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The New Travel Intermediaries

Speaker Transcripts

Duncan Dunlop
Associate, Consumer Futures
Thomas Cook Group

There's no doubt that this question, "where will we be in the year 2000," is taxing us all. However, it is even more relevant to those within the travel industry, where the pace of change and competitive pressures are greater than they ever have been.

The question being posed now is not 'Travel Agents and Distribution' but 'Do Travel Agents have a role in distribution'.

There is considerable debate about this, in fact, there are probably as many opinions as there are parties involved. Principals say it is an excessively costly function. Technology providers seek to by-pass travel agents altogether and some travel agents themselves query whether it's worth being involved at all!

However, all of this debate ignores the view of probably the most important link in the whole chain - the customer. Our experience at Thomas Cook is that customers still want to deal with the experts. The new dimensions are that this experience doesn't necessarily have to be face to face, nor does it have to be constantly changing.

Today, through these topics, I'd like to take the opportunity to prove that there is a role for the travel agent in the future, however, the dynamics of this role are very different from today.

Before moving onto the changing consumer, it is worth considering a few facts about the travel industry. It is the world's largest, both in terms of sales, over $3.1 trillion, as well as number of employees. And in the case of travel agents, there are over 42,000 in Europe and the USA alone.

Moving onto the UK, over 89 million holidays, worth over UKL22 billion, were sold in 1995. With regard to the future, predictions are that the volume of holidays taken within the UK will decrease, whilst those taken abroad will grow to over 28 million in 1999. This growth is principally due to the anticipated growth in disposable incomes and the increasing in confidence of the public in travelling away from the UK.

Considering the travel distribution chain for a moment, broadly speaking there are four elements. The customer accesses the travel products through a retailer, namely the travel agent. The travel agent sources its range of holidays from a tour operator, who in turn provides the product by sourcing them directly from the product suppliers, such as hotels or airlines.

There are two principal ways in which the travel agent currently services the needs of the consumer within this chain - shops and direct, including Teletext, where the consumer calls the tour operator or travel agent by telephone to book and arrange their holiday. In considering the UK travel industry as a whole, the proportion of sales for each of these channels has remained fairly static over the last five years, with High Street shops accounting for around two-thirds of the holidays sold, Direct with just over a quarter.

However, the case of Thomas Cook is a little different. We have experienced rapid growth of our telephone based service called Thomas Cook Direct which now turns over in excess of UKL60 million per annum. The service is aimed at the experienced leisure traveller who is quite happy to do without the face to face contact with the travel agency, however, they do want the reassurance of the Thomas Cook brand and all that it stands for.

The service provided is segmented to reflect the needs of our customers. For example, experienced skiers are routed to the Ski Direct service where 20 skiing experts are on hand to provide advice and expertise. Similarly, customers seeking cruises are put straight through to one of 12 specialists in our Cruise Direct unit and those wanting flights are put through to Flight Direct.

With regard to Teletext, this now accounts for 6% of the holidays sold in the UK, up from about 3% in 1993. In the case of Thomas Cook, a caller responding to our Teletext offers has their request handled by a dedicated unit, again within Thomas Cook Direct.

So successful has this Thomas Cook Direct service been, that we have now rolled out the concept to Australia, Canada and Germany.

Having taken the time to consider the channels through which holidays are currently sold, it's worth considering how they are currently marketed. Various methods are employed, the obvious one being the holiday brochure. Brochures have the obvious benefit of having known success rates, however they are inflexible and a relatively expensive means of promoting your products. On the other hand, alternative means such as direct mail and the national press, whilst more economical and to a degree known entities, also have their limitations. It's important to consider these as a major impact of the technologies we'll consider later. It's how they can substantially reduce the cost of and increase the ability of targeting and marketing to customers, interactively and in real time.

Returning to the UK travel industry model for a minute, it would be amiss of me not to mention the recent press around the industry being the subject of an investigation by the Monopolies and Mergers Commission.

