Key Issues Facing Travel Agencies for Survivability
A travel agency that wants to survive the demands of the present and future business environment can no longer simply be an outlet for distribution, or a friendly neighborhood business. Agencies that are now looking toward the future with optimism are those that have structured a business rather than a distribution outlet. This article is intended to reach those agency owners and managers who have a fairly sizable volume, have established good business relationships with corporations, and are seriously concerned about their future well-being. I hope to touch on a few areas that are of concern, giving some insight into areas that you may or may not have already targeted as vital to survival. Remember, sometimes it is the obvious that escapes us, so don’t believe that the simplicity of some of these areas is unintentional. The key to survival is overall profitability, but there are some subtle areas that affect whether or not you are profitable.
A travel agency is a rather unique business when looked at from a profitability standpoint. It is perhaps the only retail industry that has a little or no control over its retail pricing structure. Although alternative pricing exists, it is not an effective means for the average agency to gain and/or maintain profitability. Thus, it is vital to make a careful analysis of your costs and your income.
Have you taken the time to analyze productivity; the average per transaction cost compared to the average per ticket/transaction fee revenues received? What about individual productivity? Do you have fair, firm, viable, and enforceable expectations of what your salaried employees must produce? Is your payroll in line with your business volume?
If you were asked to state by how much you wanted to increase your volume in 2012, you most probably would have a ready response. But, have you thought through what measures you will need to take to increase your volume? If you plan to increase your market share, you must keep a constantly growing and evolving prospect list and then follow-up with sales-related meetings and presentations. It will be necessary to generate new volume in order to increase profitability or in some cases just to maintain it. It is of utmost importance that your organization has a firm and tried sales and marketing strategy.
Set a goal, focus on it, and develop a plan. Measure yourself by setting 90-, 180-, 270-, and 360-day goals. Evaluate your progress along the way and give rewards to yourself and those who have helped you to reach those goals.
Another area that affects profitability is your overhead. Use the same common sense you do at home when it comes to improvement of your physical environment. There seems to be a tendency, lately, to go a bit overboard with these things, thus dramatically increasing capital costs, and depleting resources for potential investment in other areas.
Have you ever heard someone say that a company is only as “good” as its employees? The ability to attract and keep a good, solid, knowledgeable, mature staff is of great importance. State-of-the-art computerization in your office has little value without the people in place to make your operation profitable.
As the fierceness of competition in today’s agency marketplace increases, it will become more and more difficult to locate and retain the top-of-the line employees. Look for employees with a good deal of experience, or lacking that, a drive for success that can be channeled under your good management and leadership. You must begin to look toward the future and develop an employee plan that will maintain the consistency that area of the industry has lacked for a long time. Consistency in your employee ranks will greatly favor your operation. Your clients will be able to have the same friendly voices to relate to, and will not question your stability because of heavy turnover (which is also extremely costly to your bottom line).
Find out how competitive your total compensation package is. Develop “real” incentives that have goals and measures by which an employee receives rewards. Make sure the rewards have substance to them. You may even wish to develop a plan by which your employees could develop equity in your firm.
Examine your training procedures to make sure that your employees are keeping pace with the technological sophistication (changes, updates, modifications, and enhancements) required of today’s travel agents. Your employees, although not likely desire to put in more hours, would like to spend their hours more productively. If this is achieved, then both you and the employee profit. There are many low or no-cost seminars and training forums available through a variety of industry vendors. Let your employees tie into these functions. Set up a program with your automation vendor and other vendors to provide on-going training for your employees at a level suitable for the individual. Remember: sending an employee to an advanced CRS training seminar who has never worked with that particular CRS may be counterproductive. Be sure to provide training at the employee’s level of comprehension.
It may be time to take a look at the overall productivity of your employees and find out the real costs and profits of each person on your payroll. Do you have an expected level of productivity for each employee that justifies his/her salary? If not, realize that an employee earning $18,000, plus medical, dental, and life insurance needs to generate a gross sales volume of almost $250,000 in order for the company to afford the salary and benefits alone. This does not even take into account other overhead expenses – rent, utilities, other insurances, and a profit. In most operationally mature situations a good, profitable, commercial agent generates an annual sales volume of $1,000,000.
Believe it or not, you do not have to have 700 branches, in 41 states, and 12 foreign countries to achieve savings in the area of cost control. Even if you are buying for just one office, a good vendor is going to want your patronage. For every cost area, seek out three potential vendors who can provide you with the entire scope of your needs. Then do your best to ascertain what your needs will be for an extended period of time. Remember, the greater the single purchase the more efficient for the vendor, thus allowing the opportunity for greater savings to be passed on to you. Request a bid from the vendors; much in the same manner your clients have requested bids from you in order for you to obtain their business.
The cost of everything is on the rise. The days of item purchasing in business is gone simply because of the economics involved. You can achieve greater survivability by changing some of your non-fixed expenses to semi fixed expenses and it doesn’t matter if you’re a single or multi-branch agency.
