Business for beleagured travel agents takes off

Vermont Business Magazine, Mar 01, 2000 by Marcel, Joyce

Few businesses have been harder hit by external pressures in the last few years than travel agencies, and few have had to reinvent themselves more quickly. But by a series of mergers and acquisitions, and by working to turn themselves into professional travel consultants, those agencies still left standing in Vermont report booming business.

With cruising, tour travel and overseas travel strong, along with a still-surging economy, the largest bottom line stress on agents doesn't come from the expected place, e-commerce. Instead, it comes from an industry that used to be a close ally of the agencies - the airlines.

In 1995, when agencies were still getting 10 percent of every ticket they sold, domestic airlines instituted a cap of $50 per ticket. In October 1997, the same airlines cut the commission percentage to 8 percent. In 1999, they lowered it again to 5 percent. And all during this time, airline tickets were steadily decreasing in price. In the international market, percentage cuts were handled differently, and some smaller domestic airlines, like Southwest, continue to pay 10 percent.

But the major domestic airlines drastically reduced the commissions that travel agencies were used to receiving, and so altered the industry forever.

"We've taken four cuts in the last five years," said Ted Child, owner of Child Travel, where 70 percent of the business is corporate travel. Child has four full-service agencies in Vermont, plus, agencies in Boston and Seattle. It employs 50 people altogether, reports sales of $35 million in 1999, and is the second-largest agency in Vermont. Accent Travel, Inc, with eight offices in Vermont, is the largest.

"We've gone from 10 percent uncapped to 4 percent capped since 1995," Child said. "The impact on us has been about a 65 percent cut in commissions, because of the commission cap. We can't make more than $50 on a ticket. We do a fair amount of tickets that are $1,500 or $2,000, and we can't make more than $50."

One reason for the airlines' behavior is the growing ease of the Web.

"It's a very competitive business, said Hank Lee, coowner of Gateway Travel in Brattleboro. "The airlines all beat each other's brains out selling the same seat to the same destinations. They're always looking at how to distribute their product more effectively. For a long time, there was a love affair between the airlines and the agents, because we were cheaper than paying staff to handle reservations. Then came this new way of being able to make reservations. You didn't have to call a reservation center and take the time of a reservation agent. You could book with the airline directly. You could book with the airline directly on their Web site. It offered a much lower cost transaction. So what we provided to them as distribution agents didn't look as cost-effective."

Still, the domestic airlines attitude toward agents became adversarial. When asked why, Dan Petherbridge, owner of Travel Network in Burlington and president of the Vermont Society of Travel Agents, representing approximately 30 agencies and 300 agents, had two words: "greed and arrogance."

"The airlines are making more money than ever, they're raising fares, and they're cutting the travel agent's commission," Petherbridge said. "I can't think of any reason except greed. And because they can. The airlines are a monopoly. They truly govern travel in the United States. Services on the airlines have deteriorated, rates have gone up, and their performance is generally less than it should be."

Travel agents still sell over 80 percent of the airline tickets, however, and e-commerce, which sells about 4 percent according to most agents, is still an unknown factor. But for the consumer, the air travel industry is so complicated that travel agents seem to be needed more than ever.

SERVICE FEES

Agents have responded to both the complications of the travel business and the cuts and caps on commissions by charging their customers a fee for their services. The complications of travel alone justify the fee, most agents feel.

"The business has now become terribly complicated,

with upgrades, coupons, sales, fly twice as long for half

as much," said Janet Flanders of Janet Flanders Travel in

Norwich. "Then you see advertising that offers a $98

ticket to London, only it's one way, and you can't have it

one way. So double that, and then add taxes, which are

so high. We spend a lot of time explaining why this

doesn't seem to make sense. Sometimes your frequent

flyer miles are good for this and not for that, and it isn't

straightforward. There are so many ways to put flights

together. They may all be correct, but one will cost less.

We never used to charge a fee, but if you think about it,

if you go to a doctor, a lawyer or any professional

service organization, you pay fees. My clients are

simply too busy with their own work to figure out their

travel."

As the relationship between the customer and the travel agent changes, there is certainly some unhappiness about paying for something that used to be free.