For years, the relationships between travel agencies and the scores of private suppliers that make up much of their travel ecosystems have hummed along, operating largely on seals of approval from consortia and trade associations, a history of fair dealing and often, personal relationships.
Leading up to the pandemic, after a decadelong boom cycle in travel, three well-established industry players — U.K.-based Thomas Cook, India-based Cox & Kings and U.S.-based JG Worldwide, parent company of Heritage Tours and Revealed America — abruptly ceased operations.
There was no clear common thread in these failures — in each case, the collapse seemed unrelated to the health of the greater travel industry — but there was a common outcome: Travelers, advisors and partners were, collectively, out millions of dollars in lost deposits, payments and commissions. And as a result, it raised general concerns about the financial strength of even well-established travel companies.
So after the pandemic hit and travel shut down, “liquidity” became a new industry watchword, and the nature of trust-based relationships between industry partners changed. Travel advisors have been increasingly demanding more financial transparency.
Some suppliers are responding with a never-before seen openness that is reshaping expectations and relationships through the travel supply chain.
Last month, for instance, the Travel Corporation, a 100-year-old, private, family-run company, for the first time publicly released parts of an annual audit showing that just one of its many companies, Red Carnation Hotels, has a $300 million net assets value.
Likewise, Exeter International, a small tour operator specializing in travel to Central and Eastern Europe and Russia, for the first time in its 27-year history opened banker-certified financials to executives of select travel agency partners.
Still other suppliers, while keeping financials mostly private, point to their record on refunds and new early commission payment programs as proof of their trustworthiness and sound financial footing.
‘Trust but verify’
Among the agencies leading the charge for proof of financial viability is Brownell Travel, which was one of the agencies burned by the 2019 collapse of JG Worldwide and its tour subsidiaries Heritage Tours and Revealed America. JG Worldwide was led by Jena Gardner, a longtime industry insider commonly viewed as a trusted partner to the luxury travel world.
Not long after the JG Worldwide collapse, Cox & Kings and Thomas Cook went under, although Abercrombie & Kent U.K. acquired Cox & Kings’ U.K. business, and the Thomas Cook name was recently revived as an online travel company by new Chinese owners Fosun.
“The lesson learned was ‘trust but verify,’ even with long-standing partnerships that are decades old,” said Haisley Smith, vice president of marketing and development for Brownell.
‘The lesson was trust but verify, even with long-standing partnerships.’
Indeed, it was a request from Brownell back in March that prompted Florida-based Exeter to go to its banker for a certified and candid analysis of its assets and cash, said Exeter president Gwen Kozlowski.
Such requests, she said, “have never come up before. We have always been conservative. You don’t see us throwing fancy parties. We don’t have any debt. We own our building.”
‘We have always been conservative. We don’t have any debt.’
Smith said Brownell has been asking suppliers for financial and insurance information for many years, but the company amended its processes in 2018 to “re-vet” a supplier if there is a significant change of ownership, distribution or disruption.
“The pandemic,” she said, “is certainly a disruption!”
And as Covid-19 drags on, leaving advisors and travel companies with six months — and counting — of little or no revenue, the conversations are getting more frank, and more public, as advisors and their clients question whether companies pushing clients to take future travel credits over refunds will still be around in 2021 or 2022 to honor them.
“So if suppliers want to keep our business and these future credits, they’ve got to be in constant communication with us and share more than they are probably accustomed to regarding their operations,” Smith said,
Brownell is also asking for proof of payment by suppliers to their hotel and other local partners, she said.
Transparency was among the topics that came up at Virtuoso’s recent virtual conference, where during the general session, Abercrombie & Kent founder Geoffrey Kent said the company’s 55 local offices around the world have been using the travel shutdown “to work tirelessly with our transport, hotel and restaurant partners to ensure they are fully vetted and have implemented best practices in health and hygiene.”
Generally, however, Smith said it has been “the smaller companies that we work with that have been … the most open with their transparency.
“We’ve seen folks who have even provided letters of credit from their banks, guarantees from their bankers, and even in some cases [give] personal guarantees of the business from their own pocket,” Smith said.
Among the larger U.S.-based tour operators, The Travel Corporation may be unique in publicly releasing details from an audit last year verifying Red Carnation Hotels’ value, which Travel Corporation president Brett Tollman said means that as of Dec. 31, if the company sold all of its hotels, it would net $300 million after all expenses and liabilities.
Tollman said it was the first time the company has released such information, but that he felt it was important to give advisors and clients peace of mind that the Travel Corporation will survive the pandemic.
