Travel and Hospitality (TnH) - June 2021 by Prem Sagar

ISSUE 8 / VOLUME XII / JUNE 2021 Rs.350 / Pages 59

EDITOR’S NOTE Know How They say not to judge a book by its cover but magazines are a different story. The cover of this issue suggests that this magazine gives insights on how businesses in the travel industry work, and that’s exactly what you will find inside. From understanding the complicated parts that are crucial to running an airline (pg 27) to figuring out how travel agencies still hold the industry together (pg 09), the common denominator in all our articles is the insight into the evolution and functioning of various parts of the tourism industry. Since our founding over a decade ago, Travel and Hospitality has worked hard to document and disseminate the best stories of growth and innovation in the travel and tourism industry. We’ve met hundreds of businessmen and professionals and heard thousands of stories. Each one is unique, yet has given us some insight on how things intrinsically work in the industry. This month, we’ve tried to distill what we have learnt about the big sectors in travel and simplify it to the fundamental basics. We’ve included them in the

magazine you’re holding. We hope they’ll make for an interesting read and provide a draft for how our industry works. Publisher & Editor Srishti Jindal

CONTENTS

A Quick Tour of Travel Agencies

17 27

A Flight to Understanding the Airline Industry

35 43

A Check into the Hotel Industry

A Deep-Dive into the Cruise Industry

A Booking with the GDS Industry

A Journey thorugh the Travel Representation Business

@tnhmagazine

www.tnhglobal.com Printed, published and owned by Srishti Rai. Printed at Naveen Printers, F-11 B, Okhla Industrial Area, Ph-1, New Delhi-110020, Published at C-4, 2nd Floor, Community Center, Safdarjung Development Area, Opp Main IIT Gate, New Delhi-110016;

Publisher & Editor Srishti Rai

Art Director Sunny Singh

Director Bharat S. Rai

Correspondent (Kolkata) Swaati Chaudhury

Creative Head Shulabh Gupta

Accounts Chander Shakher Balodi

Managing Editor Prem Kumar

Administration Executive Sarwat Jahan

GM - Marketing Prem Sagar premsagar@tnhindia.com (M) +91 99106 81111

For any query : info@tnhindia.com

09 A Quick Tour of Travel Agencies Dreaming about that relaxing trip to a cottage in a hill station? Or maybe you are frantically trying to book a hotel for a last-minute business trip? For many, travel has become an essential component of our everyday lives. And as the demand for travel has grown, travel agencies have sprung up, servicing a wide range of tourists across travel sectors.

11 11

An Overview of Travel Agencies The tourism industry accounted for almost 10 percent of the world’s GDP in 2019 and has been a driver for millions of travel-related businesses including travel agencies. But what are travel agencies, and what do they do? In a nutshell, travel agencies are businesses that sell travel-related services and products to customers. However, the services provided may differ. For instance, some travel agencies may just help with hotel bookings, while others may arrange transport. Travel agencies are also embedded in a vibrant eco-system, where they work closely with hotels, marketers, and IT professionals. In several countries, they may need to be registered with ministries of tourism and may become members of trade bodies like the International Air Transport Association (IATA). The growth of global travel has contributed to the growing economic impact of travel agencies. In April 2020, the market size of the travel agency sector in the US was pegged at USD 45.7 billion. The Indian travel services market is also projected to expand, growing by USD 56 billion between 2020 and 2024. As tourism evolved, travel agencies have had to evolve as well. In terms of their operations, scale and specialties, they can now also be divided into two broad segments: Online Travel Agencies and Offline Travel Agencies.

13 13

Offline Travel Agencies

Ever been on a vacation where all your hotels were booked, your guides arranged, and you even had a custom-made itinerary to follow? If yes, then chances are that an offline travel agency helped you plan and coordinate your trip. Offline travel agencies are businesses that tend to have a physical establishment i.e. an office, where potential customers can have face-to-face interactions with the travel agents. These travel agencies often operate in niche markets. Offline travel agencies may further specialize in multiple sectors: Inbound, where they would provide services to foreign tourists coming to the agency’s country; outbound, where the agencies provide services to tourists traveling overseas; and the domestic sector, in which the offline travel agency arranges travel-related services for domestic tourists. In several cases, these travel agencies act as intermediaries and don’t liaise with customers directly. It is also important to note that many of these “offline” travel agencies are actually not offline. A growing number of them are incorporating technology, building attractive websites, and creating a social media presence.

So, how can one set up an offline travel agency? Starting offline travel agencies may not require a lot of capital but it does require significant passion and knowledge of the travel industry. Since the travel industry itself is fairly diverse, an offline travel agency may choose to find a nice and build its operations based on a target market. For instance, a person fluent in French may choose to start an inbound travel agency that works with French-speaking markets. While the costs of setting up an offline travel agency may be low, these travel agencies may encounter major costs during their business operations. In addition to costs associated with marketing, travel-related exhibitions, and staff salaries, offline travel agencies may also need to invest in technology like ticket booking software. Entrepreneurs may also face significant challenges. For instance, the travel sector in India tends to be highly competitive. Thus, the travel agent may need to rely extensively on word of mouth, and good customer service. Offline travel agencies may also fare better if they highlight their unique selling point to the target audience.

Online Travel Agencies (OTAs) With the advent of the internet, the global travel and tourism industry has had exciting opportunities to innovate and experiment. These new opportunities fostered by accessible technology have led to the rise of OTAs like Expedia, MakeMyTrip, and Yatra.

So, what are OTAs? OTAs tend to be companies that primarily sell travel-related services through online platforms or websites. These travel agencies tend to focus on individual customers and offer them opportunities to determine bookings through services like comparison tools, customer reviews, and give travelers a plethora of options to choose from and receive more flexibility for their travel plans. The popularity of OTAs is growing steadily, and online travel agencies are being set up in numerous countries. These changes have had tangible impacts as well. In 2020 alone, the market size of online travel agents was an estimated USD 432 billion.

How do OTAs operate?

