EDITOR'S NOTE: Despite the loss of 1,400 agency locations and real challenges to be faced in 2010, travel agents who provide value to suppliers by creating demand for travel and provide valued services to consumers, the future looks good.
In an interview with Travel Agent's George Dooley, John Pittman, ASTA’s vice president of industry affairs, and Melissa Teates, ASTA’s director of research, offered their expert take on the status of travel agents after a tough year of agency closings, consolidation and growth in independent contractors. The result is a snapshot of the changing agency distribution system in the past year and a forecast of what’s to come in 2010.
Travel Agent: Where does the industry now stand? How many full service agencies are there now? How many in Jan. 09? Is there a net loss?
Pittman: ARC reports 16,220 ARC airline accredited agencies and 883 Verified Travel Consultants on record at the end of October 2009. ARC reports 17,673 ARC airline accredited agencies at the start of 2009. This represents a loss of 1,453 locations. ARC did not provide VTC numbers until February 2009. On the surface this seems huge, but upon closer inspection, most of the closures are branch locations, not agency firms.
Many agencies are doing what you would expect during this economic downturn – closing or consolidating unprofitable branches. Because of electronic ticketing, which is now over 99 percent, it is no longer essential for agents to maintain an ARC ticketing location at all branches. In some cases, the agency physical agency location may exist, yet ARC ticketing is done from the home office.
It is important to note that while the annual closure rate of branches continues at a fast rate (-8.5 percent between 2006-September 2009), the good news is that the annual closure rate of agency firms has slowed to -1.5 percent during this same period.
It is also important to note that the rate of agency defaults remains very low. As a result, the firms that are closing their doors are doing so peacefully. Most are likely consolidating with another agency firm.
Teates: ASTA’s 2009 Agency Business Trends found that in response to the economic slowdown that 8 percent of ASTA agencies consolidated their office locations, 4 percent gave up their ARC affiliations, and 12 percent closed all brick and mortar offices and moved their business home-based in 2009. When asked about changes to their business model in the future, 4 percent of agencies are considering consolidating offices and 3 percent are considering moving their business home-based. This suggests that ARC will see further contractions in the number of branches.
Travel Agent: ARC reports that its VTC category is growing substantially - now about 800 plus. Many appear to be conversions from full service ARC to independent agents status. What significance, if any? ( In October ARC reported growth to 883 VTC locations.)
Pittman: ARC agents have had the ability to convert from airline accredited to non-air accredited through IATAN’s TSI program for many years. ARC’s VTC program is yet another option. It should be noted that there have always been a sizeable number of ARC agents that report “zero sales” every week just to maintain their ARC number. It’s likely that a large number of ARC’s VTC conversions are these “zero sales” agents. The real benefit for these agents is that they no longer have to submit a sales report every week just to maintain their ARC number.Travel Agent: What is your best estimate of the total number of independent contractor (IC) agents? Will the total grow in 2010?
Pittman: It’s difficult to speculate about the number of independent agents since IATA, TRUE and CLIA do not disclose their membership numbers. Even if we knew this number, there are also many ICs that are affiliated with a Host that may not have an IATA, TRUE or CLIA number. The best estimate we have comes from PhoCusWright’s Travel Agency Distribution Landscape Study in 2008, which indicates there are approximately 31,000 independent agents that represent approximately 9 percent of agency sales. This compares to 86,420 office-based employees as identified by the Bureau of Labor Statistics (BLS) in May 2008. According to PhoCusWright, office-based agents represent over 90 percent of sales.
It’s possible that there will be some growth with both independent agents and office-based agents in 2010. Many agencies made cut backs in 2009 and may look to add employees or ICs as the economy strengthens in 2010.
Teates: ASTA’s 2009 Agency Business Trends found that 35 percent of ASTA agencies plan to increase the number of Independent Contractors they use in the future and 16 percent are considering asking employees to change to Independent Contractors status and work from home. Our expectation based on this data is the use of Independent Contractors by our members will increase, however the IRS continues to monitor the use of Independent Contractors closely and this will have an effect on any agency’s analysis of changing the status of employees.
