The Travel Agent of the Future

by Margot Bigg, Andrew Sheivachman + Skift Team - Oct 2016

Skift Research Take

Travel search and booking looks completely different today than it did just years ago. But the value-add that agents can bring to the travel experience will be difficult to obviate completely, either through disintermediation or automation. The intersection between high-tech and high-touch is now a key battle ground for travel brands the world over. Those with the customer care infrastructure to deliver could stand to gain, if they can get their digital house in order.

Report Overview

Since as early as the mid-19th century, travel agents have served both as travel advisors and booking middlemen, doing everything from helping clients plan itineraries to booking accommodations, flights, and ground transportation. Rather suddenly, the rise of online travel agencies (OTAs) and DIY travel left many wondering whether the traditional travel agent was a dying breed. Indeed, the landscape looks very different just twenty years after Travelocity first sidestepped the intermediaries by connecting traveler directly to airline. Mobile bookings and search have empowered consumers beyond anything we may have imagined. And, after an initial and dramatic halving of the workforce of those employed in the travel agent industry, it seems like the decline in travel agent numbers has leveled off somewhat. Why this is, and to what end will the human element ultimately play in the planning and booking of intermediated travel is the core question that this report looks to answer.

We will examine the role of traditional travel agents today and in the years to come, taking into account market trends, emerging research, and the opinions of leading industry experts. We will also hone in on generational preferences for using the services of travel agents vs. DIY travel planning as well as consumer motivations for doing so. We then look at the evolving state of brick-and-mortar travel agencies and consider what role they might play in the future. Finally, we take a look at how new messaging apps that connect travelers with human travel agents have already begun to make a mark on the industry and what this might mean for travel agents and travel service providers in years to come.

Executive Summary

Since as early as the mid-19th century, travel agents have served both as travel advisors and booking middlemen, doing everything from helping clients plan itineraries to booking accommodations, flights, and ground transportation. Rather suddenly, the rise of online travel agencies (OTAs) and DIY travel left many wondering whether the traditional travel agent was a dying breed. Indeed, the landscape looks very different just twenty years after Travelocity first sidestepped the intermediaries by connecting traveler directly to airline. Mobile bookings and search have empowered consumers beyond anything we may have imagined. And, after an initial and dramatic halving of the workforce of those employed in the travel agent industry, it seems like the decline in travel agent numbers has leveled off somewhat. Why this is, and to what end will the human element ultimately play in the planning and booking of intermediated travel is the core question that this report looks to answer.

We will examine the role of traditional travel agents today and in the years to come, taking into account market trends, emerging research, and the opinions of leading industry experts. We will also hone in on generational preferences for using the services of travel agents vs. DIY travel planning as well as consumer motivations for doing so. We then look at the evolving state of brick-and-mortar travel agencies and consider what role they might play in the future. Finally, we take a look at how new messaging apps that connect travelers with human travel agents have already begun to make a mark on the industry and what this might mean for travel agents and travel service providers in years to come.

Introduction: The Evolution of the Travel Agent in the 21st Century

In 1990, there were about 132,000 travel agents employed across the United States, around 90% of whom worked for travel agencies. By 2014, that number had nearly halved, to around 74,100. The Bureau of Labor Statistics (BLS) predicts that travel agent employment will decline by another 12% from 2014 to 2024, attributing the drop to the increased ease and popularity of online booking, notably on mobile devices.

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The BLS estimates that reservation agents and travel clerks (i.e., representatives of travel, transportation, and hospitality companies who work directly with customers) will only see a decrease of about 1.4% over the same 10-year period. However, this data says more about the role of the agent than it does about the industry overall. Consumer desire to interact directly with other human beings when booking travel arrangements — be it on the phone or over chat — may not waver quite as much in the next decade.

Despite the BLS’s bleak predictions, insiders point out that the increased demand for personalization in consumer travel services, coupled with the rise of independent home-based travel agents indicate that the industry is not in as dire of straits as it may seem. Some argue that the BLS data does not accurately represent the state of the industry today.

The American Society of Travel Agents (ASTA) has been particularly vocal in expressing concern about how the findings have been presented. “The BLS doesn’t take into account the number of independent contractors in the travel agency community,” notes Erika A. Richter, Senior Manager, Communications & Government Affairs. “So it’s hard to say that the profession has truly been in a ‘decline’ over the past decade, when the data doesn’t incorporate the full spectrum of the travel agent profession.”

