Norwegian Cruise Line vies for more OTA business


Norwegian Escape

Norwegian Cruise Line’s introduction of a bare-bones “Sailaway” fare in March was a bid to improve business with OTAs, company CEO Frank Del Rio said in a conference call.

The Sailaway fares do not come with the standard value-add options, such as the choice of a free beverage package, and cannot be combined with any such offers. They provide only a guarantee of a category, not a specific cabin, and are about $200 less than other Norwegian fares for a seven-day cruise.

Del Rio said prices for cruises that had bundled value-add features were showing up on OTAs as uncompetitive because of the extra value built into the fares.

He said OTAs are one of the main distribution channels for selling close-in inventory.

“One of the drawbacks of this channel is the difficulty of effectively communicating non price-dependent offers to consumers,” Del Rio said.

The Sailaway offers were intended to give OTAs a fare that would not be priced above offers from competitors for similar itineraries, he said.

“Sailaway rates are cruise-only rates, with no value-adds, that will allow us to capture business that we were temporarily not capturing,” Del Rio said. They represent less than 10% of Norwegian’s inventory, he said.

Why Google’s designs on travel aren’t good news for the big OTAs

by David Stevenson
by David Stevenson

by David Stevenson, FT columnist and Travel Weekly’s City Insider

Is the travel industry going the way of publishing – unwillingly turned into a digital product which is under the effective control of a single dominant player, such as Amazon or Google?

Until fairly recently I’d have laughed out loud at this kind of techno babble suggestion.

Travel is quite clearly completely different from publishing and being honest I’d be a wealthy man worth many millions of pounds if I’d have pocketed a £1 from each and every person who said Google is coming after travel.

Well, truth be told Google hasn’t actually done very much in travel to date and to compare its baby steps with Amazon’s omnipotent control of the publishing sector has until now been frankly risible.

Yet over the last few weeks I’ve slowly started to change my mind.

Big changes are afoot in the world of digital travel and we may eventually end up in a market place where Google has indeed built a dangerously powerful position.

My damascene conversion to the threat from Google has been prompted by a number of varying encounters and observations over the long summer months.

The first epiphany came via a friend in publishing who is trying at a very senior level to fight off Amazon’s predatory pricing regime.

He observed – with a deep sigh – that all business battles are in essence a fight between brands and channels, all mediated by the customer’s experience of both researching and then consuming a product.

In the good old days before the internet we physically shopped for product of course, and welcomed the choice and variety on the high street. In the new digital age the reality is very different.

We welcome lots and lots of brands producing varying products but in reality we actually only want a few channels to market and distribution.

No-one really takes pleasure in shopping in the digital ‘mall’ unlike the real world ones where there are nice coffee shops and fun places to visit and spend your money.

So the internet has the net effect of drastically reducing the avenues of distribution.

Book publishers thought the internet would be revolutionary and promising whereas what they’ve actually discovered is that everyone bar Amazon has failed to make a profit (and even they struggle) distributing the elusive ‘content’.

So in simple language the internet eventually consumes its channels and produces one or two omnipotent distributors.

Amazon is quite clearly that channel in books, but what makes us think that Google could eventually offer up that role in travel?

Cue my next conversation with a major West Coast VC who is also a good friend and sadly for my first acquaintance a very happy investor in Amazon.

This  venture capitalists view is simple – Google wants to rip apart the existing model of digital travel (populated by all manner of OTAs) and create a new architecture with it and TripAdvisor at the top of the ecosystem.

And once it realises that its vision is slowly becoming reality it’ll simply buy TripAdvisor – “I give it three years before it decides to spend a tonne of money on buying Trip”.

But why on earth would Google want to own the world’s dominant review site – one simple word should suffice, search.
This elusive term – which means so many different things to different people – is being revolutionised by mobile which is turn opening up a land grab.

Google is determined to own lock, stock and barrel this mobile opportunity as  part of its strategy to own multiple channels to personalised data.

It’s intuition is based on something I’ve been aware of for many years – travel is disjointed and profoundly annoying as a consumer.

Every day I look at my inbox and see multiple emails from the likes of Tripit asking me to organise my trips,

Hotels.com telling me about yet another private members only sale, Groupon shouting about some amazing local offer and TripAdvisor educating me about some of my favourite places.

In sum its confusing and disjointed and for the most part these emails end up in the deleted folder. But rather like the journalists who  use Google Alerts to keep them posted of all news about a favourite subject, what if Google could control all those flows of offers, and then personalise them to my own interests ? At minimum I’d let the message  into my inbox and may even be tempted to buy off its list.

