industr y updates and ana l y ses f or sound business p l annin g

A publication of the School of Economics, University of Asia & the Pacific, Philippines

In this issue
Feature

2 Travel agencies vs. Online booking:

Product differentiation in a
competitive market

Jovi C. Dacanay
Thea Alyssa Fabay
Lenny Gonzales
Sarah Mae Reyes
Rosemary Sia

Industry statistics
12 Gross value added in manufacturing
by industry group

issn 0117– 1798

august The industry monitor is a monthly publication of the School of Economics of the University of Asia and the Pacific •
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Acknowledgements: Editing  Karen N. Atienza •  Layout  Rommel B. Casipit • Design  Art & Copy Communication Design
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 AUGust 2014
august  F E A T U R E

TRAVEL AGENCIES VS. ONLINE BOOKING

Product differentiation in a
industry monitor

competitive market
The Internet has given travelers a wide range of choices, posing challenges to traditional travel agencies and
intensifying competition in the tourism market. By answering three relevant questions and applying various
analytical approaches, the researchers examine the impact of online booking on the current business of Philippine
travel agencies.

Jovi C. Dacanay
Senior Economist
School of Economics, UA&P

and

Thea Alyssa Fabay

Lenny Gonzales
Sarah Mae Reyes
Rosemary Sia
Industrial Economics Program
School of Economics, UA&P

T
he birth of the Internet and electronic commerce has become an impediment to
the travel agency industry. Customers who used to visit local travel agencies and
purchase travel tickets are now given the option to do all those things online.
Through online booking, customers have an easier time arranging their travel plans. New
technologies improve the distribution of information to the public, thereby reducing
the importance of travel agencies as intermediaries.
However, travel agencies still have an advantage Tourism’s economic contribution
over online booking with regard to major corporate According to the Philippine Statistics Authority (psa),
clients because travel agencies are specialized to the share of total direct gross value added (tdgva) of
negotiate compensation structures with travel tourism to gross domestic product (gdp) was 6.0% in
services. With the ability of the agencies to provide 2012. This fact means that tourism serves as a major
travel cost management, corporations tend to pay an contributor to the Philippine economy. Tourism
intermediary to obtain information and plan their involves activities of people traveling to different
tours. Customers will not always find it convenient and places outside their usual environment for leisure,
desirable to go directly to the suppliers and providers business, or other purposes. It emerges as a dynamic
to get information; thus, they go to travel agencies and competitive industry that requires the capacity to
to do the job for them. Although travel agencies face adapt to the ever-changing demands of its customers.
challenges in the accessibility of online and direct In principle, tourism focuses on the satisfaction of
sales, the industry still ensures long-term strategic 
Philippine Statistics Authority, “Share of Tourism Industry
viability by reintermediation and reinvigoration of to gdp,” http://www.nscb.gov.ph/stats/ptsa/ (accessed March
their business strategies in the emerging marketplace. 27, 2014).
F E A T U R E
customers by providing them safety and enjoyment
during their travels.
Travel agencies are generally responsible for
planning, reserving, and preparing the trips and
holiday vacations availed by many travelers. They serve
as the intermediary between the costumers and partner
companies such as hotels, airlines, and resorts. They
provide travel services that include airline bookings,
hotel accommodations, transportation, and all other
packages to satisfy the travel needs of customers. The
Philippine Travel Agencies Association (ptaa) has
approximately 363 members, which indicates a high
degree of competitive rivalry among travel agencies. As
an industry characterized by monopolistic competition
and functions in a highly competitive market, travel
agencies make use of price differentiation in offering
its products and services to the public.
Although similar types of services are being offered
by various travel agencies, the main difference lies in
the pricing strategy of these firms. Travel agencies
offer services that are bundled together and set at a
certain price. Being an intermediary, travel agencies
have minimal influence on the prices of their services.
The prices that are set for these packages depend
highly on the offers made by suppliers or partners of
the agencies. When travel agencies and their suppliers
agree on the specific prices of a certain product or
service, agencies come up with their own travel
package that merges all other services provided by
various partner companies. As more travel agencies
emerge in the market, customers are able to choose
the agency that provides quality travel services at
reasonable prices.
With technological advancement, the travel
agency market has become even more competitive.
Booking with a travel agency is not the only option
for customers when planning a trip. One substitute
that travelers are more likely to consider is online
booking.
Analyzing a new strategy
Given strong competition among various travel
agencies, as well as the emerging substitutes such as
direct booking, the industry would have to employ
product differentiation as a strategic method to gain
more advantage. Travel agencies would first have
to establish key partnerships with other companies
that are ideally known for their quality products and

