Vacations and Travel - Changes In The Travel Industry

The Internet has brought enormous changes to the business and leisure communities. With its rise in the 1990s, electronic commerce offered a new option in how to shop and gather information. One area in which it has had enormous influence is the travel industry.

Travel regularly ranks at the top of electronic commerce spending studies. The panel shows the growth in online travel spending, from $300 million in 1996 to $11 billion in 2000, a growth of 3,566%. The data above are based on figures from Jupiter Communications. (It's worth noting that, as with many market research groups, other organizations have similar but slightly different numbers.) Keep in mind the travel industry covers more than airline tickets. Cruises, hotels, and car-rental firms have all reaped benefits from online sales efforts.

The traveler can use the Internet for several purposes. According to the Travel Industry Association of America, 52.2 million travelers used the Internet to plan their travel in 1999, a 54% increase from 1998. A smaller but still significant number actually make reservations: according to travel intelligence firm PhoCusWright, 21 million people bought travel online in 2000, nearly doubling the Internet travel market for the second year.

So, what has this meant for travel agencies? Travel agencies once held the role of neutral comparison shopper for the consumer. But, as Pam Dixon points out in her article "Fare Game" the rise of the Internet in the early 1990s gave airlines and consumers a means to communicate directly with each other. The user can search for the cheapest, most convenient ticket or package on his own.

Several sources have pointed out that surely it is no coincidence that airlines made their first cuts in commissions paid to travel agents for booking airfare during this period. The first cuts came in 1995. Most major airlines put a cap of $50 on round-trip domestic flights; a cap on international flights would come three years later. The panel above charts how the base commission rate fell from 10% to 8% in 1997; it fell to 5% near the end of 1999. The figure rose in 2000, according to the American Society of Travel Agents. However, the maximum earned on a ticket fell from $50 to just $20. As a result, more travel agencies started charging service fees to make up for lost revenues. Many agencies could not compete and closed; the number of agencies has decreased 20% since 1991 to 18,489 in 2000.

While locations may close (and some agents simply become independents), agencies still see the lion's share of the travel market. The panel above shows that only 0.2% of travel spending came from the Web in 1996; by 2000, that share reached 7.2% of the total. But a shift is taking place. Some travel agencies have been looking beyond air travel to cruises and packaged tours, which are expected to see a rise in popularity (particularly after September 11). Another sign of the Web's growing control of ticketing and travel: the top companies in the airline ticket market have all been recent arrivals and are not airline companies: Travelocity, Expedia and Priceline. Southwest is the leader among airlines.

The Internet has been a "place" where many people can make informed decisions about how they use their leisure time. The traditional travel agency probably will not become extinct. Rather, it will reinvent itself in this age of increasing technology and information.

Sources: Dixon, Pam. "Fare Game: Airlines, Travel Agents Duke It Out Over the Web," San-Diego Union-Tribune, January 9, 2000, p. F1.; "Jupiter: Triple Digit Growth Rates to Fade in Internet Travel Market." Online. Available: http://www.businesswire.com. April 17, 2000; Tricia A. Holly. "Welcome to the Outside." Travel Agent, April 23, 2001, p. 18; "PhoCusWright Survey Reveals 21 Million Americans Bought Travel Online in 2000." Online. Available: http://www.phocuswright.com. January 29, 2002; "Internet Usage by Travelers Continues to Soar." Online. Available: http://www.tia.org. January 29, 2002.