This aggregation of research and search requires three essential components from a supplier :

a) I want it to inform me of the latest offers relevant to me
b) Tell me about products I trust, in places I like, supplied by people who I’ve used before or are recommended by friends
c) Last but by no means least, some of us may also be interested in a constant social conversation about the product to help shape my friends views (though quite why anyone would actually want to do that is beyond me). This step may involve not only views but also content and video.

It’s against this backdrop that a bunch of papers by US advisory firm Evercore stand out. Penned by Ken Seda and his colleagues these start to map out precisely what Google may be up to in the world of digital travel and search – and why the OTAs in particular have a great deal to fear.

The most recent report is from September and is entitled Google’s Travel Plans in a Post-Atomic Era, but you should also make a point of reading the earlier Google’s Summer Online Travel Plans report from March.

Seda and colleagues think that Google has essentially decided to cross the rubicon and take on its big customers like Priceline and Expedia. These huge OTAs have been very reliable customers for the search giant but history teaches us that eventually Google decides it can do the job better .

Starting with a number of small scale initiatives  Google is pushing into the OTA territory, with products such as Limited Offers linked to Google’s Hotel finder service.

Next up will come a yet to be branded ‘captive demand platform’ which will allow Google’s hotelier customers the ability to upload their secret lists of loyal, valuable customers into the Google engine and then churn out very special rates to customers.

Finally all this will be connected back to Google Wallet, allowing the search giant to control the whole process of research and booking.

This activity opens up a number of possibilities  not least the rise of opaque pricing based on personalised information – a huge departure from the existing rate parity agreements signed with the OTAs, with the potential to push prices below the advertised price on Priceline and Expedia.

Key to this push by Google is the bait for hoteliers – they keep the customer lists and transactions and don’t have to rely on the existing ‘atomic’ model managed by OTA merchants where between 15% and 25% of all revenues is taken as commission.

Data is now owned by the brand marketing channel, allowing them to aggressively market to their own private lists of customers.

According to Ken Seda at Evercore, the OTAs are going to lie down in this battle, with Priceline in particular fighting back by buying up specialist outfits such as Buteeq, HotelNinjas and Open Table – the game plan here is to effectively build another leg to the business allowing the OTAs to turn into white label customer intelligence and servicing propositions for hoteliers.

As these changes start to ripple through the industry I’d wager that we’ll see some profound changes, not least for the rabble of OTAs scrapping around for business.

The key challenge is that the direct travel model is a classic ‘middle man’ squeeze waiting to happen. Technology teaches us that eventually the market finds a way to squeeze out the expensive middle man, even if they provide a valuable service.

Lurking beneath this push for market control is a cold reality – the OTAs who account 20% of travel ad spend while contributing to 8% of global bookings, and they simply charge too much. According to the Evercore analysts they reckon that Priceline and Expedia “charge hoteliers over 20% of each booking  on average (adjusted to account for just hotels), whereas Amazon and EBAY take closer to 13% and 9%, respectively)….”.

Google is slowly but surely eying up this model and seeing a huge new market especially as mobile helps to redefine everything, almost instantly removing some traditional channel superiority.

This’ll force the OTAs to plump for one of  three options – be the biggest and offer the most comprehensive selection (the Expedia model), start to look at white labelling and working with hoteliers to provide optimisation services (the fast emerging Priceline approach) or become the brand customers trust and base your product around search and knowledge via reviews (the Tripadvisor model).

And what of the implications for the rest of the travel sector ? The obvious issue here is that Google has woken up to the simple realty that all travel research is about search and that what helps us all search better is personalised, valuable information.

Cut the jargon and one simple fact jumps out – we all want to cut the time we spend online working out what to do next.
Evercore cites a  Google Travel study presented to its Hotel Finder partners, which cited ” that travellers spend an average 55 minutes to book a hotel and flight, visit 17 websites, and click 4 different search ads per travel search, with 90% of those travellers conducting the booking process over multiple screens.

The point of its presentation seemed to be a need for a streamlined bookings path, one where Google can retain the traveller from Search to Research to Book”.

And Google already starts off with an advantage – according to the Evercore paper again “22 billion hotel searches are performed on Google per month with 58% of travellers (64% of business travellers) beginning their travel experience on Google, according to Ipsos MediaCT/Google Travel Study.  However, there is some question as to how many of those that start their search on Google were actually led to a booking decision by Google”.

My own slightly off-beat take on this is that most major existing travel businesses should give up thinking they can stop the Google juggernaut, back it in its fight against the OTAs and then build their own platforms on top of the search giants architecture.

And last but by no means least what happens to the poor old customer, befuddled by all the channels and brands?

