Slow economy causing a variety of problems for travel agencies

Business travel

September 30, 1991|By Tom Belden | Tom Belden,Knight-Ridder

PHILADELPHIA -- From the mom-and-pops to the multinational giants, travel agencies are facing some of the toughest times since the early 1980s.

Some agencies are defaulting on their payments to airlines; others are trying to merge with competitors, and a few are closing offices.

The agencies' problems started last fall, when the slowing of the economy and tensions in the Middle East caused travel to slacken. When the Persian Gulf war broke out in January, international travel plummeted -- at the same time that the economy in the United States and much of the rest of the world went into the deep freeze.

And there's more. Several rounds of fare discounting, launched by airlines in an attempt to stimulate business, depressed agency income even further, since the vast majority of most agencies' revenues comes from commissions on airline tickets.

"The past year has been very difficult on our industry," said Frank Samson, sales and marketing vice president of Corporate Travel Consultants, of Oakbrook Terrace, Ill., a midsize agency that operates nationwide. "Everybody has been going through a lot of pain."

One example of the problems is Travelco, the third-largest agency in the Philadelphia area. Earlier this year, Travelco had 11 offices and 165 employees and was booking about $50 million a year in airline travel for clients.

In recent weeks, however, Travelco has unsuccessfully shopped itself to other agencies, laid off workers and closed offices, according to other agents in the area. Two of its largest clients, Campbell Soup Co. and General Electric Co.'s government-services division, suddenly became Rosenbluth Travel clients. Travelco executives didn't return telephone calls to discuss the situation.

The wreckage in the industry can be measured by the monthly activity reports of the Airlines Reporting Corp. (ARC), the agency that accredits travel agents to sell airline tickets and serves as a clearinghouse between agencies and the carriers once a ticket is sold and money is collected for it.

Through July, total air-ticket sales cleared through ARC by agents were down 5 percent, to $28.2 billion, from the first seven months of last year.

Even more telling, the number of agencies declared by ARC to be in default -- or with insufficient funds in their bank accounts to cover the airline tickets they sold and collected money for -- rose 29 percent in the first seven months, to 635, from 494 a year ago.

Compared with recent years, growth in the travel-agency business has been almost flat as well, ARC president David R.B. Collins said. The number of authorized retail-agency locations is up 6 percent in the first seven months, but virtually all of that growth has come in new satellite ticket printers, or STPs, he said.

The STPs are machines that print out tickets at a client's office or other remote location. They are replacing travel agencies' ticket-delivery people.

"I think the whole agency community is hurting," said Howard Seligman, a consultant in Stamford, Conn. "The rate of defaults has risen dramatically. The underfinanced agency is not doing well."

This fall, travel by corporations has shown signs of returning to normal, and some aspects of the leisure-travel business also are making a recovery.

But the recovery is taking place very slowly, especially in places where the economy remains weak, agents and consultants say.

"Most independent agency owners in New York say business is really in the toilet," said Paul Metselaar, president of Lawyers Travel Service, a specialist in travel management for law firms that has offices in New York, Philadelphia, Washington and Los Angeles. "We're an exception to that only because of our specialty. We're a hot commodity because of the interest by law firms in trying to cut their travel expenses."

Travel agencies that are doing relatively well -- from the largest all the way down to the tiniest -- all say that they took steps throughout the year to stop the bleeding before it got out of hand.

American Express Co., the world's largest agency with $3.3 billion in airline sales in 1990, has been winning new major corporate accounts at the same time its existing clients have been cutting back.

At Travel One Corp., one of the Philadelphia area's largest agencies, the sales force has had to make up for a serious erosion in the travel its clients are doing, said marketing vice president Charles Roumas.

"Spending by many of our clients is off 10 percent . . . or even 20 percent," he said. "But overall we're not down, because we've gotten new business."

The same applies to the smallest agencies. Travel Wizards Inc., of Trevose, has four full-time employees, seven outside sales representatives who work only for commissions, and an assortment of clients that includes small and midsize businesses, vacationers and groups that need help planning meetings.

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