Travel is back in the picture and travel agencies need to be visible too…online.
With the travel numbers in the black again and despite receding economies, the demand for travel has picked up in a more digitally focused world than ever. What’s more, travelers start to plan their travels more ahead than usual too.
Online presence is key when your potential customer is searching online for the best offer. Speaking of how those offers come about: Did you find a way yet to buy your inventory easily as well without jeopardizing your cash flow?
Read on to find out how online travel businesses benefit from a business model that fits the digital age and the role of virtual payment in maintaining a clear view of cash flow.
The travel picture in perspective
What is today’s travel status?
According to IATA data estimates, about 1.5 billion more people booked flights in 2022, compared with 2021, and online bookings are expected to reach pre-pandemic levels this year. Some regions — like North America and Latin America — have already surpassed 2019 (pre-pandemic) levels, according to Mastercard Global Insights data.
There has been a growing awareness of social and environmental responsibility among travelers in recent years. In 2021, the share of global travelers who believed that it was important to choose a responsible hotel brand exceeded 80%.
Meanwhile, the main reason travelers stayed in sustainable accommodations that same year was to help reduce their environmental impact. More recently, in 2022, the share of global travelers who intended to stay at least once in an eco-friendly or green accommodation when looking at the year ahead was 78%.
As for how bookings are done, it has become more and more common for travelers to book trips themselves, particularly via online travel agencies (OTAs) as these offer the comfort of booking from home and often attract consumers with package deals and price-saving options. As a result, many travelers have turned away from traditional brick-and-mortar travel agencies in favor of online alternatives to book their trips.
In the spotlights: the online travel agency market
In fact, with most industries increasingly digitalized over the last decade, the travel industry in particular has taken giant leaps in developing its online presence.
As of 2021, two-thirds of revenue in the global travel and tourism market came from online sales channels.
OTAs now own approximately 40% of the global travel space, becoming an engine of growth for airlines, hotels, tour operators, railways, cruise lines, and their other partners.
When looking at the leading companies in the OTA market, Booking Holdings and Expedia were the biggest online travel agencies by revenue worldwide in 2021, generating nearly 11 billion and 8.6 billion US dollars, respectively. While both companies experienced a substantial increase in revenue over 2020, they did not catch up yet with pre-pandemic levels.
The online booking channel leads the way
Along with the growing number of online travel businesses, also travel inventory online is taking over from the catalogs on the shelves nowadays. Using the web to discover new destinations, and plan or review trips has become an essential part of the online travel market. According to a global survey conducted in the fourth quarter of 2021, the online booking channel was by far the preferred channel for travelers to plan and book the next holiday.
The same study showed that the share of consumers looking at websites for holiday inspiration varied significantly according to the country and generation. For instance, 27% of surveyed Canadian consumers aged between 30 and 44 claimed to use websites for that purpose, whereas 15% of respondents in Germany within the same age group did so.
Online inventory pays off with virtual payment
Whether or not the preference in your country is inclining towards online or still more offline, it’s undeniable that the digitalization trend is and will be there for the long run.
When your potential customers are able to find your booking site, one step has been won already before converting these online visits into bookings.
To keep your visitors on your site, it’s key to offer the best choice of inventory that they cannot refuse, allowing them to book directly online or ask for a customized package. For this potentially fast-paced process, your cash flow needs to keep up as well.
That means that when purchasing your services from travel suppliers, you don’t want to be dependent on your outstanding customers’ payments on the other end.
Virtual payment can set you free from worry. With AirPlus Virtual Cards Travel Trade, your supplier receives a prompt payment while you can have comfortable payment terms according to an agreed billing cycle and receive a statement from AirPlus as only provider, the card provider.
And that’s not all.
Digital driver on display
AirPlus Virtual Cards are digital drivers by nature and designed for online purchases from travel service suppliers which is a comfort for your travel business with the payment process being digital from the start.
Virtual cards are centrally billed cards, which means they are not assigned to individual cardholders but to your agency as the cardholder. Within your agency, you can assign usage rights to those staff members that will use the card on behalf of your agency with help of an easy dashboard environment, exclusively for your agency.