In the case of the distribution chain discussed earlier, broadly speaking the money changes hands as follows. The customer pays the product supplier who in turn passes the commission onto the tour operator, who in turn pays the travel agent a commission though a much smaller one. However, in the UK, this chain is dominated by vertical integration whereby the tour operators have interest in both the product providers and travel agents. In the case of Thomas Cook, we own Sunworld and TimeOff and have a shareholding in, but not a control over, First Choice. The other major players, Thomson and Airtours, Lunn Poly and Going Places respectively.

As you can imagine, this changes the UK industry model slightly. The nature of the MMC investigation is to understand if the travel companies are subsidising and unfairly promoting their own products, at the expense of others and thereby restricting the consumer's choice. At Thomas Cook, we're very relaxed about the investigation as we've always been open about our own products, in fact we brand them Thomas Cook. We are also confident that we offer the consumer a wide range and choice of holidays.

As mentioned previously, the most important link in the travel distribution chain is the customer. In 1994, Thomas Cook conducted a major strategic review of its business. It confirmed that the group's overriding objectives must be to capitalise on our unique and most valuable asset, the Thomas Cook brand, and get as close as we can to our customers. We then set about developing a strategic plan to take Thomas Cook into the next millennium.

As part of the process of building on our brand, we created a dedicated unit in our Peterborough headquarters.

Their brief was to investigate the new distribution channels for the group's products and to develop those offering the greatest potential for enhancing our traditional branch offering.

Some of the channels would be focused on technology breakthroughs such as the Internet. Others would be based on well-established technologies, such as the telephone. In all cases, there would be an element of radicalism. This was in the sense that the new channels would be geared to giving the customers substantially more independence and choice than is possible in a conventional shop environment.

The outcome of our recent efforts is that Thomas Cook has now developed, in outline form, a sophisticated suite of distribution routes offering customers a wide range of ways of approaching us and assessing our services. All of these were developed with the customer in mind, in fact, a more apt description would be the changing consumer. But who is the changing customer and how are they changing? Our first hand research has allowed us to draw some very clear conclusions.

By how I want to, we mean that the consumer wants to choose how they want to interact with the travel agent, controlling the information and assistance they receive. This isn't about one consumer choosing to interact in one way, it's about them choosing to interact in different ways, at different times and for different products. For example, a consumer will want to interact with a travel agent in a completely different way when booking a romantic break to Paris, as against booking a business trip to the same destination. They will also be different if the trip is next month rather than next week.

Travel agents such as Thomas Cook also know who the consumer is, where he or she lives, their contact details as well as where they have travelled. Consumers expect us to recognise this, and them, when they deal with us. However, this is not enough. We can and need to build on this information and with the assistance of technology can offer each and every consumer a personalised service.

By this we mean matching what we've come to understand about the needs and wishes of each customer to the product best meeting their requirements. The smart strategy is therefore to get as close as you can to your own customers. Build databases which enable you to know them almost as well as they know themselves and pander to their preferences and requirements.

As you would expect, people are leading increasingly busy lives and as such want to shop when and where they want to. Thomas Cook Direct meets this need by providing its telephone based service, both in the evening and at the weekend. The Thomas Cook initiatives which I'll go into later will show how we meet the needs of the consumer wishing to shop in their homes or even in transit.

An important area to address with the consumer is their requirement to have the product sold on their terms and not the suppliers. Simply providing specific package products will not be enough to meet their needs and feel that the product will be matched and built around their own individual requirements and preferences. We call this dynamic packaging.

This is where Thomas Cook's international network of companies and business partners, in over 117 countries, comes into play.

We have recently invested in a new product database called Catalyst which consolidates the products from our worldwide network and allows them to be promoted internationally. Catalyst has links to all the major reservation systems thereby allowing us to create the first genuinely global tour operator product. Our recent strategic alliance with the American Automobile Association, Triple A as they are known, has created the world's largest alliance of leisure travel agencies. Triple A's 1,160 branches will all have Catalyst. You can begin to imagine the scope that provides.

