Three Reasons Why Travel Industry Needs Small and Mid-sized (SME) Online Travel Agencies
As the travel industry is slowly but surely emerging from arguably the worst years of its existence, many are today recognizing demand growth in a slight but visible trend.
This is certainly seen in the news as travel industry players keep announcing how they prepare and adapt to life after the pandemic.
But what about SME travel agencies? Are they still there and does the industry need them?
You will probably not read in the news that Joe’s Travel Agency has signed an agreement with ACME corporation for $50,000 a year. After all, it is small news for the industry, it does not impact so many people. And maybe we would have too many of those?
It might be however we want to argue that the value of the SME travel business is still an undeniable factor of the global travel industry machinery.
In the following lines, we will cover some ways SME Travel Agencies still play an important role in how the travel business is being carried on.
Reason One: SME Travel Agencies Help Airlines Be Profitable
You have probably heard about the Pareto Principle that states for many outcomes, roughly 80% of consequences come from 20% of the causes, or better known as the 80/20 rule.
We can probably say that 20% of all online travel agencies (the biggest ones) total 80% of all airline tickets sold by travel agencies online. We can also assume the remaining 20% are sold by SME travel agencies.
Twenty percent does not seem so much, however, in 2019 only, the Airlines Reporting Corporation (ARC) has reported that the total of revenue generated by online travel agencies in the United States only, was close to $100 billion. And it was a record high with a 2.8% increase year over year (for sure Covid-19 changed that but these trends will come back soon).
It also means that SME online travel agencies have sold about $20 billion of airline tickets in 2019.
You have probably heard of the airline load factor. The load factor is a metric used in the airline industry that measures the percentage of available seating capacity that has been filled with passengers. The load factor helps investors and airline management determine how well an airline generates sales, covers its expenses, and remains profitable. A high load factor indicates that an airline has sold most of its available seats and is preferred over a low load factor.
Typically airlines need to achieve between 75% and 80% of a load factor to start being profitable (it is an estimate and varies by airlines). An analysis from Forbes in March showed that the big US airlines, United, Delta, American, and Southwest, need a load factor between 72.5% (Southwest) and 78.9% (American) to not make a loss on their flights.
This means that without 20% of travel agency online sales, airlines would have a very difficult time having high load factors and it shows the importance of SME travel agencies for the travel industry. And this is not taking into account that many SME online travel agencies also sell additional travel content such as hotels, car rentals, transfers, packages, etc.
Reason Two: SME Travel Agencies Primarily Support the Local Market
Despite being online, SME Travel agencies primarily work locally. And the importance of boosting the local market comes with an impressive set of benefits for the economy. Large enterprises aim to cover the market that is most of the time going over the boundaries of a continent, let alone the country.
But with SME Agencies the reality is nearly universally the same. Their primary focus largely depends on the fair service and the trust of the local population.
With that in mind, most of the small and medium travel agencies strive to support various ethnic groups, religious groups, humanitarian & aid organizations, as well as many cultural and sports groups. Without their booking services, it’s easy to see how uncertain their way of doing business might be.
Arguably the biggest benefit that SME agencies can provide to the local population is the fact that their services mainly become tailored and suited for the needs of the small companies within their reach.
It is also very important to note that the SMO online travel agencies help grow the local business ecosystem. There are many activities related to their activities that they cannot do themselves for lack of expertise. They need accountants, web designers, lawyers, office space and equipment, and many other services that consultants provide to them.
Reason Three: SME Travel Agencies Benefit Airlines Consolidators
Travel agents frequently use resale brokers to purchase airline seats in large numbers at discounts. Air ticket distribution continues to be dominated by these pre-Internet survivors.
Consolidators often partner with carriers to get rid of excess inventory. They offer tickets for a significant discount when booked in bulk. The discount percentages and their number change depending on whether the booking is a domestic or international flight.
One problem with SME Agencies is that most of the time they simply don’t have enough volume to have the special negotiated rates with airlines. Therefore, conducting business with Consolidators comes as a must most of the time.
We can represent the benefits scheme between these two parties in a simple way. The more Airline Consolidators the SME Agency has under its wing, the better ticket prices can be presented to the customers.
And, the more SME Agencies have the agreement with the Airline Consolidators – the better the negotiated price for tickets will be at the Consolidator’s end. Making them also having a steady and very well contact with the Airlines themselves.
In the end, we shouldn’t forget that Airlines prefer to make a business with a smaller number of Consolidators that have more SME agencies under their wing and not vice versa.
The world of travel is slowly but surely returning to the form that we all remember well. It’s naïve to think that embarking on a journey will ever be the same for both large corporations and simple travelers as well as all the SME Travel Agencies.
Technology supports the development and growth of SME online travel agencies and by extent provides benefits to them. Benefits that SME Agencies will continue to provide on their side to the travel Industry and grow steadily over the years as per ARC study.
The ability to bend and adapt to fast-paced emerging trends will hopefully remain the greatest asset of the SME agencies while continuing to provide the best and perfectly tailored arrangements for countless small business organizations.
We, at Thomalex, are focused on helping SME online travel agencies with their online booking technology needs.