Travel Agencies

Industry Snapshot

The travel agency industry is dynamic, and generally in a constant state of transformation and growth. While no longer expanding at the explosive rate of the early 1980s (almost 20 percent annually), the travel industry continued to grow. Mergers and acquisitions were substantial in the 2000s, and the mega-firm became an important facet of the industry.

According to Travel Weekly's 2009 report on the industry, the bulk of travel agencies were primarily single-office locations, accounting for 50 percent of all travel agency locations, down from 57 percent in 2005. Home-based agencies accounted for 20 percent of all travel agencies, a growth of 4 percent from the previous year. Travel agency offices that are part of multi-branch chains account for 30 percent of the total. With 62 percent of the agencies reporting, a majority are affiliated with a consortium.

Experts agree that the economy, as well as the travel industry, was rebounding by the late 2000s as consumers overcame their concerns about air travel and began to spend money again little by little. Nonetheless, the future role of travel agents is questionable with the ever-growing use of the Internet to plan and book travel arrangements. Agents also had to deal with less-than-perfect relations with airlines, cruise lines, and tour groups, all of whom struggled to earn a profit.

The need for offering professional service in order to be successful was evident for the online travel agency (OTA), or "self-service agency," and travel management company (TMC). There were varying opinions about whether one business model would prevail over the other or if they would eventually converge. Mid-size TMCs have become successful working with both mega-firms and OTAs. This was especially true for global distribution systems (GDS) experts capable of accessing multiple channels of information.

Organization and Structure

Regional Distribution.
Travel agencies are found in virtually every community in the United States. The greatest share of travel agency locations has been in the eastern United States (30 percent), with the western United States close behind (28 percent). The South had a 22 percent share, and the Midwest had 19 percent. Central city locations account for more than 50 percent of the total, and the uneven growth of the 1980s, as the suburbs and small towns gained disproportionate numbers of locations, not only subsided, but also reversed itself. The share of rural and town locations dropped significantly from nearly 12 percent in the late 1980s to 9 percent. With the emergence of satellite ticket printers (STPs), automated ticket distribution machines began to replace branch offices altogether.

Consolidation.
In examining location revenue trends in the travel agency marketplace, the pattern seems somewhat obscure. Not only was the proportion of larger agencies (those with more than $5 million in revenue) growing rapidly, the proportion of small ones (grossing under $1 million) was increasing at an equally auspicious rate. In 2008, there were 61 agencies that earned more than $100 million, an all-time high. The percentage of the industry's large locations rose steadily and their share of industry revenue increased to more than 33 percent. At the same time, small locations and home businesses made up almost 30 percent of the industry. While seemingly contradictory, these trends are actually results of the same overall movement of the industry toward consolidation into a number of "mega-agencies," or regional and national branch and franchise networks. Such firms have the resources to set up large offices in prime locations and to establish small branch agencies that are run in coordination with the main offices. Whether or not these smaller branches are profitable, they augment name recognition, which is of utmost importance to any agency in this increasingly competitive market.

The steady expansion of the industry in the 1990s had a completely different character than the boom period advances of the 1980s. The segment of the industry that expanded the most in the 1980s came under pressure; this segment was comprised of the majority of the independent, single-location agencies with between $1 million and $5 million in revenue. A dwindling majority of agency locations still fell into this category in the 1990s. The decrease in agency locations at the lower end of this group, comprised of those grossing between $1 million and $2 million, which were not as eagerly pursued by the acquisition-minded mega-agencies as were those locations with greater revenues, were especially significant.

The high level of consolidation in the travel agency industry is best assessed through the steep upturn in acquisitions. Almost a third of all agencies have acquired another agency, and there are no signs of the buying spree slackening. In 1991, American Express Company purchased Lifeco of Houston, a firm whose annual airline ticket sales exceeded $1 billion. This acquisition provided a new scale for the already highly charged market environment. Many small agencies also felt they had much to gain in terms of access to the latest technological innovations and overall support than they had to lose by giving up their autonomy, so they pursued buyers. Typically, the cost of purchasing an agency location is between 3 and 7 percent of its latest annual sales.