Other key consumer desires are almost givens, comprehensive choice, guaranteed value for money and a sense of enjoyment. It's worth considering enjoyment for a moment. Our customer research in the UK has shown that people love dreaming about going on holiday, love going on holiday but hate the bit in between, the bit with the travel agent.

So can we meet the needs of the changing consumer? Do, and can, travel agents have a role in the future?

There are several key factors governing this. No-one cannot have noticed the revolution in distribution that's taking place. A wide variety of new channels are now available for the consumer to choose. This allied to the revolution within communication driven by cable, digital networks and satellites means that the way we all do business is undergoing a sea change and simply can't be ignored. Quality and speed are improving and prices are reducing almost daily.

Within travel, the competitive arena is more competitive now than it has ever been. Traditionally companies have not targeted the travel industry as a potential new market for a number of reasons. These include the high costs of distribution and marketing together with the low margins which overall have made it cost prohibitive and therefore unattractive to do so.

However, the emerging technologies have rewritten the game plan allowing the costs of entry to be reduced dramatically, but more importantly provide new entrants with the ability to offer a better and more consumer focused service than is offered currently. Hence, there is now a proliferation of new companies entering the travel arena, specifically on the Internet, who are attracted by the opportunities within the world's biggest industry.

One example of this is the recent launch of Microsoft's Expedia which they've billed as the next generation of travel agent which will cut distribution costs. From our perspective, we welcome the Expedia development. We believe it will bring credibility to the fledgling on-line travel industry. From an initial service focusing on the USA, we anticipate that by mid-1997 the system will be generally multi-national.

The service currently provides a wide range of travel information in the form of world guides. Expedia also allows US citizens to book flights, hotels and car hire on line. In the case of hotels, you would enter your chosen destination and requirements, in this case New York, and be presented with the hotels meeting your needs. Information on the hotel, together with its location, can be accessed. You can then select a room type, check its availability, before providing your credit card details and confirming the booking on line.

As well as the threats from new entrants, the role of the travel agent as an intermediary within the current distribution chain is under considerable threat. This is highlighted by the cost of distribution identified within a recent report conducted within the US banking industry. This shows that the cost of distributing direct via the telephone or on-line are substantially less than through a branch, and in the case of the Internet some 87% lower.

This, together with the new technologies, has the potential to radically change the travel distribution chain in the UK.

For the foreseeable future, a significant amount of consumers will still choose to follow the existing distribution model through the shops. However, new channels are emerging. Customers may choose to deal direct with the product suppliers. Conversely, product suppliers may choose to deal direct with the customer. This may be for a number of reasons based on service and price offered.

Additionally, the customer and supplier may choose the services of the travel agent omitting the tour operator.

The customer and supplier may choose to deal with the tour operator by by-passing the travel agent.

The final piece of the jigsaw is the role of new entrants who rewrite the distribution model completely by ignoring the current model altogether.

And who pays who? Does the customer and/or supplier pay? Do the travel agents and tour operators pay to get access to both products and customers?

In summarising two clear conclusions emerge.

Roles will only exist within the travel distribution chain for those companies who either meet the needs of the changing customer or add value in the eyes of the product suppliers. Ideally you would want to do both.

Can technology help ...... We believe that it can.

Firstly, in looking at the needs of the customer, there's no doubt that the emerging technologies can address these. Personalised Internet sites are becoming ever more prevalent and the next generation of search engines, intelligent agents, become individual to each consumer based on interaction and tuition.

Thomas Cook was one of the first travel companies to appear on the Internet and currently offers a group site along with a number of linked regional or country ones. The group site includes a guide to all our locations around the world, Thomas Cook publications, details of late deals and special offers, topical news and information, as well as a currency converter which allows customers to find out how much their money is worth abroad.

The convenience and ease of use of kiosks is also widely acknowledged. One example of this is the Thomas Cook Travel Kiosk.

Based on advanced electronic technology, the travel kiosk is a self-service system which provides customers with up to date travel information, all at the touch of a button, whilst allowing them to bring to life - and interact with - their holiday destination before they travel. We do this with a combination of video footage, sound and electronic holiday brochures.

