Travel companies are being put through the washer. After a good tumble, who will come out dry and unruffled, with more shelf life yet?
Tollman: there is always room for good, meaningful agencies
Rapid technology changes are continuing to rearrange the who’s who of travel companies. Those that are on top of the pecking order are the ones which were able to make a strategic realignment, or “pivot”. Others that have fallen off are those that stayed the course or were just “tweaking”.
The need for travel firms to pivot is rising, despite the industry having seen the triple-header disruptions of the Internet, e-commerce and mobile, according to PhoCusWright founder, Philip Wolf, in his opening keynote at last month’s ITB Asia, an anchor event of TravelRave.
No one is spared, Wolf said. All across the industry’s value chain, daring upstarts, media darlings, local players, global powerhouses, OTAs, TMCs, in Asia or the Americas, are having to evaluate their business models in the face of a “platform transformation” and technology that changes so rapidly that new digital doodads often become obsolete in months, said Wolf.
Quoting Bill Gurley of the acclaimed venture firm Benchmark, he said: “When users greatly favour a new experience over an old one, the implication is clear…we are in the middle of a critical platform transition. The exploding mobile application environment, clashing with a browser-based desktop, is today’s glowing example.
“Company fortunes are made or lost on their ability to pivot, that is to say, execute on a platform transition.
“TripAdvisor and Yelp rule the day, not Frommers and Zagat. Priceline and Expedia rule travel, not American Express or Thomas Cook. Google, Yahoo, Ebay, Facebook and Twitter rule the Internet, not Microsoft.
“So I ask: Who will be the new travel players to rule the day?
“Companies should evaluate whether their current skills and assets can adequately deliver what their new customers want. Do you still provide the products and services that matter most? It’s time for a long hard look in the mirror.”
Quoting Eric Ries, author of The Lean Startup, Wolf said the litmus test for when firms should pivot is when their experiments – say, repricing – have stopped being productive.
Citing befallen Kodak, Dell and BlackBerry as examples, he warned: “The pain of embarking on a critical course correction may pale in comparison to the cost of not pivoting.”
His list of pivot examples includes Priceline, which transitioned from a US, air, opaque-centric business, to an international, hotel, retail-centric business; and TripAdvisor, from a B2B white label search engine, to a B2C banner ad model and, again, to a CPC (cost per click) model with reviews. American Express is pivoting, spinning off its corporate travel business. Metasearch comprises many pivots in the works, said Wolf.
“It is extremely difficult and rare to build a large, sustainable profitable business, especially without pivoting. Few are lucky to get it right form start to finish,” he said.
Traditional travel agencies
Nowhere perhaps is the need to pivot more evident than in the traditional travel agency sector where, despite millions of new travellers enlarging the market, “why are so many agencies struggling to survive?”
The question was posed to agency owners by Ho Kwon Ping, executive chairman, Banyan Tree Holdings, in his keynote at the National Association of Travel Agents Singapore (NATAS) Travel Conference.
“This is the dilemma in periods of disruptive change. Previously robust business models become obsolete, and old paradigms give way to new,” said Ho.
Describing the Internet as the single most disruptive change for the travel agency business, Ho said the independent, SME travel agency with its storefront model is dying rapidly, “much like cameras in a world of smartphones”. They are bypassed as people book online direct with service providers or through online brokers.
Their instinctive has been to “dumb down”, i.e. essentially depend on the segment of people who are not Internet-savvy and do not know how to customise travel. “However, this is a very price-sensitive market, with a lot of shopping around for the cheapest packages from wholesalers, and unless you trade price for volume and grow bigger to offset smaller margins – which is not easy given (a small market like Singapore) – the model is not sustainable,” said Ho.
A more successful model has been to integrate forwards and backwards in order to be less of an intermediary and more of a full-solutions provider, such as the Thomas Cooks, TUIs and Kuonis have done, owning retail agencies, hotels and even aircraft, ships and ground operations in a bid to offer an integrated travel product that captures the customer at many levels of the food chain. This, however, is only possible in large markets, he added.
