the travel agency service industry - Sustainable Tourism CRC

THE TRAVEL AGENCY SERVICE INDUSTRY:
INDUSTRY TRENDS AND PRACTICES
Introduction
Sue Bergin-Seers 1
, Barry O’Mahony 2
and Regina Quiazon 3
The need for this scoping study was identified by the Australian Federation of Travel Agents
(AFTA). A current overview of the industry, including the changing trends of travellers, was
required by the organisation, with a specific request to source existing available data with
regard to industry trends for travellers in seeking, booking and purchasing travel. It was
understood from the outset that data may not exist to answer all the desired needs and, hence,
the scoping study would help to confirm the need for future primary research, as well as the
parameters and dimensions of that research. This paper describes the key findings of the
scoping phase.
In identifying the current trends and practices in the Travel Agency Service Industry, the
research was based on secondary data to specifically consider the following issues, as
identified by AFTA:
• Travel agency reservations and bookings as compared to reservations and bookings
conducted over the internet;
• Use of the internet for information sourcing for travel decision making as opposed to
advice from travel agents;
• Variations in usage of the internet versus travel agents according to market segment
and length of stay;
• Direct selling by airlines;
• Reasons for traveller use of the internet; and
• Best practice competitive strategies by key travel agents.
Data Sources and Limitations
The data for the study were drawn from a number of sources, including IbisWorld, Tourism
Australia, Roy Morgan, AC Nielsen, Australian Bureau of Statistics, Sustainable Tourism Cooperative
Research Centre (STCRC) and various media sources. It should be noted that the
IbisWorld (2005) data was used extensively as it provided regular updates on the travel agent
industry. The wide-ranging data provided by IbisWorld were carefully examined in order to
select and analyse relevant information for this report; however, numerous calls to their
research personnel were required to clarify conflicting information. Gaps in the IbisWorld
data were filled by other sources (some of which are dated). Additionally, primary analysis of
Tourism Australia’s (2004a) international visitor survey (IVS) base data provided in CDMota
format was undertaken to address the consumer-related research questions.
1
Research Fellow, Centre for Hospitality and Tourism Research, Victoria University. Email: sue.bergin@vu.edu.au
2
Director, Centre for Hospitality and Tourism Research, Victoria University. Email: barry.omahony@vu.edu.au
3
Research Officer, Centre for Hospitality and Tourism Research, Victoria University. Email:
regina.quiazon@vu.edu.au
1

Findings
The Overall Market
The overall market with regard to the Travel Agency Service Industry in Australia includes
direct selling by travel agencies (retailers and wholesalers), online travel agencies, online
wholesalers/consolidators, airlines, tour operators and other ground content (accommodation,
attractions, event and show tickets, car hire etc.) operators. Internet travel reservations and
bookings include transport (plane, ship, rental cars etc.), accommodation (hotels, motels,
serviced apartments etc.), tourist attractions (theme, amusement parks, museums etc.) and
bookings made for business, personal and/or leisure purposes (IbisWorld 2005). It was the
intention in this study that internet travel reservations and bookings would exclude travel
agent websites; however, the secondary research drawn on did not always clarify whether
usage of the internet excluded travel agent sites or not.
As shown in Table 1, the number of enterprises operating in the Australian industry has
decreased from 3,174 in 2000-2001 to 2,968 in 2004-2005. This decrease indicates that
consolidation is occurring. In fact, significant industry consolidation has occurred recently, to
the extent that there are four major operators. These operators, who are shop front franchised
retailers include Flight Centre, Jetwet Travelworld, Harvey World Travel and Travelscene
(which has completed a joint franchising arrangement with American Express). Beyond this
there are a few smaller brands and some independent operators, but the industry is now
dominated by these major operators.
2
Table 1: Key market statistics
2000-2001 2001-2002 2002-2003 2003-2004 2004-2005
Industry Revenue ($mill) *2,614.0 *2,352.0 *2,290.0 *2,315.0 *2,338.0
Industry Gross Product ($mill) *932.0 *828.0 *780.0 *808.0 *816.0
Number of Establishments
(units)
*3,976.0 *3,857.0 *3,780.0 *3,742.0 *3,723.0
Number of Enterprises (units) *3,174.0 *3,079.0 *3,017.0 *2,986.0 *2,968.0
Employment (units) *23,368.0 *22,550.0 *22,100.0 *21,879.0 *21,660.0
Exports ($mill) *231.0 *219.0 *214.0 *250.0 *279.0
Imports ($mill) *471.0 *468.0 *463.0 *523.0 *571.0
Total Wages ($mill) *728.0 *726.0 *706.0 *686.0 *679.0
Domestic Demand ($mill) *2,854.0 *2,601.0 *2,539.0 *2,588.0 *2,630.0
Source: IbisWorld 2005
* Constant prices
Based on the reported consolidated revenues for 2004-05, three of the top four companies
were estimated to account for over 40 % of total revenue, as listed in Table 2. The major
retailers compete with airlines and other ground operators through web-based information,
reservation and bookings.

