Travel agencies need to reengineer says study
Dubai, November 27, 2007
Travel agencies in the Middle East will soon have to re-engineer their operations to achieve long-term sustainability, a recent study reveals.
Citing reductions in airline commissions, rapid expansion, growth of low-cost carriers and a shift towards online distribution channels, as the key reason for this change, the study defines key cost drivers in the travel agency business and reveals how travel agencies can win in a dynamic market.
Carried out by Hermes Management Consulting (Hermes) in Saudi Arabia, the study was commissioned by Amadeus, a global technology and distribution solutions company for the travel and tourism industry.
Saudi Arabia was chosen as a benchmark in this first of its kind regional survey to understand the various business models and the needs of the travel agents across the Middle East.
According to the study, commissions still account for 74.6 per cent of the gross margin among the Saudi travel agencies.
This finding has caused some debate on how the business model adopted by the agencies should evolve, in the face of a reduction in airline commissions, expected to drop from the current level of 7 per cent to zero.
Average revenues per ticket of business travel agencies are €343, which is nearly 27 per cent higher than that of leisure travel agencies. This could be explained by the fact that business agencies sell more expensive international tickets and offer lower discounts than leisure agencies.
The average cost of ticket in Saudi Arabia is the lowest among the countries studied. For leisure agencies, the cost of ticket is €17.3, whereas for business agencies, the cost of ticket is €18.0. This is due to high productivity and low personnel costs per Full Time Equivalent (FTE).
Profitability for business agencies in Saudi Arabia in terms of EBIT/total revenues is one of the highest when compared to other countries, and almost doubles that for leisure agencies (24.7 per cent vs 11.9 per cent). Leisure agencies have similar levels of profitability as the UK and Latin American leisure agencies.
For business and leisure travel agents, share of marketing costs is lower in comparison with travel agencies in other countries. It was found that in Saudi Arabia, the most important and effective marketing channel is the word-of-mouth and relationship marketing, with minimal investment in other marketing channels such as TV, newspaper, magazines, among others.
“The study has been an eye-opener for us and we are pleased to share the results along with the recommendations on how travel agencies can more effectively tailor their IT strategy to better meet the needs of their customers,” said Eric Bézard, senior business solutions manager for Amadeus, Middle East & Africa.
In order to effectively streamline their business and guarantee long-term sustainability, the study suggests that Saudi travel agencies should :
• Integrate all travel components through a single platform, and link their technology functionalities with employee incentives, helping to increase the rate of cross-selling;
• Integrate mid and back office systems to automate back-office activities, allowing reduction in manual errors leading to increased revenue;
• Implement service fee management solutions, which will support travel agencies in the transition from a commission-based revenue model to a management and transaction/service-fee based model;
• Implement Customer Relationship Management (CRM) to help travel agencies understand, store and track their travelers’ profiles, design programmes to increase customer satisfaction and eventually carry out segmented marketing campaigns;
• Evaluate online booking tools and ensuring that travel agencies can harness the business resulting from the uptake of Internet booking by Saudi travellers.
Hermes together with Amadeus Saudi Arabia classified the travel agen