Smaller Agencies.
The industry remains first and foremost one of small businesses despite consolidation. Even in the face of intensifying competition, single-location firms continued to make up the vast majority of agencies and have successfully developed alternative business strategies to stay in business. One common tactic is to seek out corporate clients. Thus, 89 percent of agencies handle at least one corporate account. While only large agencies can manage the travel accounts of most medium-sized and large corporations, these accounts make up about only 28 percent of all the corporations that use travel agencies. The rest, which have fewer than 100 employees, compose a huge market for the services of smaller agencies. Quite simply, more agencies are attracting fewer business clients. Certain companies may feel better served by an agency without too many other commitments. The particularized service that a small agency provides is an effective selling point to build an agency's business travel base.

Promoting themselves in terms of the unique, personal service that they offer, small agencies also secured a place in the leisure travel market in which the travel agent is often solicited as an advisor to the traveler. Although not widespread, there has been some noteworthy fragmentation of the leisure market into agencies specializing in travel niches, such as singles travel, or travel to certain parts of the world.

Consortiums.
Membership in travel consortiums is seen as a way to benefit from consolidation without ceding direct control of the business. Through consortium membership, an agency develops close working relationships with other member agencies. An increase in purchasing power results in significantly higher override commissions from preferred suppliers and in less expensive access to services that foster office efficiency. These immediate paybacks, however, are not the only focus. Many agencies believe consortiums, through annual meetings and newsletters, help the agencies remain up to date on broad developments in the industry. Consortiums also give travel agents a unified voice that increases their ability to influence supplier developments that affect them. By the mid-2000s, more than 60 percent of all U.S. travel agencies became affiliated with a consortium of some sort, and there were few signs of this trend slowing, because business travel consortiums have begun to catch up to leisure travel consortiums in membership numbers.

Of course, consortiums are not only set up for small agencies, and the growing numbers of business travel associations are welcoming more and more mega-agencies. Access to consortium arrangements was expected to ultimately serve to protect the travel agency industry from complete consolidation by ensuring that it retains some degree of its small-business character while adjusting to the increasingly complex demands of the American traveler.

Trade Associations.
Independent operators, consortiums, and mega-agencies continued to seek a kind of uniformity as they looked for greater efficiency and better returns in the 1990s. Market-driven joint ventures were not, however, the only coordinating mechanisms that integrated the industry. For example, large trade associations influence government policy decisions on behalf of the travel complex as a whole. These associations also provide educational services for their members and promote the benefits of using travel agents. The largest of these trade associations, the American Society of Travel Agents (ASTA), had in excess of 20,000 travel professional members in 140 countries in 2007. The group changed membership guidelines to reflect industry trends and the diversity of travel professionals. In addition, ASTA's affiliate organization, the National Association of Commissioned Travel Agents (NACTA) represents an additional 4,000 members who are independent travel agents, cruise-oriented agents, home-based travel agents, outside sales travel agents, and host travel agencies. Related associations include the Association of Retail Travel Agents (ARTA), with a membership of more than 3,600 travel agents worldwide; the American Hotel & Lodging Association; and Cruise Line International Association.

Such associations not only provide services for travel agents, they also legitimize the trade itself. An ASTA or ARTA membership offers assurance to both suppliers and consumers that an agent has some qualification beyond the easily obtainable agency accreditation, which is granted by the Airlines Reporting Corp. (ARC). In what has become a very technical field, there is an increasing need for further standards of expertise. Agents can become Certified Travel Counselors (CTC) or, in line with the growth of corporate travel, a Certified Meeting Professional (CMP). That certification allows an individual to oversee every aspect of a business meeting.

Suppliers.
Travel agencies rely on commissions from their suppliers as their main source of revenue. Commissions are usually set at 10 percent of a booking, but slightly different arrangements can be made with each supplier. Travel agents may contact several suppliers to set up an appointment with each or use one of two coordinating bodies accepted by various suppliers as a kind of clearinghouse establishing the validity of agents. ARC agents are allowed to use standard ticket stock for more than 100 domestic and international carriers. ARC also provides weekly reconciliation of sales, refunds, exchanges, and commission payments to travel agents via a third party. While ARC appointment is not required of agents, it would be difficult to provide full services without it. A minimum of $20,000 is required to be appointed or retained by ARC. This acts as both a financial screen and a protection against default.

