Travel Agencies and Services
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Industry Overview
The US travel service industry includes about 20,000 companies with combined annual revenue of $25 billion. Large companies include Navigant, Travelocity, and Expedia. The industry is fragmented: the 50 largest companies account for about 50 percent of industry revenue. A typical traditional agency office has 12 employees and $1 million of annual revenue.
Travel agencies frequently mention their sales volume or "bookings," the value of the tickets they purchase for customers, a figure much higher than the actual revenue they receive in commissions.
Competitive Landscape
Demand is driven by business and tourist travel, which depends on the economy. The profitability of individual companies depends on marketing. Large companies have an advantage in being able to provide a wider range of services, especially to corporate customers, and to afford sophisticated websites. Small companies can compete effectively by providing service to a few large customers or by serving a local market. Despite automation, the industry remains labor-intensive; average annual revenue per employee at traditional travel agencies is just $75,000.
Two major factors have shaped the industry in recent years: sophisticated pricing schemes developed by the airlines to maximize profitability, and the emergence of the Internet as a widely available information and booking tool.
Products, Operations & Technology
Major services are reservations or tickets for airline flights, tours, hotels, and entertainment. Airline reservations account for about 25 percent of industry revenue, tours and cruises 15 percent, hotel reservations 10 percent, and event tickets 7 percent. Other services include time-share exchange services, automobile clubs, convention and sightseeing services, and car rental reservations.
The basic business of travel agencies is simple: helping travelers choose flights, accommodations, and rental cars they need for a pleasure or business trip (or a package that combines these elements at a lower total cost), and selling them the tickets and reservations they need. Travel agencies are almost a commodity product, distinguished mainly by the amount of service individual agents provide.
The industry includes three types of companies, with considerable overlap: retail travel agencies, business travel management companies, and tour operators (including distributors of specialized travel products). In the retail business there are traditional agencies and a large number of independent agents. In the business travel segment there are fewer than 500 competitors of significant size.
Retail agencies typically operate just a few offices. Most of their business comes from tourist or small-business travel. Operations are simple, requiring office space, computers, and access to the large reservations systems run by Sabre, Galileo/Apollo, and Worldspan.
Business travel management companies usually work with corporate customers who have annual travel budgets of $1 million or more. They typically have onsite offices (at their customers' locations) and use sophisticated computer programs to provide lowest-cost travel reservations, centralized accounting, and detailed management reporting. Size is an important asset for travel management companies as it allows them to negotiate larger discounts with hotels and rental car companies. Navigant, one of the largest companies, operates 140 branch offices and 500 onsite locations.
Tour operators are intermediaries between travel agencies and the service providers like cruise lines, hotel chains, and airlines. They secure access to blocks of cabins, rooms, and airline seats at discounted prices and then re-market them to travel agents, and sometimes directly to travelers through their own Internet sites.
Computer systems have long been used to manage airplane reservations. For decades, the most important assets of travel agencies were computer terminals connected to reservation systems, like Sabre, that had been developed by the airlines (initially to manage their own reservations but then also to allow reservations on other air carriers). The wide availability of the Internet in recent years has allowed an easy transition of these older computerized reservations systems to the Internet, where they are used by travel agencies and also directly by travelers. Customized Internet versions of reservation systems are licensed to traditional travel agents and to travel websites like Travelocity, Expedia. Used primarily for airplane reservations and tickets, travel websites also provide reservations for hotels, rental cars, cruises and package tours, and have become virtual travel agencies. Travelocity, the largest Internet travel site, is a direct outgrowth of the older Sabre reservation system. Other major computer reservation systems in addition to Sabre are Galileo/Apollo and Worldspan. Galileo/Apollo connects 45,000 worldwide travel agencies with 500 airlines, 50 rental car companies, and 50,000 hotels.