The purpose of this report is to determine the current business environment of the travel agency industry in New Zealand and some key factors of being success in the business. Booking the fare through travel agency can be convenient and time-saving, but there are many alternative ways out there in the market as well, such as book directly from the Airline Company, online booking website, etc. Findings indicate invest in the travel agency can be profitable but there are a few aspects to analyse before entering the market.
Key factors the investor should be considered are: customer loyalty & probability, sustainable development and market segmentation. Introduction There is a growing number of people book the fare or a trip through either travel agency or online website in New Zealand. Toda, Makino, Kobayashi & Morimoto (2007) indicated that going on a leisure trip is good for people’s mental health, and this can also be a key driver to the increase.
Furthermore, there are some positive effects relates to the travelling as well: meeting new people, gaining more exciting experiences, etc. So, not only existing travellers, but also everyone can be classified as a potential customer to the investor. An analysis of both external business environment and internal business structure will be undertaken. There should be a vivid picture presented in the investor’s mind, about travel agency industry’s future, through this report.
Discussion Customer Loyalty and Profitability Travel agencies do its business by providing service to the customers and gain commissions from it. Keeping loyalty customers is the priority to the customer oriented company as they directly and continually contribute to the business (Van Riel, Semeijn & Pauwel, 2004). The profit margin generated by the travel agency is very low, and the industry is heavy reliance on the loyalty customers (Oppermann, 1997). So, travel agency should strive as much as possible to develop long-term relationship with its customers (Poujol & Tanner, 2010).
Losing customers can be really costly in today’s highly competitive market. According to Bovee and Thill (2010), the cost of attracting a new customer is far more than the cost of keeping the existing customer. In order to establish advantageous positions within the industry, the agency must has high quality relationship with its customers by fully satisfying the customers’ needs and wants; because the quality of customer relationship is directly proportional to agency’s profitability (Aborumman, Alhawary & Irtaimeh 2011).
Consumers are keen to pay for the trip at the lowest price by using the most efficient way, which is booking through the travel agency, for an example, the average difference between the ticket the customers found and the ticket the House of Travel found is 150NZD (“Agents”, 2004). However, “Is your travel agency playing ‘fare’? ” (2001) appeals that only 51% of the agents can provide complete fare and flight information to the customers, and only 20% of them actually acknowledge their customers about the overrides received.
This can be truly risky to the travel agency, as all the agencies are providing similar product, so the quality of service would be considered as a key factor (Van Riel et al. , 2004). Richard and Zhang (2012) also indicate that the customers can be less price-sensitive once they become loyal to a brand, and less likely switch to another brand simply because of price. Sustainable Development Having a sustainable development strategy is essential to a business to be successful in the competitive market.
From the research, about 80% of the travel agency in New Zealand was or currently is operate under the franchise business model (Oppermann, 1997). In this way, the franchisor will provide the online management and online booking system for the franchisee to use, which can be a major benefit to the investor. In addition, the sustainable development strategy is also important from the business structure’s point of view. Oppermann (1997) indicates that 22 per cent of the travel agency had only one or two fully time employees, 58 per cent had 2. to 5 and only 6 per cent of the agency had more than 10 full time employees. By adopting this team-based strategy, the business can gets more customer satisfaction and be more efficient and profitable (Dunford and Palmer, 2002).
The Flight Centre is a typical example for this: the Flight Centre split all the employees and retail stores into three management level, the primary level is called ‘family’, which contains three to seven employees, usually is on the retail store basis. The medium level called ‘village’, which contains our to five families that are geographically near each other, and create a close working relationship. The top level called ‘country’, which contains about 20 stores. The country leader has the right to directly report to the head office (Dunford et al. , 2002). Under this development strategy, the revenue and performance of the family, village and country directly linked to the agent’s salary, the individual has to work hard to increase customers’ satisfaction and the revenue of the family, so that he or she can get better paid.
