000 and beyond will bring. This type of introspection is frequently overlooked as we react to daily business events and are swept along by the tide of what everyone says should be important. Here is my list of the most important Travel Business Trends of 1999. You’ll notice that e-commerce is missing, not because it isn’t important but in my mind e-commerce is best understood in the context of industry “trends” as part of a larger picture. As an enabler or a tool it deserves consideration in its own right. The general tone of this list is negative, as there is much for many people to be negative about this year and many of the potentially positive business trends have yet to be proven. Perhaps by focusing upon the negative for a few minutes we can develop a better foundation for successful planning in the coming year.
For the travel industry, the most important picture of which e-commerce is a part is the current movement of suppliers to become closer to customers and, where practical, reduce or eliminate intermediaries. This effects not only agency-based distribution but also the long-term outlook for CRS and other technologies. E-commerce enables and encourages disintermediation, as through it suppliers are emboldened to disrupt their distribution channels in ways that were unthinkable only a few years ago. E-commerce sustains the illusion of closeness between suppliers and customers, in today’s world built upon the foundation of web browsers and e-mail. It remains to be seen whether disintermediation is a business fad similar to TQM and others in recent years, but for the travel industry its effects are far-reaching and serious. It would be a mistake to believe that airline ticket sales are the sole field where it will manifest itself over time.
The industry is awash in IPOs for companies that don’t make money, roll-ups that are ill conceived and have no logical structure once in place, and other investments that fail to take advantage of the current cycle by buying things that are cheap and that yet retrain lasting value. Further, future investments in meaningful technology, operations, and processes that could lower costs or fundamentally improve competitiveness are very limited.
Across all segments of the industry and at all levels, from reservation agents to senior management, many of the brightest and most capable people have been swept into other fields either by economics or short-sighted business practices that failed to recognize the value of skilled human resources. More than any other single event, this fact will impede the competitiveness of many businesses in coming years.
This trend has been in progress for at least ten years and has been accelerated by e-commerce. The positions of agents and intermediaries, suppliers, and customers (be they travelers or the people paying the travel bills) have become mingled. Individuals take on travel planning responsibilities for themselves, suppliers sell direct to the public and expect that the ‘cost” of such sales can be contained to front-end fulfillment, and corporations seek to become their own agents either electronically or through agent-like ARC appointments. Sorting through this confusion to identify appropriate markets and business practices is a major planning challenge.
Electronic agents are part of the picture, but more to the point are distributors such as the “auction houses” that function in a wholly new way (regardless of how intrinsically inefficient those practices may be for selling travel). Until the composition and delivery of these services is rationalized by the marketplace, look for more experimentation.
Agent commission reductions are only part of the picture. As commissions disappear agents attempt to introduce new revenue sources that create adoption problems for themselves and their customers. Other supplier fees and payments are also undergoing a transition. The issue is less that changes have taken place, but overall the industry is not responding well to them, which makes immediate problems worse and creates new ones in the future. Make no mistake: the only sensible lesson to be learned from 1999 and prior years is that we have not seen the end of financial changes in the industry, including commission reductions, and it is essential to find a mechanism for dealing with whatever the future may bring.
In prior years travel distribution could look to the four CRS for future rounds of productivity enhancements and a general technological direction. This is no longer true, as research and development budgets have contracted in some quarters, talent erosion has taken its toll, and the CRS industry as a whole has difficulty identifying and financially rationalizing future developments that could fundamentally enhance the competitiveness and profitability of their customers. The current focus upon Internet tools (typically weak ones at that) to the exclusion of almost everything else cannot compensate for the lack of serious planning and business development in other quarters.
As I’ve frequently observed in the past, market capitalization is not a reliable indicator of business or product success over time. Many of the key behavior, product composition and delivery, and customer service issues that ought to have been addressed in the planning stages most of the travel industry has chosen to ignore as it enthusiastically embraces e-commerce, disintermediation, auctions, and a host of other practices and concepts. If answers have been offered they are frequently based upon such a priori reasoning as would render them useless. All levels of the industry, including agencies, trade groups, suppliers, and customers have frequently failed to rationalize and justify the implications of business practices they advocate. (For a more detailed discussion of this problem, see: "The Unknown Electronic Travel Client." There are exceptions, but they are rare indeed. This is an exceedingly high-risk strategy for any business.
Inevitable change inevitably causes problems for those unable to anticipate, plan for it, and manage their reactions to it. Throughout 1999 most of the travel industry unfortunately showed itself to be unprepared for change through a failure to plan and too slow to adapt correctly once changes to business practices and structures became clear. Successful participants in this industry in coming years will be those that are nimble and can adapt to whatever the marketplace brings to them and are crisp and focused in their decisions and business practices.
I’m interested in major trends you observed that I might have overlooked. In future publications I’ll be expanding this material into a few predictions for 2000, and also discussing the most important things that are working correctly for the travel industry.
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