Grand Circle: Consumer-direct approach paying dividends

In the world of tour operators, Alan Lewis is a force to be reckoned with. As chairman and CEO of Grand Circle Travel, he heads one of the worlds most successful tour operations and one of the biggest. It has grown internally and by acquisition, most recently acquiring Radisson Seven Seas Paul Gauguin cruise ship and Continental Waterways of France, with its 16 river cruise ships and seven barges. Today, Grand Circle's fleet numbers 43 vessels.

"We do close to $600 million a year," said Lewis, claiming no competitor even comes close. Grand Circle, a privately held company headquartered in Boston, moved 150,000 passengers in 2004 and will close in on 200,000 passengers in 2005. But Lewis also delights in playing the role of contrarian. What makes his numbers especially significant is that not a single Grand Circle passenger was booked through a travel agent -- or through the Web.

A different drummer

An iconoclast who takes great pride in shunning mainstream industry practices, Lewis preaches his direct-marketing model as if it were revealed truth.

The goal is to be the largest operator for active international travel for the over-50 market -- adventure and discovery, he said. "We do measurable advertising only. We don't buy general ads in print or broadcast media. We don't take bookings on the Web."

And, he added, "I won't do domestic travel."

But Lewis most controversial precept is his no-travel-agents rule.

"I've said 1,000% no to travel agents," he said. "There's only one way travel agents are going: Down. It's the end. There's no reason to use them. I've been studying [the travel industry] for close to 40 years. Today, the information overload is so big, you don't need to go to a travel agent. It's better going to a bookstore -- never mind the Internet -- than to an agent who hasn't been there."

Although Lewis has clearly built a remarkably successful business playing the role of industry maverick, there was a time when he played by more conventional rules.

He worked with travel agents for the 11 years he ran TNT Travel until he sold the charter operator in 1983. It wasn't until he took over Grand Circle two years later that he abandoned the agent model.

As the once-exclusive travel company for the American Association of Retired Persons (AARP), one of Grand Circle's most valuable assets was a database of millions of names. By the time Lewis bought the company, it no longer had the AARP account, but it retained the association's member lists. Even more important than the names, however, was the business model they made possible. Lewis locked onto the direct-marketing formula and took budget educational travel to the public. Today, Grand Circle grows its prospect database through referrals and by purchasing lists.

Avoiding travel agent commissions, Lewis argues, reduces the cost of customer acquisition. "We cut out all the middle men around the world," he said. "That way we can charge $500 to $1,000 less per person than anybody in the U.S. for the same value. That's what drives the model. Thats why we're the leader."

Grand Circle's call center is staffed by 185 operators who take calls from consumers. Fifty-one of them are Personal Travel Counselors, or PTCs, a class of specialists introduced this year to work with Grand Circle's preferred customers -- those who have taken three or more trips. Preferred customers can always book through their own PTCs. If their counselor is busy, they are guaranteed a call back within an hour.

Grand Circle's frenetically busy call center had its first $4 million day last January. It used to be a million-dollar day was a big deal, said John Wood, manager of telesales. "Now we get that by noon."

Different strokes

Like Grand Circle, most tour operators are privately held and do not divulge financial data, but many competitors and industry insiders dispute Lewis' claim of being the largest operator. In fact, Bob Whitley, president of the U.S. Tour Operators Association, said that Grand Circle was not anywhere close to being the biggest.

"A tour operator that moves 150,000 Americans is a good-sized tour operator, but there are tour operators that move 500,000 to Vegas alone," he said. 

The largest tour operators, such as Globus, Trafalgar, the Mark Travel Corp. and Gogo Worldwide Vacations, market their products through travel agents. In fact, according to Whitley, direct marketing tour operators are a world apart.

"If you look at them historically -- Saga, Elderhostel, even Grand European Tours -- it's a separate tradition," Whitley said. "Far & Wide bought Grand European Tours and tried to make it travel agent-friendly, but it didn't work. It couldn't make the change of culture. And Grand Circle is the king of that market."

From Whitley's perspective, Grand Circle's model seems less the wave of the future than the beneficiary of a unique history It started as the travel booker for AARP. "That database was theirs, and though they broke off from AARP, they never lost it; they just built on it. The formula is extremely successful. They put together great programs. They have a great staff."