“This is obviously a very unique, very different time,” he said. “We thought this was a very clean and simple message.”
‘This is obviously a very unique, very different time.’
After 9/11, Tollman said, the company put $20 million in cash in a lockbox account to assure advisors and travelers that it could cover obligations.
“This is much bigger and more global, so $20 million wouldn’t have done it,” he said.
Other large companies, such as the Globus family of brands, point to their refund and commission policies as proof of their strong financial standing.
“The Globus family of brands (Globus, Cosmos, Monograms and Avalon Waterways) is a privately held group of companies with the same family ownership since its inception 92 years ago, and the company remains debt-free and is in very stable financial standing,” said Steve Born, Globus’s chief marketing officer. “A clear indicator of this standing is that we are paying advance commission on early 2021 bookings and commission on letters of credit issued for future travel. These are tangible signs of our focus on the long-term and steadfast support of our thousands of trusted travel advisors through these challenging times and beyond.”
‘Globus remains debt-free and in very stable financial standing.’
Born said the payment of advance commissions was a first for Globus.
David Hu, president of Classic Vacations, which is part of Expedia, said that historical tensions between advisors and OTAs prompted his company to lay low for many years about its affiliation with the larger public company.
But since the JG Worldwide debacle, and with advisors “slowly embracing the fact that we’re not stealing their customers,” he said they decided it was time to more publicly tout the Expedia affiliation and the financial stability behind that.
That and their commitment to paying out refunds instead of pushing customers to future travel credits “has put us in good stead with many of our customers,” Hu said. “They feel more confident in working with us than ever before.”
Still, the reality is that there is “a big question mark on everybody right now. … I don’t how many travel advisors will make it past all this. I don’t know how many hotels will survive this.”
‘There is a big question mark on everybody right now.’
Hu said if he had to guess who is going to survive, “I’d bet against the smaller guys. There’s no guarantee on their financial viability.”
Brownell’s Smith doesn’t necessarily agree.
“You can look at it two ways,” she said. “The smaller companies that are family-owned, sometimes for generations, that are passion projects, could be more secure than the large corporations that are majority owned by private equity. In that case, if they have negative revenue they could be offloaded at any minute.
But on the other hand, she continued, “they have access to more capital and investment than some of the smaller operators, so it’s anybody’s guess.”
While larger agencies have the muscle to demand increased transparency, many smaller agencies and independent advisors have traditionally relied on stamps of approval from groups like the USTOA and ASTA as well as supplier partnerships with consortia like Virtuoso, Signature, Ensemble and the Travel Leaders Group.
“It’s more important than ever that travel advisors align with a consortia that has close relationships with its preferred partners,” said John Lovell, president of Travel Leaders Group. “The advice we share with our advisors is to deal with our preferred suppliers; consider tour companies that belong to the USTOA; watch for red flags, such as unpaid commissions; and always recommend travel insurance. In addition, if there is credible public information available about the financial condition of a supplier, we recommend you share that information with your client so they can make an informed decision.”
‘Advisors should watch for red flags, such as unpaid commissions.’
But like the rest of the industry, the consortia, too, have had staff cutbacks, which reduces their capacity to monitor partners. Nor do they have crystal balls. And as was evidenced with JG Worldwide, the warning signs that might prompt them to terminate a relationship may come too late to prevent travelers and advisors from losing money to failing companies.
Natalie Lenrow, with ETA Travel in Pennsylvania, was among those who had clients who lost money in JG Worldwide’s collapse. And in recent months, she says she has gotten little help from her consortium in response to questions about suppliers.
“I’m trying to figure out what the agencies pay for to be part of this organization other than being able to go on the portal and them recommending companies, ” she said. “We now have an unprecedented event in our life. How are they helping me?”
The USTOA, meantime, requires all Active Members, regardless of size or number of brands, to put up a $1 million bond in case of default, a sum established years ago and one that likely wouldn’t go far to cover a collapse after the lengthy Covid-19 travel shutdowns. And many of the scores of small tour operators and wholesalers that agents deal with aren’t part of that group.
The good news is that few suppliers have yet failed as a result of the pandemic. But as global travel remains highly limited for an unpredictable amount of time, there is likely to be fallout at some point that has an impact across the industry.
“There is no surefire way to protect ourselves and our clients right now,” Brownell’s Smith said. “It is art and science and gut. And the only thing we can do is cooperate with each other. We have to be transparent with our suppliers and with other agencies.”
Jamie Biesiada contributed to this report.