Attachment C5

 

Travel & Tourism Guide

 

 

 

 

Attachment C5 – Travel & Tourism Guide

 

 

 

 

 

 

 

Part I – Travel & Tourism Industry

 

Travel & Tourism Definition

 

The Travel & Tourism Industry consists of vendors/suppliers who aim to support and/or provide the end customer with travel experience.

 

 

Introduction

 

Travel & Tourism is the world's largest industry and accounts for 11% of the world GDP and 8% of total employment. It has been described as one of the most powerful global forces for positive change and development in an economy and a society. Forrester Research predicted that by 1999 travel would be the number one electronic commerce category, with sales topping $2.8 billion.

 

Travel & Tourism in the U.S. generates the largest balance of trade surplus of any industry, which totalled almost $25 billion in 1998. U.S.A. tops the list of tourism earners ($71 billion in receipts in 1998) and tourism spenders ($51.2 billion in expenditure in 1997) and is third on the list of the world’s top tourism destinations (France is #1, Spain is #2).

 

World Travel & Tourism has largely weathered the Asia/Pacific financial crisis, thanks to the economic strength of the North American and European Union regions. In 1999, Travel & Tourism was estimated to generate some $3.5 trillion of GDP and almost 200 million jobs across the world economy – approximately one third of this comes from the industry itself and the remainder from its very strong catalytic flow-through effect in other sectors such as retail and construction. Travel & Tourism has emerged strongly from the Asia crisis with leisure tourism expected to grow by 4.7% in 1999 and business travel by 4.4%.

 

Travel & Tourism Trends

 

General trends affecting the travel industry include increased competition through globalisation (new players coming from abroad) and through deregulation (competitors coming from other industries), changing customer demands (different lifestyles, for instance the look for specialised trips such as adventure or edutainment and different demographics with increasing numbers of seniors) and increased expectations (more convenience and value, getting used to the customisation of offerings). At the same time, customers are becoming ever more knowledgeable (direct marketing is certainly one of the drivers) and growing accustomed to automated technologies (such as phone-based systems, various travel websites and multimedia kiosks).

 

Looking at the trends of international tourist arrivals during the decade 1989-1998, the growth rate of arrivals worldwide slowed in the second half of the decade to 3.5% from 5% in the first half. For the ten-year period 1989-1998 overall, the annual average was 4.3%. East Asia and the Pacific performed the best throughout, registering 6.8% growth a year on average over the 10 years. South Asia was the only region of the world which recorded faster growth (6.8%) in the second half of the decade, whereas the Middle East exhibited stable growth during the whole period (6.4% growth a year). Growth in Europe, Africa and the Americas slowed significantly during the second half of the decade. Nevertheless, Europe performed better than expected due to the significant increase in tourism to Central and Eastern Europe. In volume, the total number of tourists worldwide increased by 209 million between 1989 and 1998.

 

Historically, the industry has been an early adopter of new technologies, for instance Computer Reservation systems (CRS). As technology becomes more pervasive, traditional consumers begin to use tools formerly reserved for travel professionals. In the case of CRS, consumers who have access to similar systems through their home computers and open networks can now take over some functions traditionally performed by travel agents.

 

Some other trends affecting the travel & tourism industry are:

·         Code-sharing agreements between business partners

·         Scheduling and marketing pacts between top airlines

·         Consolidations/Mergers/Acquisitions

·         Commission capping by airlines

·         Intermodal transportation

·         Privatisation of airlines and airports

·         Outsourcing (legal, financial, consultants, IT etc services)

·         Wireless Travel Service (joint project Delta/IBM/Modern Media Poppe Tyson)

·         Travel Superstores; offering everything from luggage to guidebooks to full reservations under one roof. Ex TravelFest Superstores.

·         Green Travel; 83% of travellers are inclined to support “green” travel companies and are willing to spend on average 6.2% more for travel services and products provided by environmentally responsible travel suppliers.

·         20% of all business trips include two household members, 28% included some time for pleasure travel and 38% included an overnight weekend stay.

 

The WTO reports bright outlook for Tourism in 2000 following 2 years of limited growth. International tourist arrivals are expected to increase by 4-5% mainly due to Asian and European travel growth. 

 

 

Overview of the Travel & Tourism Process

 

The following provides an overview of the travel & tourism process when all segments/components are present.  The traveller (customer) contacts the ‘Travel Vendor’ (segment #1) to make arrangements for his travel. The travel vendor makes the necessary reservations for the traveller using a variety of available ‘Tools’ (segment #2). The vendor also relies on the ‘Support Facilities’ (segment #4) available in order to obtain additional information and settle the transaction once completed. The travel vendor sells the travel product offered by the ‘Travel Suppliers’ (segment #3). The customer then ultimately enjoys the ‘Travel/Tourism Experience’ (segment #5).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Travel & Tourism Segmentation

 

For purpose of this project, the travel & tourism industry has been divided into five main segments.

