Terror takes toll on nation's travel agents: companies have cut back on business travel and more people are replacing leisure travel with at-home family activities

0 Comments | Insight on the News, Dec 3, 2001 | by Donna De Marco

The travel and tourism industry, from hotels and restaurants to airlines and travel agents, has taken a huge hit, perhaps more so than any other industry since Sept. 11. Americans remain reluctant to travel, some fearing their security and others concerned about getting stranded away from home.

The American Society of Travel Agents (ASTA) estimates that, in the four weeks after the attacks, the industry lost $1.36 billion in business because of a dramatic drop in bookings for flights, hotel rooms, car rentals and cruises. The society further projects that the travel-agency industry will lose $4.4 billion through December 2002.

Those losses would be heaped on an industry already suffering before Sept. 11. Travel agencies have been hit hard in recent years by a variety of developments, from the growth of online booking to the general economic slowdown.

Now the industry is turning to the government for help. Travel-agency officials are asking for financial assistance in the form of low-interest or no-interest loans totaling as much as $4 billion in an effort to stabilize the industry and give cash back to financially strapped businesses. The loans, based on an agency's sales before Sept. 11, would be used to cover lost revenue and unpaid bills since the attacks.

Travel agents, however, will have to get in line. A flurry of industries, including airlines, insurance and the U.S. Postal Service, have asked for billions of dollars in financial aid from the government. And some think the government shouldn't bail out travel agencies at all.

"Why bail out a sinking ship?" asks Mike Boyd, president of the Boyd Group, a Colorado-based airline-consulting and research firm. "What's next, the bagel guy down the street?"

According to Boyd, it would be a "waste" to give the travel-agency industry federal assistance since it already was struggling before the attacks. "Travel agents are an anachronism," he says. "They were being cut out of the program because they weren't needed."

Naturally, travel agents disagree: They claim to book 75 percent of all airline reservations -- a number that has stayed fairly consistent during the last two years, ASTA says. "If the agency community is not there, there is no infrastructure that exists," says Hal Rosenbluth, chairman and chief executive of Philadelphia-based Rosenbluth International, one of the largest travel agencies in the country. "Planes will be grounded again if there's no way to make reservations."

Top officials at Rosenbluth have taken a 20 percent pay cut and associates a 10 percent decrease until the end of the year. In addition, Rosenbluth had to furlough about 20 percent of its U.S. associates, in the hope of bringing back these 1,100 employees when financially possible. The company also cut its overhead expenses in half. "We were running a $6 billion corporation for 12 days with virtually no revenue coming in," Rosenbluth says about the two weeks following the attacks.

Many agencies in the same situation said they needed federal money by the end of November to survive, says Richard Copeland, ASTA's president and chief executive. "There could be a lot of casualties if the government doesn't step in," he says.

There is some financial hope for travel agencies. In October, the U.S. Small Business Administration widened access to its Economic Injury Disaster Loans to small businesses, which would include many travel agencies. Such businesses may apply for a loan of up to $1.5 million if they have suffered because of the terrorist attacks. The loans, with a 4 percent interest and a maximum term of 30 years, may be used to pay fixed debts, payroll, accounts payable and other bills.

It's true, however, that travel agencies weren't exactly living the good life before Sept. 11. In recent years, they suffered from the slowing economy, an increase in travel costs, drastic airline-commission cutbacks and an airline campaign to coax flyers to book seats through online-reservation systems. As of September, there were 28,787 travel-agency locations, a 17 percent decrease since 1996 when there were 33,715, according to the Airlines Reporting Corp.

The cutback in airline commissions has hit the industry harder than anything else. After years of offering travel agents a standard commission rate of 10 percent, major airlines began to limit their commissions as a way to save money. In 1995, domestic commissions were capped at $50 -- but that was only the beginning. Commissions currently are capped at $20 for domestic flights. As of September, travel agents' total commission had reached $3 billion for the year compared with 1996 when they raked in $6.4 billion. Airline commissions account for 36 percent of an agency's revenue, according to ASTA.

Meanwhile, the airlines have made a push for travelers to book tickets using their own online-reservation system, eliminating any commission to travel agents. In June, Orbitz, an online-reservation system owned by American, United, Delta, Continental and Northwest, gave travelers access to hundreds of airlines, hotel chains, car-rental companies and tour operators. "Airlines do not need travel agents anymore to retail their products," Boyd says.