Travel Agent: Do you anticipate more consolidation, mergers and acquisitions?
Pittman: Yes. The good news is that the decline of Independent Locations (firms with one ARC number) has started to bottom out. The annual rate of decline for all agency types was over 10 percent from 2001-2005. Yet since 2006, the annual rate of decline has dropped to 1 percent for Independent Locations. On the other hand, the annual rate of decline of firms with multiple locations during this same period is over 5 percent. This indicates that consolidation is still occurring with larger agencies.
Travel Agent: Some leaders have expressed concerns with aging of agency owners and /managers? And fears of the aging of the agency client base.
Pittman: There are a new breed of agents that are adapting to new opportunities with the younger technology-enable demographic.
Teates: We find these newer agents using Web 2.0 to build new online oriented businesses. Our Young Professionals Society has experience steady growth in the past three years and has it’s own Facebook and LinkedIn page oriented to younger agents.
Pittman: In 2008 ASTA commissioned a consumer research project through D.K. Shifflet & Associates that found Younger (18-34) and Less Affluent (<$75K) consumers used the services of an agent as much, if not more than the most affluent respondents (>$150K). One school of thought is that older travelers have preconceived opinions of the traditional “brick and mortar” agencies where fees were not usually charged, whereas, the younger users of travel agents do not.
Travel Agent: Any data on total agency sales? Is this tracked?
Pittman: ARC tracks airlines sales at www.arccorp.com/news/sales-document-statistics.jsp. (Editors Note: ARC reporting some good news as October sales set a new high for 2009, although short of October ’08 by 3.5 percent. Total sales hit $6,064,705,853, down 3.51 percent and year to date $56,272,248,481 down 20.42 percent.)
184 carriers reported for October, along with 16,220 retail locations. 1,014 STP locations and 883 VTC locations.
Teates: PhoCusWright’s Travel Agency Distribution Landscape Study in 2008 estimated that travel agents generated $110 billion in travel sales and they estimated that sales would slide to $104 billion in 2009. The economic downturn was not considered in that forecast, so sales are likely lower than forecasted. PhoCusWright found erosion of sales to be affected mostly by consumer-direct online sales, online travel agent sales, and consumer-direct offline.
Travel Agent: What is the importance of research to agency owners and mangers? What is ASTA's role in this?
Pittman: Research plays a vital role in understanding where the industry has gone and where it might be headed. From a member perspective, ASTA’s research is used as the basis for many of the online tools that allow members to benchmark their business against their peers. Data from ASTA’s Labor and Compensation Study is used in an online tool that allows our members to search for agent salaries by skill level, geographic location and company size. Our Financial Report, GDS Survey and Service Fee Surveys are used to build other financial tools, including our online Balance Sheet and Operating Expenses Benchmarking tools that are used in conjunction with our Travel Agent’s Management Toolkit. We also use our research to develop other programs for our members such as the Nolan Burris course on Business Models.
Teates: We receive requests for research daily from our members to assist them in developing strategies, updating business models, understand industry changes, creating marketing strategies, and writing contracts/developing bids. We also get many hits in our E-Library for our research materials. It shows that our members are using research to make informed decisions about their business.
Travel Agent: Any forecast for 2010? What should we be looking for in terms of changes in agency distribution?
Pittman: There will no doubt be challenges in 2010. If I had to guess, it’s likely that 2010 will be identified as the year of recovery. The industry will likely be focused on ways to improve their businesses as consumer confidence returns. Nonetheless, an airline or two may continue to make noise about transferring some, or all, of its distribution costs, including, but not limited to GDS and credit card, in 2010. Yet, as long as agents continue to focus on 1) providing value to suppliers by creating demand for travel and 2) providing valued services to consumers, the future looks good.
Teates: From our member’s perspective, when asked for the 2009 Agency Business Trends report when they expected their business to rebound, most agencies expect to rebound in the spring or summer of 2010. Although, a large percentage do not expect full recovery until 2011, especially for corporate travel.