services. It is then up to the travel agencies to bundle
all the services offered by varying partner companies
and come up with a certain price. The type and
quality of services offered by various travel agencies
and other competitors differ from one another. Not
all travel agencies can satisfy the varying needs of the
customers. In some cases, people would prefer online
and direct booking for a quick and hassle-free access.
Considering the current industry conditions, we
answer the following questions:
1) What is the main threat to the travel agencies
industry at present?
2) What is the impact of online booking on the
share of expenditures for travel agencies?
3) What are the determinants of price and
product differentiation between travel agencies
and online booking?
This study therefore aims to conduct a thorough
analysis of the product and price differentiation
strategies made by the travel agencies, as well as
its substitutes. It seeks to determine the impact of
online booking on expenditures for travel agencies as
more consumers decide to use the Internet to access
various types of services. Also, it aims to identify
the determinants of product differentiation between
travel agencies and online booking. Finally, it intends
to find the quality determinants that make travel
agencies preferable to online booking.
This study will provide a careful examination of
the behavior of travel agencies while competing with
online booking platforms. The analysis may serve as
a guide to how industries can fare better by offering
quality products and services that would cater to the
needs of the customers. This study will also look into
how travel agencies bundle their products and services
at a suitable price to attract more clients and gain their
UNIVERSITY OF ASIA & THE PACIFIC
loyalty.
Scope and limitations
This study will primarily focus on comparing the top
five travel agencies in the Philippines in terms of the
prices set in its bundled products and the type of services
offered to the clients. Specifically, these agencies are
Rajah Travel, Universal Holidays, Sharp Travel, First
United, and Fiesta Tours and Travel. The packages
considered are only those for local or domestic travels,
 AUGust 2014
august  F E A T U R E
specifically to Davao, Cebu, and Boracay for three
days and two nights. It will also look into how airline
companies (Cebu Pacific and Philippine Airlines) that
offer online bookings differentiate their prices and
industry monitor
make an effect toward the travel agencies. Products
and prices set by travel agencies and direct and online
services will be compared to determine the advantages
or disadvantages of both competitors.
Review of related literature
The psa defines travel agencies as business entities
“concerned with selling travel, tour, transportation,
and accommodation services to the general public
and commercial clients”. Agencies are qualified to sell
tours, cruises, transportation, hotel accommodations,
meals, transfers, sightseeing, and all other elements of
travel to visitors in a certain geographic area at a certain
moment in time and within certain conditions. The
agencies act as brokers that bring the buyer and seller
together. They do not substitute the service-providing
unit, but instead provide information and access to
the visitor and are the middlemen in the purchase of
certain services. Travel agencies are composed of tour
operators, travel agents, and companies that provide
financial services. Tour operators are those who
organize and provide package holidays.  They make
contracts with hoteliers, airlines and ground transport
companies then print brochures to advertise the
holidays that they have assembled.
However, another market has emerged: online
booking, which can be defined as travel reservation
through the Internet. Online travel agents provide
their services to enable customers to search for their
desired carrier, flight schedules, and even hotels.
The major benefit of online booking is saving time
and money. Since online bookings are not confined
within particular office hours, trips can be planned
at any time of the day from anywhere in the world.
It also cuts the cost of the travel agent’s service fee

Philippine Statistics Authority, “Philippine Standard
Industrial Classification,” http://www.nscb.gov.ph/activestats/
psic/viewDetails.asp?strCode=79110 (accessed July 2013).

Zenaida Cruz, Ph.D, “Tourism Satellite Account:
Methodological Reference”, International Tourism: Global
Perspective (wto) 1st edition: (October 1997: 389); and Principles
of Tourism, Part I: (2000: 40).