In fact, consumer demand for travel agents may be on the rise. According to the Airlines Reporting Corporation (ARC), airline ticket sales through travel agencies increased by 1.8 percent in August 2016 over August 2015. Data from global marketing firm MMGY Global’s 2016 Portrait of American Travelers also indicates that agents are regaining traction. Of the 2,948 U.S. leisure travelers surveyed for the study, around 19% reported having used a traditional travel agent for one or more of their vacations in the past 12 months, up from only 12% in 2013. Around a quarter of travelers said that they plan to use a traditional agent for vacation purposes in the next two years, up from only 17% in 2013.

While it’s doubtful that travel agents will become obsolete, most agree that their role will continue to change in years to come, owing not only to the continued emergence of new technology and innovations within the travel and hospitality spaces, but also because of increasing demands for personalized service.

Are Travel Agents Still Relevant?

Travelers across the board surveyed by MMGY who indicated a preference for working with traditional travel agents over OTAs attributed their inclination to a number of factors, including travel agents’ presumed knowledge of destinations and local providers, the security of extra service if things go wrong during a trip, and the fact that it’s easier to get a travel agent to plan the intricacies of a trip than to do it oneself.

“The leading reasons these travelers use travel agents involve service, expertise, and ease,” Steve Cohen VP, Insights, MMGY Global told Skift. “Travelers turn to travel agents because they want someone to turn to if something goes wrong on their vacation, they want control of every aspect of their trip, and they want an expert who knows where to go and can make travel planning easier.”

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Data source: MMGY Global’s 2016 Portrait of American Travelers®

ASTA’s Richter concurs. “The internet has put the freedom of comparative shopping back in the hands of the consumer… but hasn’t always empowered travel consumers; instead it’s created a lot of frustration,” she notes. “A third party (human) validator is more important than ever. Someone who knows the fine print of the ‘brochure price’ and someone who knows the product (airline, hotel, tour, even a destination) because that’s their job, that’s what travel agents do every day. “

The ability of travel agents to provide unique, personalized experiences based on their presumably in-depth knowledge of destinations is another key motivator for travelers who use their services. MMGY data suggests a correlation between those who use travel agents and those who are more interested in the experiential and transformative aspects of travel.

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Data source: MMGY Global’s 2016 Portrait of American Travelers®

Data also suggests travel agent users are more likely than their Fully Independent Traveler (FIT) counterparts to vacation in new-to-them destinations rather than going back to familiar haunts. “Travel agent users want to go to new places – in fact, 59% of their vacations are to new destinations, compared to only 39% of the vacations taken by those who don’t use travel agents,” says Cohen. “In fact, 73% of travel agent users expect personalized attention and options on vacation, compared to only 32% of those who don’t use travel agents.”

Millennials and the Quest for Personalization

Many knee-jerk assumptions about the presumed decrease in popularity of traditional travel agent come from the erroneous assumption that so-called “digital natives” (i.e., Millennials and their younger, “generation Z” counterparts; those born in the 1980s and 90s), are so accustomed to online booking that they aren’t likely to see the need for booking with an agent, particularly if the experience requires going into a brick-and-mortar shop, picking up a phone, or even sending off an email and waiting for a reply.

However, MMGY’s data suggests that Millennials are more likely than members of other generations to use travel agent services. According to the firm, 34% of Millennials claimed to have used a traditional travel agent in the past 12 months, compared to only 9% of Baby Boomers. Moreover, around 39% of Millennials said they were likely to use the services of a traditional travel agent over the next couple of years, compared to 21% of Gen-Xers and only 16% each of both Baby Boomers and older travelers.

 

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Data source: MMGY Global’s 2016 Portrait of American Travelers®

Consumers across the board are placing more value on experiences than on the acquisition of possessions — just look at the popularity of simple living, the tiny house movement, the celebration of minimalism and the “less-is-more” mentality, and even the wild success of Marie Kondo’s The Life-Changing Magic of Tidying Up. While this trend has been seen across generations, it’s particularly noticeable among Millennials. According to a 2014 survey conducted by Harris Poll on behalf of Eventbrite, Millennials are considerably more interested in experiences than in material possessions, with around 78% indicating they’d prefer “spend money on a desirable experience or event over buying something desirable.”

