Travel agents changing to survive in new era

? When Bobbi Hansen and her late husband, Ken, started their Wichita, Kan., travel agency in 1966, the business was relatively straightforward. A manufacturer in town would call to book a quick trip to Chicago, and the Hansens’ Sunflower Travel Corp. would make all the arrangements.

The airlines, which valued agents as promoters of travel, would pay the Hansens a 10 percent commission on the ticket price. The hotel in Chicago would kick in 10 percent of the overnight guest’s booking. The customer’s company paid for the trip, and the customer simply said “thank you” to the Hansens.

With that system Sunflower became a $6 million-a-year agency.

Today, hotels still pay commissions of 7 percent to 10 percent to travel agents, but some analysts predict those payments could be slashed anytime. As for airlines, the majors began to trim commissions in the late 1980s and kept at it till many eliminated them in March.

“It was a zero-sum game,” said Phil Bakes, who was chief executive of Continental and Eastern airlines in the 1980s and is now chairman and chief executive of Far and Wide Travel in Miami. “The airlines were of the view that they were the consumer-recognized name and their product was a commodity. For the airlines to pay agents large amounts for distribution costs didn’t make sense.”

This, despite the fact that 70 percent of all airline sales are generated by agents, according to Boston Consulting Group, a management consulting company.

Toll-free numbers for potential fliers to call started making travel agents look like a distribution channel with little value in the 1980s. Enter the Internet in the ’90s and then airlines’ own Web sites, and travel agents were cut out of the picture, as far as carriers were concerned.

Focus on groups

Just to earn the $1,500 a day they need just to keep their doors open, the Hansens now Bobbi and her son, Devin have switched gears, from those business trips to specialized vacation travel for groups willing to pay 10 percent to 25 percent of the cost of the trip in exchange for Sunflower’s services nailing down an itinerary in Italy for a band on tour, perhaps, or making arrangements for a Rotary club’s visit to Belgium.

Steve Fertig, president of Hotel Consultants in Atlanta, likened travel agents’ commissions to a government subsidy. “And they now have had to become self-sufficient,” he said.

“We’ve certainly had to adapt like a chameleon,” Bobbi Hansen said.

Eventually the traveling consumer may have to as well.

Cutting the middlemen

Before commissions from major U.S. airlines died in March in fact, years before travel agents knew change was coming. They weren’t the first middlemen, and won’t be the last, to suffer “disintermediation,” or elimination.

Once upon a time in America, banks were Americans’ principal contact with the world of finance the thrift institution for passbook savings and commercial banks for checking accounts. Transactions took place face to face, or by mail.

Then, in the late 1970s, even before banks were deregulated and morphed to meet competition from an aggressive financial services industry, they adopted the automated teller machine, with money available to cardholders 24 hours a day.

And the friendly neighborhood bank teller, the middleman between consumers and their money? Out of a job? Well, some, to be sure. But others were trained in back-office functions or graduated to the “platform,” where they answer questions and, aggressively today, sell the bank’s whole range of products designed to get hold of consumers’ money.

Where there’s little value added by a middleman, he’s sure to go the way of the “Number, please” telephone operator in the days before direct dial, or the grocery clerk who fetched your items one by one.

Pushing sales

Agents do move product. That 70 percent of airline sales they generate is no small amount of the industry’s yearly $93.6 billion total.

In hotel lodging, 25 percent of the $80.1 billion in room revenue a year comes through agents. And travel agents generate about half of the $19.4 billion in annual car-rental sales.

But there’s a downward trend. Southwest Airlines, which pays agents a 5 percent commission, said it has seen the amount of business booked through agents go from being more than half to less than 25 percent of its ticket sales because of all the distribution channels consumers can now go through to book flights.

Cruise lines are the only remaining form of travel that depends almost totally on agents. Ninety-five percent of the cruise ship industry’s annual $11.6 billion in revenue is generated by agents. Cruise lines typically don’t allow consumers to book direct; ship operators don’t want to deal with the costs of staffing and taking reservations when agents are already out there doing it.

Economic factor

So if agents are still the main way consumers do their travel, why cut their commissions? Answer: economics.

“The costs of distribution have become phenomenal,” said Malcolm Noden, senior lecturer in management marketing and tourism at the School of Hotel Administration at Cornell University.

Take, for example, a Marriott hotel where a consumer pays $100 in cash for a room. That means the hotel’s distribution costs, taking out the fixed and variable costs such as wages, computer systems and advertisements, are relatively small.

The same overnight stay, arranged through a travel agent, has a much higher cost to Marriott. If the consumer calls his agent and asks for a reservation, the agent makes the reservation through the hotel’s booking system, using the customer’s credit card. The hotel’s expenses, in addition to all the fixed costs, then also include the agent’s 10 percent and the 3 percent charged by the credit card company 13 percent of the $100 room rate.

The example for airlines is even starker, according to Forrester Research. U.S. airlines may collectively save about $750 million just this year by cutting their commissions, the research firm calculated.

‘Online butler’

Eventually, experts predict that travel will be done through an “online butler.” One’s preferences nonstop flight, window vs. aisle, feather pillow or not, bars and restaurants near the hotels, a place to play golf after meetings will already be known by the computer.

But the online butler will come into being only if major players in the travel industry are willing to turn over their data to a shared area where all can consult it. It’s a feat that critics say is unlikely to happen soon, given the splintering of the travel industry.

That would leave real live travel agents existing only for those seeking specialized trips. A trip that hops from Dallas to Rome and then to London, for example, might be a reason to pick up the phone to call an agency. A high-end safari in Botswana might be another.

“The travel agent can do for you what the Internet can’t,” said Cathy Enz, executive director of the Center for Hospitality Research at Cornell. “She can provide a whole series of knowledge and hand-holding for those who want high customization.”