Tour Operators Turning to other suppliers as air bookings drop By Laura Del Rosso / November 06, 2012 Share 1 -- Air travel has slipped to a new low as a contributor to travel agency revenue, as agencies concentrate on sales with tour operators, cruise lines and other suppliers where compensation and business relationships are stronger than ever.According to Travel Weekly's 2012 Travel Industry Survey (see the full report starting here), air travel now counts for just 22% of overall agency revenue, continuing a downward trend first noted in the 2003 survey, when it was 36% of revenue. The importance of air travel to agency revenue depends on agency type and size, however. For agencies with $10 million or more in sales, air travel remains the largest contributor of revenue, representing 35% of gross. However, for home-based agencies with more than $250,000 in annual sales, air makes up just 18% of revenue. (Click on the image, left, for a larger view of a chart of the percentage of sales air bookings represents.)That does not surprise Michelle Fee, president and CEO of Cruise Planners, a franchise company of home-based agencies."Since the '90s, the airlines have been moving away from agents and want people to go direct," Fee said. "We've had to reinvent ourselves and move away from selling airline tickets. Many home-based agents only sell air within packages and don't sell point-to-point tickets alone."The agency community has splintered into many different types of business models, some of which have no interest in selling air and others, particularly large retailers that specialize in business travel, still very much in the business of air travel, said ASTA President Nina Meyer.How much air is sold "depends on an agency's size and definition," Meyer said. "There are a lot of smaller agencies that are not bothering with ARC [accreditation] and only doing cruises and tours. Others are still booking air and charging a service fee for it."Some small retail travel agencies long ago gave up selling standalone air tickets, said Bill Sutton, vice president of Alabama World Travel in Montgomery, Ala."We sell air as part of travel packages and don't sell air alone anymore unless it's for a very good client," Sutton said. "It has not been a significant part of our revenue since commissions were eliminated."Sutton's agency, which specializes in luxury travel, charges a service fee for air but typically uses air offered by cruise lines or tour operators or Virtuoso's preferred-supplier agreements for booking flights. When customers call for standalone air, "We refer them to another agency here in town. We have no regrets [about] doing that. There's just not much money in it."However, some in the industry believe that agents are making a mistake avoiding selling air, because consortia are offering commissionable air travel through deals struck with some airlines. (Click on the image, left, for a larger view of a chart of the types of products agents focus on.) Libbie Rice, co-president of the Ensemble consortium, said, "We know that some agents are adamantly against selling air, but we have Air Express, our booking engine, and we encourage agents to sell air so that they don't lose those clients who want air and are looking for a full-service agency."Barry Liben, Travel Leaders Group CEO, said agents are "leaving money on the table" by refusing to sell air."Air travel has reached an all-time low as part of travel agency volume because for too many years agents were told by too many pundits that there was no money to be made from selling air," Liben said. "They negligently ceded this territory to online players."Liben said air programs are key revenue streams for Travel Leaders' divisions."Savvy agents know that there's not only money to be made, but by cultivating and selling the airline partners that make the most sense for your agency you can substantially increase your earnings," Liben said. "It's also why after we acquired Nexion and Vacation.com, we rolled out both the Simple Nexion Air Program, or SNAP, and AirPro programs. We're working to reaffirm just how vital an income stream selling air can and should be in every travel agent's business mix."Tour sales seeing growthThe survey findings show that as airline sales drop, another type of supplier, the traditional tour operator, is as strong as ever. As in last year's survey, tour operators dominate the field for revenue generated from tours and packages. The survey asked agents to identify their most-used supplier: traditional operators, packages assembled by agencies, online packages or airline- and hotel-branded packages (Click on the image, left, for a larger view of a chart of the types of suppliers used for tours and packages).Some 88% of agent respondents named traditional operators as their most-used type of supplier for tours and packages.Usage of traditional operators drops among the largest agencies and is highest among home-based agencies with more than $250,000 in annual sales. Packages assembled by agents themselves came in second, at 66%, a rate also unchanged from the prior year.Packages offered by airlines fell slightly from 39% in last year's survey to 36% this year, slipping mostly among smaller retail agencies and home-based agents. The dominance of traditional operators does not surprise Jack