The only way travel agencies in small markets can survive is “to specialise and globalise or regionalise at the same time”.
“In what seems to be a contradiction but is completely rational, it (travel agency) must narrow its product focus and widen its market focus. It must become a specialised, niche player with value-add in a very large market.
“If you focus, for example, on cultural tours, or the even more niche markets of, say, wine tours, or adventure tours, you have to reach out to more than the Singapore market. The problem of course, is that competitors exist in other national markets and they may have more local market knowledge and linguistic capabilities.
“The Singapore travel service provider in a regional market must leverage through better services and products, stronger branding, higher use of technology, to create a more seamless, efficient and memorable travel experience for consumers in the entire Asian market,” Ho said.
The agencies that are struggling to survive are the ones which have yet to make the shift to be customer-centric, to use technology in sales and operations, and to bring fantastic products to the market instead of focusing on cheap products, added Brett Tollman, president and CEO of The Travel Corporation, which owns niche brands for agencies to sell, among them Trafalgar, Insight Vacations, Contiki and Uniworld.
Said Tollman, interviewed in Singapore last week: “As in any industry, you have good and bad businesses. Some agencies focus only on selling cheap cruises, for example. Our average Uniworld commission is US$1,800 per booking because 95 per cent are couples travelling together and we don’t do massive discounting. If more agencies sold our products, they would not have cash-flow problems. If you sell a package where you earn $10 on air, $30 on room, you can’t make money.
“And to prosper, it’s not just about selling our type of product. You need to be knowledgeable, responsive…my father always said, there is no bad business, only bad managers. And that’s true of travel agencies, wholesalers, cruise operators, OTAs – there are successful OTAs and there are unsuccessful ones.”
Tollman believes good, meaningful travel agencies “are still and will always be” essential for many travellers. “I don’t see in 10 years that everyone is going to research or buy online. Our (The Travel Corporation’s) core demographic is over 50 years – they don’t necessarily want to research or read a book on mobile, so mobile is not everything. Neither is online booking – look at Ctrip’s 50 million transactions a year in China: 50 per cent are on mobile/online but 50 per cent are through their call centres and they employ 12,000 call centre consultants,” he said.
And there are many good, meaningful agencies out there, he said. “Flight Centre (Australia), for example, reported its best year of profit ever. Good travel agency businesses are succeeding.
“The pain of embarking on a critical course correction may pale in comparison to the cost of not pivoting.”
From left: Wolf: are you suffering from pivot cramp? Ho: narrow your product, widen your market; Chang: what’s niche, what’s not
“We have done more customers this year than any year in our history; our travel agency commission payments this year is up 30 per cent on last year.
“There are fantastic agencies out there using technology and bringing fantastic products to the market. We met Clifford (Neo, managing director of Dynasty Travel International, Singapore) today and he showed us this amazing new iPad development that he has done so that his consultants could go to people’s homes and offices, show them the content, give them everything they need and book their holiday right there. He’s going to the market rather than the traditional way of the market going to the agency. Now that’s a forward-looking travel agency owner.
“In the US, we work with an agency whose network comprises only home-based consultants, half of whom it has never met. These home-based consultants are some of the biggest sellers of cruising – and they have never been on a cruise fam. They are banking commissions because the technology from this group works. Technology is amazing, but it’s not everything. It is the human spirit and ingenuity that make it work.”
Ram Samtani, secretary-general of NATAS and general manager of Ramesh Travel Service, agreed with Banyan Tree Ho’s assessment that the market is borderless today and the agency market should be global, while its offering should be high value-add specialisation. But the challenge for agency owners, he said, is fear.
“They are afraid of the risk, afraid it is at the expense of something else, etc. But to a certain extent, that has changed, as they realise there is no choice really. It’s not just travel agency businesses. A lot of people in the industry understand that things cannot be done the same way,” he said.
What is difficult about specialising?
