Disintermediation in Tourism - Essay Example

Disintermediation in Tourism The reasons why ‘disintermediation’ has taken place within the tour operating industry and highlight the advantages and disadvantages tour operators gain from implementing such strategies. Developments in technological sector and global market place have provided consumers with various choices and options. The normal value chain offered by manufacturer or service provider has gone through some significant changes. One of such changes is disintermediation. Disintermediation can be explained as follows: Disintermediation is the elimination of intermediaries, caused by the internet allowing suppliers to deal direct with consumers. Because the travel service industry is information based and effectively travel agents and tour operators are commissioned order takers –they are particularly vulnerable to disintermediation.1 The impacts of disintermediation are various. It has impacted the travel and tourism industry significantly. The supply chain of travel and tourism industry involves tour operators, travel agencies, travel agents and others. Traditionally prospects and people have been depended on these mediators largely for their information and booking needs. Development of web technologies helped the service providers in travel and tourism industry such as airlines, car rentals, hotels and others to offer their services and information though their website. In the image below (Image 1) of WTO 2001 report on E-Business for Tourism, it clearly presents the number of intermediaries which are replaced by Internet. However it is evident that these intermediaries co-exist with the internet even in the countries where the internet users are high in number. The use and growth of website services depends on number of factors like number of internet users, technological platforms available and many others. Image 1: Internet and Intermediaries Reasons of Disintermediation in Tourism There are various reasons of disintermediation in tourism industry. The primary reason is development of technological platforms offering alternates to the traditional intermediates. The other reason is the cost reductions due to removal of intermediates. Internet offers a platform where tickets can not only be booked online but various tourism packages can be customized more effectively than the traditional methods. It makes the market place highly competitive as information available to the consumers as well as the options available to them is numerous. More destination choices, there detailed information including videos and availability of an interactive platform such as internet benefits the customer groups. The service providers are able to offer services at lower cost as the commissions and charges involved for the intermediates are reduced. Income level and market size are also significant explanatory variables, while human capital and the structure of the financial sector play an insignificant role. Although new information technology may facilitate direct marketing and a higher retention of revenue (by eliminating the intermediaries), the results of this study indicate that this process will mainly take place in low-risk countries.2 There are various service providers like Worldspan, SABRE (American Airlines) and others have experienced tremendous growth in the recent past in their online users. These are one of the largest service providers in the travel and tourism industries. Worldspan has a huge network of travel agents in more than 40 countries. It is a network of approximately 15000 travel agents and connects more than 365 airlines, forty car rental companies, one hundred and sixty eight hotel chains (26,000 hotels) and special travel service providers. On the other hand SABRE has a network in more than seventy countries. It has a network of 28,000 agencies which operates from more than one lakh terminals of these 74 countries. It provides information on more than 700 airlines, 195 hotel chains and more than 50 car rental companies. In a study conducted by PhoCusWright report European Online Travel Marketplace: Focus on the U.K it is mentioned the growth in the European online travel market. It states that in the year 2004 the growth in the European online market was approximately 49% while by volume it reached to 29 billion Euros in 2005.3 Main advantages of disintermediation The acceptance of disintermediation is result of various factors in the tourism industry. The growing numbers of internet users and people who prefer booking tickets online, availability of good services by various service providers, flexibility available to consumers and cost are some of the factors contributing to increasing online bookings. Disintermediation initiated by consumers is often the result of high market transparency, in that buyers are aware of supply prices direct from the manufacturer. Buyers bypass the middlemen (wholesalers and retailers) in order to buy directly from the manufacturer and thereby pay less. Buyers can alternatively elect to purchase from wholesalers.4 The main advantages of disintermediation are as follows: 1. It offers an interactive platform to the consumers. 2. Information available easily. 3. Various graphical, audio and text can be used for displaying information and attracting prospects and users. 4. For the consumers it is easy to get information on various services and price details. Consumer saves his money, time and energy by using this platform which offers anytime and anywhere flexibility. 5. It reduces the cost of services offered to the consumer due to the reduction of intermediates. 6. It reduces the cost of services offered by the service provider as the platform to reach prospects and consumers is less than any other media like through sales persons, agents, print media, electronic media and others. Key disadvantages of disintermediation Disintermediation in the tour and travel industry impacts the industry in various ways. The disadvantages of disintermediation are as follows: Intermediation will empower consumer more and there will be more pressure of cost reduction to the tour operators. It promotes channel conflicts. Channel conflict in the travel industry is rife. Airlines, hotels and tour operators sell to the public as well as through their distributors, the travel industry. While travel agents and intermediary tour operators don’t necessarily like it – it is a reality of the way the travel industry is heading.5 Maintenance of presence on various websites and managing booking through them is another area of concern. Management of data, information verification, risk of hacking and other cyber crime, and understanding of consumer behaviour are complex issues in the disintermediation. Disintermediation results in increasing competition as the time spend by the consumer on a virtual platform is less compared to the time spend of traditional platforms. Although there are number of challenges in the disintermediation process, the advantages of the same is more than the disadvantages. It reduces cost, offers more flexibility to the user and service providers and increases transparency. Reference: Why inbound tour operators will own the internet retrieved on 31st December 2006 from http://www.cadabra.com/news7.htm http://www.phocuswright.com/fyi/fyi_283.php accessed on 31st December 2006. http://en.wikipedia.org/wiki/Disintermediation accessed on 31st December 2006 Wiig, A. (2004) Risk and disintermediation in tourism retrieved on 31st December 2006 from http://www.cmi.no/pdf/?file=/publications/2004/wp/wp2004-6.pdf Angela Andal-Ancion, (2003) The Digital Transformation of Traditional Businesses retrieved on 31st December 2006 http://sloanreview.mit.edu/smr/issue/2003/summer/9/ Inter-Sectoral Unit for Tourism retrieved on 31st December 2006 http://www.oas.org/TOURISM/docnet/newtec.htm#1.3 CONFERENCE ON GLOBAL TOURISM GROWTH: A CHALLENGE FOR SMEs 6-7 September 2005, Gwangju, Korea http://www.oecd.org/dataoecd/26/48/36886129.pdf Read More