The competition in the travel industry is high. Today, people want to access a lot of options to book trips and accommodations through travel agent app. In fact, travel apps like Expedia, booking.com, and many others are questioning the role of traditional travel agents for a while now.
Nowadays, online booking through a website and travel agent app like Airbnb and HomeAway are increasing. Airlines, car rental, and hotel chain brands have been developing their own websites and travel apps.
Moreover, such travel agency apps and websites now offer loyalty programs to convince customers to use their services to get the best deal.
In such competitive environment, What can travel agencies do to survive?
Generally, you might think of launching your own website or creating a mobile travel agent apps to enter the online travel market. But, remember, putting a website or launching a travel agent app isn’t some magic success pill. In fact, chances are you might not succeed.
Because by launching a website or building a travel agent app would mean going against the Expedia, Booking.com, and a bunch of others. Now, this doesn’t mean it’s impossible. But, in order to survive such fierce competition, travel agencies must adapt and differentiate their product offerings.
For this, you must find out how online travel agent app companies operate and try to discover their negative points through customer reviews and so on.
Currently, the online travel market is dominated by Expedia and the Priceline Group.
Both of these companies own a number of websites and mobile apps. The Booking.com and Kayak is owned by Priceline. And, Hotels.com, Trivago, and HomeAway is owned by Expedia.
However, the Expedia is focused more on the U.S. market, while the Priceline Group is focusing on the Asia Pacific and Europe. In 2015, Expedia acquired Orbitz and became the largest online travel agent in the U.S.
But, the Priceline’s net income still outweighs Expedia’s because of its larger international presence. In 2016, Priceline generated about $10 billion in revenue, where Expedia cleared only $8 billion.
Not only that, the Booking.com is much stronger than Expedia in the vacation rentals and apartment booking, which is a top lucrative market. So, in order to make up in this market against Booking.com and Airbnb, Expedia recently acquired HomeAway.
According to Sabre Travel Network, the online travel agency Expedia collects and aggregates data from thousands of travel service providers. By developing a website and their own travel agent app, it allows customers to look at and compare travel options.
Customers uses their website and mobile app to search for flights, hotel rooms, rental cars, and vacation packages. Expedia gets these customers by marketing and partnering with travel providers to get customers who they might not have been able to reach on their own.
Expedia was started by Microsoft as a small travel website in 1996, but it was quickly spun-off when it grew outside of Microsoft’s area of expertise. Then, the company was bought out in 2001, but it spun-off again in 2005. Since then, the company has carved out a large market share in the online travel industry.
Expedia makes money from a few sources. 70 percent of its revenue comes hotel reservations. To achieve this, they applied a simple strategy. They simply buy up a large number of hotel rooms at discount and market their site as having the lowest price guaranteed.
For example, suppose Expedia wants to offer a seven-night vacation package to Jamaica with all-inclusions for two people. The company contacts a hotel in Jamaica and ask to buy a block of 100 rooms at $50 instead of their best available rate of $90.
After that, Expedia contacts to an airline and makes 200 seat reservation to Jamaica for $600 (possibly with a discount). The company also makes a deal of providing food to their guests for the entire treat. Let’s say $250 for two people.
Now, the Expedia offers this package to guests at $1700 for two. People booking this package are happy because they saved their money by booking off on Expedia. The company shareholders are also happy because they’ve paid only $1550 for their package and sold it to 100 couples for $1700. This way everyone wins!
Another source of revenue of Expedia is commission fees.
Expedia’s commission fees range from 20-25% which sometimes make hoteliers wonder if they’re operating under Expedia’s control. However, most hoteliers knows that customers will be more inclined to visit Expedia than the hotel’s website.
For instance, a hotel will offer 10 rooms to Expedia for online reservation. These rooms are not sold to Expedia, and there is also no income guarantee for the hotel.
Now let’s say the rate of a hotel room is set to $100 on Expedia, and if sold, the guest will pay $100 to Expedia and Expedia will pay $75 to the hotel. The company withholds $25 as a commission fee for providing customer service and invests it for marketing and to seek new business.
Now, another important question:
Travel companies generally source their inventory by negotiating directly with hotels and with global distribution systems such as Pegasus solutions, Worldspan, and a bunch of others to book airline tickets, hotel reservations, vacation packages and various other services.
Expedia, one of the leading travel agencies, has the database of hotel amounts for over 4 million listings.