Chang Theng Hwee, managing director of Country Holidays Travel Singapore, a niche agency, said at the NATAS conference: “People think of niche marketing as solely marketing. You can have very good marketing messages but it requires the strategic focus of the whole company or business unit. And it’s not just the product but the staff. If you want to do adventure travel, do your staff passionately believe in adventure travel?
“For companies to be successful in a niche, it’s not just about branding, but totally diving into the business and orientating towards the niche.”
Chang is reaping the rewards of focusing on adventure and exotic, cultural tours than the mainstream “Phuket, Hong Kong, Bangkok, Gold Coast” from day one, 20 years ago. After five years, the agency offered more destinations where it could add value, such as Antarctica and South America. From 2003, it started to tap Hong Kong/China outbound, opening offices in the SAR, Shanghai and Beijing.
Niche marketing now is more a matter of survival than choice, said Chang. “For the travel industry, it’s even more important to do niche marketing because competition is keen and it’s becoming more knowledge intensive. With Google and TripAdvisor, information is so easily available. If your tour consultants do not have any knowledge (advantage) over the customer, they have nothing to provide. You just can’t be good at everything from fishing in the US to Buddhist knowledge in India, therefore you need to specialise.”
And even when an agency has found its niche, pivots are still in order. Chang said: “The market is dynamic. As society and economy progress, you have to identify a new niche. When we started off, we said we did adventure tours. But as time went on, adventure tours became mass market. So (people asked), is your adventure tours high-end, hardcore or soft adventure?
“High-end can also mean a lot of things these days: cream of the crop, middle higher, mass affluent. Take credit cards as an example. They get more and more refined, with every card trying to speak to a different audience.”
Brett Henry, vice president, commercial, Abacus International, opined that what would also separate winners and losers in the next three to four years is productivity, especially in high-cost markets such as Singapore.
“If I’m competing against you in a single-digit margin business, and I have a 20 per cent productivity advantage, I will kill you for sure. To get more productive, stop doing something or automate something that is manual (such as ticket fulfilment).
“Here’s what you should do as an agency owner. You should have a benchmark for where you are today and look at it every single week with your management team. I talk to a lot of agencies every day in 33 markets across this region – 99 per cent of owners I encounter don’t know their benchmark. Use a simple one, like tickets per day per consultant if you don’t know where to start. Set a goal with a date and tell your team it’s their responsibility to figure out how to get from this number to that one. What you get from providing that leadership and forcing your team to get there is a 50 per cent improvement in your NOP.”
Henry believes enforcing change is a leadership issue more than a technology issue. “It’s only the leaders who can operationalise change. The way that you evolve your business is you care enough to want to do it because your frontline people are not going to change anything that they are doing,” he said.
PhoCusWright’s Wolf has two words for CEOs who are impotent in the face of change. They suffer from “pivot cramp”.
Right on top of his five causes of pivot cramp is “fear”. Leadership lacks the fortitude to do so. Top management is afraid to make a big change.
Next comes “vanity”. Companies become over-confident in their brand and their ability to endure. So they focus on blocking rather than building, said Wolf, citing the example of hoteliers in France wanting the government to outlaw OTAs from discounting rooms below a hotel website’s pricing.
Third, “arrogance”. Too many executives thwart initiatives because of potential cannibalisation of an existing revenue stream. “Now that’s arrogance: thinking only you are smart enough to conceive a product that will cannibalise your business,” said Wolf.
Fourth, “myopia”. Leadership’s love affair with legacy high margins inevitably delays necessary moves to lower-margin new businesses.
Finally, “denial”. CEOs refuse to believe that market trends affecting other businesses will actually impact their business.
So will you rule travel?
Are you having a pivot cramp or, to borrow Apple’s Mike Markkula’s now-famous sentence, can you “be like a butterfly and have a metamorphosis?”
The answer? Your continued presence in the marketplace a few years down the road.
– Additional reporting by Gracia Chiang at NATAS Travel Conference
– Next issue, where hotels need to pivot and is there leadership in Asia travel & tourism?
This article was first published in TTG Asia
, November 15 - 28, 2013 issue, on page 6. To read more, please view our digital edition or click here