This report offers an in-depth understanding of business and leisure travel agencies in Saudi Arabia and defines market trends and value-add opportunities for the sector.
The latest study commissioned by Amadeus, a leading technology partner for the global travel industry, identifies the value of using the newest technology in the distribution sector: travel Agencies having adopted Amadeus new generation IT solutions saved over 20% in cost and increased their agents productivity by 15%
Conducted in Saudi Arabia by the independent company Hermes Management Consulting, the report “How GDS can improve cost efficiency and optimise business for travel agencies” unveils that in a “Zero Commission environment”, technology is crucial in maintaining profitability
This study offers an in-depth understanding of business and leisure travel agencies in Saudi Arabia through examining their business models, processes, cost drivers and productivity levels. It also allows comparing results with a similar one conducted in 2006 with the same agencies before adopting Amadeus solutions.
The positive outcome still encourages travel agencies to reach an even higher profitability by further integrating non air bookings in their IT platform.
Key highlights of the study:
• In 2006, the average sales volume for the travel agencies participating in the study was €27.8 million and € 2.0 million in revenue (7.1% gross margin).
In 2011, the same travel agencies increased their sales volume by 42.1% to €39.5 million and their revenues by 30.0% to €2.6 million (6.7% gross margin). On average, leisure travel agencies increased sales by 64% and revenues by 46%, whereas business travel agencies’ growth in sales was 19% and 18% in revenues. Therefore, the leisure segment has increased its share of sales from 48.8% to 56.5% for participating travel agencies. These figures confirm that travel agencies are focusing on the largest and fastest growing air travel segment: leisure international travel.
• The average cost per ticket for Saudi Arabian leisure travel agencies has been reduced significantly since 2006 by 19.1%. Personnel costs account for 64% of total costs. When analysing costs per activity, core reservation activities represent 47.5%, down by 20.1% since 2006 due to improved air reservation systems and greater productivity.
• Leisure travel agencies’ productivity have improved profitability significantly since 2006. Thanks to a €1.9 increase in revenue and a €3.3 reduction in the cost per ticket, EBIT (Earnings before Interest and Taxes) per ticket have increased by €5.2 to €7.5 per ticket. Business travel agencies have also improved profitability, increasing EBIT per ticket by €4.4 to €10.3. The factors that have influenced productivity are the introduction of new and more efficient reservation systems, better agent training and a more streamlined reservation process.
• On a per ticket basis, sales have increased significantly for both leisure and business travel agencies. Leisure travel agencies have increased their average sales per ticket by 26.7%.
• Average cross-sell levels in travel agencies in Saudi Arabia are one of the lowest in the world, despite a significant improvement in leisure travel agencies from 6.9% in 2006 to 15.7% in 2011.
• Services fees and mark-ups have been introduced. As a results airline commissions now represent 18% of travel agencies’ revenue versus 79% in 2006. Given this shift, effective service fee management is crucial for leisure travel agencies. Currently, leisure travel agencies’ service fee management is rudimentary, relying heavily on one-on-one negotiation between travel agents and clients.
Ezequiel Iturain, Hermes Management Consulting Manager, commented: ‘This second analysis allowed us to discover that Amadeus solutions can make a difference in the bottom line of travel agencies. This study is based on the comprehensive revision of the financial data and in depth analysis of the business processes of the participating agencies through which significant cost savings have been spotted. As a result of having embraced the Amadeus technology, agents reduced their time dedication on core-reservation activities (reducing core-reservation costs by € 0.8) and increased customer care and account management activities in order to satisfy the demand for enhanced service (€ 0.9 increase). Agencies are now investing € 0.9 more per ticket in IT development. Some opportunities still remain as service fees are now the main revenue stream for travel agencies and Hotel bookings have a significant positive impact in profitability when processed through the GDS.
The first study which was conducted in partnership with Amadeus in 2006 had enormous relevance for Saudi Arabia and the Middle East region. We are enthusiastic yet again to provide an interesting benchmark with a neutral approach for Saudi travel agencies that could be used to draw comparison with the original study and demonstrate the impact of a shift among GDS suppliers.”
The report identifies factors to effectively add value to leisure and business travel agencies in the Kingdom of Saudi Arabia. These include the introduction of service fee and mark-up management to increase revenue, the increase cross-sell levels, the adoption of online bookings and improvement of the online travel agency experience, the reduction of reduction of administrative costs by integrating front and back-office systems and also the improvement of marketing efforts.
Nashat M. Bukhari, General Manager for Amadeus Saudi Arabia said: “Through this
exercise, Amadeus is once again demonstrating its pledge to support the travel agency
community in Saudi Arabia. This is the second time that Amadeus has commissioned
such a study for the Saudi Arabian market. Our intention behind was to identify cost
drivers and opportunities for enhancing travel agencies’ profitability and efficiency. This
project also supports Amadeus’ wide initiative of positioning its brand not only as a
partner but also as a customer-centric technology leader in the travel and tourism
industry”.