Statistics paint a grim picture of the coronavirus crisis’ impact on the travel industry. The U.S. economy is in a recession, but the industry is in a depression, with overall unemployment at 51%, according to the U.S. Travel Association.
That’s two times the unemployment rate during the worst year of the Great Depression.
And the travel agency community is among those hardest hit.
A Travel Weekly reader survey conducted near the end of July found that a little less than a quarter of respondents expected that they could stay in business for a year or more if business conditions continue as they have been. And while a number of agencies anecdotally reported that sales had been rising in May and June, Covid-19 spikes around the country have at least partly reversed that trend by early July.
But concurrently, there is activity that, collectively, may redefine the travel retailers’ role going forward. Many agencies are using the pause in travel to rethink everything from compensation models to supplier relations to marketing practices. Some have even introduced products into their mix that, at first glance, appear to have only a tangential relationship to travel.
Those exercises may ultimately result in an agency community on the other side of the crisis that, while likely smaller, will have a broader vision of its mission and be more resilient and increasingly professional. And more in demand.
Longtime industry educator Bob Joselyn, president and CEO of the Joselyn Consulting Group, has been working to help agencies survive since the crisis began. While he said he believes some 25% to 40% of agencies that existed before the pandemic will fail, sell, consolidate or have owners who decide this is the right time to retire, he also said the agency community is poised to reshape itself in positive ways.
“I think we’re in one of the most exciting time periods ever for the metamorphosis of the travel agency business,” he said.
THE ROAD TO RECOVERY
No one knows how long it will take for bookings to improve meaningfully, but in the meantime, it’s clear that some closures and consolidations are in the works.
P. Jason King Associates has created Travelmatchmakers.com, a business dedicated to connecting agencies, suppliers and investors. P. Jason King executive vice president Steve Gorga said consolidation will see an uptick in the fall and into 2021 and that a number of agency owners will opt to trade independent agency ownership for affiliation with a host agency.
Haisley Smith, vice president of marketing and development at Brownell Travel in Birmingham, Ala., observed that whenever there is an economic or global disruption, consolidation follows. She said she expects to see some agency closures, mergers and acquisitions as occurred in the period starting in the 1990s that saw the emergence of OTAs, airline commission caps and cuts and, finally, 9/11.
A similar impact was caused by the 2008 economic downturn.
“It’s tragic and it’s heartbreaking, but it’s inevitable that we’ll lose many of our colleagues,” she said.
‘It’s tragic, but it’s inevitable that we’ll lose many of our colleagues.’
Those hoping to remain in business are likely to first reevaluate their relationship with their host agency or consortium, examining what they’re paying and what they’re getting for it, said Mary Pat Sullivan, an industry consultant and leisure travel analyst at Phocuswright. (Phocuswright is owned by Travel Weekly parent company Northstar Travel Group.)
“I think they’re going to take a hard look at what they need and what they don’t need with respect to affiliation, with respect to commissions,” she said.
‘Agencies are going to take a hard look at what they need.’
The upshot of the resulting churn is that there may also be a shrinking of host agencies and consortia, she said.
A recent Phocuswright report Sullivan authored found that in 2018, only 6% of agent respondents to a survey reported they were unaffiliated with a host, franchise or consortia, down from 14% in 2007. But that number could increase again as a result of the pandemic.
The coronavirus crisis will also undoubtedly cull the population of so-called hobbyists, i.e., agents who joined the trade primarily to get discounts on their own travel or who book only their friends and relatives. Sullivan said she believes their departure will elevate the level of professionalism among travel advisors.
For some agencies, the pandemic has opened the door to new initiatives or allowed them to work on long-deferred projects, some with only tenuous connection to traditional travel products. New York-based Embark Beyond has pivoted to offering private, backyard summer camps. Founder Jack Ezon said parents band together to purchase the experience, which runs $3,500 per week for 10 children and two counselors. To get the program going, Embark partnered with camp directors around the country, and it has held camps in locations ranging from Los Angeles to the Jersey Shore.
Ezon said Embark has also begun to offer a “mini-moon” program, urging clients whose honeymoon plans may have been affected by the pandemic to book a small trip now in exchange for a free night on a more exotic honeymoon later.
The agency, also known for organizing large celebrations, began to offer “micro- celebrations” of 15 to 20 people at clients’ homes or at small resorts.
Keith Waldon, founder and director of Departure Lounge in Austin, Texas, has spent recent months laying the groundwork to expand his host agency into the EU and the U.K. The initiative had been planned prior to the coronavirus crisis, but he said the project moved more quickly because of the break in routine from typical, day-to-day operations, and he’s on track to branch out across the Atlantic later this year.
Other agency owners, he said, are also benefiting, personally and professionally.
A forced shutdown, he said, “gives us time to sit and ponder and think without doing it on the treadmill or in the rat race. I definitely have seen the value of having some time to actually put together a vegetable garden for the first time in about seven years and have that ‘thinking time’ when I’m digging in the dirt.”
THE AGENCY OF THE FUTURE
Those agencies that do emerge on the other side of the crisis will likely do so with a new sense of professionalism and be greeted and rewarded by pent-up demand from old and new clients alike.