Moreover, many Millennials are foregoing or postponing the typical life steps previously associated with young adulthood – including home ownership and the associated acquisition of possessions. According to a 2016 Pew Research study, 32.1% of adults aged 18 to 34 live with their parent(s), which in many cases can free up a fair bit of extra income for travel and leisure. Research conducted by international market research firm Mintel for their American Lifestyles 2015 report indicates that Millennials represent and will continue to represent a large segment of the leisure travel market. According to the firm, around 30% of international travelers are Millennials, and nearly half of the Millennials surveyed indicated an intention to travel within the three years following the report research.

The State of Today’s Brick-and-Mortar Agency

Gone are the days when brick-and-mortar travel agencies were a fixture in most major commercial areas, at least in the U.S. In the mid-1990s, airlines began capping commissions on what they paid out to travel agents, a process that continued until 2002, when airline commissions were ended altogether in the United States. The combination of the commission cutting and the rise of DIY travel have spurred the demise of many small-scale and corporate travel agencies alike, but many have remained successful by simply shifting their business models.

STA Travel, an international travel agency that’s been specializing in student travel since its launch in 1971, is a good example. After decades operating a successful network of brick-and-mortar agencies, each of which eventually ended up with its own unique Internet presence, STA decided to rebuild their online presence from the ground up, engaging the services of IBM to create a global service delivery platform that allowed for automated localization while maintaining a streamlined services platform.

“The growth of the internet has had a serious impact on all areas of commerce,” Richter points out. “… so while traditional ‘brick and mortar’ travel agencies in some cases and some places may have started to disappear from the street corners, that doesn’t mean they disappeared altogether. What it means is that while they’re perhaps less visible than they used to be, their business models shifted, like many other industries.”

As traditional brick-and-mortar travel agents continue to shift their operations online, OTAs have the opportunity to move onto Main Street, following a trend of creating in-real-life web stores, akin to what Amazon.com has done with its brick-and-mortar Amazon Books operations. Travel agency franchise Expedia CruiseShipCenters is planning to expand brick-and-mortar operations significantly in years to come, and while the brand focuses entirely on cruise bookings, their affiliation with Expedia, Inc. directly translates into advertising for Expedia.com.

“Leveraging an existing infrastructure of physical travel agent storefronts could be a cost effective way for travel brands to connect with large and more targeted audiences,” advises Luke Bujarski in a 2015 report by content strategy and market research consultancy LUFT Group. “Rather than commissions on bookings, the new revenue model would center on marketing ROI,” Bujarski predicts. “How many walk-ins, how many emails collected, how many loyalty members signed, etc. These will be the new metrics for storefronts.”

A good example of this is the case of Liberty Travel, which opened a flagship store on Midtown Manhattan’s Madison Avenue in October 2012. “We believe very strongly in the physical and visual nature of our brands, particularly our retail brands,” Dean Smith, USA president of Flight Centre (Liberty’s parent company) told Skift earlier this year. “While there is obviously a very big trend in the market to go home and to cut your costs by being virtual, it undermines the industry to a degree because the customers just don’t know that the brands exist, although the service exists.”

So while traditional mom-and-pop travel agencies may all but disappear from neighborhoods, particularly in the U.S., larger-scale agencies and OTA storefronts may very well continue to function, if for no other reason than for the opportunities they provide to create brand awareness.

How Travel Agencies Really Make Money

For all the talk about travel agents being an outdated part of the travel business, and the disappearance of the traditional brick-and-mortar travel agency beginning in the 1990s, a look at the sector’s business model shows that the fundamentals of the business have shifted to accommodate consumer booking behavior.

During the latter half of the 20th century, travel agencies had primarily made money based on commission from airline bookings. Consumers had to book airfare either at an airline ticket counter or through a travel agent, which had early reservation systems networked to the airlines through global distribution systems. They also received commission on hotel bookings, tour sales, cruise cabin bookings, and travel packages. Agents also have the ability to buy consolidated travel products from wholesalers, offering their customers better deals on inventory that hasn’t sold yet.

This all changed when U.S. airlines abruptly stopped paying out commission on travel agent sales. Emboldened by the growing presence of the internet, this forced the travel agency space to adapt to an ecosystem that now encouraged suppliers to develop direct relationships with consumers. U.S. airlines were the true pioneers of the direct booking model.

