Forces that block our earnings

By Charlie Funk
Charlie FunkIf you've been in the travel business for a while, you know it's getting tougher to make a living as a retail travel seller. Some vacation prices, especially cruises, are lower now than they were 20 years ago, offering the prospective traveler, especially the first-time vacationer, an affordable vacation of a lifetime.

Even as prices have dropped, some suppliers have restructured commission rates by increasing the volume needed to maintain a given commission percentage. They say this is because capacity has increased, a philosophy I have never understood. Many retailers report that the combination of lower prices and reduced commission percentages has cut earnings on comparable bookings by as much as 50% since 1993.

The challenge is made all the greater as supplier-direct sales increase. The Travel Weekly Consumer Trends survey published last July found that 39% of all cruise passengers across all brands are booked directly by the supplier. This easily exceeds the percentage of passengers booked by traditional travel agents, the very sellers who are exhorted to add value to the transaction and be more than a payment-processing toll booth.

Selling to a client for the first time is the most expensive sale a retailer makes. Some suppliers acknowledge that retailers are indeed superior to their in-house sales staff in making first-time sales. They then have the chutzpah to add that their in-house sales staff is far superior to the initial retailer at getting that first-time guest to book the next vacation.

Of course, the supplier's in-house staff is shooting fish in a barrel stocked initially by retailers.

Many suppliers have resources superior to even the largest retailers, which they use to maximum benefit. Email and direct-mail solicitations to past guests are incessant, beginning sometimes even before the first vacation package has begun.

I filled out online cruise registration information for a client who did not have a computer some months back, entering my email address should the cruise line need to contact the passenger. Within less than 10 minutes, I received a solicitation from the cruise line, addressed to the passenger by first name, exhorting her to book her next cruise direct. Our agency was not mentioned, and the suggestion "or contact a travel agent" was obscure at best.

The technology to insert the name of the retail agency and its contact information in the email exists; witness the excellent special-offers communications that Regent Seven Seas sends to past passengers. It clearly calls out the name of the last booking agency and the agency's contact information.

Some suppliers say they don't add the agency name to their solicitations because the recipient might not want to book again with the original agency, which I find specious. It might be that a few first-timers don't want to book through the original agency, but it is more likely the supplier can't risk the retailer selling a competitor's product.

Suppliers that use superior resources to wrest repeat sales away from retailers are no better than schoolyard bullies.

Business school grads, whether they earned a BBA from a small school or an MBA from an Ivy League school, are naturally motivated to make a profit for their employers. But what gives the appearance of Gordon Gekko-style avarice is when the pursuit of that last nickel hurts others and causes not even a hint of a pang of conscience.

Resourceful travel agents will find a way to survive. My wife, Sherrie, and I have long championed third-party ancillary sales, offering third-party insurance, excursions, hotels, etc., and shifting to higher-commission suppliers to compensate for lower prices and lower commissions.

Third-party trip cancellation/interruption insurance sales have been a major contributor to that effort for many. But now, even that revenue stream might be at risk.

The last week of January, Travel Guard alerted travel retailers that states that have had laws on the books for years requiring licenses to sell travel insurance are now beginning to enforce them.

My first thought was that consumers must have suffered harm at the hands of some travel agent not licensed to do business in their state. But search as I might, I was unable to find evidence of that. Rather, states with revenue shortfalls are getting tough about licensing as a way of collecting fees from nonresident travel insurance sellers.

Witness the $3,100 annual licensing fee California levies on any nonresident who sells travel insurance to a California resident.

Several states, including California, Florida, Kentucky, Minnesota, Idaho and Kansas, have adopted a set of standards developed by the National Association of Insurance Commissioners and the National Conference of Insurance Legislators intended to eliminate the requirement for travel retailers to get insurance licenses in every state. California seems not to understand the rules that went into effect on Jan. 1, based on apparently conflicting interpretations of the meaning of the regulations. And as some states are toughening rules, Alabama has eased its requirements.

A great concern is that travel retailers might be prohibited from even mentioning trip cancellation/interruption insurance to clients residing in a state where the agent or agency is not licensed to sell insurance. It potentially opens the agency to legal action by clients who suffer a loss that would have been covered by insurance but who can claim they were never told of its availability.

One source advises that the agency would not be liable if there were legal prohibitions against discussing insurance, but anyone can initiate a suit about most anything.

The existing licensing system seems a spider's web of terribly outdated and fractious regulations, varying widely from one state to another. The traveling consumer does not benefit from such confusion and lack of information. The travel seller is likely to suffer because of lost insurance sales. In the end, the thousands of licenses and attendant revenue stream the states think they are going to get will never materialize. This is a no-win situation for everyone.

To clarify, this is not a Travel Guard issue, nor is it an issue with any one insurance company. Travel Guard has taken the lead in getting in front of this matter even as other bodies are working to clarify what it means to us as an industry.

But know this: If your travel insurance provider hasn't contacted you yet about this issue, you need to get in touch with it. Adapting to whatever the changes might be won't happen overnight.

Charlie and Sherrie Funk own Just Cruisin' Plus in Brentwood, Tenn., and have provided agent and agency-owner training throughout North America on every facet of travel agency operations. They are the authors of several books, including "A Recipe for Travel Agency Success," "Creating a Blueprint for Growing Your Agency" and "You're Invited," a complete guide to hosting consumer travel events. 
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