In this way, the investor can directly benefit from the increase of sales and also minimize the risk from the management level. Marketing New Zealand travel agency industry is facing a very board market, as everyone can be a potential customer. All the agencies are trying to provide unbeatable price for its customers. From the agencies’ view, some businesses have concentrated on a few specific market segments (Bovee et al. , 2010). For instance, Flight Centre New Zealand, as an Australian-based international travel agency, now owns 130 stores around New Zealand, and over 1500 stores all over the world.
The company provides several different travel packages and more relevant information for the heavy-user segment rather than the light users (Dunford et al. , 2002), as the heavy users are more focus on the quality of the trip instead of price (Goldsmith & Litvin, 2012); Studentflight, as a part of Flight Centre New Zealand is targeting on the young age student customer by provides special offer to the students. On the other hand, some agencies are only focus on one market segment.
For an example, CTS New Zealand, which is a Chinese-based travel agency, provides the flight booking service only from or to New Zealand, not all over the world, on an extremely low price compare to others. Some other companies, such as the STA Travel Service, their product mix (not only provides assistance on booking tickets and accommodations, but also visa application, travel insurance, etc. ) also helps the company to gain more market share in the industry. Industry Structure Analysis Understand the industry structure is crucial to the investor.
Travel agency industry can be defined as a highly competitive industry. First of all, there is a high threat from the substitutes and competitors. Direct distribution shows a growing proportion in the current market segment, for an example, many airline companies, such as Air New Zealand, start to distribute the ticket direct to the customers in order to cut out the commission payment to the travel agency (Oppermann, 1997). The travel agency industry is forced to innovate the way they do business due to this fact (Rhodes, 1999).
However, the threats are not only come from the airline companies, but also other travel agencies. For instance, the House of Travel, Flight Centre and some other travel agencies both developed the online booking engine, so that the consumers can book the ticket, accommodation and enjoy other services online. In addition, the internet-based and home-based business model can be a major threat to the traditional type of agency, especially the internet- based agency which provides 24 hours 7 days in a row service and global accessibility for the customers (Thom & Chen, 2012).
Nowadays, 35% of bookings are completed online (“Bums on seats”, 2005). The supporting services provided by the online agency, such as currency calculator, weather forecast, can also be a competitive disadvantage to traditional agency (Van Riel et al. , 2004). From the internet and home-based travel agency point of view, the barriers to entry is low, due to there is almost no fixed cost involved, all you need to start a business is a computer with a booking system, a phone, and a customer list.
Secondly, the supplier power is keep increasing over years, as the upper level supplier has the power to decide the commission rate that they pay to the agency. The suppliers also interested in distribute the ticket to the client by themselves rather than through the travel agency. The bargaining power of the travel agency is low. Thus, the buyer’s power is high in the industry. There are all kinds of travelling information on the internet, compare to the past, the consumers are not fully reliance on the travel agents to schedule their trip anymore.
According to Dunford et al. (2002), 80% of the travel revenue was generated by 25% of the customer, and these 25% of people is relatively price-sensitive, which means the agency has to provide better service to keep those customers (Van Riel et al. , 2004). The consumers have certain degree of bargaining power. In summary, the travel agency industry is highly threatened by the competitors and the substitutes, the barriers to entry can be low, and there is almost none of switching cost, the supplier’s power and buyer’s power is high. Overall peaking, the travel agency industry may not be an attractive industry.
Conclusions An analysis of the travel agency business in New Zealand has been presented in this report; few conclusions can be drawn from this. Investing in the travel agency industry and operating under the franchise business model carries a lower risk compare to operate individually. In order to being profitable in the industry, the investor should focus on developing long-term relationship with its customers by providing customize service and product for them.
The investor also needs to concentrate on developing the appropriate sustainable strategy for the business. As travel agency industry is a highly competitive industry, careful determine the market segment and trying to differentiate their service and product seems necessary. The investor can be successful in the market, but there are numbers of factors need to be examining before truly entering into the market.