Airlines are the only suppliers who give significant commission overrides in the form of marginally higher commissions to agencies with which they have a preferred supplier relationship, whether negotiated through a consortium or through the agency itself. These overrides appear to be relatively effective in influencing agents' booking habits. More than two-thirds of all agencies book particular carriers in order to receive overrides, and these locations obtain overrides on about a third of all the air tickets they book. It is more common for overrides to be passed on to a business client than to a leisure client, mainly because the market for corporate accounts is highly competitive and, because of the higher prices a corporate traveler generally pays for last-minute scheduling, the commission will already be substantial. The use of overrides for leisure travel was on the rise, however, as it became an increasingly competitive sector.

The industry's dependence on air travel resulted in a marked consistency of products offered by travel agencies. Airline tickets made up nearly 55 percent of a travel agency's business on average, more than all other "travel products" combined. This attachment to the airline industry posed problems for some travel agencies, prompting an effort within the industry to decrease dependence on airline ticket sales. With air travel continuing to increase, however, this dependency may be unavoidable. In 2008, the remainder of a travel agency's business came from cruise and tour bookings (15 percent of industry sales), hotel bookings (10 percent), car rentals (8 percent), event tickets (7 percent) and rail travel and other bookings (4 percent).

In the early 2000s, airlines cut commissions to agents and began to charge service fees to the customer. According to Travel Weekly's report on the industry, 96.6 percent of travel agents charged the customer a service fee in 2006, a dramatic increase from 64 percent in 1998. For 74 percent of travel agencies, supplier commissions represented 51 percent or more of the agency's revenue, and 60 percent of agents reported that commissions accounted for 75 percent of their revenue. Further sources of revenue for the year were tours, accounting for 31 percent; air travel, 31 percent; cruises, 27 percent; hotel bookings, 12 percent; and car rental, 5 percent. Rail and other accounted for 2 percent each.

Tour and vacation packages, organized through tour operators with minimum arrangements, have increased in popularity. Packages allow for better control of costs in advance, and assure the customer that they will be taken care of in case of an emergency. For agents, packages are easily put together and provide higher, more dependable commissions. Specialized tours (often called Foreign Individual Tours or FITs) are becoming confined to the luxury market, a welcome trend for agents because FITs are often time-consuming to organize.

Car rental companies use a variety of strategies to lure travel agency business, including commission incentives, free client upgrades, low familiarization trip rates, and frequent contests. Regardless of what kind of inducement is offered, however, car rental bookings are still generally viewed by agents as an added service for their clients. More often than not, an agent will make car reservations based on the efficiency and dependability of the car rental company's system rather than on what rewards are being offered. Payment of commissions became less problematic as car rental companies began to centralize their payment systems and designated full-time agent assistants to deal with travel agent inquiries or commission payment concerns.

As more hotels acknowledged their dependence on travel agents for reservation bookings, the relationship between the two industries improved. Evidence of this was seen in the effort by many hotels to simplify and speed up the payment of travel agency commissions. In the past, commission payments could take anywhere from a few days to a couple of months and come with confusing statements from branch hotels. More recently, a large hotel company, with a centralized commission payment system, issued payments and statements regularly from one office that deals with individual branch problems internally. Such centralization safeguards travel agents from having to spend valuable time chasing down commissions and makes agents far more comfortable in booking hotel reservations.

According to ASTA, a 2004 Travel Industry Survey/Travel Weekly reported that travel agents sold 87 percent of cruises, 81 percent of all tours and packages, 51 percent of all airline tickets, 47 percent of all hotel rooms, and 45 percent of all car rentals.

STPs and On-Site Agents.
Two strategies were adopted to better manage the travel accounts of large companies to meet corporate demand for efficiency and specialized service. Some agencies offered to install satellite ticket printers in corporate offices so a ticket or boarding pass could be distributed directly and immediately to the client. Some agencies have gone so far as setting up on-site departments for their major clients, such as those who contribute more than $41 million in sales. Such departments, which are run and paid for by the agency but work in client-supplied office space, give the company more direct control over its travel arrangements, create savings, and enforce travel policy. On-site agents also work in conjunction with in-house travel departments to set budgets, negotiate with vendors, and create travel expense reports.

