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A Consolidating IndustryFebruary 7, 2013 By: Ruthanne Terrero Travel Agent
Decades ago, joining a travel agency consortium or franchise was all about the commission overrides. Why go at it alone when you can earn more as a group whose sales volume gives it more clout with suppliers? But while commission earnings are still a primary reason for belonging to a larger group, consortia these days are providing much more to members, such as one-to-one marketing with customers through sophisticated e-mail marketing and data mining initiatives, education and training. Hotel programs provided by the major consortia give their agency members a fierce edge over online travel agencies (OTAs). What’s better for a travel agent than being able to tell a client they’re getting a free breakfast or room upgrade because of the agent’s relationship with the supplier?
Technology as well has made the competitive landscape more intense, with one consortium after another making it easier and easier to book a preferred supplier with a few simple keyboard strokes. Such consortia programs have made agency members heroes to their clients, since they’re filled with very specific and robust details about preferred hotels, cruise lines, tour operators and airlines. In all, as consortia and agency franchise groups have evolved their offerings to remain competitive and relevant over the years, they’ve done well in servicing their agency members, benefiting consumers and suppliers along the way.
The agency community has evolved as well. There’s been a surge in travel advisor popularity, with consumer press recognizing the value an agent brings to a booking. Over the past two years, there’s been a steady flow of positive press for agents, once again bringing them to the forefront in the consumer’s mind. During this evolution, agencies have fought to overcome the challenges of a down economy by working smarter. In many cases, they’re now affiliating with larger agencies that have strong airline programs that pay higher commissions.
At times, agencies have teamed up with former arch competitors to create powerhouses that have daunting strength when it comes to negotiating pricing with suppliers. These moves, while making the larger groups even larger, have left the smaller groups unsure of what tomorrow will bring.
Of note are the acquisitions of Travel Leaders Group, headquartered in Minneapolis. The group has been steadily rolling up major agency groups to the point where it now holds under its umbrella Vacation.com, with 5,000 members; Nexion; Tzell Travel; and Cruise Holidays.
Not bad, considering Travel Leaders was spun off from Carlson just five years ago, and has since gone from being a $6 billion-a-year company to an $18 billion-a-year company. Along the way, it’s also launched a robust hotel amenities program, giving members in the entire network access to consumer perks other competing consortia have long offered. A new DMC program was also formed.
One of Travel Leaders Group's largest deals happened late last year, when Tzell Travel Group, a Travel Leaders company, purchased Protravel International. The merged operations of the two New York City-based agencies alone create an annual sales volume of over $2.35 billion, according to Travel Leaders Group.
The move was not just about two mega-agencies coming together; it gave Travel Leaders a foray into the luxury travel advisor scene, fulfilling a goal it had spoken of for well over a year. But 2012 was also about share-shift for Travel Leaders Group; it now encompasses roughly 30 percent of the travel agency marketplace (that's prior to the Protravel deal) and officials promise there’s more to come (see below).
Consortia Chiefs’ Perspective
We spoke with the leaders of a select group of consortia heads to find out how the many changes over the past decade or so are impacting their businesses. Here’s what we learned:
Roger Block, president of Travel Leaders Franchise Group, is a believer in consolidation and not just because his umbrella corporation is making the biggest moves.
“The consolidation that’s happened in the industry on an individual level, depending on who you work with, could have been painful,” he tells Travel Agent. “But overall, I believe consolidation has been great for agency owners and for consumers. And this isn’t about Travel Leaders per se; this is about the overall retail travel distribution channel in the United States.” Observing his own network, he notes those agencies that have expanded their size via consolidation have also become more efficient in their operations, and hence more profitable.
“That profitability has allowed them to invest in their businesses, which could mean technology or training for their staff so they can specialize in certain areas of expertise.”
As a result, if Agency A bought Agency B, there may have been staff reductions in accounting and finance and a location may have been eliminated, “but very seldom do I see them terminating any of the good frontline travel specialists; they keep them,” says Block. Having destination experts creates a positive customer experience that will not be found on the Internet, he says, adding that such experts can easily upsell clients by customizing a unique trip for them.
Speaking broadly about the overall Travel Leaders Group, Block observes that every time a large acquisition is made, such as that of Tzell buying Protravel, “it elevates our standing with suppliers and each of the acquisitions brings in a new area of expertise.”
Watch out for more acquisitions from this industry giant, “since that’s in our DNA to do so,” says Block. “The question is not if; the question is when.
“All deals are done strategically,” he notes. “We are not just buying things to have sales growth,” even though Travel Leaders is known as a go-to company that is interested in acquisitions. “We are very selective in what we want to do that’s going to strategically fit. Our merger and acquisition teams are constantly looking at things, weighing several questions, such as is it truly a good fit for us, is the value right, are the people right, will their philosophies fit with ours and at the end of the day it’s got to make sense. It’s all about making sure that all the different pieces fit together strategically.”
