Leading in profitability
Low-cost carriers and the rise in sales of travel via the Internet are putting pressure on travel agencies’ margins. But Scandinavian travel agencies are nonetheless leaders in profitability, according to an independent report from the consultancy firm Hermes. The report finds that centralised customer services and better tools for Internet sales are two ways of maintaining profitability.
Upon assignment of Amadeus, the South American consultancy firm Hermes Management Consulting has surveyed travel agencies’ costs and how they can work more effectively. The survey has been performed in several other markets across the world, and the results have proven to be very useful. It was Scandinavia’s turn to be surveyed earlier this year.
Many changes have taken place within the Scandinavian travel market in recent years. The success of low-cost carriers implies reduced commissions for travel agencies, while simultaneously a greater number of reservations are being made via the Internet. The report from Hermes identifies opportunities for travel agencies to create added value for their customers.
“As commissions decline and distribution channels via the Internet increase, travel agencies must have a comprehensive understanding of their operating costs. It is first then that they will be able to manage their costs better and become more effective,” says Hernán Goyanes, founder and partner of Hermes.
Travel agencies can be more effective by centralising functions such as customer services, automating administrative processes and developing sales tools for the Internet.
“Private travel agencies have higher costs per sold ticket than business and online agencies,” continues Hernán Goyanes. “This is due to them having the least experienced customers and offering the most complex travel packages. Online agencies have the lowest average costs per ticket because customers do more of the work themselves.”
The report describes how the income sources of travel agencies are changing from being commission-related to service-related. For example, the most profitable services of online agencies include cancellation insurance and hotel reservations. Transaction charges, service fees and service-level agreements are becoming increasingly common within the sector, and Scandinavian travel agencies are leaders within this trend.
Despite the prevailing pressure, Scandinavian agencies are reporting the highest net margins compared with European and Latin American countries, where similar surveys have been performed.
“Travel agencies in Scandinavia were forced at an early stage to adapt to tougher global competition,” says Janchrister Egnefors, CEO of Amadeus in Scandinavia. “Many agencies have been extremely active in the development process, and Amadeus in many cases has worked side by side with the travel agency in order to produce customer-adapted solutions.”
For the entire report, click here.
