Last year was a weird one for travel agency air booking
volumes in the United States. For the agencies that handle most of the business
travel in the country, those that ARC categorizes as "mega" and "other"
in its transaction count breakouts, 2012 featured pretty wild swings, with
growth appearing here and there for a couple months before a sometimes
substantial dip.
[Please click here to
view the digital edition of the 2013 Business Travel Survey, featuring all
charted data, downloadable as a pdf.]
The good news for these travel agencies last year was that a
negative trend never occurred for longer than two months, unlike in the "online"
travel agency category, where year-over-year comparisons went negative in March
2012 and never recovered. Even through March 2013, reductions followed one
month after the next for the OTAs, an ARC category that by and large represents
leisure air travel (though it does include some independent business travel and
the managed activity of Orbitz for Business and Travelocity Business).
Yet, the OTAs' recent losses may not be the travel
management companies' gains. Following a January 2013 survey of more than 2,500
consumers, PhoCusWright in April revealed that for the first time since it
started publishing its U.S. Consumer
Travel Report five years ago, more travelers indicated they typically
purchase flights via supplier websites than via OTAs. "This shift in
behavior marks an epic change not only from 2008-2011, but from consumers'
longstanding tendency to value price, an array of choices, and convenience over
brand loyalty (or even interest in a brand)," according to PhoCusWright. "In
2012, supplier sites led OTAs by two percentage points, in stark contrast to
OTAs' four percentage point lead in 2011."
Are supplier sites a threat to TMCs? They may be a rival,
especially if they continue to increase their unique content and functionality,
but they don't cater to managed business travel. Some say airlines and hotels
really wouldn't want to be in that business, and their websites mainly compete
with their own call centers.
Eric Altschul, a former American Express exec who after more
than a decade in consumer travel recently partnered with Deerpath Capital to
buy ABC Corporate Services, said investors still ask whether travel agencies
are going away.
"Do people still use them? Don't they just book online?"
Altschul asked rhetorically. "But if you look at the numbers, the travel
agencies—traditional, leisure, corporate—have stopped losing share. OTAs took a
big bite out of them, but that has really leveled off. Agencies have figured
out how to demonstrate they have a lot of value, and you don't see them
shrinking like they did 10 years ago. TMCs have maintained their place in the
food chain, but how they service their customers and how they want to be
serviced and be compensated has changed. A lot of inefficiencies have been
taken out of the industry, some forced by suppliers."
While corporate TMCs on the whole seemed more up than down
last year, there were exceptions. American Express Global Business Travel was
one of them, with global corporate travel sales dropping year-over-year in
every quarter of 2012. The full-year figure was down 4 percent to $18.9
billion. The March 2013 quarter also showed a 4 percent decline. Global air,
hotel and ground transportation sales volume at Carlson Wagonlit Travel in 2012
fell 1.1 percent to $27.7 billion, the company announced in February. Those two
companies are members of ARC's mega category, as is Omega World Travel, which
again showed its exposure to government spending cuts; its ARC air transactions
fell to 483,696 in 2012 from 534,745 in 2011, and ARC air sales dropped to
about $310 million from $351 million.
On the upside, BCD Holdings claimed 2012 global sales of
$22.8 billion, about 10 percent higher than the firm reported in 2011. Slightly
aided by acquisitions, Egencia boosted total gross bookings volume to $3.6
billion from $2.6 billion, according to parent Expedia.
Big Consolidation In 'Other'
Segment
The biggest U.S. TMC acquisitions in 2012 came from ARC's "other"
category, where Travel Leaders Group and Travel and Transport bought Protravel
and Ultramar Travel Management, respectively.
Comprising Tzell Travel Group, Travel Leaders Corporate and
now Protravel, Travel Leaders Group neared $1.6 billion in ARC air sales last
year, up about 6 percent from where the three were in 2011. The combined
company in 2012 topped 2 million ARC air transactions. All three units grew,
but the smallest, Travel Leaders Corporate, led the way with 27 percent higher
ARC air sales of $172.3 million.
With 1.2 million transactions and $779.6 million in ARC air
sales last year, Travel and Transport, including Ultramar, recorded 3 percent
more transactions than the year before.
Travel Leaders indicated it has made no layoffs following
the Protravel deal. Ultramar and Travel and Transport actually have grown by 25
people since the businesses combined. Both Travel Leaders and Travel and
Transport are keeping intact their acquired brands.
