What are the key factors at play shaping travel industry distribution? There are many parallels to the changes in financial services over the past quarter century. The traditional TMC / business travel business model appears unsustainable - what does the future hold for this part of the industry? http://inversionpoint.com/travel-agency-future/

1. !
What will the travel agency of
the future look like? Is it as
simple as looking at financial
services today?
!
Travel management and
financial services – a
valid comparison or
not?
Many people in the travel management
industry would take the view that
travel is such a unique business that
there aren’t really any meaningful
parallels in other sectors of the
economy.
Every industry sector has a group that
fervently believe their industry is
‘special’ but this normally consists of
people who have limited experience of other categories and perhaps should
get out more.
The reality is travel intermediaries operate in a very similar way to many
other intermediated industries once the jargon is stripped out, and one of

2. the most applicable industry categories is, in my opinion, financial
services.
In studying the way the financial services industry has evolved in line with
market trends – provides some real insights into how the travel industry
may be impacted, and with that travel professionals may be able to be
better prepared for their future, as they observe the ways financial services
has adjusted to the sweeping global changes that have occurred in that
industry over the past quarter century.
The relevance of using financial services as a
model to determine the likely travel agency of
the future
Having experienced both at a senior management level, I am struck by the
similarities between the travel intermediary in its widest sense and the
financial services world (banking, insurance, pensions and investments),
which has gone through unprecedented change over the past two to three
decades in most parts of the
world. Taking it further, I
would pose that financial
services has gone through
similar changes but ahead of
the travel industry, and there
are some significant lessons
to be learned and pitfalls to
be avoided by taking an
open mind on this issue.
But there’s a problem with
taking this view. Because when I look at the issues that have been
addressed in financial services and how this may impact the travel agency
of the future I can’t help but conclude the travel industry may be in for
more than a few bumps and a hard landing; taking this perspective it seems

3. reasonably clear some business models in travel just won’t survive in their
current form.
The Traditional Need for Professional
Expertise
The financial services intermediary – a bank branch/manager, a life
insurance agent or insurance broker, a securities broker/dealer, etc – was a
reasonable response to the simple fact that the level of sophistication and
knowledge required in that area of financial services, along with the
complexities of actually making any transactions in that part of the
industry required highly specialized staff, with processes and systems
developed specifically for the needs of that discipline.
In past years there was simply no way an individual that did not have
specialized training and access to the tools, processes and systems could
possibly make sense of the range of different products or choices that were
available; they had no way without help to
compare the available options and tailor what
they decided to be the best mix of options,
and then there was simpluy no way that they
could then buy, sell, apply, or transact in any
way without going through the established
and orderly channels.
Given that context it was inevitable for the
role of financial intermediary to be born and
this intermediary – whether an individual or
company – became an indispensible bridge
between the consumer and a world of
financial complexity and specialization
whether that meant investments, foreign
exchange trading, stocks and bonds trades, or
borrowing ranging from treasury bonds through to payday loans.

4. Of course market economics – where there is monopolisation or an
effective cartel controlling supply meant that in many cases the alchemy
involved entitled the financial intermediary to retain an attractive margin –
after all, if you are a licensed stockbroker and people must use a licensed
stockbroker to purchase shares, it’s natural that stockbrokers would wish to
ensure that the stockbroking industry was profitable, so they would no
doubt agree on a industry pricing strategy and also ensure that new
licenses were only given to applicants who weren’t going to threaten this
cozy arrangement.
Doesn’t this also describe the role that the travel agent has also had, with
striking parallels? For many years, only an IATA accredited travel agent
was allowed to sell most air fares; and it was only an agency with access to
the fares, schedules, booking systems, payment systems and related
infrastructure that was able to make sense of the complex, disjointed
products out there and make travel actually work for a client.
But this has changed dramatically over the past 20 years or so in the
financial services world, and the same trends are also impacting on travel.
What are the key drivers and
trends? What can we learn from
financial services that could provide
insight or possible competitive
advantage for the travel industry?
A revolution in 15
steps
!
The market pressures, industry
response and eventual outcomes
within financial services can be
summarised into 15 stages, and this
is where some of the parallels with