Table 2: Market share
Agency Market share range
Flight Centre Ltd 34%
Jetset Travelworld Ltd 6%
Harvey World Travel 3%
Figures are based on company reports of annual
revenues and industry revenue of $2338 million.
With approximately 34% of the market share, Flight Centre dominates the travel agency
industry. The closest rivals to Flight Centre are Jetset Travelworld and Harvey World Travel.
Travelscene is also a key competitor, but revenue figures are not currently available.
The total Travel Agency Service Industry revenue for the year ending November 2005 was
$2338 million which represents an estimated real growth of 1% from the previous year. The
total revenue is derived from three components: Australians travelling overseas (imports);
international visitors travelling to Australia (exports); and Australians travelling within
Australia (domestic). Imports are estimated at $571 million and exports at $279 million
(IbisWorld 2005).
Within this product segmentation, the industry is broken down into four service
components, as shown in Table 3. As indicated, the retailers account for nearly 50% of the
total revenue.
Table 3: Industry service components and market share
Service Share of total revenue
Retailers less than 50% (2003-04)
Tour Wholesalers/Consolidators 30%
Inbound Tour Operators Over 20%
Tourist Bureaux less than 1%
Source: IbisWorld 2005
Industry Market Share: the Internet Compared to the Overall Market
In 2005, direct bookings by Australian travellers with travel providers continued to be the
most popular method of booking a trip and are double that of travel agents (see Figure 1).
Additionally, for the three-year period from 2003 to 2005, Internet bookings increased from
17% to over 28%, airline bookings increased from 12% to 15% and travel agent bookings
remained stable.
These trends suggest that there is no major shift in the sale of travel by travel agents over
the past three years, despite the increase in internet bookings. These findings may indicate
that some consumers are using both providers in a complementary way and may not
necessarily be choosing between the two.
3

4
60%
50%
40%
30%
20%
10%
0%
52%
50% 50%
Booked directly with
provider
17%
23%
28%
24% 24% 25%
14% 15%
12%
Figure 1: Top six service providers where last trip was booked
2% 2% 2% 2% 2% 2%
Internet Travel agent Airline Tour operator State Tourism
Authority/Government
Travel Centre
Jun-03 Jun-04 Jun-05
Source: Roy Morgan 2005
Base: Respondents who booked their last trip (excludes those who were unsure about their booking method)
Market Share: the Internet Compared to Travel Agents
Technological developments regarding travel purchases have affected the industry
dramatically. Direct bookings and reservations by travellers via the internet, using specialist
software and GDS sites have increased the opportunities to book both travel and
accommodation. Internet booking by travellers has grown and will most likely continue to
grow with the spread of other technologies, such as the optical fibre network, online visual
presentations of travel product and CD-ROMs. Furthermore, ticket-less travel using smart
(computer chip imbedded) credit cards or e-tickets is also a key factor influencing electronicbased
purchasing by travellers (IbisWorld 2005).
Research suggests that, with the growth of online travel bookings, the internet, in certain
situations, is now almost equal with travel agents as the most preferred means of booking
travel. This trend is not surprising given that Australia has one of the world’s highest
incidences of consumer purchases on line (Roy Morgan 2004).
The internet also plays an important role as a low-cost and efficient means of sourcing
information about travel and travel destinations and is used to help travellers in their travel
decision-making. As a result, in particular circumstances the internet is taking the place of the
travel agent. However, the usage of the internet (although growing) is not overtaking all
aspects of travel. The use of the internet for bookings and sourcing information varies
according to ‘type of trip’ and market segment. Additionally, best practice by the leading
travel agents suggests it is feasible for agents to compete with the internet. Strategies for how
this has been achieved are discussed in a later section of this paper.
In summary, and as detailed further, the market share for travel booking for travel agents
compared to the internet is as follows:
• For domestic travel (including both short and long trips), the internet has overtaken
bookings with travel agents;
• For international long-trip travel (three or more days) by Australians, travel agents are
still the preferred booking mode (60% for agents compared to 23% via the internet);
and
• For international visitors to Australia, there is a growing trend to book travel via the
internet (grown from 7% to 18% from 2001 to 2004).

With regard to the market share for the sourcing of travel related information the following
trends have been observed:
• For domestic travel, the use of the internet is slightly more than for travel agents; and
• For international visitors, the internet has overtaken travel agents as a source of
information to support consumer destination choice.
Industry Trends
The two issues explored in relation to industry trends are concerned with how the internet is
impacting on Travel Agency Services. These issues include current booking patterns and
information sourcing by travellers for decision-making. These trends vary according to length
of stay as well as market segment.