Clearly the big game changer is mobile and the degree to which phones and tablets will become the main digital interface.

These relatively constrained devices will lend themselves to modern day equivalents of the old Compuserve walled garden i.e software based architecture that keeps the customer within the world of Google via browsing through Chrome and then paying through Wallet.

Or as Evercore’s analysts put it “we see the integration of HPAs to Google Wallet, Maps and Now as creating a seamless travel experience for the user (from search, to research, to book  — to travel and return)”.

And just in case you thought this was all pie in the sky remember that according to analysts at Evercore, “10%-20% of all online-booked occupancy is [already] driven by Google properties, including Search and Hotel Ads (aka Hotel Price Ads).  Moreover, this measure roughly equals all OTAs combined”.

My sense is that customers will happily live within these closed gardens because the net effect will be that prices – for most – will be driven down, not least by Google taking a hunk out of the OTAs revenues.

Sadly this downward pressure on prices will have two nasty knock on effects – more of that opaque pricing via personalised offers and a slow but steady move towards online forms of internet social stratification.

In the new world that is fast emerging, power will sit in the hands of those marketers with the right lists of wealthy travellers who also happen to be on the right loyalty card lists and have the right credit scores.

– See more at: http://www.travolution.com/articles/2014/09/19/8206/why-googles-designs-on-travel-arent-good-news-for-the-big-otas.html#sthash.vxicHuKY.dpuf

How many travel agents are there?

How many travel agents are there?

By Kate Rice
CNN.com recently ran a headline declaring, “The travel agent is dying, but it’s not dead yet.” The report based part of that inference on a single metric that is frequently used to measure the health of the agent channel: ARC’s number of agency locations.

According to Shelly Younger, manager of settlement services for ARC, that number has dwindled to 13,000 from a peak of 46,000 in the early 1980s. It began falling in the mid-’90s, when airlines capped and then cut the commissions that had been the foundation of the retail travel model.

But in fact, using ARC data to measure the number of agencies is no longer even close to accurate because it represents only those agencies that sell airline tickets under their own ARC accreditation.

Because agency business models have evolved rapidly in the last two decades, the drop actually better reflects two other trends: A lot fewer agencies are selling air, and many of those that are selling air are using the ARC accreditation of a host or partner agency.

ARC itself points out that while its count of agency locations has decreased, the number of agent-generated transactions has actually increased or remained flat, depending on the year.

The problem is that there is no other single metric that accurately calculates the number of retail travel agents in the workforce today, either.

“While we have seen the number of locations actually reduce year over year, much of that … is based on mergers and acquisitions,” said Jeannine Hankinson, managing director of client services for ARC. “And we say that because we see growth within our transactions.”

Hankinson said ARC has seen transactions grow since 2009, when they numbered 136 million. Last year, ARC recorded 143 million transactions.

John Pittman, ASTA’s vice president of industry affairs, consumer affairs and research, suggests that the best measure of agent numbers is probably Bureau of Labor Statistics (BLS) data. By that measure, the number of full-time agency employees in the U.S. has fallen from a peak of 124,000 in 2000 to 64,000 in 2012.

A near 50% drop sounds pretty hefty until you add in one more number: The BLS says that the market now includes 40,000 independent agents, most of whom work from home. That brings the total number of agents in the U.S. to more than 100,000.

In short, there are still plenty of agents around, but their business model has changed so significantly that far fewer of them are using ARC numbers.

As air became less of an economic mainstay, agents began forgoing an ARC number. Instead, they turned to other industry accreditation. CLIA, for example, has its own agency CLIA number. In all, CLIA has accredited 10,700 agencies, and ARC estimates that together, these agencies employ more than 35,000 agents.

IATA also accredits agencies as ticketing locations; the number of these locations has declined, according to PhoCusWright. But it also issues the Iatan card, and there are about 103,000 Iatan cardholders in the U.S. To quality for an Iatan card, agents must have earned a minimum of $5,000 in commissions or salary or a combination of the two.

Another industry number, TRUE, has 2,300 cardholders.

ARC itself, recognizing the trend away from airline sales, in 2007 introduced its Verified Travel Consultant (VTC) program, which is far easier to qualify for than an ARC number is. VTC holders are not accredited to sell air, but they can use the card for other industry transactions.

“As we saw the number of our locations go down, we spoke to our customers, just to say, ‘Why are you leaving?’” Hankinson said. Agencies said they didn’t need an ARC number to book air, so ARC created the VTC number.

Many agents no longer need a full-fledged ARC number because they book air under someone else’s ARC number: a host agency, a partner agency or an air consolidator. It can be through major online booking portals for agents such as VAX VacationAccess, which enables non-ARC agents to book stand-alone, scheduled air.

