The “Now” of Travel Distribution

The futurists talk about the future of travel distribution, but I am more of a “nowist”. So let’s discuss the “now of travel distribution”.

To understand the now of travel distribution, which is just around the corner we will need to understand how travel distribution has evolved over the years. Travel distribution today is a complex web where the supplier can also be the consumer (think AirBnB customers who also list their home on the platform), there is whole list of intermediaries (from banks and credit card companies to governments and visa offices). Also, today the supplier (an airline, hotel, car rental, among others) can find different routes to the market.

For this article, I am going to oversimplify it. Also, the focus will be on the two key elements of the transaction i.e. the flow on Product and/or Service from the Supplier to the Consumer and Money from the Consumer to the Supplier.

In the beginning, life was simple there was a Supplier and a Consumer. The Supplier had a product and/or service that the Consumer needed and the Consumer had money to pay the Supplier for the Product and/or Service.

In the begining

This model worked well on the onset because:

  • Suppliers were limited, hence choice was limited and therefore the Consumer did not “hop and shop”
  • Demand was less than supply, and travel was expensive (both in terms of time and money)
  • Motivation for travel was functional (meeting, education) rather than aspirational (explore, fun, social currency)

So say for example, a consumer wanted to travel from Mumbai to London. He had two options, he would either go to the Air India ticket office or the British Airways ticket office and book a ticket. Like I said earlier, for the scope of this article I am oversimplifying the process and not bringing into account the processes that the Consumer needed to go through with respect to obtaining a VISA or endorsing their passport to get foreign currency (Google it!, we have it so simple today) approved from the Reserve Bank of India.

As time passed, the base of Suppliers increased and the need (and also the want) to travel increased. As choices increased the Consumer needed a professional who they could trust (remember “trust” as it will be referred to again) to navigate through the choices and make the best decision for them. Here comes in the Travel Agent with his Travel Agency.

The addition of the Travel Agency

In this model, the Consumer could still transact directly with the Supplier but there was a convenience factor of routing the transaction through a Travel Agency. In both the cases the Consumer was paying “Money = x” to either the Travel Agency or the Supplier, but in the case where the Travel Agency was involved the Supplier was receiving “Money = x – c”, where “c” was the Travel Agency’s commission. While in this case the Supplier was receiving less money, they attributed it to cost of business because in this model the Travel Agency could influence a Consumer (who had limited information) to choose British Airways over Air India.

If the cost to the Supplier in terms of Travel Agency commission was not sustainable for business, there were cases where the Supplier would increase the cost of Product / Service (to accommodate for the Travel Agency commission), which would also mean the cost to Consumer coming directly to the Supplier would also be higher, to maintain rate parity across the transaction chain.

This model there is an increase in time taken, because of the intermediary i.e. the Travel Agency. But the invested time and effort was that of the Travel Agency, while the Consumer would leave it to the professional (read: Travel Agency) to give them the best option at the best price within the contracts of their travel requirement.

We are still in an era of the Travel Agency sending a representative to the Supplier’s office to facilitate the transaction. Information would be shared over the phone where possible and someone would have to go to the Supplier’s office to collect the ticket and pay the money.

Trust forms an integral part of this this transaction. The Consumer is paying an intermediary (Travel Agency) money for services provided by another entity (Supplier). “What is the Travel Agency takes my money and does not give me a ticket or a fake ticket!” The Consumer in this scenario did not have access to the Supplier.

Trust continued to be a decisive factors hence families had their family Travel Agency (like the family doctor) that they would go to for all their travel needs and Corporates had one Travel Agency (or a couple in some cases) on their panel to facilitate their corporate travel of the organisation.

But in time, time became a commodity and “turn around time” was key. So here walks in the GDS, an acronym for the Global Distribution System (Sabre, Galileo, Amadeus, Abacus). The GDS sat as a gatekeeper to the world of the Supplier and used technology to distribute the Product / Service across the Globe, hence the name Global Distribution System. It was not a simple system – one needed to know code (line commands) to get information from the GDS and facilitate a transaction. It meant that not everyone could access the GDS, and the Travel Agency up-skilled their staff on utilisation of the GDS.

The addition of the GDS

As the travel distribution model evolved, the Consumer could still transact directly with the Supplier. But the most efficient and encompassing route was for a Consumer to go through a Travel Agency that had access to Product / Service from Supplier directly and numerous multiple Global Suppliers via the GDS.