Booking Patterns
The market segments explored in relation to booking patterns include Australians travelling
domestically, Australians travelling overseas and international visitors travelling to and within
Australia. International travel by Australians contributes significantly to the industry, as it is
estimated to account for around two-thirds of the industry total revenue, as summarised in
Table 4.
Table 4: Contribution to industry total revenue by market segment
Product/services
Contribution to industry
total revenue
International travel by Australians 65.0%
International visitor arrivals in Australia 20.0%
Domestic travel by Australians 15.0%
Source: IbisWorld 2005
The international market
Trends for the booking of travel within the international market consider both overseas travel
by Australians and international visitors to Australia.
Trends in overseas travel by Australians
The profile data on Australians travelling overseas indicates that only around 10% of the
population take an overseas trip and less than 1% take more than one overseas trip in that
period. In 2004-05, Australians travelling overseas increased by just over 8.5%. This increase
is related to improved industry conditions, such as reduced fears about safety and improved
economic conditions. It is the 40-54 year age group and higher socio-economic groups that
have the highest incidences of overseas travel (IbisWorld 2005).
Surveys conducted from April 2000 to September 2005 (Roy Morgan 2005) revealed that,
for Australians, travel agents were still the preferred booking mode for international long-trip
travel (three or more nights). As shown in Figure 2, 66% of Australian travellers booked with
travel agents compared to 23% who booked on the internet. This trend is most likely due to
the complexities related to such bookings. According to Roy Morgan, “international travel
bookings are more likely to require human interaction, due in part to complex pricing and lack
of destination knowledge; however, the long term trends indicate that internet bookings for
overseas travel of three nights or more are increasing, while travel agent bookings are
gradually decreasing”.
5

6
100
80
60
40
20
0
Mar-01
Jul-01
Figure 2: Booking of last long international leisure trip (three or more nights) %
Source: Adapted from Roy Morgan 20 05
Base: Last international long trip travellers n= 11,203
International visitors to Australia
This segment is relevant to inbound tour wholesalers and tour operators. There is a trend for
international visitors to Australia to purchase travel and accommodation (other than
international airfares) prior to arrival. Approximately 50% of all international visitors to
Australia are pre-purchasing their travel (IbisWorld 2005).
There is also a growing trend for international visitors to book their travel via the internet.
From 2001 to 2004, internet bookings for travel have more than doubled (from 7% to 18%).
Items booked over the internet
As shown in Figure 3, in 2004 ‘accommodation in Australia’ and ‘international air travel to
Australia’ were the most common items booked over the internet by international visitors.
Other
Accommodation in Australia
Rental or leasing of cars or
campervans in Australia
Organised tours in Australia
Air travel w ithin Australia
International air travel to
Australia
Nov-01
Mar-02
Jul-02
Nov-02
Mar-03
Jul-03
Nov-03
Mar-04
Jul-04
Figure 3: Items booked via the internet for international visitors (2001-2004) %
Source: Tourism Australia 2004a
Nov-04
Mar-05
Jul-05
Internet Travel Agent Total booked last trip
0 10 20 30 40 50
2001 2002 2003 2004

Package Tours
The 2004 IVS data suggest there has been little change in package tour travel for international
visitors over the past five years. The percentage of international visitors to Australia arriving
on packaged tours is around 30%. There is a greater tendency for travellers in the 20-30 years
age group (14%) to purchase travel packages. It is also apparent that a high proportion of
Asian travellers from Japan and China use inclusive packaged tours and group tours
(IbisWorld 2005).
The Domestic Market
There has been little growth in the domestic tourist market over the last two decades. This
market has grown at around half the rate of real GDP (i.e. 2% compared with 3.4% for real
GDP) and with growth of only 1% for pleasure/holiday trips.
During the 1990s the growth of holiday/pleasure travel slumped further to average
around 0.5% per annum. While there has been some growth in interstate
holiday/pleasure travel (mainly by the higher income individuals), intrastate
pleasure/holiday travel declined. The ‘visiting friends and relatives’ (VFR) market had,
however, expanded, possibly due to its relative cheaper overall cost. (IbisWorld 2005)
The low contribution of this market to the industry total revenue is based on the low
commission rates that agents receive from airlines for domestic travel and, more recently,
from the significant reductions in airfares which travellers have taken up via airline websites.
Trends in domestic air: internet versus agents
The percentage of domestic travellers using the internet to book leisure travel has grown by
approximately 14% from 2000 to 2004 (see Figure 4) (Roy Morgan 2005). In the past few
years there has been a general preference for domestic holiday travellers to handle their own
arrangements or to book direct with operators rather than using standard packaged tours.
Currently, word-of-mouth recommendation is the favoured method for travellers to source
information and book travel (IbisWorld 2005). However, travel agents still handle a
substantial amount of business/corporate travel for both domestic and international travel. For
most agencies this is their main source of income and overall the industry has profited from
the outsourcing of travel arrangements by the private and government sectors. Yet travel
agency services are now threatened by the airlines which are competing directly with agents
and are securing some of the larger business/corporate travel contracts.