Segment #1: Travel Vendors

In order to provide their product to the end consumer, travel suppliers (airlines, hotels, car rental companies, etc.) are heavily reliant upon the Travel Vendor segment. This segment is composed of the following categories, which ultimately form the travel distribution chain:

·         Travel Agents
Travel Agents are essentially retailers, selling the services and packages of other organisations and they are the  first link in the distribution chain; they sell the travel product at the agreed retail price, for which they are paid a commission and/or fee.

·         Tour Operators
A Company that assembles the various elements of a tour.  The tour operators control/dictate the price at which retailers can sell holidays.  Generally 10% commission is paid by the tour operator/wholesaler to the travel agents on the sale of a particular service.

·         Consolidators
A company or individual who negotiates bulk contracts with an airline (or other travel supplier) and then sells that space to a travel agent or the general public, usually at a discount.

·         Electronic Travel Agencies (ERSPs – Electronic Reservation Service Providers)
Any entity which provides on-line booking or other electronic medium of travel products.

 

Travel Distribution Chain

The travel product can reach the final consumer through any of the following methods:

 

(1) A tour operator assembles a package which includes a variety of travel products such as air transport, car rental and hotel stay.  This package is then sold through a travel agency to the end consumer at the retail price.  In this case, the travel agency will make a commission or fee on the sale of the package. In the UK and Europe a small number of the major tour operators are “direct sell” i.e. their products are sold directly to the consumer and not through the retail agent.

(2) A consolidator has pre-arranged agreements with airlines who furnish him with bulk amount of seats at a reduced rate.  He then sells these seats at a mark-up he determines can be sustained in the market either directly to the end consumer or through a travel agency who will collect a fee or commission.

 

 

(3) The travel agent sells individual travel products or combines them into a package for sale to the end consumer.

 

(4) The consumer accesses an electronic travel agent through the Internet and makes a purchase on-line.  Electronic travel agents have a wide range of functionalities, some are full service and enable consumers to reserve, buy and obtain tickets for a combination of travel products while others allow only reservations of a single travel product.

 

 

(5) The consumer buys their travel product directly from the travel supplier, either through a company outlet, a reservations centre or via the Internet.

 

There is some consolidation going on within the European travel industry.  Retails chains and airlines are forming co-operations to strengthen their position in the market (i.e. vertical integration of sorts by forming alliances).

 

(Note:  The term ‘wholesalers’ is a generic term used interchangeably with consolidators and tour operators)

 

Segment #2: Travel Purchase Facilitation Tools

The Travel Purchase Facilitation Tools are key components that enable the travel vendors to access travel supplier inventory and process reservations for the end consumer.  These can be classified into the following categories:

·         CRSs/GDSs
Any of several proprietary computer systems allowing real-time access to airline fares,

schedules, and seating availability and offering the capability of booking reservations and generating tickets.

·         Internal systems
This category includes any internal system operated within a travel supplier company related to inventory management, billing & settlement and management functions.  (For example a rental car company needs a system to track the movement of its fleet of vehicles). In some cases, travel vendors are given access to these internal systems in order to enable them to view product information/inventory and sell the travel product.

·         Other Automated Systems/Products
Apart from GDSs and internal supplier systems, travel vendors use other automated products to access supplier information and inventory. (Note: not all travel vendors subscribe to GDS services, and GDSs do not carry the inventory for all travel products).  This category includes the following: 
(1)  Online products available through the Internet
 Example: “Saint”  operated by Viator Systems enables travel agencies to access a wide 

 variety of leisure product including sightseeing tours, theatre & restaurant packages etc. via  the Internet
(2)  Software database products
Example:  Farenet operated by Jetset Tours offers instant unlimited access to consolidated airfares and enables travel agencies to manage their business better.
Example:  InfoHub offers tour query software to travel agencies and independent travel consultants which allows them to sell tours in the InfoHub database to their customers.

 

Segment #3: Travel Suppliers

The Travel Suppliers provide the traveller with the actual travel product to enjoy the travel and tourism experience. These suppliers rely heavily on the travel vendor segment for the distribution of their products and services.  The following categories have been outlined for this segment and are self-explanatory; for detailed descriptions refer to the individual category profiles.