The GDS gave a Travel Agency access to thousands of Suppliers, all in one place. In comparison the Consumer might have had access to just a couple of Suppliers. The GDS is propriety technology designed to sit between the Supplier and the Travel Agency. The Consumer did not have access to the GDS and even if they did they would not know what to do with it as it required one to be familiar with line commands to access information and facilitate a transaction. In this era the Travel Agency was supreme, they were the gatekeepers to information (think of them as the Google of today for travel) and were trained to access this information from the window of a computer screen.

The economics of the transaction (simplified version, as I am not including say for example BSP) is the Consumer pays “Money = x” either to the Travel Agency or the Supplier depending on where the Consumer has purchased the Product / Service. If the Consumer has purchased from a Travel Agency then the Travel Agency keeps their commission “c” and pushes the money up the chain. In reality the GDS does not get “Money = x-c”, it is more like an entry as the payment process can happen directly of with BSP (Banker Settlement Plan) or other such similar systems / processes. The GDS charges a fee “f” for their service and the Supplier received “Money = x – c – f”. If we add other intermediaries like banks, credit card companies, BSP the Supplier stands to receive far less money than “x – c – f”.

As internet became common, the Online Travel Agency (MakeMyTrip, Expedia, and others) walked into the Distribution Network. And unlike the GDS that sat closer to the Supplier in the chain, the OTA sat closer to the Consumer in the Travel Distribution chain (read: Consumer focussed).

The Online Travel Agency walks in

The OTA was designed for the consumer. Among others, its key attributes are:

  • Access to large number of options on inventory
  • Provide multiple options in a easy and simple to use interface
  • Allow product / service comparison
  • Realtime confirmation
  • Realtime payment

The OTA made is easy for the Consumer to “look and book” from the comfort of their home. But one of the biggest challenges that an OTA had was to gain trust of the Consumer. And who had the trust of the Consumer ? Yes, the Travel Agency.

I am not saying that that the Supplier and the OTA did not build trust. But the Travel Agency was a much closer and stronger personal (one on one) relationship with the Consumer. In general, the Supplier was too far from the Consumer to build meaningful relationships other than its brand and marketing campaigns. And the OTA, the new kid on the block was too young to seen as established and trustworthy.

While the OTA was seen as the competition to the traditional Travel Agency, the OTA needed to change that impression and position itself as a symbiotic partner of the Travel Agency. This was one of our greatest challenges when we launched the Expedia TAAP in India. (Full Disclosure: I was part of the Expedia TAAP team in India managing the business and developing technologies that went on to change some of the aspects of the acquisition and transaction chain).

So while a Consumer could book directly from Expedia, the ones who wanted to purchase via the Travel Agency would also at times, get the Expedia distributed product via Expedia TAAP.

And even in the OTA space there was a mindset of “co-opetition”. I will share my thoughts on this in another article. But to get the idea, for example, Cleartrip and Expedia are competition in the India market. But to give best value to their respective customers they co-operated. Cleartrip provided their vast airline inventory to Expedia platform (which it needed) and Expedia in return would share its extensive hotel inventory with the Cleartrip platform. This is co-opetition.

The Travel Agency would use the Expedia TAAP system to make a transaction on behalf of their Consumer. The Consumer has placed their trust with the Travel Agency and the Travel Agency with Expedia. And to build that trust we had very strong guidelines on contacting the Consumer directly, which we only did in case of an emergency and if the Travel Agency was not accessible at the time (as our contact centres ran 24 x 7). We did not have any direct marketing campaigns for the Consumer of the Travel Agency, whose travel was booked via our platform by the Travel Agency. The Travel Agency never felt that Expedia would poach their customers and throughout this trust element got stronger and the business grew many folds in India and other markets across the globe.

The economics of this distribution channel is very similar to the previous one except there is a OTA commission “o” that the OTA keeps from the amount received by either the Consumer or the Travel Agency (e.g. via the Expedia TAAP).

You might have seen as the Distribution Model evolved, it included more intermediates in the path. The intermediaries bring in convenience. There is always a continued debate if it increases the cost for the Consumer or reduces income for the Supplier, possible in the INR value sense but like I said earlier time is now a commodity and if we factor in that variable in the entire chain it might be a simple case of “value derived greater than cost incurred”.

But such a system does come with its own challenges. Each stakeholder in the network has their own systems and these systems need to be connected to one another. Time, while we get the confirmation realtime the time taken for all the intermediates in the system to reconcile the records is humungous, and by records I mean the flow of Product / Service and back flow of Money. Mismatch, because the systems are different and the databases on which they record the transaction are different there could be a possibility that you do not get what you requested.