16
14
12
10
8
6
4
2
0
Sep-00
Dec-00
Mar-01
Jun-01
Sep-01
Dec-01
Mar-02
Jun-02
Sep-02
Internet Travel Agent
Figure 4: Booking of last domestic trip: travel agent vs internet (%)
Source: Adapted from Roy Morgan 2005
Base: Total travellers (travelled in the last 12 months), n= 70,224
Dec-02
Mar-03
Jun-03
Sep-03
Dec-03
Mar-04
Jun-04
7

For the year ending September 2005, the internet was used by 12% of Australian travellers
aged 14 years and over to book their short (less than three nights) domestic trip (Roy Morgan
2005).
Furthermore, the use of the internet to book long (three nights or more) domestic holidays
has also shown considerable growth and has overtaken travel agents as the primary booking
method. As illustrated in Figure 5, the use of the internet as a means of booking domestic
leisure trips of three nights or more has grown more than ten-fold, from 2% in March 2001 to
21% in September 2005. Whilst there is evidence of some growth in the booking of long
domestic holidays, overall the results suggest that travel agents have not been able to
capitalise on this growth (IbisWorld 2005).
8
70
60
50
40
30
20
10
0
Mar-01
Jul-01
Nov-01
Mar-02
Jul-02
Nov-02
Mar-03
Jul-03
Nov-03
Mar-04
Jul-04
Figure 5: Booking of last domestic leisure trip (three or more nights) %
Source: Roy Morgan 20 05
Base: Last domestic long trip travellers n= 63,681
Nov-04
Mar-05
Jul-05
Internet Travel Agent Total booked last trip
Trends in domestic holiday packages
Although there is some move away from using standard packaged tours, domestic holiday
packages continue to be popular with travellers over 55 years of age and with people
interested in the newer tourist ‘discovery areas’ of Australia such as Northern Territory, far
north Queensland and outback Western Australia (IbisWorld 2005).
To meet the trend of consumers seeking new experiences, the wholesale domestic package
market is developing modular type units which cater for more personalised needs.
Trends in land-based sales and (drive) vacations
There is little research on consumers’ views of land-based sales (Carson, Waller & Scott
2002). However, with threats of war and terrorist attacks, interstate travel (particularly in the
larger population states) has increased, while intrastate pleasure/holiday travel has declined.
This increase has occurred especially around the December/January holiday period, as people
travel closer to home and use land-based transport modes. This increase has occurred despite
increases in overseas travel. In 2004-05 there were 4.591 million Australians who travelled
overseas; a 14% increase from 3.937 million for 2003-04 (IbisWorld 2005).
Travel Information Sourcing
Even though both the internet and travel agents are influential sources for holiday decisionmaking
for both international and domestic travel, word-of-mouth referral is still the most
important source of information for travellers (Tourism Australia 2004a). Nevertheless, the
internet has drastically changed tourism distribution channels and booking patterns. The
internet is a means of booking travel tickets and accommodation, as well as a key information

source for holiday planning, and is increasingly influencing the travel choices of Australian
leisure travellers (Roy Morgan 2005).
Although there are some differences in the level of growth of the internet as a source of
information, there is agreement that it has grown rapidly. For example, the Roy Morgan
(2005)data (as illustrated in Figure 6) indicate that for international visitors the internet has
taken over from travel agents as a source of information to support consumers in their choice
of destination.
25
20
15
10
5
0
Mar-01
Jul-01
Figure 6: Sources of information for travellers (%)
Source: Adapted from Roy 2005
Base: Travellers 14+ (last trip) n=94,281
The use of the internet by Australians as an information source has shown rapid growth
since 2001. Of those who had travelled (in Australia and overseas) in the past 12 months, over
15% had used the internet for pre-travel planning, compared to 4% in 2001 (Roy Morgan,
2005). (Note: The IVS data indicates that the use of the internet for travel information
sourcing has grown from 17% in 1999 to 33% in 2004.)
Additionally, as shown in Figure 7, IVS data indicate that 17% of international visitors to
Australia sourced information about Australia on the internet. This figure is slightly more than
the 16% who used travel agents as a source of information (Tourism Australia 2004a).
Advertising in Newspaper or M agazine
Nov-01
Mar-02
Jul-02
Nov-02
Mar-03
Jul-03
Nov-03
Mar-04
Jul-04
Nov-04
Mar-05
Jul-05
Internet Travel Agent Total Friends or Family
Tour operator
Films or TV or Radio Program
Airline
Advertising on TV or Radio
Travel Article in Newspaper or M agazine
Somewhere else
Friend or relative who has visited Australia
No information obtained
Travel book or guide
Previous visit(s)
Friend or relative living in Australia
Travel Agent
Internet
0 2 4 6 8 10 12 14 16 18
Figure 7: Sources of travel information for international visitors to Australia
Source: Tourism Australia 2004a
9

International visitors to Australia use the internet for a variety of travel purposes, as
summarised in Table 5. The main reason is to find out more about Australia once the decision
has been made to make the trip. However, information sourcing may not necessarily convert
into bookings.
