The Travel Agent Industry is Broken. Ripe for Disruption!

It is quite amazing that the tech enabled OTAs haven’t disrupted the agent model yet – they’re all mostly playing the same information access game – that is not something that will continue to be defensible as a business model too long. Both search engines, as well as social, are making it possible for even small, well run places to connect with their audiences directly.
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I run a chain of vacation properties. While building this up, and carefully crafting the brand around the rather niche offering we have, I have run into the travel agent industry very often, with a couple of good experiences and a lot of lousy ones. The industry does not, by and large, seem to be working for the producers of the services that they’re representing.

Let me explain.

This is roughly how the travel agent industry works – both online and offline. Say, you, P, are the property owner, and A, the agent says they will represent you.

P finds/buys a place, spends effort/time/money to set it up

P finds staff, trains them, ensures service levels

P services guests, plays host, helps create the guest experience, manages emergencies

P gets the bouquets – mostly offline, and brickbats – mostly online!

P frets about empty weekends, lean seasons and rising costs

Forests

It takes effort to run properties out there!

 

A finds consumers, connects them with the property, sometimes with sketchy details

A runs no risk, no costs for the experience, takes little responsibility

A sometimes mis-sells, and doesn’t care about the health of the property

Incredibly, A asks for 15-20% of the whole revenue!! Oftentimes, this is more than what P makes on a transaction, counting all costs! Isn’t that a little unfair, and perhaps even parasitic?

In most businesses, you’re either a producer or a trader. Profits range from 2 – 20%, depending on what risks you carry. If you carry inventory risk, or capital risk, the latter end of that profitability range is fairly justifiable. In this case, if the travel agent were pre-buying inventory in bulk, it might make sense for the property to share 12-20% depending on the deal size in return for guaranteed sales.

disruption

 

But A has none of that risk!


As a pure connector – a role which real estate agents play at 1-2%, the travel agent adds very little. The value would come from solving a real problem for either side. Here’s some ideas that might make sense.

  1. Aid discovery : Low fees, high volumes : 2-4% of the transaction from the property, and work hard to get volumes across many properties. A fixed fee might do wonders! This could also work with hurdle rates.

  2. Guarantee volumes : pre-buy inventory in bulk and make 8-20% on it.

  3. Fill lean periods – differential fees : Solve the lean season/weekend problem for properties. And charge lower/nothing for the times that they would have had a flood of guests anyhow.

  4. Get niche audiences : If you have access to an audience from a specific geography, or around a

  5.  specific interest area, you could bring them in for a premium – these usually end up solving both the volume and lean period problem for properties.

  6. Solve property grading for guests : Kinda like Tripadvisor, except there’s a lot more personalization possible. Play serious consultant/matchmaker for guests, and charge a fee on top for that. A fee of 4-8% should be acceptable.

  7. Be an affiliate : There is a parallel in the e-commerce world that can be replicated for travel – travel agents as affiliates. It automates tracking, sales, reduces the need for information hiding and keeps the focus on building audiences through whatever value the agents provide.

  8. Provide back office services : Reservation systems, CRM, centralized stores, guest interactions, call centres – properties need multiple such services as they scale up their offerings in size as well as quality. Many would gladly pay for these services.

  9. Get involved : Own the experience at the property, underwrite a few costs, fund development. This is probably a pure hospitality model which only a few should attempt at a few places.

It is quite amazing that the tech enabled OTAs haven’t disrupted the agent model yet – they’re all mostly playing the same information access game – that is not something that will continue to be defensible as a business model too long. Both search engines, as well as social, are making it possible for even small, well run places to connect with their audiences directly.

The travel agent industry is one that’s very very ripe for disruption!

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