But how do offline travel agencies earn revenues?

Usually, OTAs sign contracts with vendors such as hotels, airlines, and other travel-service suppliers to showcase their products on the OTA’s platform. In several instances, OTAs also serve as trustworthy sources for recommendations on travel products.

Offline travel agencies primarily earn revenues through commissions, markups, and consultation fees. For instance, a travel agency may earn commissions on the sale of certain tour packages and booking tickets. Travel agencies may also earn a profit by being able to sell bulk services bought from vendors at large discounts. However, the rates of commissions and mark-up prices may differ across sectors, geographies, and periods.

As OTAs become more popular, the industry becoming more competitive. As such, OTAs are increasingly spending large amounts on their advertising and marketing to attract potential customers. For instance, in 2018, OTAs worldwide spent approximately USD 10.7 billion on direct advertising. Additionally, as OTAs grow their costs of operations may include increased staff salaries and more spending on IT platforms and capacity. OTAs often generate revenue based on commissions. For instance, an OTA can collect payments from the customer directly and pay the service provider once the service has been tendered. In another scenario, the customer may book services through the OTA but may directly pay the service provider. In the former example, the OTA would have to rely on contracts with the service providers and earn commissions based on the terms of the contracts. In the latter scenario, it may earn commissions based on the sale of the services provided.

15 15

COVID-19 and its Impact on Travel Agencies Like many actors in the tourism industry, both offline and online travel agencies are sensitive to externalities. Since the beginning of the COVID-19 pandemic, several travel agencies have shuttered their operations. Lockdowns and travel restrictions do have some blame for the loss of business. However, offline travel agencies have also had to contend with growing demands for more digitally savvy travel agencies — a fundamental change. In some countries, digital travel agents now occupy up to 50 percent of the market share.

Way Forward for Travel Agencies While it’s not all smooth sailings, some respite is in sight for travel agencies. As vaccination drives begin in several parts of the world, countries are slowly easing travel restrictions. In a recent survey, 60 percent of the people surveyed admitted that they are waiting to travel once WHO travel restrictions are lifted. The pandemic has allowed several travel agencies to strategize and experiment with new platforms and technology. From rebuilding their brands to marketing virtual reality experiences, travel agencies are ready to explore new frontiers and build resilience as they emerge into a post-pandemic world.

17 A Check into the Hotel Industry There is proof that people have been providing hospitality for weary travellers since our ancestors inhabited the earth in prehistoric times. Down the line, a few centuries ago, this concept of providing hospitality got more refined. Voyagers realized they needed somewhere to stay when they were away from home. What we now know as hotels and motels were earlier humble inns and highway houses, run by the host family. Travellers were provided with large halls to make their bed on the floor and everything from wholesome food and liquid refreshments to entertainment and recreational activities was taken care of by the host. Over the years, the hotel industry evolved into various forms, sizes and categories according to various guests’ needs. Today, the hotel industry is a multi-billion dollar industry and largely thrives due to travel and tourism. Let’s take a closer look at what constitutes the hotel industry and how it functions.

19 19

What is the Hotel Industry? In the recognized sense, the institution of the hotel saw its beginning in the year 1312, in Paris. However, it was the fifth Duke of Devonshire who first used the term ‘hotel’ in 1760 to name a lodging property in London. And while Europe can be considered as the birthplace of ‘hotel(s)’, it is the American continent that is responsible for the evolution of the hotel industry. A dominant part of the hospitality industry, a hotel can be defined as an establishment that provides accommodation and meals for an irregular period at a stipulated price. Incidental to this fundamental business, the hotel may also provide other facilities and amenities for social, business or entertainment purposes. Put in a nutshell the hotel industry thus looks after short-term lodging and guests’ accommodation needs. International travel was undoubtedly getting back to normal but again had to go on hold due to the second wave. However, in my opinion, unless extreme events related to Covid break out, winter 2021 would be a revival period for international travel. Soon, we will enter a phase where all will be planning on our next travel destination.

Why is the Hotel Industry so Important? Just like the hotel industry prospers due to travel and tourism, likewise, tourism is significantly reliant on the hotel industry. Without any place to stay for travellers, tourist destinations cannot sustain. Thus, the hotel industry is one of the most thriving sectors (or was pre-Covid at least) and its importance cannot be overestimated. It provides ample career opportunities for both: those who have no qualifications and those who have diplomas or degrees. In fact in FY20, the tourism sector in India accounted for 39 million jobs, which was 8.0% of the total employment in the country. By 2029, it is expected to account for about 53 million jobs. A large percentage of these jobs are attributed directly to the hotel industry. In addition, the industry fosters innovation, entrepreneurial spirit and harnesses creativity. It also lays the foundation for other businesses. For instance, whether it’s bars of soap, bed linens or mattresses, companies involved with hotel amenities are also profiting heavily from hotels. Further, guests staying at hotels spend money on retail, leisure, transport and dining. Moreover, business travellers that often frequent hotels are essential in the process of facilitating global trade and commerce.

21 21

Hotel vs. Hospitality The difference between the hotel industry and the hospitality industry is often ignored. Many people mistakenly believe the two terms refer to the same thing. However, the hotel industry is solely concerned with providing guest accommodation and related services. By contrast, the hospitality industry is an umbrella term concerned with leisure in a more general sense. Consequently, it encompasses various categories such as hotels, restaurants, bars, cafés, nightlife, events and a number of other travel and tourism services.