10
Table 5: Reasons for international visitors to Australia for using the internet
Reasons for using the internet
International
visitors to Australia
To find out more about Australia after you decided to visit 21%
To find out about accommodation in Australia 15%
To help plan your Australian trip itinerary 14%
To find out about events or activities within Australia 14%
To look for airfares or air schedules for travel to Australia 10%
To help plan other transport options (eg. car rental, public transport, etc) within
Australia
To look for airfares or air schedules for travel within Australia 5%
Other reason (specify) 4%
To help decide whether or not to visit Australia 3%
To find a travel agent for Australia 3%
Source: Tourism Australia 2004a, n=3,787,000
Note: These responses are for all people who were asked either the question “did you use the internet to obtain info?” and/or
the follow up question about reasons why.
It is interesting to note that of the small proportion (3%) of international visitors who used
the internet to find a travel agent, over one-quarter started planning their trip one to three
months before arrival. This finding suggests that last minute bookings are more likely to be
carried out via a travel agent.
The accessing of information and the conduct of business over the internet has increased
consumer knowledge about travel prices. As a result of the easy access to information,
travellers are also becoming more knowledgeable about destinations. These findings indicate
that the internet is becoming fundamental in assisting travel decisions for both the planning
and booking stages. The use of the internet, with the exception of the outbound market, is
often to the detriment of travel agents. There is evidence that usage of the internet is
continuing to increase (IbisWorld 2005).
With the increased availability of online providers and the choices they offer to consumers,
it is likely that internet communications will continue to grow in importance for the tourism
industry. Therefore, pressure continues for travel agents to maintain a competitive advantage
in this changing environment. As a result of these changes it is crucial for agents to offer not
only online communications and booking methods, but also a point of difference (IbisWorld
2005).
Direct Selling by Airlines
Distribution versus product offering
Strong competition in the distribution of travel products from various travel service providers,
such as banks, airlines and member clubs, has affected travel agents. Distribution of products
is compounded by growth in the usage of the internet, which has opened the way for direct
selling by airlines.
7%

Airline websites
Many potential travellers now seek information and purchase directly from the transport
carriers. Recent research indicates that travel tickets and accommodation are the most
purchased products via the internet. Internet booking of holidays has grown tenfold over the
last four years. As illustrated in Figure 8, the Qantas website is the most visited travel website
in Australia, with an estimated 1.646 million visitors in an average four weeks – ahead of
Virgin Blue at 1.558 million, Flight Centre at 904,000 and Jetstar at 830,000 (Roy Morgan
2005).
Australians 14+ in Thousands ('000)
1800
1600
1400
1200
1000
800
600
400
200
0
Qantas
Virgin Blue
Flight Centre
Jetstar
Wotif
Lastminute
Figure 8: Travel websites visited in a four week period in 2005
Source: Roy Morgan 2005
Base: Australians 14+ n= 57,544
Those who have flown Jetstar on their last domestic holiday of three or more nights are the
most likely (63%) to have booked their trip via the internet, followed by Virgin Blue (59%)
and then Qantas (47%). This finding, illustrated in Figure 9, suggests discount offerings by
airlines are luring travellers away from travel agents to online booking.
% Australian Domestic Long Trip
Travellers
70
60
50
40
30
20
10
0
Figure 9: Airline users booking last long domestic trip (three or more nights) via the internet
(%)
Source: Roy Morgan 2005
Base: Last domestic long trip air travellers who pre-booked trip n= 3,059
Zuji
Travel
Qantas Virgin Blue Jetstar
11

A solution to the direct selling of airlines is for travel agents to develop niche markets and
to provide specialist advice and information that would not be available via direct contact
with the provider (Rutledge, Black, Clarke & Bauld 1999).
The review of existing research regarding customers’ views of current distribution
channels and product provision and the value they place on them indicate these issues have
not been explored. The lack of knowledge about the needs and wants of customers makes it
difficult for travel agents to fully understand how to strategically place themselves in the
market; therefore, future customer-based study is essential.
Customer View of Intermediaries – Travel Agents versus the
Internet
Whilst there is considerable research into why consumers generally use the internet, there is
less information about why they use the internet for travel. Available research suggests the
internet is used for travel because of related efficiencies, ease and the low cost in making
travel enquiries and purchases. There is also a view that the internet is a good source of cheap
and discounts deals. As already highlighted, the internet is largely used by domestic travellers
for booking air travel and accommodation. Scant information available about travellers use of
the internet suggests that specific study is needed, with an exploration of current use and plans
for future use.