If you do have more than one branch, consider the concept of centralizing costs wherever possible. Even if there is considerable distance between branches, most vendors will pick up the shipping costs to outlaying locations of an account. The purchasing power gained by centralizing as many costs as possible will bring you cost savings as well as other efficiencies that are being passed up by many agencies, today.
The control of costs in today’s arena of expense inflation will be vital to your survival over the next year or two. Not is the time to begin positing yourself in accordance with your business plan to gain the control necessary.
Forget what is in the past. This industry has a habit of being overly reminiscent, and it is costing the very lives of many agencies and seriously threatening many of those still in existence. The face of the basic industry vendor/agency relationship has been changing for quite a while, and I believe that 2012 and 2013 will prove to be the spear-hear period for those changes.
Now is the time to firmly build your alliances, and get to work with your future business plans along with your vendors. The entire distribution system as we now know it has been placed in a questionable posture. You must decide for yourself what steps are necessary for your survival. What agreements should be consummated between your agency and carriers, car rental firms, hotels, tour operators, automation vendors, etc.? Everyone is eager for your business. But, who is offering you the best overall deal in return? It is vital that you begin to explore your options, and look toward the long term. You will not be able to survive on short-term relationships which bring short-term dollars.
Most airline override agreements should be looked at as “the icing on the cake.” Too many agencies make the error of thinking of this as secure, guaranteed income. It may not be. The vast majority of carriers have turned to market share based overrides, rather than what was the traditional “increased volume” based override. Of course, there are still the occasional “other deals” floating around that can help to get some more dollars into your agency. Be aware of every dollar a carrier is offering. Flight, and/or segment cash bonuses paid at point-of-sale can generate substantial immediate dollars for you. Make sure you, and/or a reliable member of your staff is constantly in tune with these “special” offerings.” Don’t simply discard those pieces of electronic mail the carriers send you. You could be losing serious dollars. Information of pertinence is also available in all the agency CRS CO-HOST DRS pages.
Also be aware that airlines are extremely eager for your group business, and in some cases, you may be pleasantly surprised to find out how few people an airline will consider a group, and how nice the specific override on that group can be.
Hotels and car rental companies are in the override marketplace as well, more now than in the past. Calculate what your annualized volume with these vendors is, and much in the same manner that you can develop an override program with an air carrier; you may find yourself eligible for more dollars from your car and hotel vendors as well. There seems to be a great deal of latitude afforded the local sales staff of car rental companies, depending on their geographic location as to what they can do for productive agencies. It would seem to make sense to investigate these avenues. The work required to maximize your car rental commission may be well worth it in the long run.
To sum it up, vendors in today’s marketplace are looking for strong and loyal allies. They are willing to compensate you for this loyalty. But, they are demanding that you produce substantial and consistent revenues for them.
Now is the time to look toward the future, and determine whom you should deal with.
The survivors in today’s environment have developed a keen sense of awareness of the current needs of corporations to have accurate, and in-depth, management data. If you are not up-to-date with what is going on in today’s automation/information world of the travel industry, it may well be time to seek out avenues whereby you can receive some education in this area. Agencies are being looked at more and more for their ability to act as managers, information and data sources, and travel budget and policy markers.
The change in the way corporations view travel agents is a welcome one. It has done much to bring respect to the business and the professionals within it. The question one must ask though is, “Am I prepared to accept the new challenges posed by the changing role of the travel agent?”
If you have any doubts, it’s not too late to learn and grow in the areas you need to. Your ability to support the management information needs of a corporation is vital to your survival.
Areas of Specialization
Over the past several years agencies have begun to expand their menu of services from simply commercial and leisure travel, to include Incentives, Groups, and Meeting Planning. Be aware that such specialization requires knowledge, dedication, risk, and good planning. These “other” areas of endeavor are quite complex. Doing the job half-way generally results in failure.
Incentive Travel is complicated and often misunderstood as being the same as group travel. When properly administered, sold, and operated it can be an extremely profitable venture. The basic and override commissions paid by travel vendors are unusually good. Meeting Planning is quite time consuming, but again, when done properly can become quite lucrative. One of the challenges with Meeting Planning however, is that the air portion of the program can get quite complex. If you are not properly geared and staffed for it, you will be unpleasantly surprised. Again, there are excellent opportunities for increased profitability here.
Specialization in these or any area of the industry is becoming more and more evident these days, and the reason is you must somehow stand out in the crowd to survive. Find out what it is that you and your staff excel at. It may well be worth the time and effort to clearly define an area of specialization. Developing an identity as a “specialist,” when done properly, can greatly enhance your exposure and positivity affect your overall business.
We are now faced with the challenges that many other industries have faced before – how to survive in a time of increased expense, and decreased revenues? If you want to survive, not is the time to act. Prepare for the future by committing yourself to a workable, flexible, realistic business plan. Align yourself with vendors properly. Review costs, and productivity. Set standards. Develop new avenues of revenue generation. Don’t let what appears to be turmoil around you dissuade you from success.
Make 2011 a year that will make a difference. Make it the year that you decide to be a winner, and a survivor!