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The Changing Business Model of the Modern Travel Industry

Originally published on LinkedIn:

Illustration showing devices, databases, vehicles, hotels, and places all connected through master data

Reduced commissions paid by airlines have prompted the travel industry to streamline their business and adapt to new business models in order to guarantee their long-term profitability. One way they have accomplished this is by shifting their commission-revenue model to a service-fee revenue model. Indeed service fees are not only a way to compensate for the loss of airline commissions but also a way to generate new revenue sources for the travel industry.

Increasing Services Offered

Travel agencies used to be the only place where you could purchase an airline ticket. However, the advent of the Internet and the growth of online self-service booking, combined with the loss of commissions from airlines, created a severe disruption in the industry. The travel business needed to adapt quickly and either change their business model or go out of business. The new business model has less dependence on commissions. The result of this changing business model is that many travel agencies are expanding their service-fee models, both in terms of the fee amounts charged for their services and in terms of the number of services for which they charge fees.

By generating more revenue from service fees, travel agencies will reduce the risks resulting from commission cuts. Travel agencies can also anticipate a potential shift to increased booking of leisure services such as tours, car rentals, cruises, etc. Tour operators and rail companies have already lowered the commission levels for travel agents while asking them to sell more products to get those commissions or incentives.

Increasing Effectiveness

If their information technology roadmap is adhered to, and their service-fee models are effectively implemented, travel agencies can increase both customer loyalty and customer satisfaction.

Having the most up-to-date information in their database is critical to increasing effectiveness. Disparate databases can be challenging, and can make it almost impossible to find related services across silos.

Automating processes such as charging fees can help to avoid expensive errors and add to an agency’s efficiency and productivity. When margins are tight, integrated master data management techniques can make the difference between being profitable and losing money.

To ensure that they stay ahead of the game and one step ahead of their competitors, it is crucial that travel agencies understand what trends to be watching. Mining their data to find buying trends and realize efficiencies in costing services and matching available services to customer preferences.

Booking packages and creating custom itineraries typically pay higher commissions, but only if the agency can be efficient in managing these more expensive and time-intensive tasks. Agency staff needs to be able to quickly find and access details of relevant add-on services that they can suggest to their customers, depending on what that customer is looking for.

To be profitable, the travel industry must sell the value of their services and expertise to sustain long-term relationships with their customers. This means that they have to consider the impact of new technologies and identify cost-efficient service-fee management solutions to meet their business requirements.

It is important for the travel industry to educate staff, and to communicate with customers up-front to inform them of the new service-fee driven business models. Customers who see the value of the services offered will be more inclined to pay for them.