“1995 was the year the airlines announced they were capping commissions, and for a lot of agencies it meant they had to reinvent how they do business,” said Jackie Friedman, president of host-agency Nexion, which is a Travel Leaders Group company, in a Skift interview. “They shifted to models where they could reduce their costs, and moving home was certainly one of the options. At the same time, in the past 15 to 20 years, technology really made it possible for agents to operate their business anywhere.”

As hotels, cruises, tour operators, and others realized that they could reach travelers without paying agents a cut, travel agent commissions began an erosion that only stabilized in recent years. This change has compelled many small agencies to move toward a fee-based model, charging clients somewhere between $25–$150 for each trip planned. This helps make up for the lack of commission payments, and also drives away bargain hunters or people looking for an agent to make a simple transaction they wouldn’t otherwise be compensated for. Add-ons like travel insurance also generated commission revenue for agents.

A 2014 Travel Market Report examination of commission erosion in cruising found that agents only receive commission on about ¾ of the value of each booking they make. At the same time, each agent needs to produce $60–$70 in revenue per hour for an agency to be profitable. This makes it hard for an agency to become successful by relying on supplier commissions alone, leading agents to abandon the extra cost of operating brick-and-mortar storefronts.

These factors have led to something of an evolving value proposition for successful travel agents. Instead of presenting their businesses as a one-stop shop for travel bookings, agents are instead specializing and becoming experts on specific types of travel, destinations, subsets of travelers.

This could be one of the reasons why more Millennials report using agents than any other demographic; travel agent expertise and knowledge about bookings specific types of trips, like wedding or adventure travel, along with intensive knowledge of emerging destinations, makes paying an extra fee seem worthwhile in an age of chaotic online booking.

The challenge for agencies, however, is training and retaining agents who combine top-level service with deep product knowledge.

“The long-term trend is that agents have a consumer who wants great advice and experience on something they can’t Google, but they want to talk to somebody who is an $80,000 per year employee where $35,000 and $40,000 is common,” Robert Joselyn, head of travel agency group TAMS, told Skift last year. “They want to deal with a more sophisticated advisor. When you say that your agents have more training and education, you have to know where the training money is going to come from. It’s not going to be from commission anymore.”

Cruises, particularly river cruises, remain especially reliant on travel agents as a distribution network, along with packaged tours and luxury travel products. As travel has become increasingly commoditized online, agents have shifted to focusing on the products that don’t sell easily online due to price or complexity.

There’s an App for That: The Meeting of Technology and Travel Agents

Mobile commerce has grown significantly in the past few years, presenting both challenges and opportunities for not only traditional, in-person retailers, but also OTAs and others who do a significant share of their sales online. According to advertising technology company Criteo’s State of Mobile Commerce Q4 2015 report, which analyzed transaction data from upwards of 3,300 online retail and travel businesses, around 30% of transactions took place on a mobile device in the fourth quarter of 2015. According to Pew Research Center data released in 2015 some 64% of U.S. adults owned smartphones, and around 7% have neither broadband at home nor any other reliable options to access the Internet other than their phones. Analysts across the board anticipate this trend to continue, with smartphones leading the way against other types of mobile devices.

Recognizing this shift, OTAs as well as airlines, hotel groups, and tour resellers have been quick to launch mobile apps, some offering discounts and other incentives for first-time users who opt to book via an app instead of the website. But it’s not just established companies who are getting into mobile travel booking apps, a space which until relatively recently was primarily the domain of last-minute booking apps such as HotelTonight. A slew of new mobile app-only start-ups have launched in the past 24 months, many of which rely on artificial intelligence (AI) and, in some cases, chatbots to help users manage even the most complex bookings. These include HelloGbye, an AI-driven travel app that presents users with full, organized itineraries by fielding their queries through a natural language user interface as well as the business and meetings-focused ETA.

Travel agent consortia including Signature Travel Network are also incorporating technologies aimed at helping individual travel advisors leverage the latest innovations without absorbing development costs directly. For example, Signature works in partnership with Axus, a white label mobile app solution with the travel agent in mind. The app give agents a mobile interface through which they can connect to the traveler directly before, during and after the trip. Having that connection allows travel agents to become more than booking agents, but it also presents and opportunity for cost savings and up-selling on other services.