During the pandemic, many travelers who booked on their own reported frustrating experiences when trying to cancel plans or chase refunds by themselves. Although refunds aren’t always obtained, even with advisors, travelers who use them largely saved time and headaches and have been sharing their stories with friends, Sullivan said.
“Their professionalism, their expertise, all of that will be so much more recognized,” she said.
The pandemic will also likely spur a number of travel advisors to work from home permanently. Office closures have proven to many that they can work effectively from home, Joselyn said. And, as fewer customers have been visiting agencies in person and have become accustomed to communicating via phone or texting, it’s likely that even those who maintain a brick-and-mortar presence will gravitate to smaller offices with less overhead.
Joselyn also said more agencies will begin to charge service fees. Many are looking hard at models in which the client pays them compensation directly, he said. Agents get a commission from suppliers for distributing their products but often give their travel planning and advising services to consumers for free; he foresees agencies shifting toward becoming professional travel consulting firms and charging fees the way lawyers and accountants do.
One thing that’s not likely to go away once travel returns is videoconferencing, both among industry colleagues and with clients.
Amanda Klimak, president and co-owner of Largay Travel in Waterbury, Conn., said Largay had already begun transitioning to videoconferencing this year, prior to the travel slowdown. In January, the agency acquired Zoom licenses for its employees.
Largay held about 20 virtual meetings in January. That increased to more than 200 in June.
“It has forced us into a way of doing business that we weren’t necessarily comfortable with,” Klimak said.
Supplier sales reps are also embracing the technology, something she said can free up their time and extend their budgets.
“It will allow them to use their money differently,” Klimak said, adding that suppliers accustomed to driving hundreds and thousands of miles weekly will be able to visit some locations virtually.
‘Technology will allow sales reps to use their money differently.’
That isn’t the only way agencies’ relationships with supplier partners will change.
Gorga said he expects suppliers to more closely align with the agencies who supported them through the pandemic. And conversely, he said, “agencies are going to remember suppliers who were sensitive to their needs during this very difficult period. Suppliers who were flexible are going to see more support from the agency community. Those who were not are going to suffer.”
‘Suppliers who were flexible are going to see more support.’
Joselyn said it’s also possible for some agencies to form distributor relationships with suppliers, in which they would sell certain suppliers exclusively. He described it as a more extreme version of preferred-supplier agreements.
Marketing efforts, too, will shift in the future.
Largay, Klimak said, is pivoting from focus on specific suppliers to highlighting the benefits of working with an advisor.
Waldon said he believes predictive technology will play a more prominent role going forward. Platforms will “take transactional data, combined with brand and style preferences, to make smart and timely suggestions to clients and to advisors about the client,” he said. This will allow advisors and agencies to bring a highly targeted approach to client outreach and marketing.
Smith agrees with Sullivan that when the coronavirus crisis abates, the travel advisors left standing will be in high demand. She said Brownell is already experiencing “a significant increase in inquiries” from clients both new to the agency and new to using a travel advisor altogether.
“The traveling public is going to be looking for some degree of certainty,” she said. “They can only get that from an advisor who is professional and knowledgeable.”
Seven considerations for agency owners
The Covid crisis has had a huge impact on the agency business, but it has also presented owners with an opportunity to rethink what their agency will look like in the future. Industry educator Bob Joselyn has identified seven key areas of consideration that could help to reshape their business.
Do you want to go back to selling the same business mix?
What has been profitable? Do you like your mix of leisure, corporate and groups? What kind of travel (cruises, FIT, etc.) do you want to focus on? Do you like your destination focus if you have one, or do you want one? Which suppliers do you want to have a relationship with going forward?
Do you want to be the same kind of business?
Do you want to sell other people’s products, or do you want to be a seller of your services, charging clients a fee to facilitate and plan travel?
Do you want to have the same type of employee/independent contractor mix?
Laws governing how workers are classified are changing, which should be a factor. Also consider the mix of full-time and part-time employees as well as whether they are required to work in the office or if they can work remotely. Outsourcing some things that support employees typically do (accounting, for instance) should also be considered.
Do you want/need certain employees anymore?
Many agencies have laid off employees. This could present an opportunity not to hire back underperformers. It’s also a good time to ask if employees have the necessary skill set for success and, if not, find new ones who do.
What changes would you make to your compensation and incentive system?
Consider how employees are compensated. Is it fixed, based on commission or a mix of both? Some agencies also have an incentive system, offering agents a higher commission rate on the agency’s fees than on supplier commissions.
How will consumer behavior change?
Consumer behavior will definitely change, especially consumers’ desire and ability to congregate in places like grocery stores and movie theaters. At the same time, videoconferencing has surged, solving the issue agency owners have faced for years as phone calls have proliferated over in-person visits: being able to see the client and their impressions. Advisors will also have to be even more knowledgeable about different areas of the world and viruses and diseases commonly found there.
Do you want to own a business or work in a business?
Should you consider closing your agency, opting instead to align with another to keep selling travel and avoid the headaches that come with ownership?
Source: Bob Joselyn, president and CEO, Joselyn Consulting Group