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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

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

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.

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

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

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 never-ending 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/

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.

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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).

!http://inversionpoint.com/travel-agency-future/

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