Grand Circle claims it now has 6 million households in its database. It sends out 150 catalogs a year plus other mailings, though not all mailings go to all households. For another operator to replicate Grand Circle's success without the kind of jump-start it got from AARP might be impossible today. In fact, Saga Holidays, another of the major direct marketing tour operators, cut back its U.S. operation in 2002 and retreated to the U.K., although they stay with the direct-marketing model.

More or less?

Operators that use travel agents dispute Lewis assertion that their costs for customer acquisition are necessarily higher than they would be with direct marketing.

"What Grand Circle is doing is no different from what other tour operators are doing, except its method of promoting and marketing directly to the public," said Alex Harris, chairman of General Tours. "It doesn't eliminate the need for the same kind of planning that other tour operators do. Cutting expenses? It depends where you're located, what your expenses are, your salaries. There are so many elements."

Scott Nisbet, vice president of sales and marketing for Globus, said, "It's a big investment to find these customers directly. Grand Circle's formula is direct mail, and it does a lot of it. Our call center is dealing with pros who know how to book product, what questions to ask. They're experts. It's a different call. Our reservationists would have to handle more calls and longer calls."

Nisbet added that travel agents "are doing the job of targeting and qualifying customers for us. That's the business model we've had for years, and we don't see it going away."

Although Lewis avoids travel agent commissions, taking his product to market is not free.

"Grand Circle sends out literally millions of brochures," said Scott Supernaw, vice president of sales and marketing for Tauck World Discovery. "We never did a study, but it's hard to fathom the increase of staffing we would have to have here, and the cost of training to get the same quality of service we get from the travel agent community."

Brave new system

Kathy Sudeikis, president and CEO of ASTA, argues that travel agents are not what they were 20 years ago when Lewis last worked with them. "Grand Circle isn't in touch with the current travel agent model, which is succeeding beautifully and growing," she said. "We have made the necessary changes to be strong players. We don't see Grand Circle coming to the table to see what it looks like. It's inappropriate for him to comment on parts of the industry he doesn't know about."

Ron Letterman, chairman of Classic Custom Vacations, said it was easy to dismiss travel agents if you're not part of that distribution model. But the truth, he said, is that today's travel agencies are enjoying their best years. They are talented business owners.

Anyone who views agents as just another cost nipping away at operators margins is in for a rude awakening, Letterman said. "The airlines found out to their dismay that travel agents are a very effective sales force," he said. "They help you sell your product and maintain your price integrity. They're the ones who make sure products are not commoditized, because they can help consumers understand the subtle differences."

Likewise, Bill La Macchia Sr., chairman of La Macchia Enterprises, believes that Lewis' requiem for the travel agent is premature. "A few years ago, I may have said that I'm concerned about travel agents, that their role may diminish. But what I've seen in the last few years is the growth of the value of travel agents. In these challenging times, the best ones have not only stabilized but grown. I've always said that those who know how to market will not only survive but will thrive and grow."

Alternate futures

The essential functions of a tour operation are more or less immutable, but the parts can be rearranged in a variety of ways. In today's digital business environment, powerful new technologies have opened the door to a variety of innovative marketing and distribution strategies. Even operators that are committed to the agency channel will give the Internet its due.

Classic's Letterman, for example, acknowledged multiple distribution channels now, many intermediaries.

"People are picking and choosing the channel," Letterman said. "The same consumer who will use the Internet to book a business trip to Cleveland will want to talk to a person when spending three, four or five thousand dollars for a vacation."

Of course, the two are not mutually exclusive; increasingly, consumer communications with real people may well be accomplished over the Internet. In fact, Norm Rose, president of Travel Tech Consulting in Belmont, Calif., asserts that all travel will be booked online in the near future.

"To think that tour operators are going to bypass the collapsing of the supply chain is absurd," Rose said. "People are going online to shop. Travel is no different. That's where the marketplace is going, and anyone who believes that things will originate with a phone call is completely out to lunch."

Lewis adamantly stands by his model. "We don't take Internet bookings," he said. "You can never create a relationship that way. You don't send love letters via e-mail. I don't think its terribly effective."