“Online Booking versus Travel Agents,” Travels in
Virtuality, http://www.travelsinvirtuality.com/online-booking-
versus-travel-agents.php (accessed February 24, 2014).
and provides cheaper flight deals. With the use of the
Internet, consumers can browse for rates, hotels and
the images of its amenities, and the different flight
schedules by themselves. Therefore, the ultimate
reason that travelers choose online booking rather
than travel agencies is the ease of planning their own
trips. Since most of the travel agencies come up with
different packages, consumers who use the services of
online sites can compare prices and customize their
packages.
Product differentiation and innovation of travel
agencies in China
According to Zhao Yang, price is the key element that
affects the purchase decision of the consumers. His
study emphasized the product differentiation strategy
of travel agencies as a differentiation competition
approach, and a way for travel agencies to strengthen
their products against threats in the market.
The offerings of travel agencies are considered
as intangible, assembled products with elements of
transportation, accommodation, sightseeing, shop-
ping, entertainment, and so on. In other words, these
products have no concrete form, and compared with
tangible products, intellectual property is difficult to
protect. Thus, these products are easily imitated once
they appear in the market. Yang also used the Hotel-
ing Model to illustrate the pricing activities of the en-
terprise by limiting only to two travel agencies which
also produce the products with the same substance,
but with space difference.
Based on the author’s findings, no product
differentiation was observed between the travel
agencies when t is equal to 0, which would mean
that the products were homogenous. Therefore, the
consumers would only assess the price of the product
and choose the cheaper price.
“The result of the game between
travel agencies is to reduce the price,
till the level that they can endure, that
is marginal cost, or even to a lower
point which will lead to zero profit or

Ibid.

Zhao Yang, “Analysis on Product Differentiation Strategy
and Product Innovation of Travel Agency in China,” Proceedings
of the 7th International Conference on Innovation & Management.

Ibid, p. 594.
F E A T U R E
minus profit. When t≠0, the bigger t
is, the larger the difference between
consumer’s purchase intention and
product features supplied by the
travel agency, which indicates that
the opportunity becomes small for
the other travel agency to replace the
product”.
The author concluded that the effective way to veer
away from price competition would be implementing
product innovation as a differentiation strategy.
Product homogeneity and low-price competition
of travel agencies cause low-quality tourist services,
while product differentiation increases the consumers’
satisfaction with the product. New products launched
in the market will cause an increase in the market
shares and industry structures. Through product
differentiation, the producer will have higher pricing
power, a degree of monopoly, and an opportunity to
expand their market by attracting more tourists to
avail of their various products that are not available
from their competitors.
Online booking systems and customer loyalty in
Romania
Daniela Tatiana Agheorghiesei and Elizabeth Ineson
tackled the impact of online bookings on customer
loyalty and business and communication strategies. In
their study, they sought to identify the perceptions of
the managers of traditional travel agencies in Romania
with respect to the expansion of competition as far as
online bookings and their effect on their customers’
loyalty is concerned. They conducted questionnaire
surveys, as well as semi-structured interviews, on the
perceptions of the 65 managers of traditional travel
agencies. The authors came up with 10 multiple
choice questions from the literature plus one open-
ended question. As a result, the presence of the online 10
Ed Perkins, “Sometimes using a travel agent beats
booking was considered not only as a threat but also online  booking”,  http://www.smartertravel.com/travel-
as a challenge with 37% considering the Internet and advice/sometimes-using-a-travel-agent-beats-online-booking.
current online booking options to be providing strong html?id=1294130 (accessed March 22, 2014).

Ibid, p. 594.

Daniela Tatiana Agheorghiesei and Elizabeth Ineson,
“The Impact of online Booking Systems on Customer Loyalty
in Romania,” Journal of Tourism No. 11 (2011:45-54). http://
www.revistadeturism.ro/index.php/rdt/article/download/69/40
(accessed March 22, 2014).

