Mark Pestronk
Q: In Travel Weekly, I have noticed an uptick in the number of large and well-known travel agencies that are being acquired. Does the same trend apply to smaller and midsize agencies? If so, why do you think it is happening?
A: These days, more than half of my law practice is representing small and midsize sellers being acquired by larger agencies. As far as I can tell, this trend has several causes, all of which are unprecedented in the travel agency business.
First, during the period of approximately 1978 to 1982, there was a record number of travel agency start-ups. This boom was probably due to factors that made both leisure and corporate travel highly profitable for the first time.
Those factors included airline commissions that were uniformly raised to 10% from 3%, 5% or 7% previously. Joe Stone, an ASTA chairman, played a major role in helping to persuade the major carriers to raise their commissions at that time.
Another development that made the business quite profitable was the decision of U.S. corporations to engage agencies as travel management companies for the first time. Following a 1979 decision by the federal agency that regulated the airline business at that time, agencies could lawfully rebate some of their commissions back to the corporation.
At about the same time, some airline, hotel and car rental companies started paying overrides or back-end commissions for sales or market-share growth, adding to agency profitability. Finally, by about 1984, GDS vendors started paying travel agencies incentives for bookings, creating a major profit center.
Owners who started out from 1978 to 1982 probably have had a good career, but they are now likely in their upper 60s, give or take a few years. Like millions of other baby boomers in other businesses, they may well be looking to retire or at least cut back on their responsibilities.
In addition, on the corporate side, so much technological savvy is now required that those who think you can't teach an old dog new tricks are also ready to get out.
One more factor probably also comes into play: Many agency owners are sick of what they perceive as decades of mistreatment by airlines, cruise lines and hotels, although tours and all-inclusives have remained bright spots in the supplier firmament.
It started with Delta's commission caps in 1995. Cuts, exclusions from commissionability and supplier nonresponsiveness have hit the breaking point for many owners. They remember with nostalgia that there was a time when suppliers treated agents well, but they know that the past will not be repeated.
The wave of retiring or semiretiring boomers has created a supply of willing sellers today. Fortunately for them, the buyers are constantly looking for acquisition opportunities.
For the first time in my memory, several large agencies have access to pools of private and even public equity resources with which to make acquisitions of profitable, well-positioned agencies of all sizes. Travel Weekly has recently mentioned acquisitions by Direct Travel, Corporate Travel Management, Flight Centre, Altour and others, but most acquisitions are not announced or never make it to the trade press.