No. 210

December 2001

E-Commerce’s Impact on the Travel Agency Industry

by S. Katherine Hill and Donald Hill. 2001 [67 pages].

Heartland Information Research, Inc., Milwaukee, WI 53150,

under contract no. SBAHQ-00-M-0797

This Small Business Research Summary (ISSN 1076-8904) summarizes one of a series of research papers prepared under contracts

issued by the U.S. Small Business Administration’s Office of Advocacy. The opinions and recommendations of the authors of this study do

not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of

Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office’s Internet site at www.sba.gov/advo.

Purpose

This study investigates the effects of e-commerce

and other technologies on the travel agency industry.

The rise of frequent flyer programs, shrinking airline

ticket commission rates, industry contraction, and the

availability of technologies that let customers bypass

agents have altered market conditions for travel

agencies and raised concerns about the industry’s

future.

Scope and Methodology

This study covers the travel agency industry in terms

of size, demographics, and revenues using data from

government reporting agencies, universities, industry

trade associations, and other secondary sources. The

authors also directly contacted travel providers and

industry associations to verify findings. A caveat

applies to e-commerce data: since no standard measurement system exists for data on e-commerce and

the Internet, sources may differ widely, even by

orders of magnitude.

Highlights

• The travel agency industry is shrinking. In 2001,

travel agencies numbered 29,018, a decline from

33,500 in 1995. Most travel agencies are very small

businesses.

• Several actions of the airlines—cultivating direct

relationships with customers through frequent flyer

programs and capping, reducing, or eliminating

travel agent commissions—have reduced offline

agency commissions by $2.8 billion over an eightyear period, from $7.6 billion in 1992 to $4.8 billion

in 2000 (a 36.8 percent decline).

• In 2000, electronically issued tickets (e-tickets)

accounted for 60.4 percent of all airline ticket volume. The number of agencies able to issue e-tickets

increased from 53 percent in 1995 to 98.4 percent in

1999. 

• Total online travel sales have risen from approximately $400 million in 1997 to $15.4 billion in 2000.

Nevertheless, online travel sales represented only 7

percent of total sales in 2000, and they are expected

to remain at less than 30 percent of total sales

through 2005.

• In 2000, 90.4 million travelers used the Internet.

Of these, 59 percent used it for travel planning, and

24.7 million travelers made travel reservations

online.

• Airline ticketing generates 54 percent of travel

agencies’ annual sales; cruise package sales generate

19 percent; hotels and auto rentals contribute 11 and

8 percent, respectively.

• In 2001, minority and small-business travel

agencies made up 40 percent of the 55 agencies listed as approved GSA travel contractors.

• The future may not bode well for travel agents,

as airlines are focusing on using e-commerce to

reduce two of the largest components of their distribution costs—travel agency commissions at 6.5 percent and Global Reservation Distribution System

fees at 2.1 percent. 

United States

Small Business

Administration

Office of Advocacy
Conclusions

This report documents changes occurring in the travel industry resulting from the use of e-commerce and

Internet-related technologies. One part of the travel

industry—the airlines, which consist of a few large

firms—is taking advantage of its size and new technologies to alter the marketplace at the expense of

travel agents—a sector largely composed of very

small firms.

To stay in business, small travel agencies are refocusing on products with higher commissions (cruises

and tour packages), and some are moving into homebased offices and using e-commerce technology to

reduce overhead. Competition between small and

large travel agencies is likely to increase, and small

businesses will likely be forced into niche markets.

Ordering Information

The complete report is available online at

www.sba.gov/advo/research. Copies are also available from:

National Technical Information Service

U.S. Department of Commerce

5285 Port Royal Road

Springfield, VA 22161

(703) 487-4650, (703) 487-4639 (TDD)

www.ntis.gov

Order number: PB2002-101030

Price codes: TBA