competition that provoked reduction and adaptation
of the business. Meanwhile, 23% of the respondents
claimed that they used the online booking system as
an opportunity to expand by ensuring efficiency in
solving their client’s requests. Compared with online
booking, the traditional travel agency has strengths
such as the availability of information and complete
travel packages (65%), personalized attention (60%)
that guarantees the consumer’s security, certainty
of reservation (55%), and ensuring damages and
compensation for consumers in case problems occur
while accessing the travel service (52%).10 Through
online booking, only 24% of the agency managers
have claimed that they have kept approximately
the same number of customers. The reason was
that their customers did not feel safe when paying
online via credit card, and they still preferred face-
to-face transactions. Even though they choose to seek
information about prices of packages online, they still
return to the agency for further details and the actual
purchase of travel services.11
Another conclusion made by Agheorghiesei and
Ineson was that customers who preferred online
booking were those who take responsibility for their
own travel and planning (71%); young travelers who
prefer low prices (40%); low-income travelers who
want to find bargains (35%); and people who do
not want complex trips (23%).12 Most of those who
booked online were customers who are considered
less interested in human communication (20-50 years
of age) whereas business groups and other tourists
prefer travel agencies. Seventy percent (70%) of the
respondents define their loyal customers according
to the security they demand from products and
services; these are people who fear bank fraud.13 In
short, the research highlights that in spite of the
10% increase in Internet use every year, more than
half of the travel agency managers that participated
UNIVERSITY OF ASIA & THE PACIFIC
11
Daniela Tatiana Agheorghiesei and Elizabeth Ineson, “The
Impact of Online Booking Systems on Customer Loyalty in
Romania” (2011:50).
12
Ibid.
13
Tania Lang, “The effect of the Internet on travel consumer
purchasing behaviour and implications for travel agencies,”
Journal of Vacation Marketing (2000:368-385).
 AUGust 2014
august  F E A T U R E
in the survey are convinced that their customers will
remain loyal. They assume that “Romanians search
the Internet but in the end, they still purchase from
their agency especially due to the comfort ensured by
industry monitor
the tour operator, ‘face-to-face communication’ and
personalized services.”14 Traditional travel agencies
are provided with timely market repositioning by
innovating and diversifying their products, services
and operations, searching new market niches or a new
role such as in travel counselling or planning, setting
up networks and promoting business-to-business
interactions, as well as supporting other businesses in
the tourism industry.
Tackling the shortcomings of online tourism
portals
Another study, which was conducted by Anton
Bogdanovych, Helmut Berger, Simeon Simoff, and
Carles Sierra looked into the growing number of users
of online booking vis-à-vis traditional travel agents.15
The authors pointed out that the online experience has
significant potential in visualizing travel destinations,
such as providing 3D interactive tours. However, the
results of the study seemed to favor the traditional
travel agency because it shows that social interaction
with travel agents, along with their expertise in the
market and the possibility to save time, are still
preferred by most travelers.16 For their methodology,
the authors posed the question “Why do people
go to travel agents instead of booking online?” and
conducted a two-stage qualitative inquiry.
The authors claimed that the convenience of the
Internet should be combined with the convenience
of collaborative traditional travel agents. Travel
agents’ expertise can help online customers find
the best travel option under given constraints and
provide advice to support impulsive decisions. Thus,
they recommended the 3D Electronic Institutions
methodology, which would allow the creation of
14
Daniela Tatiana Agheorghiesei and Elizabeth Ineson, “The
Impact of Online Booking Systems on Customer Loyalty in
Romania” (2011:52).
15
Anton Bogdanovych, Helmut Berger, Simeon Simoff,
and Carles Sierra, “Travel Agents vs. Online Booking: Tackling
the Shortcomings of Nowadays Online Tourism Portals”,
(2006: 1-12) http://epress.lib.uts.edu.au/research/bitstream/
handle/10453/2445/2006005124.pdf?sequence=3  (accessed
March 22, 2014).
16
Ibid, p.2.
cutting-edge representations of travel destinations
and save human resources through the use of reliable
software agents.
Furthermore, an article posted on the Traveller’s
Guide stated that online booking is more costly
because travel agencies are more effective and efficient
through the method of haggling, thereby saving
more money.17 Also, some prices shown online do
not include the tax and other fees required for the
trip. There are airlines and hotels that do not allow
consumers to book through travel websites, although
they are often the ones that have the best price.
Therefore, travel agents provide substantial help in
planning a vacation in a manner that is convenient
and simple for travelers, sparing travelers the time and
effort of sorting through numerous sites and making
their own travel arrangements. The travel websites
ensure that the various selections they offer can be
also compared with other prices so that the customer
can be assured of a good deal.18
Having been present in the industry for decades,
many travel agents have the advantage of expertise
in the field.19 They know all sorts of money-saving
tricks, and are able to use their knowledge of various
destinations to assist travelers. Agencies also keep
track of trends and the best seasons for travel. For
example, they may be able to explain to a customer
why a certain hotel is a good option and another one
is not. This kind of information is difficult to obtain
through an online booking site, and customers mainly
rely on descriptions on the website.
In summary, the only difference between the two
is human interaction, which can be found only with
the travel agencies. Most travelers prefer assistance
in visa processing or related matters, especially when
traveling abroad. Questions can be answered also by
the travel agents unlike some websites that only provide
a phone number, email address, or even a live chat
line for inquiries. These modes of communication,
however, sometimes involve long waiting times,
miscommunication, or incomplete information.
17
“The Advantages of a Travel Agency over Booking through
Travel Websites,” Turisme Opcio, http://www.turismeopcio.
com/the-advantages-of-a-travel-agency-over-booking-through-
travel-websites.php (accessed February 24, 2014).
18
Ibid.
19
Ibid.
F E A T U R E 