The GDS (Global Distribution System) was first originated by airlines. The American Airlines created Sabre in 1960 to make reservation accessible to customers through internet gateways.
However, the GDS system can be expensive to access. Therefore, the online travel agencies prefer to use GDS only if they ran out inventory in a given city. Generally, travel agency companies directly buy rooms for lower rates and receives 20-25 percent profit, where through a GDS, they get maximum 15 percent in profit.
Online travel agencies provide a broad range of services including hotel reservations, car rentals, vacation packages, and airline tickets.
Among all these services, Airline tickets are probably the most competitive and it doesn’t net much money for agencies as well. In past years, Expedia and other travel companies used to charge commission on airline booking, but then most of the airlines started selling tickets directly on their own websites. In fact, nowadays most people search on booking websites for airline booking and then buy tickets directly from the airline itself.
So, in order to monetize their services, online travel agencies generally have one of the following three business models.
In this business model, travel agent app generally acts as a middleman between customers and industry operators and makes a commission on every transaction.
Expedia’s commission rate is between 20-25% which is bit higher, but for hotels getting exposure on Expedia can be the only way to increase occupancy.
In merchant business model, all bookings are done on the agency’s own travel agent app or website. To operate according to this model, an online travel agency needs to buy large number of hotel rooms at a wholesale rate and then sell them through marketing at the agency’s rate.
The Priceline Group sells its hotel reservations according to Agency business model, while the Expedia follows Merchant business model, getting high margins in commission.
Advertising is another way for travel agencies to make money. Generally, travel apps like Hipmunk and Kayak earn by charging cost-per-click to OTA and supplier websites.
In simple words, Hipmunk and Kayak redirect their customers looking for hotel and flight booking to the hotel and airline websites and earn a few cents as a referral.
For an Entrepreneur or small travel agent who is planning to build a travel agent app, the advertising model is the most affordable for starting out.
Although, you’ll need to attract a lot of traffic to your site to sustain your business on only advertising model. But, alternative option is to offer vacation packages similar to Expedia to earn high profit in terms of commission.
You can use any of the above business models, but these business models alone can’t give you the success you want for your travel agent app. Moreover, we believe in doing things bit differently. Similarly, in order to succeed, differentiating your app offering is the key to win at the online travel market.
According to survey published by Euromonitor International, the travel industry will have the highest percentage of travel bookings through mobile apps by the year 2020.
This means, mobile market is where your prospects hanging out. But, since the market of mobile travel apps is just as competitive as the web, we suggest building an app first as it can greatly increase your customer loyalty.
Currently, Western Europe, North America, and the Asia-Pacific region are the largest markets for online bookings. This means, offering online travel service with a new travel agent app to them isn’t the best strategy.
Eastern Europe, Africa, and Northern Asia can potentially present a much better opportunity if these markets grow.
Another good option is to choose niche based on interests such as adventure, wildlife, sports or special events such as rock concerts, festivals, olympics.
Today, people who are used to getting instant information on the internet and booking trips doesn’t care much about hotel or airline brands as they do about their budget.
Online travel agencies like Expedia cater to a mass market with wide range of options, but they sometimes lack in providing customer experience that clients of traditional travel agency expect. And, customer service is what the traditional travel agency is good at.
Moreover, looking around online for deals takes time.
The traditional agents search for flights and hotels for their customers. In addition, such traditional travel agencies customize and adjust the entire trip according to customer’s budget. And, if the customer has any questions before, during, or after trip, traditional travel agents are always there to help.
To win at the online travel market, obviously your travel app needs to standout. Not just in terms of design or user interface, but also in the service offerings, as mentioned earlier.
Instead of offering travel services at fixed prices and making a commission, you can provide a service where user can enter the budget and desired location where s/he want to visit and your app gives best deal among available hotels and airlines that fits in the budget.
This way, customer can save a lot of time of checking dozens of hotel and airline listings and calculating which fits their budget. With your travel app, you can make it much more simpler for them.
However, before proceeding further with this idea, it’s important to know the cost and time to develop the app. And for this, you can reach to a mobile app development company and discuss the idea and plan accordingly.
Since customers still seek for the advantages that traditional travel agencies offer, you can embrace such services in your travel app with the use of correct technology. And, if you liked the idea and want to discuss further, you can Contact Us for the same.
Get your free consultation now