Online Competition in the Distribution Chain: The Retailer's Perspective

Online Competition in the Distribution Chain: The Retailer's Perspective

Patricia Vieira (Mercado das Viagens, Portugal) and Emese Panyik (Universidade Catolica Portuguesa, Portugal)
DOI: 10.4018/978-1-5225-8434-6.ch009

Abstract

Until recently, travel agents have been the principal intermediary between travel suppliers and consumers, with information as their primary trade. However, changes to information and communication technology (ICT) and the beginning of the internet have the potential to allow travel suppliers and consumers to interact directly. Today, consumer websites that integrate global distribution systems (GDSs) are no longer only an emerging threat but show fierce global competition between travel agencies and tour operators worldwide. Subsequently, one of the most pertinent questions today is how local, small-scale travel agencies respond to these market changes and what practices do they use to maintain their comparative advantage and offer competitive services? However, despite the relevancy of this issue, literature is generally scarce on travel agency strategies to confront the competition of consumer websites. Thus, in order to address this question, this article provides an analysis on the advantages and disadvantages of new technologies are available to travel agencies and strategies and practices that travel agencies can use to compete with websites.
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Introduction

The internet has had a huge impact on the purchasing behavior of consumers in recent times. Europe is without a doubt, a digitally sophisticated region. Twenty percent of the world´s internet users are Europeans, according to the study from online travel market and Internet World Stats, Germany uses 82,7% overcoming UK, France and Italy with only 58% (Hotelmarketing.com, June 2013). An investment in broadband and technology has contributed to this share. Internet adoption, specifically broadband is higher than in the rest of the world. The global internet users aged from 25-74 are the most likely to use travel services. The preferred location to book a trip is at home or workplace through mobile device. Only a small percentage uses a travel agency to fulfill their needs (Hotelmarketing.com, 2010). With these results growing and extensive over the past years is the tourism industry increasingly investing into their online presence and to destination management systems (DMS) in terms of assisting destinations with these functions due to their lack of technological understanding?

Customers looking to book a trip no longer need to visit an agency; they can go online to companies such as Expedia, E-dreams, and Travelocity to book an entire trip themselves. Furthermore, airlines and hotels themselves also have cut out the travel agent in total by allowing customers to book tickets and lodging directly from their sites. That's an unpleasant fact for travel agencies, who have traditionally relied on being seen as a necessary intermediary between customers and the services they require.

Right now, traditional travel agencies are being threatened not only by integrated tour operators, which control their own distribution channels, but also by the expansion of alternative distribution channels such as the Internet/ e-commerce, this process is called “disintermediation” . By definition, disintermediation refers to”... suppliers getting closer to their customers and eliminating all types of intermediaries that obstruct this process and add needless costs”(Wardell, 1991).

The competition between travel intermediaries is based on the need to reach the clients directly and as fast as possible, and with the Internet it is possible. Suppliers have the opportunity to use the Internet as a tool to promote their products and services directly to end-users and thus try to avoid the commissions paid to intermediaries. They normally pay a commission per holiday package or an individual purchase such as of airline tickets or hotel booking. Traditional travel agencies relied to that commission to survive with their business. The airline industry had also ahuge impact with this decline by taking a number of important measures regarding the level of commissions paid to the travel agencies for their services. Capping or reducing these commissions – these days zero commission is the norm – represented a strong blow for ticketing agencies that used to rely on the reservation fees charged to airlines.

What happens nowadays is that the price of a flight ticket offered by a travel agency is often higher than the price that can be obtained by booking directly from the airline company. “This is a disloyal competition, if we confront the retailerwith this issue, they give us an answer somehow like this, what can we do, this is our price... ” (Patricia Vieira,Conference IPCA “ JornadasTécnicas de Agentes de Viagens e OperadoresTurísticos&Turismoparatodos”2013). A travel agency who depends on retailers and wants to survive is forced to reduce their commission gathered from the airline itself. Now, one can ask, but aren´t their regulations that safeguard/promote fair competition? The answer is simple: no, because the regular airlines have to compete among themselves in order to keep up with the low cost airlines. Theirmodus operandiis mostly through online bookings; they can offer a simple procedure and low operating cost and provide the customer with low rates and any additional services. Due to this growth of low cost airlines, airports acknowledge this emergence and hail the existence of those airlines that can bring new passengers. On the other hand, in order to face this rivalry, the regular airlines made alliances among them and joined forces, by creating `a club` concept with rewards for loyalty. Examples include the ‘miles and more’ programme of Lufthansa, incorporated in the ‘Star Alliance’, which allow the customer, among others, to upgrade seats and follow their trip online. Their development was linked to the ability to capture sophisticated customer data.

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