Since launching its agency rep program in 1965, American Express has undergone a continuous evolution in balancing the rights and privileges of its company-owned agencies with those of its franchisees. Recent moves seem designed to nudge the two operations toward a closer family relationship as the rep network continues to expand, often by signing on larger agencies than ever before.
One key to the rep network's remarkable growth in recent years has been the rapidly increasing numbers of American Express cardholders, especially among corporate travelers, as plastic has far outpaced travelers checks on the company's financial services side. Independent agencies are drawn to the iconic brand and the opportunity to market to cardholders, and the franchise network enables AmEx to offer its cardholders the advantage of dealing with a trusted hometown agency.
The addition this year of four large agencies to the network supports the momentum toward scale. The newcomers increased the network's sales volume by more than $300 million.
In 2002, American Express' average rep agency was a $7 million business, and the total volume was $1.2 billion, according to the company. Today, it says the average size is $19 million, and total sales are tracking at $3.7 billion for 2008, triple the volume of six years ago.
Based on these numbers, the network remains a select group of fewer than 200 companies (rising from 171 to 194 or 195, extrapolated from the above totals). They range widely in size, though -- from an estimated $2 million to $2.5 million on one extreme to the $301.6 million Travel Authority agency in Jeffersonville, Ind., at the other.
Moreover, even as AmEx has brought on larger agencies to the network, many existing reps have been growing their businesses, organically and by acquisition. In addition, AmEx sold 17 of its owned leisure outlets to six rep agencies in 2003.
One gauge of AmEx's scale is that five rep agencies appeared on Travel Weekly's 2008 Power List. Two of the four new agencies, because they are selling more than $100 million a year, are expected to qualify for the 2009 list.
Those two agencies are Corporate Travel Planners in San Antonio, projected to reach $125 million this year, and Travel-On of Beltsville, Md., at $100 million.
The other two newcomers to the rep network are El Sol Travel in Tempe, Ariz., headed toward $50 million this year, and Cruises-N-More of Lake Mary, Fla., at $40 million-plus.
While the average affiliate size continues to increase, Ellen Bettridge, vice president of the American Express retail travel network, said that AmEx "hasn't come across" any agency that feels it is too big to be an AmEx rep. But she also noted, "I'm not sure we've approached" such candidates.
She said Travel Authority wondered "at first if it needed to do this." But by joining AmEx, Bettridge said, Travel Authority "got the brand and our buying power. ... There are cost savings to this agency, although it is very big."
As for the smallest reps, she described them as "very important to us" because of "their niche and how they support our preferred suppliers."
AmEx reps are almost as likely to be selling business travel as leisure, Bettridge said, with a current mix of 56% leisure and 44% corporate. The larger agencies are not necessarily pushing the balance toward corporate, she said, citing large members such as Cruise Planners in Coral Springs, Fla., and the new Cruises-N-More, both of which are 100% leisure businesses.
"We have a nice, diverse mix of agencies and business models," she said.
The brand advantage
Regardless of business mix or size, rep agencies say two factors top the list of AmEx's advantages: the globally recognized brand and the marketing opportunities, particularly those aimed at AmEx cardholders.
Agents say the "blue box" logo is valuable because it is recognized at every level, from hometown to the other side of the globe, and it carries a positive image.
Since Cruises-N-More is a largely Web-based cruise seller, "clients know us from all over, except locally," said Pat Neidhardt, the agency's president and CEO. She said the agency "wants credibility to go out locally. ... We know we are missing a lot here" in the Orlando area. Neidhardt also sees the AmEx affiliation as a step toward diversifying the business, which is now 98% cruises, so that it evolves into about 25% tours.
Travel-On, which is 85% corporate, is "re-entering the leisure market," said CEO Karen Dunlap, who sees an opportunity in marketing AmEx preferred suppliers under the AmEx brand. On the corporate side, "clients ask about our global presence, so we felt this would be a benefit."