Impact of Loyalty Programs
Although loyalty programs were prominent in the 1990s, current research suggests that their
popularity has since waned. Various programs have received considerable press in the last
few years. These programs include those offered by banks, retailers and airlines. Australia
Scan research indicates that Fly Buys, credit card reward schemes and airline frequent flyer
programs are the three most popular scheme varieties (Sydney Morning Herald, Press report,
30 March 2002).
Consumer dissatisfaction with such schemes started several years ago with the demise of
Ansett when thousands of consumers did not receive any compensation for the loss of reward
points (70 billion reward points were lost). A recent survey by the advisory service
Frequentflyer.com.au found that as many as 55 % of frequent flyers have lost confidence in
airline reward schemes since 2001 and 10% are no longer interested in loyalty programs
(Sydney Morning Herald, Press report, 30 March 2002).
Over time, the value of loyalty programs has been questioned, with the average reward
point now costing $1 while it is worth about 1 cent when redeemed (Herald Sun, 11
September 2005). A number of issues affecting consumers’ views and uptake of travel related
schemes (Sydney Morning Herald, 6 August 2005) include:
• The cost of membership fees for frequent flyers;
• Not getting point for point when transfers are made to Qantas frequent flyers;
• The poor value in redeeming points for free flights;
• Additional costs due to airport taxes and fuel levies;
• Obtaining the desired flights through Qantas (due to availability of seats); and
• Tightening of programs so that it is harder to get upgrades whilst also increasing the
number of points needed to redeem tickets on long routes.
The available data relates to credit card and airline loyalty schemes. This information is
general in nature and has not specifically addressed the current needs and future plans of
consumers. Additionally, there is a knowledge gap regarding the newer schemes which needs
to be addressed (e.g. Flight Centre).
12

Impact of Taxes and Charges
Taxes which affect the travel industry include the GST, accommodation taxes and airport
taxes, whilst other travel-related charges include fuel costs and passport charges.
Since the introduction of GST at a rate of 10% from 1 July 2000, domestic travel continues
to be more expensive for Australian residents relative to international travel. GST does not
apply to international travel by Australians. As outlined earlier, although the VFR market has
expanded due to its relatively cheaper overall cost, there has generally been little growth in
the domestic tourist market over the last two decades.
With fuel cost more than doubling in the past few years, pressure has been placed on
airlines to introduce a fuel surcharge on ticket prices. In early March, Virgin Blue was
considering its third fuel surcharge increase in less than a year. Any further increases could
make vulnerable those airlines who are new carriers or who have not hedged their fuel at the
lower price. There is fear that these costs will become too expensive for consumers and airline
purchases will drop.
It is too early to assess the impact of the imposition of GST on the accommodation prepurchase
elements of travel by international visitors to Australia. The tax, which was imposed
from 1 April 2005, charges inbound operators 10% GST on their margins in this area (around
1% of the pre-purchased hotel room component of packaged tour prices). Plans for further
study should be considered with regard to accommodation taxes, impact of the GST on
discretionary spending, passport charges and fuel surcharge impacts on travel.
Best Practice
Competitive Strategies
For most operators in the Travel Agency Service Industry, the overall profit margin is small,
which means that financial viability is an issue. Viability is threatened by a number of
changes.
Threats
Firstly, the introduction of new technology has had a significant impact on the industry. In
fact, online booking services and travel agency services websites have become the most
critical factor in the competitive environment. Technological changes can be seen to be the
major driving force behind the operation and growth of the industry. The availability of
Galileo Southern Cross and International Expedia, mega-computerised reservations systems,
on the internet (and in the case of Galileo, shortly on interactive TV technology), is
encroaching on the growth of travel agents’ revenues, along with the direct booking facilities
offered by travel operators (IbisWorld 2005) and the emergence of travel recommender
systems and simulators.
Secondly, as there has been too much reliance on airlines for revenue (Rutledge, Black,
Clarke & Bauld 1999), little attempt has been made by the small agencies to undertake
aggressive marketing. Transport operators (such as Jetstar) no longer offer travel agents
commission on sales, as online ticket booking and information services can now be accessed
directly from airlines (IbisWorld 2005). (Instead of a commission, Virgin Blue pays an
incentive payment of up to 8% in certain circumstances.) This means that many travel agents
will need to rethink how they conduct business.
The increased competition due to technological advancements and airlines selling tickets
directly has encouraged discounting and price cutting as a means of attracting new customers.
Although competition has become mainly price-based, other non-price-based elements are
important to the competitive environment. The agencies who compete on price work to offer
customers (usually private rather than business travellers) the ‘best’ price for travel. However,
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there is concern that this approach may cause problems as new technologies such as online
ticket prices and booking services are increasing consumer knowledge of travel prices,
thereby introducing more price-based competition (especially for holiday travellers). Pricebased
competition is therefore unsustainable.
