The Three Ways to Make Money in the Travel Industry
In the Travel Industry, there are three predominant ways to make money. These business models classify the companies that use them as:
By demonstrating how these models work, Lucid Travel thought our customers could gain value through understanding how their preferred travel company works.
Advertising companies make their money through clicks, transaction revenues, and display/subscription advertising. The best example of an advertiser is TripAdvisor. TripAdvisor is generally used to conduct research and make decisions about a trip prior to booking. They
provide their customers with information compiled from other travel companies that use TripAdvisor to advertise on. TripAdvisor thus acts as a medium between the customer and the company providing inventory. They collect revenue every time a customer clicks on a link, and
everytime a booking is transacted via TripAdvisor.
Agencies, like Booking.com, have contracts with hotels that allows them to sell rooms at better rates than the hotel can offer. They get commission from every room sold. Agencies have the benefit of not owning inventory (ie, hotel rooms), which eliminates the risk of not being able to sell. Agencies are also advantaged by having customer value proposition: since they offer cheaper rates than those found directly on hotel websites, they secure the customer’s favor.
Expedia is the best example of a merchant. They buy up a bulk of hotel inventory months in advance, allowing them to resell at lower rates. Merchants will also buy up airfare and rental cars to sell as a bundle. This incentivizes the customer to purchase every component of their vacation through them. To be a merchant, a company needs to have a lot of capital upfront, though successful merchants will benefit from high levels of inventory that can outcompete other companies.
One model isn’t better than another – it all depends on how a company utilizes its resources and skills. Lucid Travel currently acts as an agency, though the possibility of becoming more mercantile someday is not out of the question.
Author: Willow Groskreutz