Online Travel Agency Supply Chain

Travel Agency Supply Chain

Travel Agency Supply Chain

With eCommerce technology rapidly improving and the number of people using the Internet increasing everyday, "brick and mortar" travel agencies are turning to non-traditional methods when developing their supply chain. Over the past 10 years the supply chain of the travel agency has evolved tremendously in order to incorporate the use of websites to promote online sales. In the following paper we will first describe the supply chain for a traditional "brick and mortar" travel agency. Second, we will describe the supply chain for online travel agency. And finally, we will describe the differences in the supply chain from a traditional "brick mortar" travel agency to an online travel agency.

Brick and Mortar Travel Agency Supply Chain

The supply chain for a standard "brick and mortar" travel agency is quite simple. The American Heritage Dictionary of the English Language, Fourth Edition (2006) defines a travel agency as "a business that attends to the details of transportation, itinerary, and accommodations for travelers." The travel agency business goes as far back as the mid-19th Century. Abreu Tours (2006), which was "established in the city of the Porto in the year of 1840" and is still in business today, claims to be "the world's oldest travel agency." According to Encyclopedia Americana (2006), "Cook, Thomas (1808-1892)," was an "English travel agent who originated the idea of a travel agency," although his type of business may be more aptly considered a tour operator than a travel agency. Encyclopedia Americana further states that Thomas Cook's "son, John Mason Cook (1834-1899), specialized in promotion of the firm's American interests and did much to establish Thomas Cook & Son as a worldwide agency."

The typical supply chain for a "brick and mortar" travel agency starts at the airline, hotel, car rental company, cruise liner, or other company that sells travel-related products or services. The travel agency promotes the products or services of these companies and, in exchange for that service, receives a commission on sales or a discount. In addition, sometimes travel agencies add Traditionally, customers have often preferred to go through a travel agent to book their holidays for the convenience of one-stop shopping for travel, accommodation, and tour arrangements and for the reduction in price or competitive rates that travel agencies could guarantee. The travel agency saves customers time by researching travel options and provides the travel supply companies a direct link to customers. Figure 1 below illustrates the supply chain for a brick and mortar travel agency:

Figure 1: Traditional Supply Chain

Online Travel Agency Supply Chain

One of the greatest success stories in eCommerce is the development of B2B (Business to Business) and B2C (Business to Consumer) online sales of air travel, ground transportation, hotel accommodations, and tours. In the past 10 years growing Internet traffic and a major industry policy shift created an economic environment that helped accelerate travel related businesses such as hotels and airlines to establish methods for direct online bookings. According to the American Society of Travel Agents (ASTA), after decades of offering travel agents a standard commission of at least 10 % with no cap, many of the larger airline carriers in the United States stopped paying base commissions to travel agents, beginning in March 2002 (ASTA, n.d.).

Not surprisingly, some of the very companies that supplied traditional brick and mortar travel agencies with information and services became their chief competitors. The rise of The Big Three (Travelocity, Orbitz and Expedia) is the perfect example. Texas-based Sabre Holdings own Travelocity, which also operates a well-know global distribution and ticketing system used by airlines and hotels. As previously mentioned, Orbitz was launched in early 2000 by a group of airlines as a way to sell directly to consumers. The company was purchase in 2004 by Cendant, a real estate and travel group based in New York. Cendant's other businesses include Galileo, a rival to Sabre's global distribution system; the Avis and Budget car-rental operations; and hotel chains such as Ramada, Travelodge and Days Inn (Anonymous, 2005). Thus, in the modified supply chain travel agencies have become travel conglomerates, controlling a vast array of both products and services beyond simply booking a flight or tour.

An important thing to consider when analyzing the success of online travel in the realm of eCommerce is that online travel market has virtually exploded over the past 10 years. According to The Travel Industry Association of America (TIA), the market of 96 million online travelers has grown 256 % since 1996, when only 27 million travelers used the Internet. Among the 143.3 million U.S. travelers today, 67 % use the Internet (TIA, 2004). Not only are more consumers using Web technology to shop for travel services, corporations are learning that the ease and low cost of conducting online travel transactions can be beneficial to the bottom line. In addition, new B2B online travel management outsourcing offered by The Big Three is gaining popularity. A 2004 study conducted for the Association of Corporate Travel Executives (ACTE), and GetThere and Travelocity Business, found the following:

* More than 70 % of financial executives feel their companies have an accurate way of tracking travel expenditures, compared to 56 % in September 2003.

* Nearly 70 % of executives surveyed stated that their companies "use technology well to plan and manage corporate travel" compared to 56 % in September 2003.

* 68 % of companies that use online booking believe they have experienced significant cost savings as a result.

* Of the companies that use online booking tools, 81 % require the use of online booking for some or all business trips, in the form of full or partial mandates (ACTE, 2005)

Differences in Supply Chain

Upon analyzing the supply chain for traditional brick and mortar travel agencies and that of online companies, one cannot help but notice that the most significant difference between them lies in the fact that the final consumer has direct access to more information now than ever before. While individuals previously had to rely on a travel agent