Framework and methodology Figure 1 • The Travel Distribution Network

Price dispersion is a feature observed in many markets.
An example could be the travel agency industry. Since
products differ in characteristics, prices may differ Airlines
Consolidator Wholesale tour
operators
because of product differentiation. In this model, price
dispersion among travel agencies and online booking
Retail travel
are determined by vertical product differentiation. agents

The homogeneous good is bundled with several

store-related services, which add value to the Consumers

homogeneous good and allow stores to differentiate Mail link Subsidiary link
themselves in terms of quality. On the supply side
Source: C. Standing, S. Borbely, and T. Vasudavan. “A Study of Web Diffusion in Travel
there are N stores, indexed by j, selling goods at a Agencies” (1999: 2-3).

unit cost rj, while on the demand side, imperfectly

informed consumers demand at most one unit of the
good.20 This model involves two assumptions:
Assumption 1 (Consumer Heterogeneity):
Consumers have the same preferences in quality
but have different search costs.21 This allows the
assumption that consumers share a common utility
function
uj = vj ­­­- pj
where vj is the valuation of the good at store j and
However, with the introduction of online booking,
search costs for online travels are approaching zero
because of the ease of access to information on the
Internet. This means that preference heterogeneity
can only be accounted on prices.
Figure 2 • Introduction of Online Booking in the Travel
Distribution Network
Airlines Wholesalers:
Consolidators
tour operators

pj is the price. In this model, consumers know their

valuation of the good but they do not observe prices. Retailers:
Web electronic market place travel agents
The consumers obtain information on the prices by
searching which entails cost. The consumers are also
assumed to search non-sequentially such that they Consumers

determine how many times to search before entering Mail links Subsidiary links
the market.22 This makes sense because there is a limit
Source: C. Standing, S. Borbely, and T. Vasudavan. “A Study of Web Diffusion in Travel
to how many times a consumer will strive to search Agencies” (1999: 2-3).

and compare products/services to be purchased.23

In the travel distribution network, the consumers
can search for information from the airlines, the tour
operators, or the travel agencies themselves and then
compare prices based on the search results. However,
this entails a search cost (c). Since the model assumes
that there is no preference heterogeneity among
Assumption 2 (Quality): Firms obtain quality
input factors in perfectly competitive markets and the
quality production function exhibits constant returns
to scale.
In this assumption, let qj denote store j’s quality,
UNIVERSITY OF ASIA & THE PACIFIC