However, mobile travel apps that are making the biggest waves address a significant need of travelers far and wide: the desire to “talk to a real person.” Many of these apps combine AI and actual human agents to create hybrid automated/human agent messaging environments that, in theory, should combine the efficiency of AI-driven automation with the personalization and individual attention that only a human being can provide.

At the forefront of these new travel agent messaging apps is Lola, the newest venture of Kayak co-founder Paul English, who listed “a rapid shift to messaging as the preferred mode of communication” and “increased discretionary spending to experiences and premium services vs. luxury goods” as two of the trends that motivated Lola’s creation.

The app connects members with a team of travel consultants. Members simply message what they are looking for and agents provide suggestions accordingly. Members can then book directly through the app and while it’s currently free to its small group of invited members, the company will likely start charging for the app in the future.

image009Photo credit: Lola

“We saw a number of key trends including advances in AI and natural language understanding [NLU] that opened an opportunity to create an entirely different platform for travel,” explains English. “We believe humans have to lead the premium service we’re creating, with AI and NLU supporting them.”

The service, however, is still only available via invitation-only limited to a small pool of users. Some (including Skift) question whether Lola will ever go to scale in its current form as an integrated travel agent app. At the core of the company’s long-term strategy is the technology behind its AI functionality. Paul English and team did not confirm, but we speculate that over time, the built-in learning technology will adapt to the constructs and interactions iterated via the chat feature, eventually converting real voice and human interactions into better and more responsive interactions with travelers.

Lola might be the most visible human-powered travel app, but it certainly isn’t the only one. Contenders include Pana (formerly Native), which is currently a two-tiered paid service, with rumors that the company might switch to a “freemium” model in the near future. Kayak has also forayed into the space with the launch of the beta (and, currently, free) version of Snap, an SMS-based service that uses a mix of AI, the Kayak search engine, and real people to answer users’ requests over text.

Although these apps look promising at first glance — particularly for those who value personalized experiences or who find the process of DIY travel booking arduous or daunting — time will tell whether consumers will be willing to pay a premium to use them. However, if the success of concierge apps that empower users to outsource chores and errands for a fee is any indication, consumers may be ready to pay for agent-powered travel apps. Membership and fee-based revenue streams may be crucial to the success of such apps in an era where reduced commissions from airline and hotel bookings have resulted in shrinking margins for agents.

The Travel Agent of the Future: Challenges and Outlook

Although DIY travel planning has become the norm in the United States, it’s not ideal for every traveler, all the time. “I think do-it-yourself is just not enough for most people because in many cases they want to be guided or assisted or helped,” English told Skift in an interview earlier this year. While a seasoned traveler may prefer the ease and convenience of jumping on an OTA’s website and booking a favorite hotel in a favorite destination, there are many others who find the process time-consuming and/or daunting, and would happily pay a premium to get a travel agent to work something out for them.

While DIY travel planning will likely continue to dominate, travel agents may become increasingly visible, particularly if consumers see the value of their services. Moreover, the demand for travel agents will continue as Millennial purchasing power grows stronger, attributable to their demand for personalized service coupled with their willingness to pay for it. Other trends in the workplace, such as the increased ability to telecommute and companies offering flexible or generous vacation packages, may also help the travel agency industry overall.

“With this need to find new experiences and new places, increasingly unique and off the beaten track, the experience of a travel agent is increasingly essential to their users,” MMGY’s Cohen notes. “This is why we see the future of travel agents as increasingly advising and booking individual or small group travel for those who want to optimize their experiences, as the direct counter-trend to FIT [fully independent] travelers who risk booking on their own and risk quality and security in unknown destinations.”

However, travel agents must still be able to prove their inherent value to consumers if they want to stay ahead of the game. Shrinking commissions mean that most travel agents rely on service fees as a major source of revenue. While customization and high-level support may be enough to prompt some users to pay a premium, it’s essential that the general public be made aware that travel agents can often get better deals than the DIY traveler might be able to find alone. In some cases, travel agents’ fees can pay for themselves.