Opportunities
There are opportunities, particularly for small to medium sized travel agents, to employ
strategies that are non-price based. Important non-price elements in the competitive
environment include the quality of service provided; staff with intimate knowledge of
destinations and products on offer; ease of access to the service, particularly by corporate
clients; and word-of-mouth recommendations. The pursuit of quality service and repeat
business has led some agencies to consider introducing fees for service rather than operating
on a commission basis only for payment.
According to research (IbisWorld 2005), the key success factors for the future operation of
a travel agency include:
• Being part of a group buying, promotion and marketing scheme;
• Proximity to key markets so as to be in a highly visible location. Closeness to markets
may mean expansion of outlets domestically and overseas;
• A greater focus on inbound and outbound travel (as opposed to the less profitable
domestic airline travel);
• Access to the latest available and most efficient technology and techniques and to have
a computerised information, reservations and bookings system to provide customers
with easy 24-hour access;
• Utilising technology to help increase labour productivity of staff and efficiencies;
• Expert knowledge by travel agents is a crucial means of accessing a larger market and
providing value-added service to customers who have increased travel knowledge as a
result of web-based technologies;
• Improving customer service beyond existing services. Having a loyal customer base
which is driven by the provision of a professional service to clients so as to generate
repeat custom. A ‘fee for service’ approach to working with travellers is likely to be
the best option and more viable than working with airlines for commission. Minimum
fees could be considered for customer amendments to travel, cancellations, use of
certain credit cards, information gathering, re-confirmation and late bookings, for
example; and
• Become a specialist and seek niche markets by working with specific organisations to
provide exclusive products.
For agents to survive and grow in the current competitive environment, lessons may be
learnt from the market leaders. A case study of how Flight Centre has expanded and survived
tough times is outlined in Appendix A and provides a good example of how one agency has
managed its external environment.
Conclusions and Implications
The Travel Agent Service Industry is undergoing substantial change as a result of
environmental and technological changes. Internet usage was the main issue identified in
relation to trends and practices that are currently occurring within the industry. The issue,
however, is closely linked to the issues of distribution and service. The internet has enhanced
the distribution of travel-related content, pricing information and travel planning tools for
consumers. In enhancing the empowerment of consumers to conduct their own research, as
well as to plan and book their own travel, it has also created transparency, which has resulted
in more price-sensitive travellers. The internet also provides travellers with increased options
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due to the growing number of sites available and the information and services offered.
However, it is unsustainable for agents to continue to compete on price.
It is important to note that, although the study found a general trend towards the uptake of
online bookings, travel agencies still remain the most popular mode of booking overseas
travel. Nevertheless, the internet, whether perceived as a threat or a benefit, plays a pivotal
role in the distribution and provision of services. The increasing use of technology, both by
providers and consumers within the industry, highlights the need for travel agents to
differentiate themselves from the services offered through the internet. A refocus of the travel
agent’s role, which places the emphasis on, for example, niche marketing, value-adding and
personalised services, could effectively meet the challenges brought on by the internet.
Although this study confirms many of the issues that have affected the industry over the
last five years, the emergence of new travel providers, the changing needs of consumers and
the speed with which technology and internet usage has been taken up highlight the need for
further research which is not only up-to-date, but more importantly considers the issues within
different and more specific contexts. Current available data, while identifying the internet as a
pervasive factor in booking trends and patterns, do not adequately account for the needs and
desires of consumers and the ways in which consumer views relate to distribution and service.
The recommendations put forward throughout this report are, therefore, also a reflection of
the need to broaden the research parameters beyond the confines of internet usage and more
specifically within different markets.
Future Research
The gap in research largely relates to consumers and their current travel needs and purchasing
behaviours. At this point in time, the industry has little information to guide future directions.
Therefore, it is recommended that research be undertaken to ascertain responses to the
following questions:
• What are the consumers’ views of the internet in comparison to the travel agent in
regards to their value and influence on travel-related purchases?
• What specific travel-related products (packaged, non-packaged and niche) do
consumers currently seek via the internet and via the travel agent?
• Is there any value in introducing and/or maintaining travel related loyalty programs?
• Which markets provide the greatest value (or greatest yield) for travel agents?
• What are the characteristics of both the domestic and international travellers who still
seek the services of the travel agent? and
• What value-added strategies have been implemented successfully by travel agents?
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APPENDIX A
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Best Practice Case Study: Flight Centre
Flight Centre Ltd. Australia commenced operations in mid-1981 and several years later traded on
the brand names of Flight Centre, Corporate Traveller, Great Holiday Escapes and Student Flights.
