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Consolidation, price pressure: new hallmarks of study travel business

The US has overtaken the UK as the top receiving country for English language travel as global growth slows and the study travel industry enters a period of market consolidation, research commissioned by the International Association of Language Centres has shown. The industry is also experiencing price pressure amid consolidation of operators and products.

The report highlights the consolidation and standardisation currently taking place as the industry matures, resulting in pressure on price

"There is increasing rivalry and there is consolidation and pressure on price"

English language has experienced the highest increase in demand over the last three years, followed by German and Spanish, and accounts for two-thirds of students in the study travel market, according to the report.

Saudi Arabia was the biggest source country, reaching nearly two million student weeks, but student weeks among Chinese students dropped

The language travel landscape was assessed as part of a wider research study by StudentMarketing into opportunity for independent operators that are typical of the IALC membership.

Industry consolidation and the evolving business dynamics between language schools and education agencies was also dissected for the language travel business, which is thought to cater to 2 million students.

The growth in student weeks in US ELT, which overtook the UK in 2012, is being driven by an overall increase of international post-secondary students in the country who might also need English language tuition, the report notes.

Meanwhile, Australia overtook Canada as the third receiving country in 2013 for students studying English in a native English country.

All the agents surveyed agreed that they have seen a narrowing of programme portfolios in recent years

Saudi Arabia was the biggest source country in 2013, reaching nearly two million student weeks after two years of growth as a result of the generous King Abdullah Scholarship Programme.

However, student weeks among Chinese students, the second largest cohort, dropped to around 1.25 million because of a drop in students travelling to Canada and a decline in the average length of stay for Chinese students in the US.

Japan and Brazil are up 28% and 21% respectively year-on-year, both gaining on South Korea, where the drop in student weeks corresponds with falling outbound student numbers overall.

The report also highlights the consolidation and standardisation of product offerings taking place as the industry matures and growth rates slow.

All the agents surveyed agreed that they have seen a narrowing of programme portfolios in recent years.

Although this standardisation can push up quality as schools seek to distinguish themselves, the increased competition can also create downward pressure on prices, the report notes.

And there is also pressure on schools to increase agent commission, Jan Capper, executive director of IALC, told The PIE News, with the survey showing little difference in the commission offered by different types of schools.

Capper suggested this could be down to increases over the last three to four years as independent schools have been forced to match the higher rates of commission offered by chains.

“That would fit with the conclusion that the industry as a whole is well into the consolidation stage of the industry lifecycle and there is increasing rivalry and there is consolidation and pressure on price,” she explained.

“The industry as a whole is well into the consolidation stage of the industry lifecycle and there is increasing rivalry and consolidation”

Another impact of standardisation is that it could create favourable conditions for developing language-specific global distribution systems, which a third of the agents surveyed said they would be interested in using.

And market consolidation is speeding up the process of school acquisitions, creating chains and consortia.

The report estimates that at least 200 mergers and acquisitions will happen over the next five years.

However, the agent market remains fragmented, with an estimated 16,000 agencies worldwide, and the effects of market consolidation are “less present at the agents’ end of the market”, the report states.

Screen Shot 2015-05-18 at 17.49.47Each agency represents an average of 45 schools, sending 11 students to each, which makes the environment highly competitive.

In fact, 20% of agents said the need to keep their business afloat drives them to negotiate higher commission.

Agents’ preference for boutique language schools was another major trend highlighted in the research, as reported previously on The PIE News.

It showed that 56% of the agents surveyed believe independent and boutique chain schools to be higher quality than larger chains,  but that only 13% of students could distinguish between the two based on their own prior knowledge.

“For me, the most significant thing to come out of it was the opportunity that independents – we as an association and perhaps some of our members – are missing, in promoting ourselves more effectively for what we do well,” Capper told The PIE News.

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