How travel agents operate behind the scenes is also likely to be an interesting mix in the future. It’s already accepted that the mom-and-pop travel agency is a thing of the past, but franchise partnerships with larger brands (such as Expedia CruiseShipCenters) that help create off-line brand awareness may continue to emerge. Travel agency consortiums, including major U.S. players Travel Leaders Group, Signature Travel Network and Virtuoso, offer a range of technology and marketing tools to member agents that help better empower small agencies to compete against online booking sites. Large travel companies may also use the opportunity to create brick-and-mortar locations of their own, primarily as a source of gaining customer loyalty and ubiquity. Independent and home-based travel agents will also be a growing force; there are around 20,000 such agents in the U.S. right now, and ASTA projects that those numbers will continue to increase. Finally, apps that connect travelers with real agents, chatbots, or both, are likely to continue to emerge over time, especially if pioneering entrants like Lola are able to prove that human-powered services are worth paying for.

Key Takeaways

Travelers are still open to using agents.

DIY travel planning is not for everyone, and many travelers feel better using an agent — even if it may end up costing more. Motivations for using agents include the personalization and area expertise they can provide and potential support should something go wrong during a trip. Many travelers also prefer to avoid the potential hassle of planning travel themselves.

Millennials are an increasingly important market.

U.S. Millennials currently use travel agents more than any other age group, and have been shown to be more willing to pay for experiences than goods compared to other generations. This will be an important market for agents to target going forward, particularly as people in this age group continue to increase their spending power.

Travel-planning apps that add a human element may fulfill a need that automation simply cannot.

A major frustration for many travelers using DIY travel-planning methods is that it can be difficult to connect with a real person when you need it most. While a bevy of apps using AI and automation have been on the market for some time, those that allow travelers to chat directly with an agent straight from their smartphones are ideal for travelers looking for the personalization of individual service with the ease of a mobile app.

Travel agents and agencies aren’t going away, but their roles are changing.

Independent and home-based agents are becoming more prevalent. OTAs and major travel agencies are opening brick-and-mortar retail outlets and franchise locations, at least partially to spread brand awareness.

Endnotes and Further Reading

  1. Travel Agents: BLS Occupational Outlook Handbook, Bureau of Labor Statistics, December 2016.
  2. U.S. Travel Agency Air Ticket Sales Up Nearly Two Percent in August, Airlines Reporting Corporation, September 2016.
  3. Interview: ASTA’s CEO on the Travel Agencies That Will Win the Future, Skift, January 2016.
  4. Millennials: Fueling the Experience Economy, Eventbrite, July 2014.
  5. Millennials Are More Likely to Use Travel Agents Than Any Other U.S. Demographic, Skift, June 2016.
  6. From Sales to Marketing, A New Era For Europe’s High Street, LUFT Group, November 2015.
  7. Travel agents back in vogue for luxury market, claims Virtuoso CEO, Hotelmarketing.com, August 2016.
  8. EM tourists go back to bricks and mortar, Financial Times.
  9. Interview: Lola’s CEO Wants to Hack Mobile Trip Planning With Travel Agents, Skift, December 2015.
  10. Brick and Mortar Travel Agents Are Still Important Says Flight Centre’s President, Skift, January 2016.
  11. Kayak to Launch New Text-Based Travel Service, Skift, December 2015.
  12. 6 Charts That Show Mobile Booking’s Gain on Desktop Around the World, Skift, September 2015.
  13. Mobile Devices Now Generate 25 Percent of All Digital Travel Transactions in the U.S., Skift, April 2015.
  14. Mobile Travel Agencies: Next Game-Changing Business Model in the Travel Industry? Euromonitor, August 2014.
  15. America is back to pre-recession spending habits of ‘save less and spend more,’ Mintel, June 2015.
  16. Are OTAs Really Killing Brick And Mortar Travel Agencies? Forbes, April 2015.
  17. STA Travel expands its horizons with a new global electronic travel services solution, IBM.
  18. Corporate Travel Embraces Chat-Based Apps With Hyper Travel Acquisition, Skift, July 2016.
  19. Service Fees and Commission Cuts Opportunities and Best Practices for Travel Agencies, Amadeus, June 2007.
  20. Why the Modern Travel Agency Needs to Charge Fees, Skift, February 2016.
  21. Independent Travel Agents Look for Support to Master a Niche, Skift, October 2015.
  22. Selling Cruises: Does It Still Pay? Travel Market Report, May 2014.