which is the function of input factors y. This is defined

consumers, the search cost takes up this role because by the production function qj(y) with constant returns
search cost heterogeneity creates heterogeneity in to scale. The consumer’s valuation for the quality
choices even if prices are the same.24 level qj is defined as v(qj) = x + qj , where x denotes the
valuation of the consumer on the good, independent
20
Matthijs R. Wildenbeest, “An Empirical Model of Search of the quality. Firms determine qj such that the
with Vertically Differentiated Products,” http://www.kelley.
iu.edu/mwildenb/productdif.pdf (accessed February 9, 2014). valuation-cost markup v(qj) - r(qj) is maximized.
21
Ibid. Factor prices are equal to the value of their
22
Ibid. marginal products in perfectly competitive quality
23
Ibid. input markets. With constant returns to scale, the
24
Ibid.
 AUGust 2014
august  F E A T U R E
total cost of input exhausts quality-related output:.
r(qj) = qj This implies that the valuation-cost markup
does not depend on store quality: v(qj) – r(qj) = x + qj
– r(qj) = x.
industry monitor
However, in the case of travel agencies, online
booking and direct booking, the preference
heterogeneity among consumers is determined by
quality of the service or qj .
To answer the general problem regarding the
advantages of travel agencies over online booking, the
researchers will answer the specific problems presented
in this study. To answer the first question (What
is the main threat to the travel agencies industry at
present?), the researchers used Porter’s analysis to find
out which of the five dimensions serves as the primary
threat to the travel agency industry. To answer the
second problem (What is the impact of online booking
on the share of expenditures for travel agencies?), the
researchers used multiple linear regression model
using the equation
ln Y = β0+β1 x1+β2 x2+ β3 x3+δ0 x4+u
where
ln Y = domestic tourism expenditure on travel
agencies (in million pesos)
x1= Internet users (per 100 people)
ln x2= domestic tourist arrivals (in millions)
ln x3= gross value added (in million pesos)
x4= dummy variable (2008 financial crisis)
The Internet users were used as a proxy variable for
the impact of online booking in the domestic tourism
expenditures. The financial crisis was also taken into
account to show its effect on the travel expenditure
of tourists.
To answer the third problem (What are the
determinants of price and product differentiation
among travel agencies, online, and direct booking?),
the researchers gathered the prices set by travel agencies
and online and direct booking and compared these
prices and services.
Presentation, interpretation, and analysis of data
This section presents the interpretation and analysis
of data gathered from each methodology used in the
study. Specifically, it consists of three parts: (1) threat
to the travel agency industry, (2) impact of online
booking to travel agency expenditures, and (3) price
and product differentiation among travel agencies
and online booking.
Table 1 • Factors Affecting or Reflecting Pressure from
Substitute Products and Support from Complements
Characterization
(Current)
Future Trend
Availability of close
High High
substitutes
Price-value characteristics
Medium Medium
of substitutes
Price elasticity of industry
Elastic Elastic
demand
Availability of close
High High
complements
Price-value characteristics
Medium Medium
of complements
Source: Authors’ Framework
Travel agencies have strong and close substitutes
because of the emergence of online booking. The
industry involves more competitors that join in
the market for economic profits and for the ease of
entry into the market. The price value of substitutes
does not necessarily affect the industry because the
prices are almost the same although the services are
differentiated.
The industry can be considered to be elastic
because of the availability of substitutes, such as
online booking. With the presence of substitutes, an
increase in prices among travel agencies would allow
the buyers to avail of the substitutes instead.
Travel agencies relatively have high availability
of close complements because it creates various
partnerships with other companies. Its services highly
depend on the suppliers who set the prices for their
products. The price value of complements has a
moderate effect on the industry because travel agencies
would also set the price of its services according to the
prices offered by the partner companies. However, if
the prices offered by the suppliers are extremely high,
travel agencies may choose another supplier that
would best cater to the consumers.
Based on Porter’s five forces analysis, the main
threat to the travel agency industry is the presence of
substitutes, or more specifically, online booking. The
number of Internet users, natural log of the number
of domestic tourist arrivals, natural log of gva, and a
dummy variable indicating the Financial Crisis were
used as independent variables to determine its impact
on the domestic tourism expenditure. The researchers
F E A T U R E 

opt to include gross national income and gross savings Figure 3 • Domestic Tourist Arrivals
in the model, but these variables turned out not to be
significant in the regression. 45
40.7

The researchers ran two regression models: a model 40 37.5

35
assuming homoskedasticity (variances of the data are 30
30.17 30.3

24.63 25.11 25
the same), and a model assuming heteroskedasticity 25
20.22
24.4

(variances of the data are different, therefore robust 20

14.59
16.93 15.91 17.29
15
standard errors were incorporated using the regression 10
software Gretl). The results of the regressions from the 5

two models show that all the independent variables 0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
are significant at various levels. Both the Internet Domestic tourist arrivals (in millions)

users and the natural log of the number of domestic Source: Department of Tourism

tourist arrivals were significant at an α of 1%, while

expenditure. A 1% increase in the natural log of the
the dummy variable was significant at an α of 5% and
domestic tourist arrivals can increase the domestic
the natural log of gva was significant at an α of 10%
tourism expenditure of the Philippines by 105%. Of
(significance of the variables are shown by the asterisks:
course, this figure appears to be impossible to achieve;
* - significant at an α of 10%, ** - significant at an α
thus, we manipulate the interpretation and thus, say
of 5%, *** - significant at an α of 1%). Additionally,
that for every 0.1 unit increase in the air transport
the results show that with an r2 of 99%, there is only
liberalization index (which is the most viable to
a 1% uncertainty that the model can explain the
achieve), the domestic tourism expenditure can grow
changes happening on the dependent variable. Thus,
to as much as 10.5%. Lastly, every 1% increase in the
99% of the time, the model can be accurate.
natural log of gva could lead to a 50% raise in the
Aside from the mentioned statistical measures, the
country’s domestic tourism expenditure.
resulting t-statistics also prove to be good indicators
The results of the two regressions show that the
of the variables’ strength. With values of -7.03 for
said independent variables have a relatively large,
the Internet users, 4.51 for the natural log of the
negative, and positive effect on the domestic tourism
number of domestic tourist arrivals, -2.41 for the
expenditure of the Philippines. Considering this, the
dummy variable impact of online booking, and 2.30
researchers hypothesized that the growing demand
for the natural log of gva, all four can be considered
for the travel agencies can be abridged through the
substantial outcomes because they are greater than
competitiveness of Internet users who can easily
the standard measure of t-statistics equal to 2.
browse and immediately book their desired flight(s).
Furthermore, by closely analyzing the results shown
on the independent variables, the researchers can infer
Model 1: OLS, using observations 2000-2012 (T = 13)
that for every one-unit increase in the Internet users, Dependent variable: LNExp
a 1.5% decrease in the domestic tourism expenditure Coefficient Std. Error t-ratio p-value
can be observed. This only implies the negative Const 2.14415 1.4696 1.4590 0.18268
correlation of the Internet users to the travel agents Internet_users -0.0146375 0.00208166 -7.0316 0.00011 ***
such that every increasing unit for the Internet users
UNIVERSITY OF ASIA & THE PACIFIC

