Tourism Distribution Channels

Section 4: Intermediation, Distribution and Travel

4.1 Tourism Distribution Channels

with

C

ristina

B

ittar

r

odrigues

According to Cunha (2001, p. 290), a distribution channel ‘is an operating structure, a system of rela- tionships or different combinations of organiza- tions, through which a producer of tourism goods and services sells or confirms the purchaser’s travel’.

The connections between the producer (supply) and the purchaser (demand) can be direct (e.g. call centre and company website) or indirect, and may occur through one or more intermediaries (e.g. travel agencies, tour operators, local and regional organi- zations). Choosing a direct or indirect sale and select- ing the appropriate distribution channels essentially involve choosing between market coverage and associated costs. Establishing an effective distribu- tion system is therefore critical for the development and tourism marketing of any successful tourism destination (Knowles and Grabowski, 1999).

Pearce and Tan (2004, p. 225) presented a somewhat broader view, arguing that tourism distribution channels link suppliers and consumers, providing them with information and allowing consumers to make and pay for reservations. Kotler et al. (2003) also included information distribution as one of the key roles played by tourism distribution channels, including the following:

● Information: collecting and distributing market- ing research and information about the market environment.

● Promotion: developing and disseminating persuasive communication for a particular promotion or offer.

● Contact: finding and communicating with poten- tial purchasers.

● Negotiation: agreeing on the price and other terms of the offer so that the purchase can be completed.

Tourism distribution channels have strategic importance and may potentially serve as an analyti- cal and unifying conceptual framework, expanding markets and destinations while bringing consumers and all of the tourism sectors closer together.

Lohmann (2006) analysed 43 scientific articles on the subject to understand how distribution channels can help promote a tourism destination.

He also found that only a small number of authors have an integrated view of the subject.

It is worth noting that tourism distribution chan- nels respond quickly to market dynamics, adapting to the needs of both the sector and consumers.

Before the development of the Internet, tourism suppliers had no choice but to use intermediaries, such as travel agencies and tour operators. However, information and communication technologies have changed this situation, making tourism products more competitive (Berne et  al., 2012; Standing et al., 2014).

Figure 47 presents the mapping of an airline’s distribution channels; it shows a mix of direct and indirect sales. In addition to the more tradi- tional channels, such as tour operators and travel agencies, it also includes distribution channels that have emerged more recently, particularly technology- based channels such as virtual agencies. With the exception of travel agencies and tour operators, which are presented in more detail in this work, the other channels shown in Fig. 47 are described below.

Consolidator

From an airline’s perspective, it is difficult to work with a large number of travel agencies. The 1990s thus saw the emergence of the consolidator, which, according to Santos and Kuazaqui (2004, p. 28), ‘is placed in the condition of facilitating the sale of air transport and offering operational services to travel agencies’ (authors’ translation). For many years, for a travel agency to be able to establish direct business ties with airline companies, it had to meet a list of requirements imposed by the International Air Transport Association (IATA), including the following (Santos and Kuazaqui, 2004):

174 Chapter 4.1 ● Be affiliated with competent national authorities.

● Have been in operation for at least a year.

● Have facilities that meet IATA standards.

● Have the minimum capital stipulated, attested to by a notary.

After registering with the IATA, agencies that will be issuing international tickets must apply for credit from each of the airlines with which they want to conduct business directly. These credits establish a guarantee for bank credit. Thus, only the bigger agencies with a large amount of regis- tered capital and a significant number of purchases conduct business directly with airlines. In many countries, including Brazil, most travel agencies do not have privileged access, and it is necessary for them to use a consolidator. It is important to note that consolidators do not function as a consortium or cooperative of companies that come together to leverage their bargaining and negotiation power with the airlines. They act as distributors, buying large quantities from airlines and then reselling them to smaller travel agencies, which can be served by more than one consolidator, regardless of where they are located.

Virtual Travel Agencies

New technologies have had an enormous impact on tourism distribution channels. Different oppor- tunities have emerged with technological develop- ment, allowing other participants to have access to a market formed by an oligopoly of large distribu- tors. Since their emergence in the 1980s, global distribution systems (GDSs) have dominated tourism distribution, establishing a technological suprem- acy (highly complex systems), whose dominance lasted until the mid-1990s (Buhalis, 2004). Since then, the Internet has become an important instru- ment in the tourist trade, and many websites for consulting and selling tickets have emerged. In addition to the airline’s own sites, there is Microsoft Expedia (launched in 1996 by the leading company for PC software, Microsoft Corporation, with the goal of creating a comprehensive and convenient site for planning and purchasing) and Travelocity, which are the largest sites in the world; Wotif, which was created in 2000 in Australia, and already has bases in Canada, Malaysia, New Zealand, Singapore and the UK; Booking.com, which began in 1996 in Amsterdam (The Netherlands) and since Indirect sales

GDS Travel agents Tour operator portal Consolidator

Virtual travel agents

Direct sales

Telephone (call centre)

Mobile or PDA equipment with Internet (laptop, in-house, WAP).

Self-service kiosk

Shops (CBD, suburbs, shopping centres, hotels) or the airport (access via portal or GDS)

Airline website

Airline Consumer

Airline portal

Consolidator portal integrated with the airline

Tour operators (website, telephone, shop)

CRS

Fig. 47. Map of the distribution channels and technologies used in an airline company. GDS, global distribution system; CrS, computer reservations system; CBD, central business district; PDA, personal digital assistant; WAP, wireless application protocol. From Venturini and Lohmann (2006).

