Q: Is this a good time for me to sell or merge my corporate
agency? Shouldn't I wait until economic conditions improve before I
sell?
A: I firmly believe that now is the time to sell your agency. If
you wait even six more months, selling prices will have dropped,
and they will continue dropping afterward.
There are 10 negative trends affecting the corporate travel
agency business. Only the very fittest can survive their onslaught.
In order of importance, the trends are as follows:
1. Commission revenues are, of course, declining. Agencies have
lost 30% of their domestic airline revenues during the past three
years, and experts predict further cuts.
2. Labor costs are rising, as it becomes harder to find and keep
good agents in most cities in America.
3. Major fare wars -- whose absence since the caps has marked
the effect of commission cuts -- are bound to recur as soon as
airline profits turn less rosy.
4. Price competition among agencies for low-volume corporate
customers soon will commence for the first time, as no-service-fee
and low-fee agencies take away some of your price-sensitive
clients.
5. Certain large agencies are developing low-cost reservation
centers in rural areas, so that they can afford to compete at 7% or
less in airline commissions.
6. Mega-agencies are competing for ever-smaller corporate
accounts. Two years ago, they were interested only in accounts over
$1 million. Now, they call on every $300,000 account and soon will
hit the $200,000 level.
7. American Express is offering more charge-card deals that tie
in to the travel business as well as travel deals tied to use of
the card. These combinations can be irresistible to many
corporations.
8. Franchisors and national chains will be launching or
intensifying identity campaigns designed to make their brands an
easy choice for decision-makers.
9. Major airlines increasingly are tying corporate discount
fares to use of their affiliated computerized reservations systems.
As the trend accelerates, your agency will be unable to obtain such
fares on the majority of major airlines unless you have two, three
or four CRSs.
10. The major airlines and some hotel chains are encouraging
frequent and price-sensitive travelers to bypass agencies. Although
this threat is the most minor today, it could get much worse if
self-booking becomes easier.
There are a few positive trends, such as higher air fares and
somewhat better overrides, but the net effect is very depressing --
both at the bottom line and in the acquisitions market.
Mark Pestronk is a Fairfax, Va.-based attorney specializing
in travel law.