Not every year features two big deals like Protravel and
Ultramar, each boosting the buyer's total ARC transactions processed by about
one-third, but consolidation continues unabated in the business. Other 2012
acquisitions included Adelman's acquisition of Great Southern Travel, Altour's
deal for Passageways, Directravel's purchase of Travel Management Corp. and CI
Travel's acquisition of the corporate travel division of Azumano Travel
Services. Altour and Travel Leaders Group also completed several smaller deals,
while Atlas Travel and Valerie Wilson Travel each bought one smallish agency.
Australia's Corporate Travel Management acquired both Polk
Majestic Group and, in 2013, TravelCorp. Sabre soon is expected to sell
Travelocity Business. BCD Travel has said it is seeking acquisitions.
Travel and Transport president and CEO Bill Tech said
M&A activity will continue, but not because of the proliferation of
technology or compression in business travel. "We're up to around 50
percent online booking," he said. "We couldn't have continued to grow
and find agents if not for that. No, I think there are a lot of people that
will have to sell their agencies just because they're not getting any younger."
Ultramar president and CEO Peter Klebanow said the
consolidation of old was the result of agencies that "couldn't adapt to
the technology, but future consolidation will likely be driven by either people
needing to exit" or any changes to the business model, such as a reduction
in supplier income.
Revenue Uncertainty?
Certainly
It's just one part of a TMC's revenue mix, but it's an
important one for a corporate travel agency, and anyone who claims they can
read the tea leaves on airline compensation must be smoking them. This includes
both the airline override commissions that still do exist, though not for
everybody, and the income from global distribution systems paid out on airline
segment bookings.
The biggest news of late is about the International Air
Transport Association's New Distribution Capability, which this spring had
players up and down the corporate travel distribution chain giving an earful to
the U.S. Department of Transportation. An odd request by IATA for DOT approval
of NDC sparked the debates, and though DOT may not actually rule on the
request, the intensity of the discourse is not unlike previous industry
discussions on distribution. Like those, too, it may or may not augur big
changes.
As has been the pattern, airlines are proposing changes that
they say would not exclude global distrbutino system firms while GDS firms and
the travel management companies they pay for air booking segments are not
trusting IATA's company lines. TMC execs are hopeful that airlines would use
NDC to facilitate the sale of add-on services and merchandizing through the TMC
channel—and that they would be compensated for that. Airline officials
sometimes agree that TMCs should be paid for such work, but who would do the
compensating, and how, has not been illustrated.
"It's not that we're greedy," said T&T's Tech.
"We have such slim margins and this will take more work, but no one is
willing to pay us."
"We simply want more information," said World
Travel Inc. executive vice president Dee Runyan during The Beat Quarterly
webcast in April 2013. "We need some transparency of the downline effect
of what type of change it would bring into the industry. There are costs to
completely overhaul systems in place today."
"There are plenty of devil-in-the-detail questions,"
said ARC president and CEO Mike Premo during the same webcast. "Taking the
20,000-foot view, anything that's going to provide content customers can get on
airline websites through the third-party distribution community is generally a
good thing. NDC wouldn't exist if carriers weren't trying to find way to put
that content into the TMCs' hands. GDSs do support ancillary sales, but the
issue that creates concern within the carriers is more the 'how.' I think NDC
will give them a more robust way to do that for the customers."
IATA aims this year to begin testing NDC with TMCs.
According to IATA, "The rationale behind the New Distribution Capability
is to increase competition, stimulate innovation, reduce distribution costs and
improve consumer choice."
Competition, innovation and choice all sound good. It's
reduced distribution costs that worry TMCs.
Travel Agency Survey
Methodology
Business Travel News
again this year asked travel management company chief executives to sign
release forms and send them to Arlington, Va.-based Airlines Reporting Corp.,
authorizing the U.S. bank settlement plan organization to release for
publication each agency's 2011 and 2012 ARC air ticket transaction and sales
data.
BTN invited
agencies that book more than half of their sales for business travel through
ARC to release ARC data for wholly owned home offices and legal entities,
including all branch and satellite ticket printer sales data and the percentage
of tickets purchased for domestic travel. ARC provided only ARC air transaction
and sales data and the percentage of sales booked for domestic versus
international travel. ARC defined net air sales as the total fare amount minus
the commission. The sales figures represent the home office location's total
net sales. Air transaction counts exclude refunds, exchanges and voids. All
other data, including non-ARC sales and transactions, are self-reported. This
volume may include purchases made with carriers that do not participate in ARC
(such as Southwest Airlines), through vendor websites, sales to ARC-accredited
Corporate Travel Department accounts and such bulk-buy programs as American
Airlines' AAirpass. Publicly held American Express and HRG, privately held BCD
and Carlson Wagonlit and all online-originating players did not participate.
— With reporting by JoAnn
DeLuna and David Jonas
This report
originally appeared in the May 27, 2013, edition of Business Travel News.