The travel agency business is not the first one to be plunged into the cold reality of an open market environment. The brokerage, banking, trucking and railroad industries have gone before us. I have often drawn comparisons between those industries and the evolving patterns in the travel agency business.
Consolidation in the agency business is well underway. Several of the large organizations are acquiring agencies that have a unique market position, are of a specific size, and can demonstrate a record of profitability over the past few years. Since the travel agency business is largely a fixed cost operation, the more volume you can pump into an agency consistently, the lower the unit cost per transaction or ticket, therefore, the larger the agency, the higher profit per ticket. If you take a look at two $20 million agencies side by side that have duplicate office facilities, delivery systems, backroom automation, sales forces, and advertising budgets, you begin to realize the days of the mid-size agency are numbered.
For the same reason that the corner grocer no longer exists, I believe the mid-size travel agency will cease to exist within the next five years. Obviously, there are very unique situations where agencies are in a “remote” market position because of their location. However, if you take the top 50 metropolitan areas and look at agencies in the $5-$30 million range, I predict significant consolidation.
I must stress that this consolidation will be positive for all parties concerned:
• The customer will receive better and cheaper service.
• The agency owner will be able to look forward to more consistent and stable earnings as well as the possibility of a capital gains benefit due to the sale or merger of the company.
• Vendors’ marketing costs will be lower since they will need to deal with fewer entities.
Bear in mind that at any given size, a travel agency’s employees are a fixed expense! Yes, of course, you can lose or gain a major account and release or add employees. However, if you are a $10 million agency, you have to have your staff in place to anticipate the peak demand periods of your clients. It’s just like an airline: whether there is one passenger on board or the plane is packed, you need to have cockpit and flight attendants ready to get the plane from point A to point B.
I visualize the formation of an agency organization outside the spectrum of Radius, The Travel Leaders, etc. frameworks. These agencies in all likelihood will be characterized by
• astute management,
• high productivity,
• unique market position in their communities,
• a solid override position,
• a balanced business portfolio,
• responsive personnel policies and
• service innovations that retain customers.
I believe there is room for an elite group that is willing to consolidate with the objective of providing the best “independent” corporate travel service in the country. Such agencies will be able to compete with a large national travel organization in the areas of management, quality and price.
I have placed management on top of the list because it will be the number one key to success. The individual owners have to be willing to join forces in a business planning effort. They must subsequently be willing to fund this management body. Then a commitment to the corporate objectives must be made by each member of the group. Rigorous discipline must be enforced via monthly management reporting and quarterly meetings. Funds must be generated for the necessary training in marketing and automation that will be necessary to truly network the organization. Finally, a commitment must be made to generate data that will allow the management of the organization to create the tools for future purchasing power.
If you are a mid-size corporate travel agency in the next five years, you will have two options:
A. You can tighten your operation, solidify your existing market as best you can and try to keep staff in place while finding one of the larger travel organizations to acquire you. You will then be part of a larger organization that will provide you with the necessary marketing, operations and human resource skills that will make you successful in the long run. However, you now have a boss. That means you no longer can take the entire family on a vacation, write your wife’s Audi off as a business expense, or “live out of the company.”
B. You can prepare yourself psychologically for joining the “independent corporate agency network,” I CAN, for short. This alternative may be attractive for the aggressive entrepreneurial person who wants to stay in the agency business but does not favor the thought of reporting to someone. The key to success will be in management selection and the unmitigated support of the stockholders/members once a board is selected.
Of course, you can try to go it alone. If we can look to other industries as examples of the post-deregulation economy, then that option does not seem very viable. You won’t be able to compete on a price basis because with your volume, you can neither generate the incremental income, nor can you afford to run your company as efficiently as a larger one. It is sad in a way that many of the agencies that have provided thousands of successful business trips and enjoyable vacations will lose that often charming flair of being the “corner grocer.” Conversely, the gain by the consumer, the agency owners and the vendors is going to be enormous.
The customer wants selection at a reasonable price on a consistent basis. Clearly, the supermarkets of today have been able to provide food service that simply could not have been duplicated by the corner grocer. Likewise, I hope that the agency industry will have the wisdom to maintain that unique entrepreneurial flair while providing the prices, variety and quality demanded by the customers.