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Industry Gears Up to Face Challenges

July 23, 2009 By: Dori Saltzman

From a bird’s eye view, agents face one major challenge—the economy. But when viewed up close, that one issue fractures into multiple challenges: chasing prices, constant marketing and cash flow, among them.

According to Jack Mannix, president and CEO of Ensemble Travel Group, at the highest level the main challenge facing the industry is a lack of demand, combined with the fact that the profitability of sales is not what it used to be.

“Agents are having to sell much more simply because the commissions on a per-transaction basis are lower than they have been before,” adds Jackie Friedman, general manager of host agency Nexion Inc.

Ignacio Maza
, executive vice president of Signature Travel, also cited weak demand and lower prices as a major challenge for agents. “Sales are tracking below 2008 levels, yields are down and the business is not coming in at a predictable pace.”

All the executives Travel Agent spoke with, however, said their members are nevertheless busy booking travel, albeit at the much lower rates.

“Pricing has collapsed,” says Matthew Upchurch, CEO of Virtuoso. “On average, across all different product categories, we have at least 20 to 30 percent lower revenue, and at the same time people are working two to three times harder because there’s increased shopping by the customer.”

This increased shopping means agents must continue to work the sale, even after it’s booked.
 “The cost of the sale is higher because the retailer ends up having to chase pricing once they sell something to make sure it didn’t go down further or some other benefit was introduced,” says Mannix.

Maza says Signature agents are having the same problem. “Our agents need to resell vacations due to multiple price changes between time of purchase and day of departure. They are working harder than ever before, for less commission revenue on each transaction.”

Mannix calls it “over-servicing,” this need to protect business after it’s been acquired, to make sure it’s retained and that customers don’t find something cheaper on their own.

Both Maza and Friedman say consumers are being flooded with direct marketing from suppliers. Friedman adds that in the onslaught of direct marketing, consumers often forget their loyalty to agents and book direct.

“It’s more difficult than ever and more important for agents to continue to maintain the customers that they have,” she says.

All the executives agreed that to maintain their customer base, agents need to increase their marketing and stay as close to their clients as possible.

As Dwain Wall, senior vice president and general manager of CruiseOne and Cruises Inc., says, “This is not a time to fall asleep, it’s a time to stay focused and be more engaged than ever.”

Adds Friedman, “Their customer is their most important asset and the biggest pitfall agents face is assuming that no news is good news.”

Maintaining Cash Flow

Both Mannix and Maza, whose organizations are composed primarily of brick-and-mortar agencies, cite cash flow as a major issue facing their members.

Mannix and Upchurch say that as a general rule travel agencies run on thin margins, so cash flow is very important. Mannix adds that the industry is already seeing, and will continue to see, consolidation of agencies as cash dries up.

“It is the issue, as far as we are concerned,” Maza writes in an e-mail, adding that Signature is coaching its members to charge processing or travel planning fees on all transactions, to be paid at the time of booking and/or deposit.

Maza also said Signature agencies are being urged to sell multiple components on every booking, including insurance, car rentals, transfers and other products that bring incremental earnings.
CruiseOne and Cruises Inc. agents, who are mostly home-based, are similarly being encouraged to sell the full package.

“They need to focus on pre- and post-hotel; they need to make sure they’re selling travel insurance to every single customer,” says Wall.

“In this kind of recession, cash is king,” says Upchurch, adding that Virtuoso agents are being “judicious” with their own expenditures.

Groups Not Excluded

Because they are dependent on their members, consortia, hosts and franchise organizations are affected as well. Like their agency members, these groups are finding they need to change business practices to ensure mutual survival.

“We’re doing things we normally wouldn’t do to help our agents by increasing spending on their behalf directly in terms of marketing,” says Wall.

He adds that CruiseOne and Cruises Inc. have made a number of marketing programs available at no cost to their agents, as a way of assisting them in building business.

Virtuoso, Upchurch says, has waived fees of some of its training programs, and has slashed the price for attending Travel Mart.

Ensemble paid out a large portion of its profit sharing early this year as a way to help agencies with their cash position, notes Mannix. Additionally, the organization waived the fee members must pay when they don’t reach their growth requirements. “We felt the people who were probably struggling the most were in the least position to be paying out cash,” says Mannix.

Future Challenges

Some executives are also looking ahead to larger industry challenges that will still be issues when the economy turns around.

The growth in non-commissionable fares has Upchurch and Wall worried, whereas the precedent set by United prohibiting select agencies from using its credit-card processing has Mannix alarmed. Wall also feels the aging population of agents will ultimately have a negative effect on the industry.

Upchurch sums up by saying that the importance of marketing, messaging and positioning, now and in the future, cannot be overstated. Agents need to make sure that any actions they take to survive this recession also position them for the post-recession environment.

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