·         Charter Airlines

·         Coaches

·         Cruise

·         Hotel/Resorts/Motel

·         Car Rental

·         Railways

·         Ferries

·         Travel Insurance

·         Airports

 

We have limited the scope to the actual travel suppliers only (i.e., hotels and resorts, car rental companies, etc.) and have excluded their suppliers (i.e., florists, caterers, etc. for the hotels & resorts).

 

Segment #4: Support Facilities

The Support Facilities segment provides the additional support needed for the travel vendors to carry out their business activities.  The following categories have been defined:

 

·         Associations
These include travel industry associations such as IATA and UFTAA which offer an operating framework for the travel vendor, as well as various travel agent associations.

·         Tourist Boards
These include country, regional and municipal tourist boards whose function is to market their location to the end consumer. They provide expert destination information to the travel vendor or end consumer.

·         IT systems/infrastructures
These include any external systems or networks which are used by the travel vendors/suppliers to carry out their business process such as settlement systems (i.e. Hotel Clearing Corporation, IATA BSPs), scheduling systems (OAG).

 

 

Segment #5: Travel/Tourism Experience

The Travel/Tourism Experience is the end result of the travel distribution chain.  The previous four segments form the delivery mechanism that enables the traveller to obtain the travel/tourism experience. The following categories have been outlined for this segment and are self-explanatory; for detailed descriptions refer to the individual category profiles.

·         Theme Parks

·         Restaurants

·         Casinos/Gaming Facilities

·         Attractions

·         Museums/art galleries

·         Monuments

·         Historic sites

·         Convention centres

 

 

 

 

 

 

 

 

 

 

PART II : Category Profiles

Segment #1: Travel Vendors

Category: Travel Agents

Profile

Travel Agents are essentially retailers, selling the services and packages of other organisations directly to the public. They sell the travel product at the agreed retail price, for which they are paid a commission and/or fee. Although the Internet looms as a huge threat to the traditional travel agency business process, many are realising that the Internet also represents opportunity; it gives them a means to reach a much larger audience whether they serve a niche or the mass market.  In addition, travel industry studies show that consumers typically use the Internet to compare prices, then turn to travel agents for actual bookings.  Online travel brings in only about 1% of the $101 billion of travel products sold by travel agents.  The following chart depicts the breakdown of travel agency bookings(source: Encyclopedia of American Industries):

 

The US market has more than 30 000 independently owned, locally operatedoffices, whichbook 40% of American travel and tourism-related reservations (70% domestic, 30 % international). Business travel makes up slightly more than half of sales.  Leisure travel offers a greater profit potential but is more labour intensive.

 

Trends

·         Travel agents continue to change with the times.  Since 1995 the industry has been consolidating.  Many single-office agencies have closed or merged with others, the result of the commission cap on tickets by most major US airlines. The bigger you are, the more likely you are to be profitable: 9/10 agencies doing more than $5 million in business made a profit whereas those doing business under $1 million, only 6/10 were profitable. (1997 statistics).

·         A new breed of travel agency has also cropped up the travel superstore where everything is offered from luggage to guidebooks to full reservations under one roof.

 

 

·         Profit margins in travel retailing have shrunk in recent years because of industry rationalisation and increased competition from call centres and online operators.  To compete, retailers must invest large sums.

·         Retailers must move into electronic commerce immediately, or be left behind.

·         Due to the recent commission caps imposed by the airlines, the following trends have occurred:
- shift away from selling air to other travel products such as cruise and tour packages which provide a higher commission;
- a shift from selling business travel to leisure travel (now 50-50); and
- the charging of fees directly to corporate clients or consumers for services rendered to survive, about two-thirds of agencies now charge ticketing fees, compared to 10% five years ago.

·         Ticketless bookings now accepted by most U.S. travel agencies.

·         Internet access by agencies have gone up dramatically.

·         Companies are changing their payroll basis by hiring more commissioned salespersons versus salaried agents.

·         The need for experienced, highly trained corporate agents is on the rise.  This is due to the rise in on-site branches (i.e. travel agencies located within corporations). ARC figures show that the number increased from 195 in March 1995 to 2860 in 1998.

·         Smaller agencies are now affiliating more with leisure-oriented consortium or marketing groups such as GEM, Travelsavers or Giants.  In the last 10 years the figure has jumped from 36% to 54%.