Types of Hotels In a literal sense, a hotel provides guest accommodation but these vary by infrastructure, location, function, nature, price, purpose, visitors, market segment, staff to room ratio, design, rating, the distinctiveness of the property and amenities provided. Majorly hotels are categorized as chain hotels, independent hotels, heritage hotels, resorts, business hotels, airport hotels, government-approved hotels, city center hotels, suburban hotels, spa hotels, casino hotels, rehabilitation hotels, all-suite hotels, bed and breakfasts (B&Bs), motels, botels, inns, serviced apartments, hostels, apartment hotels, boutique hotels, condominium hotels, eco-hotels, guest houses, holiday cottages, pop-up hotels, roadhouses, caravan and camping sites, conference centers, timeshares or vacation ownerships, cabins, villas, chalets, and tourist holiday villages. Further, the hotel industry uses “chain scales” to categorize hotel brands. The chain scale system usually decides which chains fall into each category, based on the hotel’s average daily rate. The hotels are broadly segmented in to luxury, upper upscale, upscale, upper midscale, midscale, and economy, using this classification. Even further, hotels are given rating on the basis of the amenities at a hotel. In India hotels are rated by the Hotel & Restaurant Approval & Classification Committee (HRACC), which falls under the umbrella of the Ministry of Tourism. Based on ratings, hotels are classified into five-star, fourstar, three-star, two-star and one-star hotels. Star ratings are meant to give travelers information about the level of quality at a given hotel. Generally speaking, hotels with higher star ratings can sell higher rates.

23 23

Who Uses Hotels? The variety of hotels available is indicative of the traveller’s various needs. Thus, to understand who these “guests” are, it is imperative to take into consideration: the trip purpose, numbers and origin. Drawing inference based on the above understanding, hotels most commonly see leisure travellers whose raison d’être are usually to engage in leisure activities, outdoor recreation, relaxation, exploration, visiting friends/relatives or attending events. On the other hand, corporate business travellers tend to attend events, meetings, and workshops, conduct business or partake in selling or purchasing products or services. Hotels often see bookings via travel agents for group inclusive tours as part of a package tour. Locals are among common guests that visit for special occasions. Conferences that are held at hotels see individuals in large numbers. VIPs such as celebrities, public figures, frequent-stay guests, political leaders, guests with security risks, etc. are also among frequent visitors of hotels.

How Do Hotels Make Money? The main source of revenue for hotels is letting rooms. Hotels have perishable inventory. If a room stands empty for the night, the opportunity to earn revenue from renting it out is gone and can’t be recouped. Depending upon the season a hotels marketing & reservation department continuously makes changes to their prices to maximize revenue per room. A hotel’s reservations department also has a process of forecasting room occupancy that allows other departments to keep costs in control accordingly. The other sizeable revenue generator for hotels is food & beverage sales. In addition to that hotels can also earn from the other ancillary services they provide like banqueting, meeting room rentals, spas, branded rooms, etc. On the other hand, once the initial investment in infrastructure is complete a hotel’s expenses are primarily its employees, interest payments, upkeep and utilities. Keeping in mind today’s discerning traveller, the most important element which determines the profitability of hotel firms is the quality of service provided to the guests. Thus, to increase conversions, revenue and profit, it is essential for hoteliers to emphasize customer loyalty over maximizing short-term revenue. Such a strategy solidifies long-term revenue generation even when there are alternatives present at a lower cost. A holistic approach, which pools operating data across all departments to build better revenue management, can help hotels to garner loyal customers. Effective data analysis, which helps in filtering potential customers, is vital for accurate sales forecasts.

25 COVID-19 Impact

The outbreak of the SARS-CoV-2 or COVID-19 virus has collapsed economies and health care systems of countries around the world. It has also started a domino effect, as is evident with the hotel industry, which has been amongst the hardest hit. Nationwide lockdowns, travel restrictions, closed borders; cancellations of events and protocols to contain the spread of the virus have all resulted on an average 90% loss in hotel bookings. Some hotels have even had to shut business. However, this isn’t the hotel industry’s first tryst with a virus outbreak. In 2003, the industry saw a loss estimated between US$30 billion and US$50 billion due to the SARS virus. Nevertheless, the industry recovered quickly. By 2006, the industry contributed a whopping $5,160 billion to the global GDP. Going forward, the post-pandemic world will see the hotel industry go through an unprecedented and irreversible change — an era of digitalization that will revolutionize the industry as we know it.

Conclusion: What’s Next for the Hotel Industry? The hotel industry today stands at a crucial point in time. The pandemic has affected consumer behaviour resulting in new habits, new expectations and different spending patterns. This recent development has forced the hotel industry to re-engage with customers, reimagine customer experience and most importantly, reorganize their structure. Apart from rebuilding brand loyalty, the hotel industry is bracing itself to operate in the ‘new normal’ with just as much agility as before. The industry is also concerned about ensuring financial resilience for future uncertainties. To subdue risks, in a contact-free world where automation and mechanization will help rule out the human element in multiple industries, it is pertinent to understand that so far it is this human element that determines the hotel industry. The decisions made now will go on to become operating models for the hotel industry as they find the right balance between investment and conservation. Like any other cataclysmic event, the pandemic too shall pass and as history has proven, mankind will analyze, adapt and overcome to thrive.

27 A Flight to Understanding the Airline Industry After months of quarantine, do you feel desperate to catch a flight to your next great adventure? You are probably not alone. Air travel, as we know it, has come a long way since its beginnings in the early twentieth century. As more people and cargo take to the skies, global distances are shortening and travel times are decreasing. Invisible to most passengers, the need for air transport has also created a dynamic global airline industry. But what is it? And how does it work?

29 29

A Quick Introduction to the Airline Industry The airline industry consists of diverse businesses that ferry passengers and cargo from one place to another through aircraft. ‘Airlines’ are organizations that offer these air transportation services. You might be familiar with several commercial airlines such as Air India and Emirates. However, many airlines also exclusively ship freight. While airlines differ in services provided, they do not operate in a vacuum. From travel agents who sell tickets to catering businesses that supply in-flight meals, airlines work in close tandem with diverse actors from the tourism and hospitality sectors. Airlines also work with many players engaged in the aviation sector including aircraft manufacturers like Airbus and Boeing, and government bodies such as the US Federal Aviation Authority (FAA) and the Directorate General of Civil Aviation (DGCA) in India. Over the last few decades, the airline industry has become essential to the modern economy. The International Air Transport Association (IATA) estimates that airlines employ 2.7 million people out of approximately 65.5 million people working in aviation and other related industries. While you may be familiar with pilots and cabin crew, airline employees also include aircraft maintenance and repair personnel; baggage handlers; marketing and ticketing executives; and more. In the US alone, the airline industry has generated around 10 million jobs and has contributed $1.7 trillion to the American economy. The airline industry has also shown promising gains in India and is expected to receive 520 million passengers by 2037.

