Turbulence may be more common among travel agents these days than it is among their customers.
The once cozy industry has been shaken by seismic changes in recent years. More and more travelers have turned to the Internet to book reservations, and air carriers - once the travel agency`s best friend - have become direct competitors. For many travelers the traditional agency is obsolete. Since 1997, the number of agents accredited to sell airline tickets has dropped by almost 11 percent - from 33,715 to 30,077 at the end of 2000, according to the Airline Reporting Corp., which provides accreditation for almost all airfare vendors. About 1,900 agents dropped out of the industry in 2000 alone.
“There will definitely be casualties” as the industry gropes its way toward a solution, said Steve Davison, vice president of marketing and client services at Little Rock`s World Wide Travel Inc., the nation`s 16th-largest agency with $265 million in sales last year. “There`s a re-engineering under way.”
Davison said the shake-up started in 1995 when airlines began pruning the commissions they pay to travel agents on ticket sales. Carriers cut commissions from 10 percent of a ticket`s cost to 8 percent with a $50 maximum, then to 5 percent. Travel agents, who once relied on commissions as their primary source of income, responded by tacking $15 to $25 charges on transactions, passing the costs on to consumers.
“For years the airlines basically paid for the buffet of services that we offer now because they paid the 10 percent commissions,” Davison said. “But the airlines chose to change the travel paradigm.”
Competition between airlines and agents ensued, accelerated in part by the Internet. Unlike some industries, where attempts at e-commerce fizzled, travel agents and airlines alike have found consumers more than willing to shop online for cheaper flights. Online travel agents Travelocity.com and Expedia.com, now among the 10 largest in the country, are among the best examples. On June 4, American, Delta, Northwest, United and Continental - the nation`s top five carriers, commanding 70 percent of the air travel business - launched Orbitz, a travel Web site that claims access to 450 airlines. Like many travel Web sites, Orbitz also advertises rental car and hotel rates. Travel agents see the site as an attempt by the airlines to crowd out competition. They say Orbitz will enable airlines to more easily put through fare increases.
“An airline will float out a fare increase, and if nobody follows, then they`ll pull it back,” Davison said. “On Orbitz they`ll be able to do that immediately because they all share the database.”
The Department of Justice is investigating complaints by consumer groups about Orbitz.
Even more troubling to travel agents is the proposed merger between United and US Air, a marriage that Davison said could put more than half of the country`s air travel in the hands of one company. According to a survey from the National Business Travel Association, an industry trade group, 70 percent of travel agents believe the merger would raise ticket prices. The survey also found 58 percent thought any airline merger would increase rates.
“I cannot come up with any scenario in which that [United-US Air merger] is advantageous to any consumer,” Davison said.
Consolidation is a fact of life elsewhere in the travel industry as well. On June 18, New York-based Cendant Corp. said it would pay $2.9 billion for electronic travel-reservation specialist Galileo International Inc. The merger would give hotel and rental car giant Cendant control over the nation`s second-largest airline reservation and fare-tracking system.
Cendant already owns 6,000 hotels, including the chains Days Inn, Howard Johnson, Ramada and Super 8 and 4,400 Avis car rental outlets. Galileo`s reservation system, used by travel agents to keep track of fares and flight availability, is second to that of Sabre Holdings, operator of online travel agent Travelocity.com. Galileo also owns an online travel site, Trip.com. The merger`s implications for travel agents are hard to predict, said Valerie Estep, president of Topaz Inc., an Oregon-based airfare auditing firm. But, Estep said, the merger puts more pressure on travel agents to invest time and money in riding the information highway.
“Any agency at this point now needs to be very conversant in working through the information streams they have now,” Estep said. “It takes quite a bit of time and energy to stay on top of all the resources that are available.” For World Wide, the future lies in offering more than cheap tickets. The company has been working for several years to recast itself as a travel consultant, helping corporations squeeze the most from their travel budgets, Davison said. According to a New York-based travel giant American Express, corporate travel and entertainment expenses reached $157 billion in 2000 and replaced data processing as corporate America`s second-greatest controllable expense.
In return for a transaction fee, World Wide and other new- breed agencies promise corporations cheap flights, hotels, rental cars and extras like travel insurance and emergency road-side service. A corporation`s employees get access to a Web site that funnels business through the cheapest vendors and keeps costs to a minimum, Davison said. “We`re not trying to sell airline tickets off the Web,” Davison said. “We`re trying to develop relationships with corporations and help them manage their travel.”
While the company still handles sales over the phone and coordinates leisure trips for individuals - Davison said the company would “sell an airline ticket to anybody” - World Wide hopes to build its service almost entirely around corporate clients. The company names Alltel, Acxiom, Stephens Inc. and American Freightways among its clients, and it has a hefty government contracts with the General Services Administration, the U.S. Postal Service and the National Aeronautics and Space Administration.
With such contracts, Davison said, World Wide is armed and ready for a troubled but potentially profitable future. Some agencies may not adjust to the new travel market while others, Davison said, will prosper. “As the airlines try to reinvent the distribution system and go directly to the consumer, it`s bringing into focus what we`ve always done,” Davison said. “There are those of us in the travel agent community who feel that this is a good thing.”