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Investing in Online Travel Agencies: Pros and Cons

Online travel agencies, commonly known as OTAs, are tourism and travel industry players that have made an indelible mark in their field. With new and more convenient forms of travel startups coming up each day, any serious investor need not think twice about placing his money in this particular area.

Online Travel Agencies (OTAs)

Investing in online travel is pretty much the same as starting a freelance marketplace business, online printing business or even a payday loans business. Your success in selling niche products to niche markets depends on your business reputation; if you can manage your reputation well, you’re on the right track. The difference, however, is that this niche largely depends on the global economic growth. When rates go down in one part of the world, the entire sector curves in a similar manner. The opposite is also true.

In recent years, the advent of technologically-powered inventions in the travel industry such as Uber has raised fresh concerns about just how lucrative this business can be.

What is the online travel industry all about?

It is an agglomeration of companies that work in together to deliver travel services to customers in an all-in-one package. They engage with their clients majorly over the internet e.g in booking flights and hotel rooms.

There are three basic building blocks of the online travel industry. These are the suppliers, aggregators, and online travel agencies.

The suppliers are mainly airlines, rental car companies, lodges and hotels among others. The suppliers market their products through promotions and advertisements. On the same breathe, the OTAs come in to integrate these services offered by suppliers to the convenience of the customer. This is through giving more detailed information on the supplier products, their pricing and how to place online orders on them. In tandem, aggregators compare OTAs rates and direct clients to available options for purchases.

Of all the three factors online travel agencies make up for the most vital of them in terms of meeting the needs of a customer.

Businesswoman in a business trip

Advantages of online travel agents

Cost-effective

An OTA helps customers cut on costs since they combine a lot of functionalities that would otherwise be cumbersome to handle were the traveler to sort them out alone.

Speed

Using an OTA is a quicker way to get from one point to another. This is because the travel agents already understand the destination a customer intends to visit and can advise on a wide range of variables concerning it.

Convenience

Online travel agencies are customized to the area in which they specialize therefore making issues like transport and accommodation easy to understand. Apart from this, they save the customers a lot of time that would have otherwise be wasted looking for individual service providers.

Business traveller on the road

Disadvantages of online travel agents

Reduced Profit Margins

Online travel agents charge a commission which can range between 10-20 percent of the gross cost of every sale. This erodes on the profits gained.

Restrictive terms and conditions

These are regulatory conditions by OTAs to handle issues such as guest cancellation and automatic room reselling policies.

If you are keen to invest in online travel agencies, first study the market, understand the forex exchange rates on transport and the history of the field. It’s a road worth taking!

About author

Ivan Widjaya
Ivan Widjaya 2537 posts

Ivan Widjaya is the Owner/Editor of Noobpreneur.com, as well as several other blogs. He is a business blogger, web publisher and content marketer for SMEs.

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