5. the travel agency of the future become graphically evident.
1. Consumers started to believe intermediaries were charging too much for
the value they were providing
2. There were ongoing issues of conflict of interest between the interests of
the client and the intermediary; in many markets requiring regulatory
intervention to protect consumers
3. Product providers started to sell direct to consumers, bypassing
intermediaries. Initially this focused on
simple “transactional” or commodity
products, but over time this moved into
more and more sophisticated product areas
4. Intermediaries began to move away from
a “sales” approach and more into a “service”
proposition. Remuneration followed suit,
with the trend toward intermediary
remuneration matching the value provided to
the client over time, not simply an initial
transaction
5. Product providers increasingly developed
parallel multiple distribution channels, the
intermediary being but one. Pricing often varied between channels
6. Pricing increasingly became transparent and “unbundled”, enabling the
client to see exactly what they were paying for each aspect of the product
7. Exclusivity became increasingly rare, with both product providers and
intermediaries not willing to position themselves in an exclusive
relationship

6. 8. Consumers became increasingly empowered, able and willing to
manage and execute their own financial affairs in ways they did not do
previously
9. Technology began to provide the bridge between complex and disparate
content and the ability to manage and transact this content. Over time,
products evolved to become platforms, and platforms evolved to become
wraps or wrappers, and they evolved to become a commodity
10. Restructuring and M&A activity was constant, with participants
chasing the holy grail of scale. Mostly, their hopes were never realized as
the rules of the game changed just as rapidly
11. The value chain from product supply through sales and service/
delivery began to fragment, and a competitive set started to appear for
each of these segments, not just across the entire chain
12. Client loyalty became less and less dependable. The debate over who
“owns” the client never stopped, but was also never resolved. Only the
client really owns the client, and client loyalty became an increasingly rare
commodity.
13. New entrants, unencumbered by legacy cost bases or infrastructure,
began to appear – often exploiting
niches in the value chain and
assembling their offer somewhat
like a Lego model. In many cases,
their value proposition could not
be matched by the legacy industry
participants who faced the neverending task of restructure and cost
reduction, but always unable to
catch up to the new entrants
14. Margins became squeezed in distribution but a vicious circle started to
appear as the more simple types of transactions migrated to remote/direct/

7. self-directed distribution styles. With these ‘bread and butter’ transactions
no longer supporting the intermediary’s cost base, the intermediary was
forced to try to migrate towards more complex and higher value clients
and products. But the conundrum was that many of the higher value clients
were also the ones leading the move toward managing their own financial
affairs and transactions – resulting in the intermediary finding themselves
increasingly between ‘a rock and a hard place’ with business slippage and
margin erosion occurring on multiple fronts
15. Increasingly top-heavy, financial intermediaries began to crumble
under their own weight to evolve towards a more efficient and leaner
industry that focuses to a greater extent on advice and lifetime customer
value, rather than transactions and initial acquisition. Empowered
consumers within an increasingly transparent industry were in a position to
choose their method of interacting with suppliers; new entrants began to
appear with tools and technology to place power in the hands of consumers
to a much greater extent, and the number of people earning a living as a
financial services intermediary of one kind or another plummeted
Naturally, there are many generalizations within this list and there is a
tendency for these trends to be more muted in emerging markets –
however the same basic dynamics can be seen. What Are The Implications
on the Travel Agency of the Future? To what extent does this portray the
recent past, the present, and the future of the travel agency or TMC? Are
there things that can be learned, early warning that should be heeded, or is
travel so distinct that there is nothing of value to be gained by this sort of
questioning.
Some will take the view that the travel industry will not follow the same
path and be affected to the same extent as financial services. Secretly,
however, I suspect these folk will also have their fingers crossed that
things can hold together long enough for them to retire, after which it will
mercifully become someone else’s problem.
!

8. I envy those that can adopt such a
position – just as I would have envied
the composure of the band that bravely
continued to play to the very end, had I
been a passenger on the ‘Titanic’.
It’s only my opinion, but I don’t see too
much to get excited about when looking
at the likely shape of the travel agency of
the future – unless of course you are a
fan of blood, toil, tears and sweat. So I
guess time will tell.
!
The author, David Christensen, is a former Asia Pacific Vice President for
Supplier Management both with American Express Business Travel and
Carlson Wagonlit Travel (CWT).
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http://inversionpoint.com/travel-agency-future/
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