As the recession took hold in 2008, travel management companies found themselves on rocky footing, battling the effects of stark transaction and sales volume drops that accelerated throughout the year. Last year also saw agencies responding to vigorous account activity as corporations looked to optimize financial arrangements, speed TMC implementation times and receive more timely and accurate data and reporting.
To offset lower business levels and other reduced revenue streams, some TMCs were forced to reduce their workforce or cut pay and benefits, but some also were keen to invest in such areas as technology and sales to position themselves for a recovery.
U.S.-based TMCs also dealt with a slowed merger and acquisition pace as valuating targets became difficult, credit access became hard to come by and would-be sellers were not tempted by low asking prices.
In the earlier part of 2008, some agency consolidation did occur. Travel and Transport bought Abacus Travel, and Altour International, CI Travel, Valerie Wilson Travel, Tzell Travel Group and The Travel Team each acquired other firms.
Tzell Travel Group made the largest M&A moves by far by merging with the Travel Acquisitions Group in the summer and creating new corporate travel management units under Travel Leaders Corporate. The activity included TAG's March acquisition of Coral Gables, Fla.-based TraveLeaders, Tzell's acquisition of Colorado's Polk Majestic Travel and 11 other agencies in Alabama, Florida, Georgia, Indiana, Missouri, Maryland, Oregon and Pennsylvania and the opening of a London office, which added $150 million in air volume to the company's performance.
The Tzell portion of the group now is focused on small corporate accounts, while Travel Leaders Corporate is managing the larger clients. According to Travel Leaders Corporate president David Holyoke, the division garnered $72 million in new business in March and April and is projected to surpass $100 million in 2009 new business this month.
Though M&A pushed revenues higher, as did the 9 percent to 11 percent increase in transactions in the first half of 2008, like most companies, the proverbial bottom fell out at the end of the third quarter, when clients on average reduced travel spending by 20 percent, said Holyoke.
"Ultimately, that's what led the three groups to become one," he said. "If we had to continue to make some of the cuts that were necessary to keep these businesses as viable as we wanted them to be, they probably in the end would have killed that business anyway. By coming together, we were able to generate a lot of synergies and cost-cutting initiatives to help us weather the storm."
Even as Travel Leaders doled out millions in 2008 for acquisitions, the company's ownership partners, including JPMorgan Chase's One Equity Partners, give it the liquidity for more buys in North America, said Holyoke, adding, "It has not been as rich of an acquisition market as we hoped or wanted."
Buffalo, N.Y.-based The Travel Team purchased three former Florida Carlson Wagonlit Travel franchises. With ample cash flow and resources through parent company Rich Products Corp., the biggest challenge for The Travel Team's acquisition strategy is accurately valuing potential purchases. "So many TMCs think the valuations lie in the old models of the multiples, and it's not true," said The Travel Team president Jean Covelli.
Omaha, Neb.-based Travel and Transport watched its ARC transactions rise 10.4 percent year-over-year to 771,760, driven by its acquisition of Boston-based Abacus Travel. Excluding the acquisition, the company's ARC transactions decreased 7.5 percent. According to president and CEO Bill Tech, the year started off promising, with business up 6 percent year-over-year, but early good fortunes steadily went south, with the fourth quarter down 20 percent.
To offset these losses, Travel and Transport reduced its workforce by 3 percent in October and implemented a voluntary employee time-off program, using incentives including gas cards and airline tickets. The moves saved the company more than $300,000. In 2009, employees were given another week of unpaid vacation, reducing salary by 2 percent as transactions fell another 15 percent.
Debt-free and employee-owned Travel and Transport is pursuing more acquisitions. "There are people who want to get out, but they don't want to sell because they are losing too much money," Tech said. "They are hoping it will come back and want to sell when they can show they are making a profit. It's the worst time for someone to sell unless it's a distressed sell, where they can't make payroll and they are forced to."
In another sizable consolidation move, Utah-based Christopherson Travel merged with Denver-based Andavo Travel in late January 2008 to form Christopherson Andavo Travel. Transactions were down 21 percent in the fourth quarter of 2008, but the 220-person company increased its ARC transactions 3.3 percent in 2008 to 225,925. "The merger was never meant to be a cost-savings merger, but a strategic merger to expand our marketshare and expand size and opportunities," said co-CEO Mike Cameron, who added that the company had limited layoffs and is restoring adjusted benefit plans June 1 as a new sales pipeline kicks in.
Travel management company 2008 performance numbers show a sharp juxtaposition to the past several years of growth. Just 11 of the 43 agencies represented in this year's survey showed ARC transaction increases in 2008: Adtrav Travel Management, Atlas International Travel, Balboa Travel, Christopherson Andavo Travel, CI Travel, Frosch, Linden Travel Bureau, National Travel Service, Travel and Transport, Travel Leaders Group and Ultramar Travel Management.
Birmingham, Ala.-based Adtrav surprisingly found itself in organic hyper-growth mode. Last year, the TMC increased its ARC transactions by 68.7 percent to 291,018 and saw ARC sales climb 84.3 percent to more than $155 million.
President and CEO Roger Hale attributed the drastic increases to new government contracts, including one with the Department of Commerce, and corporate business helped by new offices in Phoenix and Washington, D.C., making the TMC a more national than regional Southeast player. This spring, the company joined the Radius travel network to help serve its multinational accounts.
Adtrav invested a half-million dollars in telecommunications, enabling it to have local agent coverage without investing heavily in brick-and-mortar locations.
Fairfax, Va.-based Omega World Travel experienced a 12 percent decrease in ARC transactions to 845,208, primarily from the loss of one large government agency account and a 20 percent drop in its corporate business, said president and CEO Gloria Bohan. To stem the blow, the company reduced its employee workweek and more aggressively pursued other business segments, including leisure and cruises, and reduced some manual agent functions through mid-office technology investment.
World Travel also implemented technology investments to offset staff reductions. While clients were cutting travel transactions, World Travel president James Wells said they were demanding more data and reporting. The company responded by shifting programming responsibility to projects including a new online reporting platform and a new back-office accounting system planned for rollout later this year.
After seeing ARC transactions fall a relatively modest 5.3 percent in 2008, Wells said that he sees stabilization in the company's processed transactions and expects growth in new business, beginning in the second quarter of this year.
Also with a positive outlook is Adtrav's Hale: "Fortunately, we have always been a company that has been very conservative in our approach," he said. "When the downturn came, we didn't have any debt. I always say cash is king, especially in a down economy. I'm looking beyond this present downturn. We are going to come up on the other side and continue to make our investments."
Travel and Transport's Tech said this time is different from 9/11, which "was pretty much two horrible months and two mediocre months. This time it started leveling off second quarter and being negative in the third, fourth and now first quarter. It's lasted much longer. We probably laid off more people this time because we thought it's going to be for a longer duration. Even though things are getting a little better now, we don't see it coming back for some companies to the levels they were at before."
Although some TMCs have reported a slowing in corporate travel drops and the optimistic ones expect some recovery at the end of this year, most indicated they don't foresee volumes returning to levels seen in the years leading up to the recession, leaving them a markedly different agency arena to play in.
"The travel business will never look the same on the other side of this," The Travel Team's Covelli said. "There will be changes that we'll have to deal with forever. That's not a bad thing. This is an opportunity to put ourselves in check, and we have."•