A Closer Look at Airlines Given their importance, one may wonder what kinds of airlines operate in the industry. Airlines can be categorized based on several factors including where they fly. International airlines provide transportation services to destinations across the world, domestic airlines fly within a country’s borders, and regional airlines provide air transport services to smaller airports in a particular region. Airlines can also be classified based on the services provided. For instance, full-service carriers such as Air India and Vistara provide business class seating and in-flight meals. On the other hand, low-cost carriers like Indigo and SpiceJet offer domestic or international connectivity at nominal prices with reduced in-flight services and a no-frills approach to flying. Some airlines also specialize in charter services.

31 31

Airlines and airports No matter the types, you cannot think of airlines without thinking of airports. In many cases, airlines favour the ‘Hub and Spoke Model,’ which allows them to route traffic through major airports i.e. ‘hubs.’ In India, major hubs include the busy airports of New Delhi and Mumbai, For instance, if you want to take a flight from Vadodara to Goa, chances are that you will have to make a pit-stop in Mumbai or Bangalore. Airlines do this to fill seats on popular routes and to avoid losses when operating less common routes. Coordinating with airports is an important aspect of airline operations. For instance, in congested airports, airlines may need to book landing slots in advance. These slots are often critical to ensuring smooth operations on popular routes. In India, airlines obtain landing spots from the Airports Authority of India (AAI), private airports, and Air India. The airport is also the place where the aircraft can undergo maintenance and safety checks, load and unload cargo, and transfer passengers on board. The partnership between airlines and airports is often mutually beneficial.

Demand for Air Travel The airline industry’s diversity is a reflection of the needs and demands of its customers. In 2018, approximately 4.5 billion people traveled by air. The majority of airline passengers travel for leisure, and business travelers account for just 12% of total passengers. However, before COVID-19, the demand for airline seats for business travel was relatively inelastic. If businesses needed their executives to take expensive red-eye flights to sign business deals, they would probably book them tickets regardless of the prices. In fact, for many airlines, business travel accounts for 75% of their total revenue. However, people are not the airlines’ only passengers. Your valentine’s day flowers, baked goods, and important letters may have all flown to their destination too. Recently, cargo including PPE kits, vaccines, and masks has been jetted off to different parts of the globe. Unsurprisingly, cargo numbers have remained relatively unaffected during the pandemic.

33 Let’s Talk Business

The business potential of air travel has enamored several aviation enthusiasts. So, how can someone start an airline? In addition to becoming familiar with the industry and local demand, airline entrepreneurs must think about financing their enterprise, understand regulatory frameworks, and recruit skilled staff. Here are some things to consider before starting your new venture: Airlines are capital intensive and have high fixed costs: From purchasing or leasing aircraft to maintaining them, significant funds are required to operate airlines. Other major costs incurred by airlines include jet fuel purchases, taxes, and employee wages. It is important to note that costs may change based on the type of aircraft the airline uses, which routes it serves, and what services are provided. Airlines are highly regulated: Airlines are subjected to safety and operational regulations due to the nature of air travel. For instance, to start an airline in India, companies have to meet DGCA requirements and obtain relevant clearances including a No Objection Certificate (NOC) and an Air Operators Permit (AOP). The industry is subject to many externalities: The COVID 19 pandemic is a prime example of the airline industry’s vulnerabilities. However, other externalities include fluctuating oil prices, geopolitics, and weather disruptions. High competition in the airline industry: Everyone seems to be looking for low fares. For instance, many passengers may look for the cheapest deals instead of sticking to an airline. This attitude has forced airlines to look for ways to cut down on costs and increase their Revenue Passenger Kilometer (RPK). Although air travel has become essential in a globalized world, the airline industry’s economics remains turbulent. Strict regulations, high fixed costs, and several externalities present barriers to new entrants into the market. The airline industry also has thin profit margins, and different airlines have different strategies for revenue generation. Commercial airlines’ revenue is primarily driven by the available seats per kilometer (ASK) and the price of their tickets. However, to cover their costs, airlines need to operate at or above their break-even load factor. Thus, many try to sell their available seats at a certain price level. For some airlines, this means increasing ASK and cutting down on miscellaneous costs. Others may charge higher prices from passengers in first- and business-class cabins. Other streams of revenue include in-flight sales and charging for cargo.

COVID-19 Impact and What’s Next for the Airline Industry? The airline industry has seen its fair share of ups and downs through the decades. However, the COVID-19 pandemic has had a devastating impact on the industry. Continued travel restrictions led to the industry reporting approximately $118 billion in total losses as of 1 November 2020. Yet, as actors in the airline industry adjust to the new normal, they have had to re-think and re-plan for the future. There are extrapolations that air travel may resume as vaccines roll out. Yet, for the airline industry, the light at the end of the tunnel may be further away than anticipated. The pandemic has created several changes in how we conduct business and choose to travel. As more executives and businesses get used to virtual communication, business travel may reduce. Economic uncertainty may also inhibit leisure travelers. Yet, the airline industry has proved to be resilient in the past — bouncing from recessions and security threats. Perhaps, the COVID-19 crisis is an opportunity to open an innovation-driven chapter for the airline industry.

35 A Deep-Dive into the Cruise Industry Words by Tanvi Banerjee From prehistoric times to the twenty-first century, humans have sailed across oceans, seas, and rivers. Over time, voyages of exploration have given birth to a major sector of global tourism — cruises. For many, the word ‘cruise’ conjures images of idyllic vacations spent aboard ships sailing from one exotic location to the next. These cruises have managed to become synonymous with leisure and luxury, re-inventing the romance of traveling by water for passengers otherwise used to faster modes of transport. An increasing appetite for cruises has thus led to the development of a global cruise industry, which spans almost all continents and has left economic footprints even in remote local communities.