In addition, agents can book air in tandem with a cruise or vacation package through any number of providers.

Cruise Planners, a franchise and host agency that is a member of American Express Travel Representative Network, is an example of this model. It had $206 million in sales last year but does not have an ARC number.

The 20-year-old group focuses on selling cruises and tours, a classic example of the way agencies adapted after airlines first capped and cut commissions.
Cruise Planners agents book air through a third party or by booking air through cruise lines and vacation packagers.

Cruise Planners has 900 franchisees, which might be one-person shops or have one or two associates.

In addition, there are other airline models. Increasingly, agent marketing groups are consolidating their air spending under a single ARC number. In part, that’s to make it easier for their members who do not have ARC numbers to book air.

But it’s also an effort to have clout with airlines to develop relationships that benefit both agents and their clients. In some instances, agencies can earn commissions on flights. In other instances, an agency can get waivers and favors with airlines because of the business it delivers.

According to PhoCusWright, the travel agency distribution channel accounts for one-third of the U.S. travel market, selling $95 billion in 2011. PhoCusWright is projecting sales of more than $100 billion this year.

VAX VacationAccess is another industry indicator. VAX is a major online portal for booking land vacations, cruises and air, both as part of a package and as a standalone. Some 100,000 agents are registered to use it, and the company estimates that about 75,000 of those agents are active.

In addition to actual data, anecdotal numbers from other segments of the industry illustrate the health of the retail channel.

Tour operators who sell either exclusively or almost exclusively through travel agencies are reporting double-digit growth of up to 30%. Funjet Vacations, MLT Vacations and Gogo Worldwide Vacations are all reporting double-digit increases in business.

Betsy Geiser, vice president of Uniglobe Travel Center, which has 500 home-based agents, and vice president of the Professional Association of Travel Hosts (PATH), estimates that the host agencies belonging to PATH represent about 30,000 agents. The majority of home-based agencies do not have ARC numbers.

Jackie Friedman, president of the host agency Nexion, which has 3,300 members, said that she thinks the number of agents is actually growing.

“There are so many people coming into this business saying, ‘This is what I’ve always wanted to do,’” Friedman said. She added that because travel lends itself to a virtual workspace, it has a very low cost of entrance.

Cruise Planners illustrates this trend.

“Eighty-five percent of the members we bring onboard have never been in the industry before,” Fee said. “They are doing phenomenally because a lot of them come from different businesses, so they bring that kind of business mentality.”

Cruise Planners celebrated its 20th anniversary with a party in Marlins Park in Miami that featured fireworks and a band.

“We were dancing on second base,” Fee said.

Growth of agency sales fueled need for ATC and ARC

The Air Traffic Conference (ATC) was formed in the 1940s at about the time that the components that would became today’s airline industry began to expand.

The ATC, an ARC-like entity, approved about 600 agents to do business with the airlines. At the time, there were four major carriers, and Shelly Younger, manager of settlement services for ARC, said that agents settled directly with airlines in those days.

Agents would collect the money from their clients, write out the ticket by hand, hold the money for a month, then turn it over to the airlines.

“They literally got to hold onto the cash for 30 days,” Younger said. Agents also had to submit all their ticket coupons and prepare a physical report of what they had sold.

Then, in 1956, Braniff Airways complained that working directly with agents was becoming cumbersome, because the industry was growing so rapidly. Braniff proposed creating a clearinghouse, the Area Settlement Plan, for settling agent transactions.

The concept promised greater efficiency for travel agents, too.

“Agencies had to settle and send money to all these different airlines,” Younger said. “It becomes cumbersome to mail coupons and checks back and forth. [The Area Settlement Plan] was an effort to centralize and make [the process] more efficient.”

At the time the plan was fully implemented in 1964, Younger estimates, there were about 5,000 agents and 37 airlines.

Agent numbers kept growing until they peaked at 46,000 in the 1980s.

Because the airlines were seeing some losses, work was begun on security procedures. Agencies were holding cash for airlines. Ticket stock was essentially as good as a blank check, and frequently agencies would be burglarized.

Airlines wanted to protect themselves against theft, fraud and agencies that might have problems with cash flow management. With the growth of the use of credit cards in the 1960s, ’70s and ’80s, credit card fraud became a problem.

ARC was created as an airline-owned corporation in 1985 when the ATC lost its antitrust immunity as a result of airline deregulation in 1978.

Today, agencies seeking ARC accreditation must pay a $2,000 application fee, provide a bond letter of credit for at least $20,000, have specially accredited employees and meet certain security standards.

— Kate Rice