Richards, president and CEO of Pleasant Holidays. "Our commissions are still relatively high, and the more volume you produce the more you earn," Richards said. "We take care of volume producers, and that's what it's all about."Traditional operators are more agent-friendly than other suppliers, some of which are focused on consumer-direct sales rather than on the agency channel, agents said."Tour companies are still strong," said Scott Pinheiro, president of Santa Cruz (Calif.) Travel. "You look at companies like Travel Bound, which doesn't work with consumers at all. They have a beautiful website for agents and allow us to put together an FIT for Europe quickly and efficiently, and our clients come back very happy. As travel agents, we like that — and that they support us."ASTA's Meyer added that tour operators also have expanded their offerings to meet the needs of today's consumer so that they're offering greater flexibility, whether it's a desire for soft adventure, more independence on a tour or options for different types of sightseeing. "They have much more diverse products than before, and it's frequently more profitable to depend on a tour company to put together a trip than doing it on your own," Meyer said.Agents often have little incentive to assemble their own packages, booking air, hotel, car and sightseeing on their own, said Pleasant's Richards."If you're not a large agency, you're not going to be able to track down all the commissions," he said. "Think of the administrative work involved. With tour operators, you get paid — boom! — and there's your commission. That's something overlooked by some agencies. There's the ease of booking and no need to spend the energy and resources to chase commissions from individual suppliers."The last several years have proved naysayers wrong about the strength and value of using tour operators, Richards said."They've been predicting our demise and saying the world no longer needs tour operators," he said. "But we're coming full circle, and people realize they need tour operators because our service levels are different from services offered by online travel agencies."Services that matterWhen working with operators and other travel suppliers, travel agencies say educational programs, overrides and incentives, fam trips and email updates are the most important support services offered, the survey found (Click on the image, left, for a larger view of a chart of the importance agents placed on support services offered by travel suppliers).However, there are differences in how agencies view these services, depending on agency type and size.Overrides and incentives are more important to high-volume agencies than to low-volume and home-based agencies.The vast majority of traditional agencies selected overrides and incentives as the most important support service (65%), but only 23% of low-volume home-based agents cited overrides and incentives.On the other hand, email updates with special offers, fam trips and agent-dedicated portions of websites are more important to home-based agents than they are to traditional agencies.In interviews, agency executives said overrides and incentives remain key to the agent-supplier relationships and are crucial to what consortia and networks offer their members to become more profitable and give them an edge in the marketplace. "By having close relationships with suppliers that provide overrides and incentives, we receive perks and other benefits that we can pass on to our clients," said Santa Cruz Travel's Pinheiro. "We like to show our customers that they are special and that by booking with us, they get something more for their money."Roger Block, president of Travel Leaders Franchise Group, said, "Overrides are definitely the most popular offering by suppliers. We believe that it remains one of the most popular key differentiators we can offer to agencies that are part of Travel Leaders or Results Travel. From the start of each program, our members have enjoyed overrides with major airline partners."Block also said that member agencies are taking full advantage of suppliers' educational program."As we have seen from the huge response to our efforts with Australia and Qantas Vacations, if you offer compelling educational programs, you'll not only be able to generate a huge number of Aussie specialists — a full quarter of them are now within Travel Leaders' ranks — but you'll see your sales skyrocket," he said. "Education and incentives are a win-win for both the supplier and the agent."John Lovell, president of Vacation.com, said that all the support services are part of a package of important tools for agents."Given how foundational and integral commissions are to any agent/supplier relationship, we're not surprised agents would value an override most," Lovell said. "But the other two items [education and fams] are each completely intertwined with commission earnings."If an agent is to truly be successful in selling a product, incentives are an essential means of motivating them. I would also argue that without the necessary training to thoroughly understand a product, including through personal experience, like a fam, agents will revert to what they know best."So it is in the best interests of suppliers to provide educational programs to better acquaint agents with their product."