37 37

A Quick Introduction to the Cruise Industry The cruise industry emerged in the early 1970s primarily driven by demands from North American passengers. Although air travel was slowly becoming popular, cruises were able to attract passengers by highlighting cruisers’ abilities to visit several different ports during a single trip. Today, the cruise industry’s global nature has led to the growth of several actors in the industry. ‘Cruise lines,’ which are businesses that operate ships and arrange cruises for passengers, are essential to this industry. Prominent cruise lines include Carnival Corporation & PLC, Royal Caribbean International, and the Disney Cruise Line. While most cruises are offered on oceans, river cruises are also becoming popular. For instance, in India, cruises are available on the Ganges and Brahmaputra rivers. Other important actors in this industry also include shipbuilders, travel agents, and port authorities. Over the years, cruise lines have begun offering diverse services to satisfy passenger needs. For example, if you want to splurge on an exclusive getaway, you can book yourself a luxury cruise. On this cruise, you may be able to travel on a smaller cruise ship with limited passengers, receive more privacy, and have access to toptier hospitality. Increasingly, cruises are also becoming more accessible. Some cruise lines have started offering budget alternatives to luxury cruises, while others are making their cruises family-friendly. Take Disney’s cruise liners, which play host to Broadway-quality shows featuring Disney, Marvel, and Star Wars characters. Cruise liners may also be equipped with onboard entertainment such as ice skating rinks, shopping centers, and casinos. Catering to diverse demands worked in favor of the cruise industry before the beginning of the COVID-19 pandemic. In 2019, approximately 29.7 million passengers took a cruise. The cruise industry also generated significant employment, offering jobs to over 1 million people in the same year. Employees included deck personnel, engineers, entertainers, and hospitality staff.

Demand for Cruises While the cruise industry is global, certain regions and routes are more popular for cruises. In 2019, the Caribbean sector received the most number of cruises. In terms of demand for cruises, North America continued to lead the market — contributing 51.9 percent of the global cruise passenger volume in 2019. Cruises have also grown popular across continents with Europeans consisting of 26 percent of the total passenger volume followed by passengers from Asian countries. The cruise industry has also seen rising interests from Australia and Latin America in recent years. The demographics of cruise passengers have shown some interesting trends as well. For instance, the average age of a passenger was 47 years in 2019. Passengers of cruise ships also tend to be loyal. According to a 2017 report by the Florida Caribbean Cruise Association Inc., 92 percent of surveyed cruise passengers said that they will probably or definitely book a cruise as a next vacation. Per this report, families with children below 18 also tend to prefer cruises. Single cruisers have also increased over the last few years, leading cruise lines to offer single-occupancy cabins and more activities for individuals. So, while many have embraced the cruise industry, why is there a limited demand for cruises in India?

39 39

India: An Emerging Market for the Cruise Industry Despite having a coastline of over 7000 kilometers and hundreds of rivers, India does not have a robust cruise industry. However, there is immense potential for the development of the cruise industry in India. For instance, cruise ships’ port calls in India have increased from 128 in 2015-2016, to 593 in 2019-20. Prior to the pandemic, cruise industry experts extrapolated that India’s young population and increasing air connectivity would help to facilitate the expansion of domestic cruises too. Government policies to ease immigration and customs, reduce port tariffs, and invest in port infrastructure have also been seen as positive indicators for the industry’s growth in the country. Yet, challenges remain in harnessing India’s cruising potential. While the Indian peninsula has at least 13 large ports like Mumbai and Kochi, international cruises usually use Indian ports as ‘ports of call,’ making short stops during a cruise. The country has also struggled with offering competitive incentives to cruise lines. For instance, despite the reduction in port tariffs, cruise lines have found it cheaper and to make port calls in the Mediterranean region than in India. Additionally, ports in India seem to need better infrastructure to promote a comfortable experience for cruise passengers. However, these challenges also present opportunities. To foster a domestic cruise industry, India can continue investments in its port infrastructure, promote incentives for budget cruises, look into building sustainable public-private partnerships, and increase riverine cruises.

Economics of the Cruise Industry a In 2019, the cruise industry’s total economic impact was estimated at $154.46 Billion. However, due to the nature of its operations, the cruise industry’s economics do not always sail smoothly. Cruise lines often incur high fixed costs and are capital intensive. Other factors such as fuel, port tariffs, and employee salaries add to the company’s overall costs. High costs of operation and a fairly high start-up capital can also create barriers to entering the industry for enterprising cruisers. New entrants may struggle to compete with existing cruise lines, many of whom operate on economies of scale in an effort to keep per-capita costs low. Yet, cruise lines can be profitable ad cash-rich businesses. In fact, based on their size and the passenger volume, cruise lines can reach profit margins of up to 19 percent. Per data from 2019, major cruise lines generated billions of dollars in revenue from cruises. For instance, Carnival Corporation & PLC reported revenues of $20.8 billion in 2019, a hike from the revenues generated in 2018 worth $18.9 billion. So, how do cruise lines generate revenue? Ticket sales account for the majority of the ship’s revenue. Therefore, cruise lines tend to maximize occupancy to generate more profit. For instance, a cruise may offer reduced ticket fares and other incentives to last-minute travelers to fill empty cabins. However, beware, ticket prices may fluctuate based on the type of cabin selected, the number of travelers, and even the time when the ticket was purchased. However, ticket sales are not the only way cruise lines generate revenue. Onboard purchases also contribute significantly to the cruise line’s overall revenue. These purchases can include services and goods not offered in the ticket price and may include revenues generated from the sale of services and products in shops, bars, and casinos. Organizing off-shore activities and excursions may also add to the cruise line’s revenue. For instance, Royal Caribbean Cruises Ltd. reported that its onboard and other revenues accounted for 28.3% of its total revenue in 2019. The cruise line also stated that it was able to generate onboard revenues through several strategies including the promotion and sale of beverage packages, internet services, and gaming initiatives. To ensure continued profitability and to drive down costs, cruise lines have adopted several strategies. For instance, cruise lines have been experimenting with increasing cruise ships’ passenger capacity and organizing shorter trips at sea.