Established affiliates also enthuse about the brand. Sho Dozono, president of Azumano Travel in Portland, Ore. ($179.9 million and No. 44 on the Power List), said that in 2001 his was "one of the first large agencies" to join AmEx. "Ours is the largest independent agency in the Pacific Northwest, but that doesn't mean a whole lot if we're going after national accounts." Now, the agency bids on some accounts with American Express Business Travel.
For the largest, Travel Authority (No. 31 on the Power List), joining was about the "good brand name" and the "international connection," according to its president, Tom Lumley.
Until three years ago, the agency was a Carlson Wagonlit associate, but Travel Authority bumped up against the tensions that may arise when franchisees compete in the same marketplace as the parent. Lumley added that the headquarters of any similarly structured organization "tends to be concerned about any competition from affiliates." But he said he has been satisfied with AmEx's attitude that "what's yours is yours, and what's mine is mine," plus the opportunities to work together to pursue and serve accounts.
On the other hand, affiliates don't want their own identities to be overwhelmed by another brand.
For example, Corporate Travel Planners, on one hand, wanted the strongest brand it could get for "global awareness," said Tammy Skrobarcek, the agency's director of marketing and business development. However, she said, "we needed our brand to stand out."
At times, the affiliates want to make it clear that customers are not buying from a big company called American Express but from the local people they know.
Wilcox World Travel & Tours in Asheville, N.C., was approached to join the rep program in 1965, the year it was founded. Initially, the appeal was "for validity locally" and later for promotion to markets in the whole Southeast, said G. Wallace Wilcox Jr., the agency's president and CEO.
Today about half the business at the $18 million agency is in the faith-based market: missionaries, relief workers and the like. For that segment, Wilcox said, "the American Express name didn't mean anything. ... It's from the secular world." Besides, he said, "we want these clients to see this as a Wilcox" service.
Robert Haynie, owner of the $8 million Haynie Travel in Evansville, Ind., also a rep since the program's inception, said, "I've been frustrated by some failures in the past." He said that while "other consortia have good platforms ... American Express is a powerful brand." He said clients benefitted from the combination of a local institution (Haynie Travel was founded in 1938) and a national brand. But he added, "I'd make the case that in Evansville, we're the strong brand."
The franchisees, both old-timers and newcomers, cited a range of other AmEx attractions that have parallels with other franchises and consortia: preferred suppliers' overrides, the hotel program or other benefits of bulk buying power.
American Express leverages its power in order to win assistance from suppliers for marketing value-added products exclusive to the network. In the words of El Sol's Davidson, "We enjoy our individuality and independence, but ... it really helps to have American Express take care of the size issue."
Size and related marketing opportunities are much more potent when combined with access to the cardholders. There were, by the end of 2007, 86.4 million cardholders worldwide, double the number a decade earlier, and billings of $673.4 billion, more than triple the $209.2 billion in card billings in 1997. Affiliates can market to all but Premium and Centurion members.
Skrobarcek said Corporate Travel Planners, doing business as Rennert Travel for leisure, sells some luxury. She said AmEx offered "a huge benefit, being able to advertise to Gold cardholders ... to help us grow that part of the business."
Franchisees said AmEx has moved more vigorously in recent years to realize the potential for synergies between the rep network and the credit card division.
Haynie recalled concerns in the past about the potential for alienating other agencies. "But the current management has worked to deliver on natural synergies," he said, adding that management was "less fearful of giving us an advantage in marketing to card members."
Last year, American Express rolled out a benefits program for holders of the Gold card, which provides special amenities for cardholders who book almost any trip offered by a range of tour operators, cruise lines and Starwood hotels. AmEx said the program also includes some packages that were not available anywhere else.
Cardholders have to book with an AmEx office or with a rep to gain the benefits.
Holders of Platinum and Centurion cards can use the Gold card benefits, too, but AmEx had previously created other benefits for those premium-level cardholders that did not shut out unaffiliated agencies, a fact that produced a lively industry controversy more than three years ago.