Before card usage, you can customize the card settings further and indicate which billing data is relevant for the purchases that will be made.
You can pay with these virtual cards with suppliers worldwide, thanks to the global acceptance guaranteed by the network of Mastercard®.
For all travel inventory you purchase from various suppliers, you will get one consolidated overview per billing cycle, so you have instant visibility of your expenses. Each purchase listed on that overview indicates the supplier it has been made with.
And thanks to indicated billing data with the transactions, you can easily recognize the specific info you need for allocating and matching your supplier orders and invoice and keep your cash flow balance in sight.
For bright business: The merchant model
The separation of your customer payment flow from your supplier payment flow by handling a merchant-of-record (MoR) model for your agency is bringing additional advantages to your cash flow.
In short, here’s why there’s an increasing need among travel agencies to adopt a merchant model.
In the past, most travel agencies acted as intermediaries, passing the consumer’s payment information to the airlines, hotels, tour operators, and small suppliers connected to an itinerary. But as the network of suppliers expands, this ‘pass-through’ or agency model has become riskier and more frustrating for agencies and customers alike.
That’s why a growing number of travel agencies are adopting the merchant-of-record model. In the role of the merchant, the travel agency collects the customer’s payments for all services booked through them, authorizes the transactions, and then arranges the secondary payment to the various suppliers related to the booking.
Furthermore, in the merchant model, your agency works along the retailer concept: your customers can pay along their payment method preferences to you as the point of sale. With AirPlus Virtual Cards Travel Trade you can pay your supplier separately while your customer can choose his preferred method, e.g., bank transfer, Buy Now Pay Later (BNPL) for the travel package and you don’t lose out on any conversion while boosting customer experience.
The migration from the pass-through model to the merchant of record model is huge. Travel agents acting as MoRs in the US posted a 43% Compound Annual Growth Rate (CAGR) from 2020 to 2022 — a growth rate more than two times higher than that of the overall OTA market (20% CAGR).
A merchant of record use case: Booking.com
Booking.com is an example of a giant player that has adopted the merchant model for hotel bookings: The customer is paying Booking.com in advance without usually any cancellation option. In the past year, there has been a strong swing toward this model.
With the merchant model, as mentioned, customers have more variety in payment methods to choose from with a positive effect on their booking experience. On top of this, they enjoy more favorable prices as hotels are apparently willing to grant lower prices for this pre-payment option because in case of cancellations at short notice, the room can often no longer be re-sold.
For the hotels as a result, the pre-payment to Booking.com by the customer leads indeed to a reduced cancellation rate, administrative cost savings, and fraud prevention.
While for Booking.com in 2021, the revenue in the agency model was still 1.8 times greater than that in the so-called merchant model, most recently, 42% of all bookings were processed on a merchant basis. Besides Booking.com and the hotels, also the other online travel giant Expedia relies heavily on the merchant model.
Online presence as a travel intermediary is the future with the growing number of OTAs and large online players illustrating this development. Innovative technologies and communications technology further accelerate and ensure digitally enabled growth in the travel and tourism industry.
Also, the customer experience gets better as digital transformation helps to improve it and builds a positive impact during the entire trip – beginning with a search on the web, buying tickets online, checking in, sightseeing, checking out, and returning home safely. Surely, further digitalization of the tourism sector will bring even more benefits and improve the discovery of every corner of the world, even the most remote.
For your agency, you can seize the opportunity of online presence and offer inventory online to your customer as a merchant of record for the payment method that they prefer to increase customer retention even more.
From your suppliers, you smartly purchase your inventory with AirPlus Virtual Cards, delivering a prompt payment to them while you comfortably pay later in an agreed billing cycle to AirPlus.
With a clear view of your cash flow, you can focus on your retailing edge in the online spotlight for your end customers and suppliers going forward.
Learn more about the many other benefits Virtual Cards can offer you for purchasing travel services: Sign up for our e-book or contact us!