41 COVID-19 Impact and What’s Next for the Cruise Industry? Like other industries, the cruise industry is no stranger to externalities. At the beginning of 2020, some cruise ships became hotspots or COVID-19, leading to no-sail orders for many and estimated losses worth $77 billion in global economic activity. To support the cruise industry, some governments have provided aid to ailing cruise lines or reduced port charges. For instance, in India, the government reduced port tariffs by 60 to 70 percent for cruise ships in August 2020 for one year. Now, as cases dwindle in some parts of the world and more people receive vaccines, shorter and more socially distant cruises could become a reality. The pandemic has already forced cruise lines to re-evaluate aspects of their service delivery models and make more further investments in health and safety technology. Adhering to strict safety protocols, more than 200 sailings have taken place between July and December 2020 in some parts of the world including in Europe and Asia. There is no disputing that as we return to a new normal, the cruise industry is primed to embark on a new voyage.

43 A Booking with the GDS Industry Introduction to the GDS Global distribution systems (GDSs) today are the best way for airlines and hotels to sell their inventories, to intermediaries like travel agents. It is estimated that about 200,000 travel agents access the GDS every day on behalf of their customers to book flights, hotels, car rentals and other travel products. Today GDSs are the backbone of the automated travel distribution system. Their vast network provides swift access to vast content, which they host on behalf of airlines and hotels. Travel agents use the GDS to search and book flights and hotel accommodations. GDSs enable travel agents to see real-time rates and inventory for a given hotel or airline.

45 45

The Journey of the GDS Industry GDSs did not come into prominence overnight. It took decades for GDSs to grow and evolve to their current commanding position. Its growth and development is linked to the journey of the civil aviation industry. Efforts by legacy carriers in the US and Europe to automate their reservation processes benefited not only airlines but also travel agents, immensely enhancing agents’ booking capacity. Modern GDSs fashioned themselves as technology partners of travel agents, empowering them through technologies and innovative products, helping them meet new challenges . Globally, a large chunk of airline inventory is still sold through GDSs. They provide distribution, technology, payment, mobile, and other solutions to travel agents. They earn their revenues, from airlines, hotels, cruises and other service providers at the top end, and from travel agents at the bottom, with GDSs functioning as a distribution pipeline between the two. In India, the travel distribution landscape is predominantly controlled by Amadeus, represented in the country by the Bird Group, and Travelport represented by InterGlobe Travel Quotient (ITQ), part of InterGlobe Enterprises.

The Birth of CRSs The 20th century was a breakthrough century for many innovations. The start of the 20th century was marked by the development of the first successful airplane when the Wright brothers invented the airplane and flew their first aircraft briefly in 1903. The early decades of the 20th century saw the slow and gradual emergence of airlines as a mode of transport. By the early 40s, air travel emerged as a safe, fast and viable mode of transportation. The popularity of airlines as a mode of transportation grew rapidly in the US and Europe in the 1950s .However, flights continued to be booked manually for many years. As more and more people started travelling by flights, flight bookings, done manually, became a cumbersome and protracted process for airlines. It used to take about one and half hours for an airline company to book a ticket. It was very difficult for airlines to check flight schedules, seat availability, and prices, manually and fill in details of passengers by hand. On the other end, travel agents also had to face huge difficulty in booking tickets manually for their customers. This prompted leading airlines of that time to search for a booking system that was seamless and quick and could ease the burden of both airlines and travel agents. American Airlines took the lead in transforming its booking system which resulted in the birth of the Computerized Reservation System (CRS).

47 47

SABRE CRS: Precursor of GDS In 1957, American Airlines joined hands with IBM to develop an automated reservation tool based on SAGE, a groundcontrol environment developed for the US Air Force. The joint initiative lead to the formation of a semi-automated Business Research Environment or SABRE, which became the world’s first computerized booking system (CRS), the precursor of GDS. The advent of the CRS as an automated booking system was a revolution that transformed the old archaic booking system. SABRE could process over 7,000 bookings per hour with nearly zero error rates. Moreover, it was for the first time that a reservation system could store passenger information in its memory. This development quickly boosted American Airlines position in the market. PARS-based reservation systems The success of SABRE was phenomenal, which transformed American Airlines’ archaic booking into a modern automated booking system. This pioneering development prompted other airlines to embark on the modernisation of their own archaic booking systems and develop alternatives of SABRE to compete with Americans. With its proven record in installing an automated booking system, IBM was approached by many other airlines of the US, to develop SABRE like systems for them. Hence, IBM created a new system called PARS or Programmed Airline Reservation System as an alternative to SABRE. Following this development, by 1971, all major American and some north European airlines, with the help of IBM, customised PARS to set up their own reservation systems. For example, Pan American had PANAMAC which other than flight bookings also offered the hotel reservation facility, Delta Airlines instituted DATAS and United Airlines reservation system was called Apollo. Modernisation of ATPC So far the sole beneficiaries of the way CRSs had revolutionised the booking process were airlines. With CRSs, airlines could make a large chunk of bookings smoothly but problems remained on the travel agents end. Agents continued to follow the same old manual way of booking flights on behalf of their customers that used to take a huge amount of their time. They had to call airlines to check seat availability and book a ticket. Having no access to airlines’ CRSs, they had to store flight timings and fare information manually. All this finally changed with the modernisation of Airline Tariff Publishing Company (ATPCO) by 1974. With its modernised hardware, ATPCO connected to the CRS, and it also connected travel agents directly to airlines’ CRSs. The modernisation of ATPCO and its connecting agents to CRSs of airlines was another milestone in the evolution of the travel distribution landscape. CRSs of airlines like American and United become accessible to travel agents. Other airlines also started providing travel agents access to their CRSs. Travel agents signed contracts with airlines, which in turn provided terminal installation, software maintenance, and training to agents. Getting access to CRSs of airlines was useful for travel agents to modernise and simplify their booking process, but this development brought its own set of challenges. Travel agents as part of their contracts with airlines could have access to only one CRS, thus one travel agent could not book tickets for more than one airline. Besides, agents also had to pay airlines for hardware maintenance. Thus the need for an automated distribution system that can provide travel agents access to inventories of multiple airlines was felt.

