PhoCusWright Study Results on Travel Distribution

(May 20, 2008 - Modern Agent) -- Last month PhoCusWright released the Travel Agency Distribution Landscape report, which describes agents today as a large, dynamic opportunity in the market. And that comes from an organization which has, until now, mostly focused on online travel.

PhoCusWright says that while the Internet has been a significant area of growth and central driver of change in travel distribution over the past decade, the traditional travel agency segment remains significant, compelling, and deserving of careful study and consideration. According to the report, U.S. travel agents sold $110 billion in 2006, representing 41 percent of the total $266 billion travel market. The report says agents sold $107 billion, or 38 percent of the market in 2007, and projects that agency sales will be 33 percent of the total market by 2009. Yes, that’s a drop, but the report notes specifically that the rate of share loss has slowed.

PhoCusWright says the number of travel agency locations and travel agents is large, fragmented and highly varied.  It says there are approximately 24,000 travel agency locations in the U.S. and a total travel agent population of 111,000, which according to our own research at Performance Media Group may be a little high.

According to PhoCusWright, the typical leisure agency today is focusing on more complex travel, such as cruises, vacation packages and independent itineraries, where commissions are still relatively high and more experience and expertise is needed to facilitate the consumer’s purchasing decision. But it also says that changes in the travel market have created opportunities for new travel agency models, such as home-based agents, cruise-only agents and agents focused on adventure, family, or honeymoons and weddings.

PhoCusWright says air ticketing continues to represent the lion’s share of agency business, though it is declining. According to the report, air accounted for almost two thirds of travel agency bookings in 2006, but the percentage of air sales is declining as leisure travelers book directly with suppliers and online. (Note: PhoCusWright’s survey also includes corporate travel agencies).

However, PhoCusWright says the complex leisure segment – namely tours and cruises — relies on agents for the majority of sales. Travel agents represent 73 percent of all tour operator sales and 77 percent of all cruise sales in 2006 — and for my money those percentages are probably low.

Of course, that’s the total travel agent market — but where do agents working from home fit in? According to PhoCusWright, home-based travel agents have emerged as “a substantial and growing phenomenon within the agency distribution system.” They represent 28 percent (or 31,000) of the travel agent population and approximately 9 percent of total agency sales volume (or just under $10 billion). And they are overwhelmingly focused on leisure travel.

PhoCusWright says home-based agents affiliated with a host agency represent 44 percent of the total home-based agent population, while home-based agents who say they run their own businesses and are not affiliated with a host represent 56 percent of the home-based agent population as well as a larger share (63 percent) of total home-based agent sales.

According to PhoCusWright, the growth in the home-based agent segment is “a retrenchment of experienced retail leisure agents and agency owner/managers who are moving their occupation into the lowest-cost environment possible in response to escalating costs and general downward pressure on commissions.”

The report also points out that new agents are entering the workforce as host-agency affiliated home-based agents, and they tend to be younger, have less experience and work more on a part-time basis. Growth in agents at home will come from other people coming into the business from outside of travel.

PhoCusWright also makes a number of overall observations about the travel agency distribution system: First, it says agents, particularly leisure agents, position themselves as “anti-Internet” seeking to differentiate themselves in the market through customer service, knowledge and personal attention.  Second, the report points out that the travel agent distribution channel offers a significantly higher average transaction value than online channels. Now that’s obviously something great to hit suppliers with the next time they start talking about the growth in their online bookings.

PhoCusWright’s third observation, however, is somewhat less positive. The report says the high average age of travel agents raises serious questions about the long-term implications for the agency community, especially in the leisure and home-based segments. According to the report, nearly half of all leisure and home-based agents are over the age of 55, and many leisure agencies are challenged to offer wages and benefits that would be competitive with entry-level positions in other industries. The report says the leisure agency community, and the suppliers who rely on it, must address the challenge of attracting new recruits or face a serious shortage in their sales force.

Now that’s not such a bad thing when you consider many of your best customers (the baby boomers) are in the same age bracket. The PhoCusWright’s report does not take into consideration that many people outside of the travel industry are starting to see the home-based agency business as a significant business opportunity.

Indeed, a fourth point made by the report is that host agencies do indeed show some promise of attracting new blood into the travel agency business. It says home-based agents affiliated with hosts on average tend to be younger, but also have far less experience than both independent home-based agents and agents in brick and mortar travel agencies. Host agencies, the report says, could represent at least a partial solution for the long-term demographic concern for the agency distribution channel.

At the same time, PhoCusWright also describes what it calls another category of agents – namely home-based hobbyists. It says these are members of some of the largest host agencies and multilevel marketing organizations in travel whose business model is focused as much on acquiring new members as selling travel. This, of course, is the model that has reignited the debate over card mills among professional agents.

In the end, the conclusions of PhoCusWright’s report are important to the future of the agency distribution system. Despite the erosion of supplier commissions, the decline in travel agency locations, the surge in online travel and direct bookings, PhoCusWright believes traditional travel agencies will continue to play an important role in travel distribution. The report also says home-based agent segment should continue to grow significantly in the near term, though long-term the segment faces the same questions about where the new generation of travel agents will come from.

For information on purchasing the complete report, visitwww.phocuswright.com. If you have any comments on report and its implications, PhoCusWright has set up a blog for your comments atwww.phocuswright.com/library_blog/486. — By James Shillinglaw

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