LNArrivals 1.05428 0.233528 4.5146 0.00196 ***

will have an adverse effect on travel agencies in terms Dummy_Variable -0.139754 0.0580998 -2.4054 0.04281 **
of trip bookings. The dummy variable also showed LNValueAdded 0.504118 0.21884 2.3036 0.05019 *
a negative result, which explains the vulnerability of
the domestic tourism expenditure in macroeconomic Mean dependent var 10.32057 S.D. dependent var 0.399733
shock such as recession, financial crisis, and so on, Sum squared resid 0.013606 S.E. of regression 0.041241

which caused the decreasing number of arrivals in R-squared 0.992904 Adjusted R-squared 0.989356

2008-2009 (see Figure 3). F(4, 8) 279.8415 P-value (F) 1.26e-08

Meanwhile, the natural log of the number of Log-likelihood 26.15784 Akaike criterion -42.31567
Schwarz criterion -39.49093 Hannan-Quinn -42.89629
domestic tourist arrivals and the natural log of gva
Rho -0.309032 Durbin-Watson 2.160537
also have significant effects on the domestic tourism
 AUGust 2014
august 10 F E A T U R E

Model 2: OLS, using observations 2000-2012 (T = 13) agencies partner with other companies, some of
Dependent variable: LNExp the most common services bundled in packages
HAC standard errors, bandwidth 1 (Bartlett kernel)
are hotel accommodations, airline tickets, and
Coefficient Std. Error t-ratio p-value
industry monitor

Const 2.14415 0.706646 3.0343 0.01620 **

bus transportation. In the case of online booking,
Internet_users -0.0146375 0.00139564 -10.4881 <0.00001 ***
customers would only have to pay for the ticket prices
LNArrivals 1.05428 0.102388 10.2969 <0.00001 ***
offered by airline companies. A comparison between
Dummy_Variable -0.139754 0.0304932 -4.5831 0.00179 *** the products and services of travel agencies and online
LNValueAdded 0.504118 0.103504 4.8705 0.00124 *** booking shows that the former are more advantageous
if customers plan for a secured and quality stay in the
Mean dependent var 10.32057 S.D. dependent var 0.399733 travel destinations of their choice because all other
Sum squared resid 0.013606 S.E. of regression 0.041241 services are already settled by the agencies. In booking
R-squared 0.992904 Adjusted R-squared 0.989356 with airline companies online, customers are only
F(4, 8) 3185.774 P-value(F) 7.74e-13 given the plane tickets, and accommodations and
Log-likelihood 26.15784 Akaike criterion -42.31567 other services are not included.
Schwarz criterion -39.49093 Hannan-Quinn -42.89629 In Table 4, the prices set by the top five travel
Rho -0.309032 Durbin-Watson 2.160537
agencies highly vary from each other. Among the five
agencies, Sharp Travel sets the highest prices for trips
Table 2 • Price and Product Differentiation among Travel to Davao and Caticlan, with a range of P14,800–
Agencies and Direct Booking
P15,800 and P13,000, respectively. First United sets
Products and Services
the highest price for Cebu at P16,200 while Fiesta
Travel Agencies
Hotel
accommodations
Airline Tickets
Transportation
- buses
Tours and Travel sets the lowest prices for all three
Online Booking Airline Tickets
travel destinations. Rajah Travel and Universal
Holidays set a relatively high price for Manila to
Table 3 • Total Package Prices of Top 5 Travel Agencies
Caticlan at P10,279 and P12,158, respectively, closer
going to Cebu, Davao, and Caticlan to the price set by Sharp Travel.
Top 5 Travel
Manila to Cebu
Manila to Manila to This shows that the package deals offered by these
Agencies Davao Caticlan
travel agencies are different from each other. It may be
Rajah Travel P7,629 P7,200 P10,279
that agencies that set a higher price also pair up with
Universal
Holidays
P9,826 none P12,158 other companies that offer relatively higher prices for
Sharp Travel P8,000-10,000
P14,800-
P13,000 specific destinations. For this reason, the total price
P15,800
of an agency’s bundled services is far more expensive
First United P16,200 P10,453 P7,675
than those offered by other agencies.
Fiesta Tours
P4,000 P6,250 P6,240
and Travel For the online booking prices in Table 4, the prices
Source: “Online Booking versus Travel Agents”. Travels in Virtuality. set by Cebu Pacific and pal are fairly closer to each
http://www.travelsinvirtuality.com/online-booking-versus-travel-agents.php (accessed
February 24, 2014) other. Both airlines offer similar rates for a roundtrip
ticket to Cebu with prices at P4,417 and P4,063.
Table 4 • Online Booking Roundtrip Ticket Prices going to However, pal sets a higher price for roundtrip tickets
Cebu, Davao and Caticlan
to Davao and Caticlan, with a range of P7,000–
Manila/Cebu/ Manila/Davao/ Manila/Caticlan/
Online Booking
Manila Manila Manila P7,335 for both destinations.
Cebu Pacific P4,417 P4,078 P5,328 In comparing the prices set by travel agencies and
PAL P4,063 P7,000 P7,335 airline companies for online booking, it would seem
Source: “Online Booking versus Travel Agents”. Travels in Virtuality. that travel agencies generally set the highest prices for
http://www.travelsinvirtuality.com/online-booking-versus-travel-agents.php (accessed
February 24, 2014) all three travel destinations. For packaged or bundled
services, however, the prices seem to be highly
There is a significant difference between online justifiable mainly because travel agencies include other
booking and booking with travel agencies. Table 3 services offered by their individual partner companies.
shows the common products and services included Again, travel agencies offer products and services in
in the packages of travel agencies. Since travel a total package, which may already include airline
F E A T U R E 11