Emergence of GDS The emergence of GDS followed the deregulation of the airline industry in the US in 1978. The US deregulated market entry, routes and fares. The deregulation freed the civil aviation market, paving the way for the entry of new players in the sector. Airlines became free to decide their airfare and launch new routes. With the expansion of the civil aviation market in the US, airlines saw benefits in sharing their CRSs with non-competing carriers. Airlines having their own CRSs offered them to other airlines to earn commissions. Thus, CRS of a single airline started hosting and offering inventories of many other airlines, and agents could now book flights of different airlines from a single terminal. These developments resulted in CRSs becoming the distribution channels of many airlines instead of just one. CRSs in their expanded roles thus became the Global Distribution System (GDS), which connect travel agents to multiple airlines.

49 49

The Spread of GDS In Europe, airlines came up with their own CRSs. Two CRSs namely CORDA by Dutch KLM and SASCO by Scandinavian came up in the early 60s. In 1987, European airlines such as Lufthansa, Air France, SAS and Iberia came together and set up their Amadeus GDS with the help of Amadeus Germany (Amadeus IT group now). In the same year, Galileo GDS was set up by nine leading European carriers that included British Airways and KLM Royal Dutch Airlines. Soon Galileo emerged as one of the largest European GDSs. Later Galileo and Travicom GDS merged together to become Galileo UK. In 1990, three leading airlines of the US, namely Northwest, Delta and Trans World created an international GDS, Worldspan, to operate across the world. Worldspan was set up through the merger of two existing CRSs, DATAS II and PARS. And in a very short period of time, it became another leading European GDS, besides Amadeus and Galileo. In 1992, Europe-based Galileo and US-based Apollo merged together to form Galileo International. This was for the first time that two GDSs from two different continents came together, marking the beginning of global cooperation in this space. However, the American market continued to be dominated by SABRE.

GDSs as Stand-Alone Entities 1992 proved to be the turning point in the evolution of CRS into the GDS-centric distribution model. In 1992, the US Department of Transportation (DOT) came up with new regulations that made it mandatory for all airlines to participate in competing GDSs. The new regulations gave travel agents freedom to set up hardware and software on their own, and freedom to sell any airline. The requirement for generating the minimum-distribution volume by travel agents was invalidated. The final years of the twentieth century saw GDSs charting their independent ways and freeing themselves from airlines. Increasingly, GDSs started positioning themselves as stand-alone companies. Galileo went public in 1997 as a standalone company. By 1999, Amadeus had acquired many smaller GDSs making it the largest distribution system in the world. SABRE separated from American Airlines in 2000.

51 51

Economics of GDSs Thanks to consolidation in the GDS market, the space today is dominated mainly by three GDSs- Travelport, Amadeus and Sabre. A pre-Covid report by Transparency Market Research (TMR) had estimated that the market size of GDSs would grow substantially during 2019-2027. In 2019, the size of the market was US$ 9.5 Billion, which is expected to reach US$ 14.5 Billion by 2027, growing at 5.5% (CAGR) during the period. This growth will largely be driven by the growth in the travel & tourism sector and expansion of LCCs. As airlines gain popularity in emerging markets like India, tier-II, tierIII and non-metro cities will contribute to the growth of GDSs. GDSs have been diversifying their products as per the imperatives of times. Today, besides vast inventories of airlines, GDSs’ contents include hotels, car rental and many other travel products. In future too, diversification and richness of their contents will be a key factor in driving the growth of GDSs.

GDSs post-COVID-19 Just like any other segment of the travel & tourism industry, the business of GDSs was also hit hard by the pandemic. The GDS business hugely depends on global air traffic, which declined by about 66% in 2020. With airlines grounded, travel halted and hotels’ occupancy at rock-bottom, the GDS business and revenues had significantly dropped. During the peak of the pandemic, GDSs like Amadeus and others adopted measures aimed at mitigating the impact of the pandemic. For example, Amadeus saved more than Euro 500 million through various cost-cutting measures. However, even during that time, GDSs continued to invest in new technologies like NDC and sign new deals for future growth. They further worked to mitigate the impact of the pandemic on travellers and travel agents. Last year, Travelport launched a new plugin to support the recovery of safe and responsible travel and provide information to agents on government restrictions and airline health and safety measures. As travel restarts and borders continue to open, following vaccination drives in most parts of the world, the business of GDSs is also improving. Overall, one can remain confident and optimistic about the future of this industry.

53 A Journey thorugh the Travel Representation Business Words by Prem Kumar, Over the decades, destination marketing has become a focused area in the tourism sector and consequently the relevance of travel representation companies has grown. These companies have emerged as an essential part of the global tourism industry, playing a key role in areas such as sales, marketing and promotion.

55 A Quick Introduction to the Destination Marketing Industry

Broadly, a Travel Representation Company can be defined as a company that undertakes a host of activities such as sales, marketing, promotion, communication and PR, etc., on behalf of a destination, hotel or any travel company. Their clients hire a representation company to make up for their lack of knowledge in a specific market, to save costs on having their offices far away from their headquarters and take advantage of external domain experts. Such representation companies are designated as representative offices which act as extended offices of their overseas clients in the local markets. Based on the segments they cater to, representation companies are referred to as destination representation companies, hotel representation companies, cruise representation companies, etc. Mostly, a single representation company can offer services to all the segments of tourism. The contemporary tourism sector cannot be imagined without the existence of these companies.