In that case, AmEx in late 2004 said it would charge competitors an annual fee of $1,000 to $7,000 for the right to book Platinum or Centurion card benefits to recover costs associated with operating the programs, but it said rep agencies effectively shared the costs in their franchise fees. Responding to howls of protests, AmEx proposed a per-transaction fee system, then dropped the project in spring 2005, saying it would be too costly to implement the fee system.
In any case, the AmEx plan would have shut out non-AmEx agencies that did not buy in and likely would have left the premium cardholders uncertain about where they could redeem benefits.
With the newer Gold Card Destinations, AmEx is more focused on benefitting its own; it took all nonaffiliates out of the picture from the get-go, something that "thrills our agencies," said AmEx's Bettridge.
The AmEx rep offices are on track to offer another AmEx exclusive: Currently, cardholders can redeem points from the AmEx Membership Rewards program to pay for airfares (without blackout dates or seat restrictions), cruises, hotels and packages. Under this "pay with points" plan, redemption is restricted to company-owned offices. However, AmEx is testing redemption with six reps and expects to permit cardholders to redeem with all reps later this year.
Historically, AmEx outlets, whether company-owned or reps, have been able to offer AmEx financial services, though these services, especially travelers checks, have become less important in the age of plastic.
Wilcox and Haynie have the memories of their fathers for a window on the rep program's earliest days and its evolution.
Haynie joined the family travel business in 1979 and worked with his father until the senior Haynie died in 1999. He recalled how his father, Kenneth, had been invited to sit on a committee that helped create the network.
Wilcox's father, Glenn Wallace Wilcox Sr., still owns his agency. The senior Wilcox recalls that someone called on him in 1965 to gauge his interest. A charter member plaque indicates the agency joined in 1966 or 1967. The younger Wilcox came to the business full time in 1970.
The Haynies and Wilcoxes have essentially the same understanding of American Express' original intent: to set up a network in secondary cities while AmEx would operate its owned agencies in primary cities. The idea was to grow the brand nationally and extend AmEx services more widely. AmEx itself says the company wanted to "enable a broader group of consumers and American Express cardmembers to have access to American Express Travel benefits."
Perhaps because Haynie Travel joined at the outset in 1965, its initial arrangement was unique. Haynie said the agency did not pay franchise fees but was paid by AmEx in stock, which his father held until the 1990s.
When Wilcox World Travel & Tours joined, the senior Wilcox recalls, the fee was $1,000 a year, and AmEx leased a Jeep Wagoneer for the agency.
Both Haynie and the younger Wilcox recalled years during which the headquarters approach to the network seemed unsettled.
"The American Express focus used to change every few years," Wilcox said. "But it now seems more focused for the long term." AmEx, he said, "has an idea now and is not straying." That idea, he said, is to provide services to all cardholders -- in fact, to any prospective travelers regardless of plastic -- to sell travel, support preferred suppliers and to ensure that "the preferreds back us."
Wilcox said he has told Bettridge that she is "now doing what Aldo Papone dreamed of" when Papone addressed a rep meeting in New Orleans in 1978, before he became president and COO of American Express Travel Related Services. At that session, Wilcox recalled, Papone envisioned a time when "company-owned and the rep network would become one. ... The reps said they were finally getting the recognition they deserved, but that didn't happen then," Wilcox said.
Similarly, Haynie said, AmEx "has had a lot of regime changes and tried a lot of ideas. The current management has worked hard to make it a seamless network."
It also is more member-driven now, Haynie said, and more responsive to member needs.
The rep network's growth in recent years has been impressive by any standard. "One of my biggest changes has been a strong advisory board," Bettridge said. "Yes, we'd had an advisory board before, but it was more that we were talking to [the members]. Now, it is more interactive."
American Express sales personnel approach prospects for the network, but "the reps are our best salespeople," Bettridge said, noting that most reps come to the program after having affiliated elsewhere. "We absolutely are going to continue to grow and to add the best and most successful agencies, big or small, to best support our cardmembers and the agencies," she said.
Could the network become too large and thus unmanageable? "We haven't even thought about a maximum size" for the program, Bettridge said. "We want to be where the card members are, and then that's a win-win for the agencies as well."