Background and Development

The Early Years.
Because travel agency surveys have only been taken since the early 1970s, it is difficult to speak with much certainty about the state of the industry prior to this time, except to note that it bore little resemblance to the industry of the 1990s. ASTA was founded in 1931 as a society for steamship agents at a time when steamships and trains were the predominant means of travel. A small group of agents booked tour packages and cruises in these early days. Later, with the increased popularity of air travel, particularly with the introduction of larger passenger jets in the 1960s, travel agencies became much more prominent, but travel agencies remained a select group. For a long time, an agent actually had to be appointed by an airline commission in order to book airline tickets. In many ways, this obstacle spurred the industry's expansion into car rentals and hotel bookings. For many years, however, travel agencies remained essentially unsustainable without inside connections to the airline industry.

The Deregulation Watershed.
In 1978, Alfred E. Kahn, chairman of the Civil Aviation Board, transformed the industry completely when he designed the Carter administration's airline deregulation legislation. In just three years the number of agency locations increased 30 percent, from 14,804 in 1978 to 19,203 in 1981, and the average revenue per agency was up 23 percent, from $1.3 million to $1.6 million. Such broad-based, steep increases were, and remain, unparalleled and clearly point to deregulation as a watershed in the history of the travel agency industry. By eliminating fixed pricing and opening up air travel to competition, deregulation allowed more people to travel more cheaply. The benefits of travel agency services also suddenly became much clearer. With a floating market and new airlines either starting operations or going under with shocking speed, travel agencies were in a better position than anyone else to find the best ticket at the best price. Companies suddenly forced to trim budgets began to recognize travel agencies as the most cost-effective mode of ticket distribution.

Since the early post-deregulation years, the enthusiasm of travel agents for airline competition has cooled somewhat. In particular, the frequent price wars created havoc for travel agencies. When special fare offers are made, for instance, not only are agents unprepared, but their reservation systems are rarely loaded with new fares fast enough to avoid problems. Despite the fact that agencies continued to handle nearly 80 percent of airline ticket sales, no true partnership evolved between the two industries. The airlines created frequent flier programs as alternatives to preferred supplier relationships, and travel agencies built closer ties to other suppliers.

A number of travel agents and tour operators were upset when the U.S. Travel and Tourism Agency was eliminated in 1996 along with its $16.3 million budget. This made the United States the only major country without a national tourist agency. Private industry stepped in, and the United States National Tourism Organization Act was passed by the Senate in September 1996. An estimated $80 million budget was created to promote the United States to foreign tourists. Patterned after the U.S. Olympic Committee, the National Tourism Organization is funded by business sponsors who pay an annual fee to use its logo in advertising and promotion. The organization's avowed goal is to put the United States back on top of the international tourism market.

In 1998, travel was the leading services export in the United States, bringing in $93 billion (including water transportation) from 46.4 million international visitors, which was $18.7 billion more than U.S. travelers spent abroad that year. Travel and tourism was also the third largest retail industry, after automobile dealers and food stores. Domestic and international travel output in 1998 output was approximately $1.2 trillion, which was 13.6 percent of the Gross National Product (GNP). Travel within the United States continued to represent a large segment of the industry. In 1998, Americans spent $424 billion on travel away from home without leaving the country. Minority travel was one of the fastest growing niches, resulting in more Hispanic travel agents. According the U.S. Census Bureau, travel agencies brought in approximately $11.1 billion in receipts for 1998.

Post-deregulation commissions continued to drop through the late 1990s as commission caps, ticketless travel, and cost cutting began to take their toll. In October 1999, airlines cut their commissions to travel agencies to 5 percent, the third reduction since 1995. In effect were a $50 commission cap on round-trip domestic flights and a cap of $100 on international flights. Electronic ticketing and Internet booking remained the biggest threats to travel agency income. According to ASTA, however, travel agents continued to book about 80 percent of all flights in 1999 despite the continued threat of direct online purchasing. Some of the most frequented Internet travel sites in 1999 included BizTravel.Com, GetThere.com, Priceline.com, and Travelocity.

Nevertheless, the Federal Trade Commission (FTC) reported that Americans lose $12 billion yearly in travel fraud, mostly from non-registered agencies.

