My January column addressed the downturn in the travel industry and suggested that about a third of all agencies in the U.S. and Canada would be gone or merged within two years without a quick turnaround. I chat with agency owners all over the U.S., and as I write this in mid-June I'm beginning to wonder if I was wrong.
The 20-something-thousand agencies that survived 9/11 came out the other end of the pipe stronger, leaner and in a better position to thrive. The war in Iraq in 2003 created a small bubble, but most began recovering by the third quarter of 2003, and many had record bookings and profits in 2004 and 2005.
Today, we have an economy in recession on a scale that few of us know anything about except from history books. The leisure travel industry has taken a hit, but the circumstances this time around are totally different from past events.
Passenger volume is stronger than one might expect, because vacation suppliers, especially cruise lines, have dropped prices to a point that will stimulate people to travel.
And that, in turn, is killing the retail travel distribution system. A balcony stateroom on an Alaska-based cruise ship sells for the price of an inside cabin five years ago, and space is available! The high level of noncommissionable fees in the cruise price reduces the agent commission to far below the amount needed to break even.
In conversations with a broad cross section of agency owners around the country, I find that about 20% are actually up for the year, 30% are about flat, but fully half are down in sales by 20% to as much as 50% over last year as a result of these shrinking margins.
Compounding the challenge, labor costs and other operating expenses have gone up; often they are double what they were 15 years ago. The profit and cash-flow squeeze has reached the point of being untenable for some agencies.
And it isn't just the small agencies or those that aren't well run that are suffering. Some of the agencies that are closing their doors are, or were, owned and operated by very intelligent businesspeople who used every automation and productivity tool available. They simply found themselves in a cash-flow crunch from which they saw no way to recover, and some good people have fallen by the wayside.
If you've read this far, it means you're probably still in business, and I'm happy to say that there is indeed a light at the end of the tunnel, and it isn't a train.
Beginning June 15, the Small Business Administration has been authorizing loans of up to $35,000 for small agencies at zero interest under the new America's Recovery Capital Loan program. The loans are intended to be used to pay down debts, and repayment does not have to begin until 12 months after the final disbursement. Funds will be available until June 2010 or until allocated funds are expended, whichever occurs first.
If you're one of the hundreds, perhaps thousands, who plan to apply for a loan, do all you can in advance to improve your chances of being approved. Don't even think about applying for a loan without a well-thought-out and well-presented business and marketing plan that clearly shows how the money will be used and how it will be repaid.
Agencies that can get through the rest of this year will be in a position to take advantage of pent-up demand for travel that I see coming.
(If you need guidance on preparing a business plan, send an email to [email protected] and put "business plan book" in the subject line. I'll send you an excerpt from a book on the subject and information about how to purchase it at a discount.)
Those wanting more information on the SBA loan program should go to www.sba.gov and click on the "for borrowers" link under the ARC Loans icon.
At the start of this column, I said I thought I might be wrong about the number of agencies that will close. I now believe it won't be a third of all agencies, of all sizes, that will merge or close within two years, but more likely closer to half of all agencies.
Prove me wrong. Get busy, write a plan, get a loan if necessary and be ready for the recovery that starts in October.
Charlie and Sherrie Funk own Just Cruisin' Plus in Nashville. They have written several books on travel agency operations and produce sales, marketing and operations seminars for agency owners and managers.