 

Major Players

#	Name	HQ	1998 Sales in US$ Mil	Outlets/staff	Presence	Additional Comments
1	American Express	USA	13392.4	/85000	160 countries	·         #73 in Fortune 500 ·         73% sales US, 13% Europe, 7% Asia, 7% Other
2	Japan Travel Bureau	Japan	12757.5	1100/ 9343	17 countries	·         60% sales from domestic travel ·         Originally government own (until 1963) ·         Private company
3	Carlson Wagonlit Travel	Netherlands	11000	3000/ 20100	140 countries	·         Co-owned by Accor and Carlson Group
4	Nippon Travel Agency	Japan	7000	309/ 6899	Japan, US + 7 countries	·         Domestic travel accounts for 65% sales ·         Kinki Nippon railway owns 30.4%
5	World Travel Partners	USA	4000	1700/ 5000	US	·         WorldTravel Partners and BTI Americas merged in October 1998 ·         Private company ·         80% of business corporate ·         5% of  sales from Software/Internet products
6	Rosenbluth	USA	3500	1300/ 4500	25 countries	·         Private company ·         Philosophy: customer comes second i.e. employee is first ·         Corporate market based on fees rather than commissions ·         Majority stake in Biztravel.com
7	Navigant	USA	3300 (1999)	1150	-	-
8	AAA	USA	3100 (1999)	1000	-	-
9	Thomas Cook Group	UK	2416	4500/ 20000	100 countries	·         Owned by Preussag (50.1%), Carlson 22% ·         #3 in UK travel market ·         UK tour operator
10	Havas Voyages	France	2403	615/ 3770	France	·         Partnered with Amex for corporate onsite agencies
11	Maritz Inc.	USA	2200	240/ 6500	US + 40 countries	·         Owns majority stake in GTM which operates 1250 offices in 40 countries ·         Private Company ·         Concentrates on corporate travel, consulting and event management
12	Nokyo Tourist Corp	Japan	1429	/1500	Japan	·         Sells package tours/inbound travel service ·         Official agent for Japan Railways and Japanese airlines ·         In Agricultural Cooperatives market
13	Liberty	USA	1320 (1997)	200/ 1700	East coast of U.S.	·         Private company ·         Focus on leisure market ·         Does not franchise ·         GOGO division offers wholesale packages
14	Sato Travel	USA	1200 (1999)	1500/ 2000	US + 18 countries	·         Dedicated agency of the US government and US military and Fortune 500 corporate travel
15	Flight Center	Australia	1181 (1999)	450/ 900	Australia, NZ, South Africa, Canada, UK	·         Largest retailer in Australia by sales ·         14% market share in Australia
16	Mccord Travel Management	USA	585	95/ 1000	US	·         Private company ·         Focus on corporate clients ·         Offers a software system that allow users to book trips and track expenses

 

Category:  Tour Operators

Profile

Tour Operators are travel vendors of enjoyable, convenient and affordable sun and leisure vacations, some of which are all-inclusive. The scope of the business entails selecting, purchasing and processing of services and products for use in package tours and tailored travel arrangements.  The holiday package might combine various services such as flight, hotel accommodation, coach transportation, local services etc. and is sold at a total price designated in advance.  Tour operating is tailored to the needs of the customer segments in individual countries. Incoming tour operators are the complement to outgoing tour operators. At the destination, they assume certain responsibilities, such as the transfer of travellers from the airport to hotels, the availability of guides, and the organisation of excursions and tours.

 

Trends

A wave of consolidation is sweeping the travel industry in continental Europe. Market is likely to be dominated by 4 to 5 big players in the future (Thomson, Airtours, Preussag). Recent mergers/acquisitions might lead to either price wars or further consolidation in the industry. This would harm the consumers as less travel operators means less competition and higher prices. 

 

Most large companies operating in the industry have adopted vertical integration of production and distribution methods. This approach makes it possible to bring tour operators and air carriers under one roof, as well as, in several cases, travel agencies and incoming tour operators.  Integration allows companies not only to control the entire production and distribution process, but also to add value to each level of production. For the tour operator, these formulas secures, on the one hand, loyalty from the distributors for the sale of its packages and, on the other hand, control of its seat inventory to destinations where it has blocked hotel rooms.

 

Multinational activities are becoming increasingly important because through growing turnover and passenger volumes tour-operators are able to improve the terms on which services can be delivered.  In the business travel segment, corporate customers require a global reach on the part of their travel company. Additional trends are value orientation, specialist destinations and winter holidays. British Travel Groups have been the most successful in recent years. The reasons for this are, among other factors, the significant turnover consolidation resulting from their high degree of vertical integration, a strong British pound and a liberal approach to night flights.

 

 Major Players

#	Company	Group	HQ	Sales in 1998 US$ mil	Additional Comments
North America
1	Transat Holidays	Transat A.T. Inc.	Montreal, Canada	618.4 Transat A.T. 921.2	Owner of 9 tour operators
2	Pleasant Holidays