The entire travel industry was rocked by the events of September 11, 2001, when four commercial airplanes were concurrently hijacked by terrorists, with two crashing into the World Trade Center in New York City, one into the Pentagon outside Washington, D.C., and another that was brought down prematurely in Shanksville, Pennsylvania, by passengers who struggled with the terrorists. The horrific events sent shock waves through the nation, and travel ground to a halt. Travel expenditures fell significantly. In 2000, U.S. consumers spent $570.5 billion on travel. In 2001, that figure dropped to $537.2 billion and dropped again in 2002 to approximately $525.1 billion. By 2005, the industry rallied, and the Travel Industry Association estimated expenditures on U.S. travel and tourism to be $646 billion. Despite uncertainty in the airline market and rising fuel costs, figures were expected to continue to rise.

Despite a leveling of overall growth, the U.S. travel agency industry remained vibrant and well-placed to benefit from the promise of future increases in both leisure and business travel. While they have no real competition in airline ticket sales, tours, and cruises, travel agents' proportion of the car rental and hotel reservation markets shows room for growth. Even without any marked improvement in their relationship with these two suppliers, the industry is so closely aligned to the airline and cruise industries that the years ahead were projected to be steady. Finally, and perhaps most importantly, travel agencies proved themselves flexible enough to adapt to the ever-changing habits of American travelers.

Current Conditions

Travel agents diversified to offset the stagnant travel industry in the early to mid-2000s by focusing less on air travel and more on cruises, vacation packages, and alternative means of transportation like railroad and bus, as well as revenue-boosting vacation add-ons such as spa packages, shopping trips, or special evening plans.

Even as the economy recovered and people began to resume more frequent travel, the Internet clearly remains the agents' long-standing competition. Expedia.com, Priceline.com, Orbitz.com, Travelocity.com, and Cheaptickets.com proved to be worthy opponents. The future of travel agencies was projected to fragment into numerous small agencies that primarily handled upscale cruises and local travel and large "mega-agencies" that operate both offline and online to provide a mass marketing approach to consumers looking for discounted prices.

Of course, Internet dependence went both ways; an ASTA survey in the late 2000s showed an ever-increasing dependence on agencies' usage of the Internet for information and research to better help their clients. While the travel industry embraced the Internet, there were mixed reactions on how it affected travel agencies. Although some believed that the ability to make one's own reservations and bookings would eliminate the need for a travel agent, others speculated that the fundamental role of travel agents would remain unchanged. Agents would continue to act as travel consultants because of their knowledge of the industry, even if they worked in-house for larger corporations.

Industry Leaders

American Express was the world's number one travel agency in addition to being a diversified financial services company. In 2008, American Express posted revenue of $29.1 billion. Carlson Wagonlit Travel Inc. was the second largest travel agency with 2008 revenue of $27.8 billion.

Leading online agencies included Expedia, with 2008 revenue of $21.3 billion; Priceline.com, with 2008 revenue of $7.4 billion; Orbitz, with $10.8 billion; and Travelocity, with $10.6 billion.

Workforce

The American Society of Travel Agents (ASTA) and the Institute of Certified Travel Agents (ICTA) offer self-study and group courses. There are no federal licensing requirements, but some states require some form of registration or certification. Travel agent employment was expected to decline through 2014, primarily due to employees changing occupations or leaving the work force entirely. The full impact of changes in the industry has yet to be determined. The industry is sensitive to the economy, the perception of air safety, and political crises.

The approximately 101,000 travel agents in 2008 earned an average annual salary of $32,125. However, greater economic pressures caused agencies to slowly turn away from straight salary compensation and toward compensation packages that combined salary and commissions. Such plans were viewed as ways to ease the strain of flat revenues and rising salaries while bringing employee earnings in line with productivity. The 21 percent of agents paid in this manner tended to earn 6 to 11 percent more than their straight salary counterparts. Compensation packages increased competition among agents, however, and concern for a friendly office environment kept most agencies from resorting to paying commissions, which generally range from 25 to 30 percent of an agent's total earnings.

Benefits packages also have been debated in the industry, with rising health insurance rates as the primary focus. Only 31 percent of agencies cover the full cost of their employees' health insurance, and that number is decreasing. ASTA has a nationwide health plan that covers more than 1,000 small, independent agencies, but the costs continue to be regarded as far too high by many employers. Still, health insurance ranks second behind familiarization trips as the benefit most commonly provided for by the employer. Agencies that are willing to share some of the costs of such packages can offer substantially lower wage contracts. With skyrocketing health care costs, agents were increasingly focusing on benefits packages when choosing an agency.