One of the many interesting discussions during the recent SATSA conference at Fancourt was about the role of the tour operator. The industry is changing and technology continues to drive us forward, putting pressure on travel companies across the board to adapt and evolve to stay ahead of the curve.
Is there a future for tour operators and DMCs in this shifting landscape? What about traditional travel agencies? Or did the Internet age and the monumental growth of OTAs, Tripadvisor and online bookings herald a slow but inevitable death of the traditional tour operator and travel agent?
To borrow from Mark Twain, reports of the death of the tour operator have been greatly exaggerated.
Of course, change is inevitable. As our digital evolution continues, traditional channels are being replaced by digital channels. Old-fashioned travel agency bookings are being challenged by direct bookings. Travellers are increasingly booking online, doing their own research and bypassing middlemen. In many cases, especially among the big hotel chains, static STO rates are being replaced by dynamic rates or BAR as hoteliers refine their revenue management strategies. New pricing strategies alone present a myriad of challenges for traditional tour operators who rely on commission. But we will come back to this point.
Some have argued, understandably, that the traditional supply chain had too many middlemen and their various margins or commissions caused the final price to the consumer to be too inflated. This is certainly one of the overriding reasons why many consumers prefer to book direct – they are hoping to save money by cutting out the middlemen and their commissions. If booking direct or booking online via big OTA's is consistently cheaper for the customer, we can expect this channel to keep growing, at the expense of traditional channels.
This presents a very real challenge to tour operators. The value chain, as it is often called, should live up to its name – it should add value. The time for middlemen to merely add fat to the system without adding any value is over. Tour operators and DMCs need to ask themselves what value they add, both for the supplier or product owner as well as for the agent or direct consumer.
Let's examine the 'value' in the value chain.
In many cases, travellers still prefer to deal with a company in their own country. They may do their research online and perhaps book certain aspects of their trip online, but many still prefer to call a local number and speak to a real person, be quoted in their own currency, pay into a local bank account, and enjoy financial protection for their own peace of mind. In most cases, customers can only be protected by their home country's travel laws and regulations if they book with an agency in their own country. Some have been badly burned by booking a hotel or tour online in a distant country, only to discover on arrival at the airport that the place has closed down.
This reality means there remains a need for agencies and operators around the world to reach their own markets in their home country. And these agents and wholesalers abroad may lack in-depth destination knowledge or first-hand product knowledge, and will continue to deal with local ground handlers, tour operators and destination experts who package product. The mode of communication may have changed, checking of availability can be done instantly online, and pricing strategies may have changed, but there remains value in the traditional value chain, and this presents opportunities for local tour operators and DMCs .
As an inbound tour operator, we see a difference between a traditional ground operator (tour operator with vehicles, creating and offering their own tours) and a tour operator or DMC without vehicles, whose primary role is to package third party products into marketable itineraries. But both types of tour operators can usually offer something that is difficult for wholesalers or travel agents abroad to maintain: in-depth destination knowledge, up to date information on local conditions, first-hand product experience, and hands-on tour management and problem solving.
Tour operators also offer value to the product owners or accommodation suppliers. For example, they are able to package products and build itineraries to reduce the impact of seasonality. For example, a South African tour operator may package a Kruger and Cape Town itinerary which combines these two popular destinations, and evens out the seasonal ebb and flow. By combining these destinations, Kruger benefits from Cape Town's peak summer season, and Cape Town products benefit from Kruger's peak winter season.
Another advantage is access to specific markets. Some tour operators specialise in niche markets and spend money and effort to market their destination to that region, via trade shows, advertising campaigns, social networks, or existing relationships with agents in that source market. It is usually not realistic for product owners to do their own marketing in all source markets, so partnerships with local tour operators can add real value.
This brings us to the subject of fees or commissions.
Some have argued for a fee-based model, where tour operators or DMC's charge a professional fee for their services, rather than relying on the traditional model of commission or STO discounts. However, in this age where consumers have access to the best available rates online, and routinely compare quotes with published rack rates or with offers from competing companies, any pricing model that inflates the final price to the consumer is not realistic.
Traditional STO rates reflected the value of the supply chain, and allowed tour operators to earn their margin and still offer commission to their agents abroad, while the price to the consumer remains constant. Revenue management and BAR pricing models threaten to change all that, and it certainly seems as if dynamic rates are here to stay.
As I argued in a comment to this recent article, as long as dynamic rates remain commissionable to protect the value chain, there is no problem. The minute hoteliers cut out the tour operators due to uncommissionable BAR rates, they will see reduced support which may very well come back to bite them in tough times. Technology has changed but in many cases the supply chain has not. Brochuring and advance contracting is also here to stay, even in the digital age. A middle ground must be found between revenue management and protecting the value chain.
Quality tour operators and DMCs continue to have a critical role to play in promoting our destination, packaging product into marketable itineraries, providing local destination knowledge to customers and agents in our source markets, and adding value to the supply chain. As someone pointed out during the discussion at the SATSA conference, we need to move away from the "us vs them" mentality. We are all in this together. Our destination faces multiple external challenges and our strength lies in working together, protecting the value chain, building strong relationships and supporting each other through these tough times.