From the beginning, Flight Centre’s strategy was to focus on quality rather than just price. The
chain started with 200 outlets which were largely located in CBD areas and popular strip shopping
centres. Since that time, Flight Centre has grown to operate globally in the United States, United
Kingdom, New Zealand, Canada and Asia, and in early 2005 had 1181 outlets.
In the early nineties, to save costs, an in-house ticket consolidation activity was established. Flight
Centre Ltd was quick to move into internet-based booking systems which contributed to their
profits. In 2000, the company launched Flightcentre.com which was supported by a large call
centre. It also formed alliances with QANTAS and Virgin Blue Airlines to sell airline seats. In
2003, as airlines continued to lower commission levels, Flight Centre continued to focus on landbased
transport sales and the cruise shipping market. Joint ventures with Chinese travel companies
assisted moves into Asia. The company targets the corporate market as well as young travellers.
Acquisition of the Internet Travel Group in 2001 was undertaken to boost Flight Centre’s
corporate travel revenue to $800 million, which is about 20% of the corporate travel market.
Over the past two years, like most other travel agencies, the company has been affected by the
increase in competition and the lower commissions on discounted fares. Strategic changes have
been introduced to combat the changing environment. In 2003, Flight Centre decided to focus on
sales of land-based transport to address the issue of lower airline commission rates. It also
concentrated on the cruise shipping market. In 2004-05, the company invested $10 million in
information technology to make greater use of online bookings. This investment was undertaken in
order to move away from airline ticket sales and to move to a greater percentage of travel product
sales. This strategy was supported by the purchase of the online booking company –
travelthere.com. (In February 2006 it was reported that in Australia flightcentre.com.au was the
number one travel agency website.) By 2005, Flight Centre indicated that it may stop selling
budget airline tickets as a result of low margins and increasing costs. In October 2005, Flight
Centre also completed its acquisition of India-based corporate travel business Friends Globe
Travel Ltd. In the past two years, the corporate market remained a key focus and the growth of the
corporate brand FCm Travel Solutions was supported by the introduction of CiEvents – the
conference, incentives and events brand.
In summary, the company’s success is based on its ability to stay ahead of the competition. Flight
Centre continues to expand globally in order to be close to its customers and has moved quickly to
take on new technologies for booking travel. Despite Flight Centre reporting a pre-tax profit of
$49.8 million for the 2005/06 fiscal year a number of losses offset this gain. The losses included
the disbandment of the RewardPass customer loyalty program in January 2006 (which was
introduced in late 2004), a $1.8 million loss from Air Paradise’s collapse and the airlines’
increased use of fuel surcharges and levies, which has increased the cost of tickets for consumers
without giving commission to agents on this surcharge. However, the company continues to battle
ongoing changes in the travel industry. Remaining in touch with and in some ways shaping
travellers’ desires is important to its continued success.
Compiled March 2006

APPENDIX B
Research questions, as developed by AFTA
1. Benchmarking of travel agents
a. Define market share as compared to internet and overall market including direct
selling by suppliers.
b. Define and benchmark best practice.
c. Customer view of intermediaries – travel agents versus the internet.
2. Industry Trends and Booking Patterns
a. Trends in domestic air (internet versus agents)
b. Trends in domestic holiday packages – is the package market breaking down from one
package component to separate land and air components?
c. Trends in land-based sales and land-based (drive) vacations.
d. Trends in overseas reservations (agents versus internet and also in land packages (as
per domestic above)).
e. Impact of loyalty schemes – airline schemes, agent’s schemes such as Flight Centre
and other schemes such as Fly Buys.
f. Impact of taxes and charges including government taxes, fuel surcharges,passport
costs, etc. on overseas travel.
g. Latest booking patterns – internet? Agents? Last minute, short breaks, etc. (and
compare to other industries).
h. Assessment of strength in the consumer mind – does strength lie in distribution or in
product offering?
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REFERENCES
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Herald Sun, 11 September 2005, “How to get your reward points to take off”.
IbisWorld (2005). IbisWorld Industry Report: Travel Agency Services in Australia, I6641. 29
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Roy Morgan (2004). Online Travel Continues to Increase, available: http://www.roymorgan.com/
news/polls/2004/3811/
Roy Morgan (2005). Qantas Tops Travel Websites as internet Continues to Shape Travel Market,
available: http://www.roymorgan.com/news/press-releases/2005/436/
Rutledge, J., Black, N., Clarke, N. and Bauld, S. (1999). Travel Agents in Australia: Review,
Sustainable Tourism Co-operative Research Centre, Gold Coast.
Sydney Morning Herald, Press report, 30 March 2002, “Loyalty gets its just deserts”.
Sydney Morning Herald, 6 August 2005, “Frequent flying, not frequent calling”.
Tourism Australia (2004a). National Visitor Survey and International Visitor Survey, CD Mota data.
Tourism Australia (2004b). December Fact Sheet: Information Sources and Booking Methods.
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