Travel flies to the net

By Karyn Scherer

To outsiders, it seems like one of the more glamorous careers - a bit like being a flight attendant but without the insults and jetlag.

As a travel agent, you still get the free trips, even though most of your time is spent organising other people's holidays.

But over the past two years, the number of travel agents in New Zealand has plummeted. By some estimates, around two agencies are closing their doors each week.

Faced with lower margins and fierce competition, many agents have decided to quit the business, while others have merged their operations in order to maintain their profits.

The catalyst for the most radical shake-up the industry has seen for at least 20 years was a move by airlines last year to slash the amount they pay in commissions. Where agents once received a 9 per cent commission on transtasman fares, they now receive 5 per cent. On domestic fares, the rate has been cut from 5 per cent to 4 per cent.

Most agents regard it as inevitable that the airlines will try to cut commissions further. As if that isn't enough to cope with, there is also the internet to worry about.

If you believe some of the hype coming out of America, more than 15 per cent of all travel bookings will be made online by consumers in their own homes within five years.

The chief executive of the Travel Agents Association, Peter Lowry, acknowledges times are tough, but he does not accept that the days of the agent are numbered. And he worries that some small agencies are spending more than they need to on new technology.

"I think most travel agents would say that as a means of communication, the internet is going to save them money and save clients' money, and it makes good business sense. But because of the hype, some people are probably spending more than they have to and making business decisions that may be before their time."

One of the country's smaller travel groups, Travel For Less, agrees. The group, which has 40 franchised offices, has been offering an online booking service for the past eight months.

Chief executive Digby Lawley admits he has his doubts about whether the service will prove worth the investment. At this stage, most people seem to prefer using the internet to research their trip rather than book it, he says, simply because travel can still be very complicated to organise and the sums involved can be large.

Like some other agencies, Travel For Less has introduced service fees to help compensate for reduced commissions. But not everyone agrees with such moves. One of the industry's biggest and most aggressive players, Australian-based discounter Flight Centre, scoffs at such developments.

According to marketing manager David Burns, the company is able to guarantee the lowest prices simply because of its size, and by employing all its staff on a commission-only basis.

It is a formula that appears to have worked. In just over a decade, the group has established 72 outlets in New Zealand and is on track to achieve a record profit this year of $7 million.

The company is proud of its reputation as an industry renegade.

"When we entered the travel world we weren't welcome," says Mr Burns. "We spent a number of years with the airlines and people like TAANZ trying to drive us out of town because we broke the traditional mould. It's purely because we were a competitive retailer and it was a very comfortable industry."

Now that the industry is less comfortable, it will be difficult for internet-only travel agencies to compete on price, he contends.

Consumers are about to find out whether this is true.

Flight Centre plans to introduce its own online booking service for corporate customers this week. It hopes to have a web site up and running within the next six weeks, and it plans to offer an online booking service for non-corporate customers later this year.

Another major group, House of Travel, which in 1998 took over AA Travel, plans to go online in April.


Both groups are likely to face fierce competition from Travel.co.nz, which is also chasing both the corporate and leisure markets. Formerly known as Advantage Travel, Travel.co.nz is the result of a merger between Jetsave Travel and Gilpin Travel. It was bought by Australian company Travel.com.au in September last year and will feature on the FlyingPig web site from late March.

Another internet-based business, Travel Online, will be watching with interest.

Launched in August 1998, the company is 75 per cent owned by the country's third-biggest internet service provider, Ihug, and has already carved out a niche in the market. It has 5000 subscribers on its mailing list and around 2500 people participate in its online auctions, where cheap deals are dished out to the highest bidder.

Director Mike Teyoung admits establishing the business has been tougher than he initially expected.

While its overheads are low, only half of its 11 staff are currently earning direct revenue for the company. Although it has debts of only $200,000, it is not yet making a profit and is not expected to do so until at least July, and that is dependent on it wooing corporate customers.

Mr Teyoung concedes that internet-based businesses are not necessarily able to offer cheaper deals than traditional bricks and mortar companies, although what is known in the industry as distressed inventory (last-minute deals to fill up empty hotel rooms and aeroplanes) is already proving popular.

"If someone had the perception that putting up their business on the web would give them an automatic entry into e-commerce and sales would increase, I'd tell them they were wrong. It's just as hard to make e-commerce work effectively as any other business," he says.

A crucial question for the industry is whether the internet will actually encourage people to travel more.

Between 1990 and 1997, the number of overseas trips made by New Zealanders increased from 713,000 a year to 1.1 million a year. But over the last two years, growth has slowed and may even have plateaued.

Meanwhile, both Air New Zealand and Qantas have also quietly joined the fray, introducing their own online booking services.

According to Air New Zealand, it is currently getting at least 100 online bookings a week, mostly for domestic fares. It expects around 5 per cent of its bookings will eventually be made over the net.

While agents fear direct competition from the airlines, they also note that the airlines do not have a good track record when it comes to retail operations - Air New Zealand's disastrous investment in Jetset Tours being a case in point.

"We get a lot of people who come back to us after dealing directly with airlines," laughs Travel for Less' Digby Lawley.

"When you get in a queue on the phone and you're 55th in the queue and they're telling you you're very important to them and to hold on - it's just bloody ridiculous. We laugh about it."

The mistake the airlines have made, he says, is that they believe they can save money by dealing direct with the customer. But in fact, he notes, that customer contact still comes at a price.

Air New Zealand spokesman Cameron Hill is evasive when this point is made. All he will say is that the airline is looking at "a series of measures" to makes its distribution system more efficient, "including the cost of phone contact."

Indeed, many travel agents still believe the future of the industry lies with the phone rather than the computer. Potential customers have taken to freephone numbers like frequent flyers to loyalty programmes, although e-mail is catching up fast as the preferred method of enquiry.

Mr Lawley, for one, believes the real test for many agents will be how well they learn to use the internet themselves.

"If you want to ride bikes naked through the south of France, you'll find the company that will do it on the internet. But if you ask the internet to search for naked bike-riding in France, you'll get every one in the world. It could be some dirty old man sitting in the back of his garage in Papatoetoe, for all you know.

"Travel is quite complicated and there's so much choice and so much variation and so much advice to give that there's still a need for someone to be in the middle, advising and helping."

Mike Teyoung couldn't agree more. "What it's going to come down to is what it's always come down to," he says. "And that's value and service."