Decline of the Travel Agency
Navigating the rough seas of economic uncertainty
Survival as a small business is similar to the struggle that you would find in nature: external forces applying pressure on organisms in an unpredictable environment as they compete for limited resources, and those that possess traits conducive to survival live on to see another day.
Technological advancement has its “double agent” role here, allowing some businesses to thrive while acting as the executioner for the ones now facing the harsh reality of becoming obsolete.
The next profession in line to be placed under the guillotine of free market Darwinism was — we were told — the travel agent.
Many experts claimed that the era of the travel agency was over, as evidenced by the Bureau of Labor Statistics’ 2015 Occupational Outlook Handbook. The report claims that the “employment of travel agencies is projected to decline 12 percent from 2014 to 2024.” For reference, the average growth rate for all occupations is roughly seven percent.
A travel agency functions by providing travel and tourism-related services on behalf of the suppliers, which can include airlines, hotels, cruise lines, and car rental businesses. They turn what is typically a hair-pulling, anxiety-inducing process of calling, price matching, and booking into a streamlined means of securing a getaway, whether it be leisure or business related. Their profit comes from commission. That is, they typically receive the product from the supplier at a discount, and the difference between the advertised price that the consumer pays and the marked down price at which it was supplied to the agency is where the money is made. This includes doing the heavy-duty work of organizing logistics for corporate travelers.
So, why are many experts quick to place the travel agent on the endangered species list?
First, the ascension of the internet and the subsequent formation of online travel agencies (OTAs). Traditional travel agencies effectively work as middlemen between buyer and supplier, but with the surge of online travel agencies, such as Expedia and Priceline, brick-and-mortar agencies began to be cut out of the market. “The boom of the internet was suicide for most agencies,” said Jeanne Johnston, account executive at Montrose Travel in Montrose, Calif., “most travel agencies went out of business shortly after but the larger ones were able to survive because of the volume [of sales] that they produced.”
Instead of meeting with agents face-to-face, consumers were now given a much simpler option. These OTAs served as a nice alternative for quickly comparing prices and packaged offers from the plethora of sites available. This allows for consumers to browse at their own pace while also generally being much cheaper than their in-person counterparts.
The second reason why many predicted the fall of travel agencies was because of the rough breakup between many corporations — primarily that of the major airline companies — and the agencies themselves. Back in the “glory days,” as Johnston put it, all airlines, rental car companies, and hotels paid 10 percent commission to the travel agencies on all assets sold. This was a massive source of revenue, as evidenced by the now-gleaming demeanor displayed by Johnston at this point in the interview. (Note that Johnston is naturally a lightning rod of excitement, so seeing her this animated was worthy of emphasis.) “Travel agents sold nearly 85 percent of all the seats on all flights and vendors saw us as a great asset,” said Johnston, “we were wined, dined, and flown all over for practically nothing!”
Travel agencies like Montrose Travel use a Global Distribution System, which is a network that enables automated transactions between travel service providers and the travel agencies themselves. This was an extremely effective method of consolidating and analyzing airline, travel, and spending data. Once the major airline companies caught up technologically, the game was forever changed.
Instead of seeing the relationship between the agencies and the airline companies as a symbiotic one in which both could thrive, many CEOs, spearheaded by Ronald Allen at corporate heavyweight Delta Airlines, saw travel agencies as an unnecessary expenditure. Delta Airlines was the first to cut commissions (originally from 10 percent to 8 percent, then quickly to a whopping zero percent), and almost less than a year later, all other airline companies followed suit. “Most travel agencies folded because they couldn’t survive without these commissions,” claimed Johnston, “it truly was survival of the fittest.” According to a CNN report, the amount of travel retail locations plummeted from a peak of around 34,000 in the mid-1990s (right around the time the airline companies cut commission rates, roughly 1995, according to Johnston), to about 13,000 locations today.
With the once gushing source of revenue dwindling to a trickle from the two-pronged assault of online travel agencies and the cutthroat corporate culture displayed by the airline companies, the traditional travel agency had to evolve.
One of the first steps in the evolution of places like Montrose Travel was the emergence of wholesale or discounted consolidator travel agencies. Essentially, these agencies were able to obtain bulk contracts directly with particular airline companies, who would then sell back these tickets to travel agents at a net rate, and the travel agents could then markup the ticket accordingly and make a decent commission. Johnston started her own consolidator company within Montrose Travel with the help of the owner, which they called AIR4LESS. “We rode that wave for as long as we could,” recalled Johnston, “which was about five years, then the airlines stopped issuing bulk contracts.”
With the commission deals and bulk contracts no longer being viable, the next step in maintaining survival was adding in service fees. These service fees are critical. According to Statista.com, roughly 20 percent of revenue comes from these business charges. The cut in commission revenue thanks to the major airline companies passed on the cost to — you guessed it — the consumer.
So why is the market still demanding traditional travel agencies when there are easier and cheaper options? According to Statista.com, over half of consumers in the United States reported that travel experiences planned by agents were better than those that they had planned themselves. “Which isn’t surprising,” said Johnston, “we’re really good at what we do. Some people think that they can plan better on their own, but it’s not easy.”
While experts can forecast all they want about employment projections, when it comes to a market economy, those that stay alive in its unforgiving environment usually do so because they are offering something that others cannot. “What the best agencies still in the business have to offer that the airlines never will,” said Johnston, “is outstanding customer service.”