The Rise of the Travel Representation Business In order to grow their business and expand their markets, travel & hospitality companies have been venturing into new markets. And for better communication and coordination with their source markets, they felt the need to have a regular and local presence in their existing and prospective source markets. Thus, National Tourism Organizations (NTOs) and travel companies started to open their branch offices in overseas markets. These offices were managed from their headquarters, costly to operate and often did not bring desired outcomes. Also, every travel company or destination could not afford to have their own offices in every market. Eventually, the rationale behind expending huge amounts in operating their own overseas marketing offices was questioned when tourism boards and travel companies realized that the same objective could be achieved by working with a local company at a considerably lower cost. This was especially true if the market was new for them. This prompted travel companies and Destination Marketing Organizations (DMOs) to outsource their overseas sales and marketing work to local travel firms specialising in sales, marketing and promotions. Thus, travel representation companies came into existence; serving as an overseas extension of their clients’ headquarters, while remaining rooted in the local market. However, It is not clear when first travel or destination Representation Company was formed. Neither is it clear how many representation companies exist today globally. It has been estimated the number of DMOs across the world are more than 10,000. As travel representation companies mostly work with DMOs, and one country has many travel representation companies, the number of travel representation companies can safely be inferred much higher than 10,000. Although, the world’s first national tourism office (NTO) was established in New Zealand in 1901, the number of DMOs grew considerably from 1960s to 1990s. It was during this period that a large number of destination representation companies were also set up to serve DMOs and the travel representation business became a major area of the travel & tourism industry.

57 57

A Closer Look at Represenation Firms Representative firms come in all shapes and sizes, with a different set of capabilities and know-how. They represent a variety of organisations such as NTOs, city/state-level DMOs, convention bureaus, airlines, hotels, cruises, DMCs, etc., in their source markets. Sometimes, a travel company or a destination hire a representative company for a single project or event, or for a single activity like marketing or PR. It is pertinent to note that many NTOs keep their own branch offices in strategic markets instead of relying on representation companies. Unarguably, amongst all the travel representation companies, destination representation companies have a significantly bigger role in the tourism sector. A destination representation company is similar to a destination’s ambassador in its source markets. It has the capacity to effectively reach local consumers, outbound operators, and local media, all with the aim of increasing awareness about a destination’s tourism products, and to draw more and more visitors. NTOs hugely rely on their representation offices to strategize and execute their marketing plans for overseas markets. Therefore, representation companies must have deep knowledge of a destination and its attractions, along with an understanding of the market they operate in. They should also have close relations with tour operators working in a destination and travel agents operating in source markets. In this way, with their better knowledge of local markets, travel trade, languages and media, and cost-effective services, representation companies bring better value propositions for their clients. They possess the right people, right tools, ample domain expertise, skill sets and connections, to understand and cater to the aspirations and expectations of their clients target audience. Representation companies earn their revenues from clients as retainer fees. Sometimes they are given performance linked incentives for increasing sales. Further, they get allocated budgets which they use to conduct promotional activities for clients.

Role of Representation Firms Destination Representative Companies are mainly concerned with marketing destinations as authorised by NTOs or DMOs. The role of destination representation companies is almost the same as NTOs/DMOs except that NTOs work under governments, while representation companies usually receive their mandate from NTOs/DMOs. Essentially, representation companies work as an external consultant and supporting agency of NTOs in assigned markets and draw and execute marketing plans and strategies for promoting a destination in accordance with the vision and objectives laid down by the concerned governments. Role and activities of representation companies differ from client to client, depending upon the kind of mandate they get from their client destinations. Broadly the services provided by destination representation companies include the following: • Representation companies works as an official link between a destination and a market. •Representation companies work to positively enhance the brand awareness and image of a destination by facilitating, strategizing and implementing the goals laid down by NTOs. •They work with DMOs to conceptualize and organize events like road shows, sales missions, etc. •On behalf of their clients, representation companies engage and collaborate with the travel trade in source markets and communicate their feedback to NTO/DMOs for actions. •They coordinate with media organisations; conduct PR activities, press conferences, etc. •They work as marketing consultants of NTOs/DMOs and give them inputs for the formulation of marketing plans & strategies and promotional campaigns. •Representation companies conduct market research for their clients to enrich their understanding of the assigned market and help them know the markets and preferences. •Representation companies work with their clients to organise Fam Trips for the travel trade and media to create visibility for destinations in targeted markets. •These companies disseminate information about a destination amongst visitors and liaison with the local tourist interests. •Representation companies work with DMOs to formulate their media plan; do advertising and other kinds of publicity. •Representation companies maintain long-standing relationships with key stakeholders in source markets. •Representation companies constantly monitor marketing strategies and campaigns for assessing their impact and outcome .

59 59

Representation business in India India has a host of travel representation companies specialising in destination marketing and marketing of other products/brands. The country’s representations business grew rapidly in the years preceding Covid-19. As the interest of NTOs/DMOs in the Indian market grows, this list is also growing every year, making the country’s representation business space highly competitive, which is good from clients’ perspective. Some of India’s leading travel representation companies are Trac Representations, Think Strawberries, Blue Square Consultants, Aviareps, The Cosmos, Outbound Marketing, VFS Global, THRS, Nijhawan Group, Mileage Communications, Carlson Consultancy, IRIS REPS, etc.

Role of Representation Firms Covid times have been as bad for the representations business as they are for other segments of the travel business. With promotional activities by their overseas clients remaining suspended for months, some even prematurely ending their contracts, and governments slashing their budgets on destination marketing, representations companies are struggling. Their revenues have dwindled. However, with gradual opening of borders by many countries following vaccination drives, the representation business will also witness a gradual revival. In fact, the role of representation firms will be more important to convince toursits to travel again in a post pandemic world. India as a travel market offers vast opportunities to destinations, which can’t afford to ignore this market for long. Post-Covid, as destinations eye the Indian markets, Indian travel representation may look forward to working with NTOs and DMOs which do not have offices in India or want to enhance their presence, thus improving their business prospects. Its important that in this new normal representation firms utilize techonology to its potential, like the rest of the travel and hospitality industry, to cost-effectively widen their reach.