Once the consumer has decided which holiday option is for them, all they have to do is hit the enquiry symbol on the screen. They can then speak to a Thomas Cook sales representative who appears as a live image in the corner of the screen. A complete holiday booking can then be made there and then and paid for with a credit card.

Six kiosks were installed in 1995 in a trial conducted jointly with Olivetti and NatWest Bank. Three of these were located in NatWest banks and three in Thomas Cook branches and over a nine month period more than 20,000 people used them. We find them most effective in selling what we call short cycle products, such as short breaks and shorthaul air travel.

Our new kiosks will be linked direct with the global distribution systems and allow in real time the booking of flights, hotel accommodation and car rental all over the world. We are also developing the kiosk so that they can print and deliver the tickets.

Our third party experience has encouraged us to explore other potential locations and we currently have kiosks within the David Lloyd Health Clubs where we can reach ABC1 customers in a secure environment. Here, of course, the range of products needs to be focused on the interests of these particular customers. This development allows us to expand the reach of our customer base.

Again, technology scores heavily in meeting the needs of the product suppliers, providing opportunities to reach new customers, offer an enhanced service and dramatically reduce distribution costs.

Interactive television provides a good example of this in practice. It offers a rich information source and allows the customer to browse this information at their leisure. It also facilitates collective decision making and that, of course, is a key characteristic of the way holidays are purchased. It is very often a family decision.

In January 1996, Thomas Cook participated in the UK's first public trial of home shopping via BT Interactive.

This took place early this year in some 2,500 homes in East Anglia. The system brought together the services of more than 150 providers, providing access to around 200 movies at any one time, 800 educational titles, 500 children's programmes, 200 music videos and over 15,000 different products. This made it the world's most comprehensive TV trial to date.

The interactive home TV is in a relaxed, personal environment where distractions abound. The consumers need to be wooed, they need to be entertained. We think we got pretty close to the right tone and pitch and, in fact, our work in this area won us the British Interactive Multimedia Association award for the best commissioned work in the retail category.

In all cases, when a customer found a holiday they were looking for and wanted to make a booking, they could simply pick up a telephone and call Thomas Cook Direct whilst their selection was still on the screen. Alternatively, they could place their request in their virtual shopping basket and Thomas Cook Direct would call them back the next working day to complete the booking.

In our view, the importance of these new distribution channels is that they offer the travel agent an extraordinary opportunity to add value to and clarify relationships they have with both suppliers and customers and by grasping this opportunity, agents can disprove the claims of the 'gloom-mongers' who have been prophesying that electronic distribution will leave us dead in the water.

Travel agents must surely go to the wall if they do not constantly and convincingly justify their role as intermediaries between suppliers and customers. The new distribution routes offer Thomas Cook and its rivals an important additional means of legitimising their position. These new channels offer agents the opportunity to capture the substantial numbers of customers who are currently by-passing us as well as address a new kind of leisure traveller that is emerging. This is the traveller who either chooses to 'go electronic' for part of the booking process or who swaps between distribution channels, depending on the holiday being considered. That same traveller gains confidence to act in this way from dealing with a recognised and trusted brand like Thomas Cook.

I believe that for some years to come customers will expect travel agents to offer them a wide spectrum of buying channels, be they the more traditional ones like the shops and the telephone or the more innovative such as kiosks, interactive TV or the Internet.

Travel agents who answer this call will be demonstrating that they really want to understand and deal with customers as individuals. We must approach customers in the way that they want to be approached.

This is the logic underlying Thomas Cook developing a family of distribution channels. By offering choice in every practical way, we intend genuinely to meet the needs of customers. To us, careful positioning of the Thomas Cook brand in each of these new channels and media affords us an excellent opportunity to move the world's oldest travel brand name to a genuine leading edge position and by doing this we plan to ensure that Thomas Cook will not only survive but will lead the way into the next millennium.

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