Defining the Essentials of the Travel and Transportation Industry

Travel and transportation is a cluster of industries that often work together in a network or networks.​

As such, it's important to understand who the industry players are, how they work together and operate, how their businesses drive revenue, how they expend costs, and, finally, what common themes exist industry-wide. ​

Let’s get started and dive into these topics.

Let’s start with the aviation industry. Aviation is familiar to almost all of us who have flown on an airline. There are different types of airlines including full-service, low-cost, long-haul, international, and regional. Airlines are often thought of as passenger airlines, but most, if not all, will carry cargo as well.

We also have cargo airlines within the aviation industry that specialize in moving cargo rather than passengers. Associated with the aviation industry are airports. They are the place where we travel to and from, and make flight connections, and they're an integral part of this industry along with other players such as catering companies, cleaning firms, and customs and security, as examples.

Next, let’s look at the marine industry. There are many types of operators in this space that carry all kinds of commodities such as bulk which could include iron, agriculture goods, vehicles, and oil and gas. In general, we'll focus on container shipping lines in this session. Just like with airlines, water travel requires ports for these huge assets to dock, load/unload, and be serviced. ​

Next, we have rail and transit. In this industry grouping, we're mainly talking about railroads and other transit operations that move on land. Rail encompasses both passenger and freight. Both are very large and quite different, but the two share a common infrastructure – the track network. Like others in the travel and transportation industry, they share the need to go to terminal operations and hub locations such as ports and airports.​

Moving on to a broad category we call logistics, we talk about freight. This could be the long-haul movement of cargo that lasts several days – usually carried by trucks – or it could be what we call the "last mile" delivery, which is common with the parcel and express-mail industries. In the logistics industry, there are non-asset-based organizations. Because the industry is fairly complex, this category of businesses exists to help reduce or mitigate the complexities for the transportation customer, which we call "shippers." These companies are known as freight forwarders, third-party logistics, or contract logistics. To make this idea more relatable, think of the travel industry and the role of travel agents. Travel agents are a similar business example focused on travel with the purpose of reducing the complexity of travel. ​

Finally, rounding out the travel and transportation cluster, we have the hospitality industry. This is where many of the other industries overlap. Generally, we have hotels where passengers live or stay. You also have cruise lines, which is a maritime mode of transportation, but also where passengers journey and stay overnight. Then, there's the entertainment industry, which combines other types of businesses within travel and transportation. These are businesses such as casinos which are like large resorts with restaurants, retail, and – of course – gaming operations.

The following video provides an in-depth look into the intricate ecosystem of the global travel and transportation industry, highlighting the complex process involved in moving both freight and passengers across vast distances. Following several real-world examples, we demonstrate the significance of logistics within the industry – from sourcing components for manufacturing computers to the multi-modal journey of a passenger on a cruise.

When we talk about business drivers and revenue sources, some are easily recognizable things, such as airfare or train tickets bought by consumers. But let’s focus on the less obvious.

In the airline industry, for instance, many transactions happen behind the scenes. Airlines pay airport landing fees, catering companies receive compensation for their services, and airlines may outsource gate operations to third-party agencies. To increase revenue, airlines use their capacity to ship cargo for other companies, or they co-brand or create alliances with hotels and credit-card companies to generate additional revenue streams.

Going back to airports, there are other examples of revenue sources, such as leasing retail space, advertising, taxi access fees, and so on. All are trying to maximize and create diverse sources of income which creates complexity in the billing process.

The same applies to the cargo side of travel and transportation. Direct payments to ocean liners, ports, and railways are all a part of the equation.

Like the travel industry, alliances and agreements create different flows of revenue between different parties, such as the ocean liner paying a trucking company for the last leg of an order.

Let’s discover the costs of travel and transportation. First, for most of the industries in the cluster above, they're asset-intensive operations so there are significant costs that go into the acquisition, lifecycle management, and maintenance of equipment and infrastructure. Examples include airplanes, ships, locomotives, rail cars, trucks, rail tracks and signaling equipment, and buildings.

As well as that, maintenance is very important. Well-maintained equipment and infrastructure help provide the maximum amount of service and reliability of all the assets to help ensure smooth, safe, and fluid operations.

When talking about assets, you also have to include operational costs. Fuel is one example. The pricing is variable and can significantly impact the income statement. Let's not forget workforce costs – companies need to find and train the right skill set. This can be challenging and is a significant part of the cost structure.

Besides to asset and operational expenses, the travel and transportation industry incurs several other costs crucial for maintaining competitive and efficient operations:

• Marketing: Especially prominent in the travel sector to attract and retain customers.
• Pricing Discounts: Includes volume discounts to incentivize larger purchases.
• Customer Loyalty Programs: Widely used strategies to foster customer retention and repeat business.
• Safety and Regulatory Compliance: Necessary expenses to meet legal requirements and ensure safe operations.

One asset often overlooked but critical to the operation is information systems and data. Costs can be high to build and maintain these systems. Companies can spend 1.5–5% or more of their revenue on their IT budget.

• Expansive Ecosystem: The travel and transportation industry encompasses various interconnected sectors, including aviation, marine, rail, logistics, and hospitality. These sectors rely on collaboration across networks to efficiently move freight and passengers from origin to destination.

• Interconnected Networks: Different sectors within the travel and transportation industry work together, exemplified by airlines, ports, railroads, and logistics firms. The complexity of these collaborations demands seamless interactions and real-time data flow to manage disruptions and optimize operations.

• Diverse Revenue Streams: Beyond traditional revenue sources like ticket sales and freight charges, industry players seek additional revenue by forming alliances, co-branding, and leasing spaces. Each sector tries to maximize diverse income sources, despite complexities in billing and agreements.

• Significant Cost Structure: The industries are asset-intensive, needing significant investment in equipment and infrastructure such as airplanes, ships, and rail networks. Operational costs include workforce expenses, maintenance, and technology systems, all crucial for maintaining efficient and safe operations.