The Travel Territory
The first known usage of the word “Travel” drives us back to the 14th century, known to originate from the Middle English word “Travailen”, to strive, journey, from Anglo-French travailler. Travel is usually associated with commuting for routine activities, recreation, trading, migration, pilgrimage, and more.
Classification of Travel
Business Travel: Travel destination determined by a business for commercial, governmental, or educational purposes, and where majority or all of the costs are associated with the business involved.
Leisure/ Consumer Travel: Travels that are in agreement with vacation, recreation, visiting friends/family, and sometimes educational but not related to paid work.
Components of the Travel Industry
Inventory Suppliers are the source of products or services offered. We can consider hotels, airlines, or any travel-related product to understand this. Their offerings are routed either “Directly” with no intermediaries involved or “Indirectly” through intermediaries like Travel portals, Consolidators, Travel agencies, etc.
Consolidators purchase large volumes of inventories and sell them for a lower price than the suppliers’ published fare. Sometimes they are bound to contract with suppliers like airlines, hotels, etc. They focus on bulk selling and hence they act as wholesalers to other Travel agencies.
Switch Companies establishes communication between Global Distribution Systems and the Central Reservation System. A switch is also called an aggregator or a connectivity provider that facilitates the hotel’s distribution across multiple channels.
GDS is the Global Distribution System — Amadeus, Sabre (includes Abacus), and Travelport (includes Apollo, Galileo, and Worldspan). It is a system containing information about availability, rates, and related services, used for reservations.
Travel agencies are licensed firms that specialize in travel-related arrangements, such as booking airlines, hotels, meals, tours, vacation packages, and more.
Travel portals are online travel agencies through which a consumer can plan the travel.
Conventional way of working together as a team
Suppliers host their products and services on the Global Distribution System and pay a booking fee for each transaction. Travel agents pay to subscribe to distribution systems to book products and services for consumers and charge a service fee. Suppliers offer loyalty points to incentivize direct purchases. Travel agencies also provide this service to customers who book through them. Suppliers may pay commissions to travel agencies on generated revenues and so on… There are endless ways and strategies to get this working and every business and transaction has its own benefits.
Simple booking process with the Travel Management Company via Global Distribution System (GDS)
Traveler contacts the agent for booking — Agent accesses the Global Distribution System to get the list of available travel services — Traveler selects the best available listing via Travel agent — booking is confirmed by the agent — Ticket is sent/printed.
Sample revenue model for a booking through Travel Management Company
For a $100 ticket, the customer pays the ticket price of $100 and a service fee of $2(say) to the Travel Management Company. The total cost for the ticket is now $102.
Travel Management company passes the $100 ticket price to the airline through the credit card company and pays a $0.50(say) fee to GDS. In this example, the travel management company earned $1.50.
The airline uses GDS to host its inventory so for each booking it pays a GDS fee of $2(say). The airline also gives $1(say) as a credit card fee to the credit card company. Earning for the Airline for this transaction is $97. Earning for the credit card company is $1.
Thats it!
Considering additional options, we can expect more complex processes with more intermediaries, which provide greater benefits. Of course, these commercial arrangements keep evolving over the years…