For example, let us use the longest hop chain in the last illustration (copied below, for your convenience):

Supplier <-> GDS <-> OTA <-> Travel Agency <-> Consumer

Each of these stakeholders have their own transaction recording system. And let’s take an example of booking a hotel through this distribution network.

The Online Travel Agency walks in
  • Consumer writes an email to the Travel Agency with all the details of the hotel required – location, budget, food requirement, car transfer, and early checkin time.
  • Travel Agency can only use part of the information to search for the hotel on the OTA since it is limited by the OTA’s functionality and can not key in “food requirement” in the OTA system. So all the information except the food requirement is sent forward.
  • The OTA further send the request to the GDS but since they don’t have a way to share the “car transfer” details via the system that information gets left out.
  • The GDS does not have a system driven process to exchange the data with the Supplier on the request for an “early checkin”. So it send all the remaining information except the time of the early checkin reaches the Supplier system
  • The Supplier confirms the booking and the Consumer gets an email with the confirmation.

Now what happens, the Consumer reaches the airport but there is no car for the transfer to the hotel (because the OTA could not pass the information to the GDS). The Consumer makes his own arrangements, with great dissatisfaction, to travel to the hotel but with a positive attitude looking forward to the long deserved break. Once the Consumer reaches the hotel he is not allowed to checkin early, as that is not on the hotel system as the GDS could not pass that information. So the Consumer is sitting in the hotel lobby for 4 hours till the room is ready. When he gets into the room he requests for his pre-ordered gluten free meal but the hotel restaurant is not able to provide the same as they did not have the necessary information to make a provision and procure the ingredients for the same (as the OTA system did not have a field for food requirement and hence the Travel Agency was not able to push forward that information).

So now what do you have an upset, tired and hungry guest! Never a good combination.

So the two key issues that the above system has is information mismatch and time to reconcile and pay. Now what if all the stakeholders illustrated above and many more stakeholders are on a central database (CdB).

A central “living” database for travel

Let’s say a consumer makes an entry in the CdB and the information is shared realtime with the relevant stakeholders.

  • The Travel Agency gets the requirement, a copy of which it with the OTA to facilitate the booking, and the relevant part with the respective suppliers
  • The Car Transfer Agency gets the Consumer identity and flight details to facilitate the pick-up from the airport
  • The Restaurant in the Hotel gets the information of the Consumer’s Medical History to prepare meals that do not cause allergic reactions
  • The Supplier, say the hotel, gets the early checkin request along with the other information (it can also be connected to the Car Rental to know when the Consumer will arrive. This will require IoT, and I will discuss it another article)
  • The VISA office gets all the information (identity, travel, bank and other information of the Consumer through the central database) to issue the VISA
  • The Forex office gets the request for foreign currency directly and also notifies the Government of foreign exchange issues
  • And I can go on, but you get the picture …..

The Consumer is in-charge of their own data, as in they can choose what and with whom their data is shared on the network. And the network stakeholders need to add value to Consumer to be able to access the Consumers data. (As I write this it reminds me of a project that I was part of when at Cranfield, that would do exactly this (identity & data management: use of and compensation to the user for their data). I understand it went on to be part of a proposal to the Government of the United Kingdom where it was looking at if there is better way for us to share our data with all stakeholders – Facebook, Google, Local Authorities, Advertisers, Market Researchers, etc and how we can be compensated for our data being used by the network. But then, 10 years ago, it was all theory. Now there are tools to make it a reality.)

Let’s say all of them have a copy of the CdB, and majority need to be in consensus for any changes. So let’s say if one of the above stakeholders have information of the transaction other than the rest, it can be flagged and the information with the majority on the network will be held true. This is a possible way to bring “trust” into a system.

This is an decentralised process. If you compare the former illustrations (process flows) to the last one (central database), you will see a stark difference. The former ones (all of them) is structured and process driven (one flowing into the other, one after the other) while the central living database is fluid (they all flow into each other, almost instantly and simultaneously).

While all stakeholders have access the CdB there needs to be consensus for any change, hence creating trust, and greatly reducing information mismatch. Just like information is moving through this system, so can the money (in whole or parts) move through the system from the Consumer to the Supplier and/or other stakeholders of this fluid and living business ecosystem.

Is the above the future of travel distribution? NO, it is the NOW of travel distribution. The technology has been around for a while now and this use case (hopefully) is just around the corner!