Journey to oblivion
Bypassed by holidaymakers, overtaken by technology, the big high- street travel agents are becoming an endangered species
Sunday 21 July 1996
At first it is not easy to understand why. The statistics of package holidays sold - and the bullish statements from tour operators this summer - indicate that business is still brisk. The windows are filled with short-term bargains, but things do not look as desperate as they did last year, when the major holiday companies found more than 1 million holidays still on their books in late July.
This year, the big package holiday suppliers - Thomson Travel, Airtours, First Choice and Inspirations - axed 1.5m holidays, or 10 per cent of the total on offer, to restore equilibrium in the market. Yet total turnover in the travel industry is expected to rise 22 per cent to around pounds 8bn this year, according to estimates from the Civil Aviation Authority, because much less discounting will take place.
David Crosland, chairman of Airtours, an integrated holiday company that sells package holidays through its Going Places subsidiary, recently went as far as speculating that late bookers might not find enough holidays to go round this year.
This is good news for the industry, even if aftershocks of recession are still regularly felt (there have been a record 32 failures in the past year - the latest on Friday when The Flight Company (UK) packed its bags for good). But beneath the shiny veneer of the brochures and the smiling sales assistants, there are massive problems. The travel agent's undoing will be its inflexible system of designing and marketing package holidays. The industry first brought us the revolutionary cheap week in Benidorm in the Sixties. Great then; but now looking increasingly obsolete.
The package tour may still be the most popular form of holiday in Britain, but younger and better-off holidaymakers are getting more choosy about where they take their summer breaks, and in many cases are designing their own holiday, according to research by Mintel. They are also interested in taking longer holidays, to far-flung destinations, which carry higher gross profit margins for the industry but are harder to administer.
Both trends augur badly for the high-street travel agent, whose strengths lie in providing neat packages that require little thought and not a great deal of money. That side of the market will not go away, but if consumers want a week in Benidorm, they will wait for the late-season discounts to show up rather than book six months in advance. Higher-margin travellers may go elsewhere, leaving giants such as Thomson and Airtours with an unprofitable basic business.
The news gets worse. The industry is waiting anxiously for the Office of Fair Trading to publish the findings of its investigation into the practices of the large vertically-integrated holiday firms, which sell package trips to around two-thirds of Britain's holidaymakers every year. The report has been completed, but the exact wording of the findings remains a matter of some debate and legal advice is being sought before anything is published, according to industry sources.
The results of the inquiry will not force companies to divest their travel agencies, tour operating arms or charter aircraft operations. Nor is it likely to order agencies like Lunn Poly to reveal the commission paid to their sales assistants to push one package holiday over another.
But the OFT is expected to ban the practice of forcing consumers to buy expensive travel insurance policies to qualify for advertised discounts on their holidays. This practice is well established (see box below), and in some cases the profit generated by the insurance policy is larger than that on the holiday itself. The move will not prevent agencies selling travel insurance, but it will demand that it be kept separate from any discount or incentive to buy a particular holiday.
The OFT's other stipulation is expected to be that the large integrated holiday companies must better inform their customers about the financial links between the travel agent and the package holiday. As a result of a request from the OFT in 1994, Lunn Poly and Going Places shops now carry a sign on the wall identifying the chains as part of the Thomson Travel group and Airtours respectively. But it is easy to miss it among the colourful decor and racks of brochures. The new directive will probably demand that any links appear in a prominent position on the booking form itself.
The inquiry was initiated following a highly critical report by the Consumers' Association which attacked the limited range of holidays offered by chains such as Lunn Poly and Going Places, and their tendency to mention their parent companies' products over those offered by independent tour operators.
The independents are hoping that the OFT findings will end what Sue Ockwell, chief executive of the Association of Independent Tour Operators (AITO), calls "predatory trading tactics on the part of the multi-
ples". And she says her members would be disappointed if commission levels demanded by the large high-street chains to carry unconnected tour operators' products remained secret.
Independent travel agents are also pressing for statutory limits on the number of shops large holiday companies are allowed to own. The number of independent travel agents has fallen by a fifth, many of them sold to the large holiday companies, according to Colin Heal, chief executive of the Alliance of Independent Travel Agents (AITA) and proprietor of Far Horizons Travel in Dorset.
"Whatever the outcome of the OFT investigation, our campaign has been worthwhile," he says. "Consumers are now much more aware of the workings of the travel industry and the potential pitfalls of doing business with the integrated operators."
Airtours and Thomson, the main targets of the probe, are understood to have met OFT officials, but they will not comment on the substance of the report until it is published. Paul Brett, chief executive of Thomson Travel Group, last week dismissed claims that his Lunn Poly agents knew what commission they were getting on particular holidays, and attacked the independents and the media for peddling "inaccurate information". Whatever the arguments, it is clear that even the more conservative predictions of what the OFT will say are going to knock the image of firms like Thomson and Airtours, and may in the long term reduce their profitability.
However, some people in the industry believe that worries about the encroachment of technology will soon be a bigger issue. According to Francis Baron, chief executive of First Choice, Britain's third-largest tour operator and 14 per cent owned by the travel agent Thomas Cook, the agents are just information vendors. "Technology will enable people to book direct, using the same data that now sits only on the agent's computer," he says.
Some of this is already happening. It has been possible to book flights via the Internet service provider CompuServe for several years, and a group of 9,000 hotels, including Hyatt Corporation and the Ritz Carlton, now has a World Wide Web site through which customers can book rooms directly. First Choice also has a presence on the web, but it does not yet take bookings; Going Places now advertises bargains on its "Late Escapes" web page. On a much simpler level, some 15 per cent of package holidays - mostly late-booked bargains - are now sold via Teletext.
Sue Ockwell says that AITO is planning a website to augment its direct mail brochure. Meanwhile, British Airways is thought to be investigating a direct sales operation in the light of EasyJet's success in bypassing travel agents. It may also have something to do with Euro Disney's decision earlier this year to market its own package deal direct to consumers using BA and Eurostar, after indicating it was unhappy with the service from travel agents.
In March BA decided to remove agents' extra commissions on selling Concorde and First Class seats, and has hinted that when the agreement comes up for negotiation next year, it may attempt to reduce the 9 per cent standard commission charged on economy class. The subtext of BA's move appears to be to reduce its dependence on agents, which now sell about 75 per cent of its seats.
So is it curtains for the travel agent? Few in the travel industry doubt that the high-street shop, and the tour operating industry it supports, is due for a shake-up. But because it has such a central place in British culture, and old holiday shopping habits die hard, no change is going to happen very quickly.
But the warning signs are there. In 10 years' time, your children will tap holiday requirements on to a computer, instruct the machine to construct an appropriate package holiday, book it with the airline and resort, and pay for it via the Internet. At that point it might be worth remembering those pictures you took of the local travel agent's office that now lie in that album in the attic. Your children probably won't believe such things existed.
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