Alex Sharpe, COO of the Signature Travel Network, is also all for consolidation that fits all the pieces in a puzzle. “I love smart consolidation,” Sharpe tells Travel Agent. “When I see Steve Orens open in New York, that gives him a foothold in another major area,” he notes, speaking of Los Angeles-based Plaza Travel, a Signature member that’s big in the entertainment travel arena. Plaza Travel last year established a Manhattan office by linking up with a duo of New York-based independent contractors who are also strong in entertainment. Sharpe also points to one of Signature’s largest members, Frosch Travel, a $1 billion agency, which late last year acquired Summit Travel, a $60 million-a-year company, bringing the travel fulfillment business into Frosch’s fold. “It’s putting another tool in Frosch’s tool belt,” points out Sharpe. “Now, if Frosch wants to go bid on a piece of business and there is a fulfillment component, they are going to know how to deal with it.”
Because of the trend of large agencies affiliating with independent contractors, Sharpe emphasizes it’s more important than ever for consortia and agency heads to focus on the individual travel advisor. “There has to be that focus on the consultant, because if you see one consultant move, you could see $2 million of your tour business and thousands of hotel nights move.”
For that reason, Sharpe concedes, this is a business “that’s all about the consultants. I think if we focus on them, the consolidation will take care of itself because [if these consultants are involved in a consolidation], they will be the first one to raise their hand and say, ‘I can’t live without Signature.’ ”
Matthew Upchurch, CEO of Virtuoso, affirms the consolidation in the industry makes him feel confident. “Ten or 15 years ago, the retail structure was supposed to be wiped out by now. Fast forward to 15 years later, and all of a sudden, Wall Street is coming up with hundreds of millions of dollars to fund the consolidation of the sector. Why? Because lo and behold, their prediction that we were all going to be obsolete has not only not happened but all of a sudden, you are starting to see everybody realizing that this sector is actually driving innovation and driving yields. So now there is all this money that’s driving this consolidation which basically means that the sector has been validated.”
Even better, over the past five years, even during the financial crisis, travel advisors proved their value, earning high praise in the consumer press, says Upchurch.
John Lovell, president of Vacation.com, also a part of Travel Leaders Group, notes that consolidation is also occurring within the supplier sector, including in the airlines and cruise lines. “I think it’s very, very healthy,” he tells Travel Agent. “It tells me that the people who are making the investment see it as a very healthy distribution channel.”
Consolidation does take out inefficiencies, adds Lovell, and it gives the players buying power.
“The supplier needs to make money, the agent needs to make money and the customer needs to get the best value, and I think that consolidation is only going to help drive that in the future,” he concludes.
Libbie Rice, co-president, Ensemble Travel, says that if the consolidating industry creates large entities that can create a general consumer awareness about the value of agents via their robust marketing efforts, it’s good for everyone.
“If you look at the marketplace, it’s no surprise that the number of agencies has been shrinking over a period of time,” says Rice. “From the Ensemble perspective, we have some members that are very actively on the acquisition path and some members that are sun-setting and trying to sell their businesses and hence more consolidation. So we try to do some matchmaking in that process, because that’s better for Ensemble.
“But if you think about it, consolidation could create agencies that are smarter in their marketing and that are spending more on attracting more clients. Maybe they are able to offer some more services that you couldn’t do as well as a smaller agency. What we’re faced with as a challenge is not getting clients to move from agency to agency; what we’re really trying to do as an agency is get people to use a travel agent. So if a mega-consolidation happens, if through the marketing online or in print or word of mouth you can get more consumers to use an agency, that benefits all of us.”
Tony Gonchar, vice president, consumer travel network at American Express, notes that the current consolidation trend is “a bit less about big guys buying the smaller guys and more about big agencies forming alliances with other large agencies.” Since 2001, the travel agency arena has seen players selling their businesses in order to retire, he says, but those have involved agencies with a sole proprietorship model. “When these deals are done at the tectonic level they are much more impactful on the marketplace,” he says.
Some of it has to do with big players, such as Protravel’s president, Priscilla Alexander, determining a long-term strategy for her company by selling to Tzell Travel, but overall, Gonchar, who previously headed ASTA and was in a senior leadership position at Virtuoso, doesn’t see the pace of mergers declining in 2013.
His caveat? Some players who haven’t joined the consolidation bandwagon may feel they have to act now or risk losing the opportunity do so later. But, as Gonchar aptly puts it: “The due diligence here would require some patience in terms of ensuring that these deals are done correctly for the parties trying to achieve them.”
What to watch for: Gonchar notes that the mergers, buyouts and affiliations now taking place certainly do bring about an efficiency in terms of the operations aspect two businesses can achieve. However, the more interesting aspect is what kind of share-shift the joining of mega-agencies can create in the marketplace.
“It’s more about what can be demonstrated to suppliers in terms of what buying power these groups can now achieve.”
There are markets that do well with fewer bigger players and there are markets that do well in a much more distributed opportunity environment,” says Gonchar, adding that the impact has yet to be determined. “It’s ultimately about whether this is good for the consumer and whether they are going to have the travel experience they are looking for.”