Tourism Distribution Channels 175 2005 has been owned and operated in the USA;

and Webjet Ltd, founded in 2004 and operating in Australia, New Zealand, North America, Singapore, Hong Kong and South Africa.

These companies are surprisingly efficient; online agencies can compare prices for hotel stays, sightsee- ing tours and airline tickets to a particular destination on the same date, suggesting the airports available and any layovers or connecting flights (Bui et  al., 2014). The emergence of virtual travel agencies has thus also allowed the re-intermediation of this mar- ket; on one hand, the Internet has enabled direct sales to the final consumer; on the other hand, new types of intermediaries have emerged (Prideaux, 2001).

These new companies are more economical and have lower risk and maintenance costs; therefore, they pose an extremely dangerous threat to GDSs and traditional travel and tourism agents (see Fig. 47).

Airline Websites

Airlines can now sell tickets directly to passengers online, bridging all forms of intermediation. This ability also enables the creation of an effective com- munication channel with the client, promoting the company, strengthening the brand and creating a database that can be used for consumer relations through the CRM (customer relationship manage- ment) tool. On the airline’s website, the customer can purchase tickets for domestic and international destinations operated by the airline and its code- share partners (shared aircraft). In terms of selling costs, the airline’s website can offer a ticket for up to four times less than a reservation via a GDS (Venturini and Lohmann, 2006). Some airlines also provide a web call centre, which is an exclusive online service that operates 24 hours a day and can be accessed from anywhere in the world, leading to savings on international calls. Customers can also enquire about schedules, points or miles, frequent flyer programmes and promotions; in addition, they can receive answers to any questions about their trip.

Sales Offices and Airport Counters The sales office is the strongest link of the chain con- necting the customer and the airline. Personal con- tact strengthens the bonds of trust and even loyalty;

at these locations, the salesperson becomes a travel consultant, making suggestions for schedules, flights and layovers, taking care of less usual requests (e.g. for wheelchairs, transport for sick people,

various food restrictions and the transport of domestic animals), demonstrating and explaining the services offered, overcoming objections, and solving or listening to complaints. Some airlines have already attempted to eliminate these offices as a way to reduce costs, but this decision has usually proved to be short-lived because passengers become disoriented when there are incidents, accidents, overbooking, cancelled flights and external situa- tions such as bad weather. The sales office provides customers with all of the services offered by the airline, such as consulting and selling domestic and international tickets, issuing tickets, assisting with check-in, changing flights, mileage or point services, paying airport fees, refunding money and providing information about airport operating conditions.

The airport counter functions in the same way as the sales office, although it can usually offer addi- tional facilities and services, such as expanded ser- vice hours, in addition to assisting the customer with issues related to their departure at the airport.

Self-service Kiosk

The self-service kiosk is a vertical unit that incorporates a computer, which is composed of a display and touch screen or keyboard. Using these resources (which are already employed by many airlines), the customer can both check in for flights and purchase tickets. One advantage of this device is its practicality when pur- chasing a ticket; the kiosk functions as a substitute for part of the sales office and can be installed in differ- ent locations, such as supermarkets, hotels, shopping centres, convention centres and airports. Another advantage, although not directly related to sales or distribution, is the increase of speed at boarding time;

allowing passengers without luggage to check them- selves in within a few seconds, confirming flight details, choosing a seat and receiving their boarding pass.

Internet-accessible Mobile Phones, Equipment and Locations

Technology now offers passengers the convenience of purchasing an air travel service simply and effec- tively. Airports, shopping centres, universities and public places use wireless technology to connect to the Internet. This technology allows a customer to have immediate paid or free access to the Internet.

Wireless application protocol (WAP) technology was designed to give small portable equipment a way to connect to the Internet, recognizing the

176 Chapter 4.1 limitations of such devices (i.e. power supply and

memory capacity). As a result, mobile phones and personal digital assistants (PDAs; e.g. iPads) can access the Internet with a good quality standard.

New technologies offer travellers unprecedented mobility, enabling communication from anywhere.

Furthermore, the services available on airline web- sites can be purchased and consulted from any Internet-accessible equipment or location (with appropriate hardware).

Booths

In the case of large events, such as fairs, exhibitions, conferences and conventions, airlines may provide a booth either to facilitate assisting customers with airport transfers or to streamline rescheduling and other services. The booth functions just like the sales office, although it is temporary. This distribu- tion channel usually has minimal cost for the com- pany; it is often provided in exchange for tickets, or the event organizer may offer the space at no cost because of its added value to event participants.

Operationalizing

Flashpackers (a subculture of backpackers) have been seen as a key component of contemporary society, emerging from the economic, demographic, technological and social changes in the world. They are generally older than traditional backpackers and have more disposable income but travel with a backpack by choice rather than budgetary neces- sity. Flashpackers are an example of tourists medi- ated by communication technology, often through mobile devices, and they use distribution channels such as the Internet and virtual agencies during their travels. Flashpackers and backpackers are called ‘digital nomads’: individuals who adopt mobile technologies, allowing them to live an independent lifestyle from anywhere they have an Internet con- nection (Paris, 2012). Therefore, traditional commu- nication channels must increasingly use technology to meet the needs of both the consumer and the tourism market.

Exercises

1. What are the main functions of an airline’s