tickets, hotel accommodations, and other services travel agencies and those who prefer direct booking so
provided by their partner companies. that they can thoroughly identify the advantages and
disadvantages of travel agencies. IM
Conclusion and recommendations
The findings of this study lead to the conclusion
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UNIVERSITY OF ASIA & THE PACIFIC

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 AUGust 2014
august 12 statistics

Gross value added (GVA) in manufacturing by industry group

Q1 2013 to Q2 2014 (current prices)
Unit: P million
industry monitor

2013 2014

Industry/Industry group Q1 Q2 Q3 Q4 Q1 Q2

Food manufactures 294,190 221,812 178,837 357,253 306,014 256,858

Beverage industries 15,209 17,408 26,688 27,870 16,264 20,976

Tobacco manufactures 637 931 2,923 2,517 917 981

Textile manufactures 9,667 12,178 10,396 11,141 13,087 14,210

Wearing apparel 18,708 20,118 19,683 17,810 17,490 19,725

Footwear and leather and leather products 1,682 1,340 2,611 5,030 1,803 1,381

Wood, bamboo, cane and rattan articles 2,804 5,209 3,130 7,064 3,041 5,075

Paper and paper products 3,059 3,353 4,313 2,618 3,289 3,377

Publishing and printing 3,085 4,577 1,852 6,720 5,370 6,186

Petroleum and other fuel products 32,982 30,789 31,547 41,829 34,748 40,347

Chemical & chemical products 27,672 52,528 78,721 112,037 28,833 54,268

Rubber and plastic products 7,424 6,627 9,327 7,394 8,118 7,222

Non-metallic mineral products 11,951 16,050 18,240 18,331 10,215 15,576

Basic metal industries 12,756 8,183 16,934 9,955 8,494 8,693

Fabricated metal products 2,717 7,177 3,375 5,894 3,960 10,186

Machinery and equipment except electrical 6,417 5,519 7,054 7,000 10,164 6,755

Office, accounting and computing machinery 3,711 3,552 9,076 5,931 4,305 3,855

Electrical machinery and apparatus 8,083 11,161 7,929 8,682 8,940 11,371

Radio, television and communication equipment and apparatus 74,458 64,284 74,708 58,888 84,402 70,293

Transport equipment 7,691 5,664 8,544 11,851 7,893 5,908

Furniture and fixtures 6,148 5,397 4,859 14,621 8,725 6,173

Miscellaneous manufactures 12,033 8,297 8,797 10,198 12,360 8,145

GVA in Manufacturing 563,085 512,154 529,543 750,634 598,432 577,559

Source: Philippine Statistics Authority