Travel agencies say they are fighting for their lives—and many of them are losing.
“Agencies are going out of business left and right,” says Kris Erickson, president of Olympus Travel in University Place. “The airlines are cutting our throats. They’ve cut our commissions more than 50 percent in the past five years. The biggest cut came just a couple of weeks ago.”
Until three years ago, travel agencies earned a 10 percent commission on the base cost of tickets before taxes, explains Susan Swarthout, travel consultant at Puyallup Travel in Puyallup. Then, in 1996, the airlines reduced the commission by 2 percent. Last month, they slashed them by another 3 per cent.
“A few airlines—most notably Southwest—have opted not to go along with the reduction,” says Swarthout, “but the vast majority of airlines are now paying 5 percent commission.”
Erickson says she knows of a couple who worked in the industry for 20 years and were earning $150,000 to $200,000 a year as recently as three years ago. They’ve gotten out of the industry, she adds.
“There’s so much fear that they just sold their business for $40,000,” she says. “A lot of people in their 60s are just closing their doors, getting nothing out of the businesses they hoped to sell to provide for them in their retirement.”
An informal phone survey of South Sound agencies produces half a dozen recorded message saying the business’s number is no longer in service.
“Perhaps it would be easier if we felt the state was on our side,” says Erickson, “but over the past five years, we’ve come under regulation by the Department of Licensing because in the early ’90s state residents started getting ripped off by travel scams.”
Instead of going after the grifters, she complains, the state targeted the entire industry.
“As a result, we’ve been fighting over regulations rather than cooperating to root out the crooks,” she says. “The people who are just out to bilk the public are having a field day while the rest of us are going out of business.”
The travel industry succeeded in persuading the Legislature to tone down the regulations during its 1999 session, she continues, but so far no one knows for sure what impact the changes will have.
“The changes were signed into law in April and went into effect in July,” says Erickson, “so when I learned there was going to be a hearing in Olympia late in October, I assumed it would be to discuss how the changes in the law would be enforced. I took the day off and drove to Olympia to attend.”
The only thing that was discussed was the fee schedule, she says. The Department of Licensing wanted to establish what will be charged before Initiative-695 goes into effect, she adds.
“I can understand their concern,” says Erickson, “but they entirely ignored the rest of the issues in the law that relieve pressure on the industry and have been in effect since July but haven’t been enforced since then. We still don’t know how the new regulations will affect the industry.”
Travel scams, meanwhile, continue to generate more than 1,000 complaints a year and millions of dollars in losses to consumers, she says.
One of the crooks’ newest tools is the Internet, Erickson says. Everybody has a website, including people with bogus travel schemes. Consumers need to be careful who they’re dealing with, she says.
Michael Batt, president of Carlson Wagonlit Travel’s franchise division, suggests that some of the crooks may be losing money. Citing continuing losses by Internet travel agencies, the head of the country’s largest travel agency franchiser has questioned the future viability of Internet travel sites that are not backed by brick-and-mortar locations. Internet companies are averaging losses of around $20 per ticket sold, he says.
“I don’t think they’re all doomed,” says Erickson, “but I don’t think they will have a majority of the business in the future.”
Citing company policy against discussing opinion expressed by the corporate headquarters, South Sound Carlson Wagonlit Travel officials declined to comment.
“We never really felt a major dent as a result of Internet,” says Erickson. “Maybe that’s because a somewhat limited number of our customers are Internet capable. But even among those who have tried their luck, many are returning because the public still wants an advocate who will get them the best deal available. And they’re willing to pay a little extra for the service now that the airlines no longer do.”
The nature of the business is changing dramatically, says Erickson, and agencies are going to have to change with it if they hope to survive.
There are travel agencies that have actually begun to specialize exclusively in tours, she says. Twenty-five years ago, that would have been unheard of.
“What’s happening is that travel agencies are finding creative ways to turn an airline ticket into an economical package,” she explains. “Let me give you an example. There’s a man going to the East Coast for business for three days in midweek and needs a car. The airline alone is asking $2,000 for tickets, but we know of a tour package that costs $500 roundtrip and includes the car rental. The customer is eager to pay the $20 fee to his travel agent to set it up for him.”
How can such a deal be called a tour?
Explains Erickson: “There’s a wholesaler, a middle man, in the travel industry who goes to the airlines and says ‘I think I can sell X-million worth of your tickets each year if you’ll sell them to me at a bargain-basement rate.’ The airlines figure it’s better to get a little revenue than fly with empty seats, so they sign the contract. Then the wholesaler goes to the car rentals and works a similar deal.”
Even travel agencies are getting involved in these kinds of deals, playing the middleman to set up tours, Erickson says. It’s not the sort of thing a small agency can afford to get involved in, but large, national agencies can.
“You have to go to the agencies to find out about them,” she says. “It wouldn’t be to the airlines advantage to tip you off.”
By George Pica, Business Examiner staff