2008 Business Travel Survey: Agencies Target Midmarket Accounts, M&A
Super regional and regional travel management companies focused on bolstering their presence with midmarket clients in 2007, not only by continuing to emphasize service delivery but also through merger and acquisition activity. Even as competition with online agencies for that business appeared to ease somewhat last year, all the mega agencies sought to intensify their focus on midmarket companies, especially Carlson Wagonlit, which put its money where its mouth was.
Of the 42 corporate-owned agencies in Business Travel News' 2008 Business Travel Survey, nine reported making at least one acquisition in 2007. Tzell Travel Group acquired 11 U.S. agencies during the year, adding more than 70,000 ARC transactions and $85 million in ARC volume.
Survey newcomer Altour International also was on the buying path, making purchases of three U.S. agencies, including Washington, D.C.-based Dimensions Travel Management, adding a combined $12 million in ARC volume.
Another new survey entrant, Houston-based Frosch International Travel, expanded its reach with buys of 65 percent corporate agency Thomas Travel Service of Chalfton, Pa., and San Mateo, Calif.-based Bryan International Travel, which had $10 million and $8 million in ARC sales, respectively.
The massive 2006 purchase of former midmarket agency rollup Navigant International gave CWT an accelerated and stronger foothold in the midmarket, but the company traveled further down the midmarket M&A path last August. That's when it acquired Braintree, Mass.-based Preferred Travel, which CWT claims handled $80 million in annual air sales. In March 2008, CWT acquired regional TMC Traveltime Services of Nashville, Tenn.
"Navigant was a good rollup with good companies and that became the Navigant that we acquired," said CWT president and COO of North America Jack O'Neill. "Vice president of finance, global mergers and acquisitions John Coffman, who did that for Navigant, is with us and works for president and CEO Doug Anderson. We've got some resources carved out to continue those smaller acquisitions, and we will."
Short's Travel Management was the acquisition target of one mega agency in 2006 and another in 2007, but due to healthy organic growth, increased diversification of clients through local agency buys in 2006 and other lines of business primary owner and president David LeCompte isn't selling any time soon. "Corporate business used to be the biggest piece of the pie and it still is, but these other things have helped us weather some of this stuff," he said.
The Overland Park, Kan.-based regional agency has survived on its own despite the 23.7 percent decrease in ARC transactions in 2007, primarily from the loss of borderline Corporate Travel 100 account Deere & Co. to a mega agency. In an effort to better compete for multinational accounts, the company became a founding member of the HRG North America affiliate program, which gives HRG a buyout option if LeCompte ever chooses to sell.
Meanwhile, all travel management companies were challenged by the rising costs of travel, softening demand and corporate cost cutting initiatives. With the possibility of a recession looming, an aging agency ownership population and cost restraints, coupled with some agencies piling the sandbags to defend against the mega agency push into the midmarket, consolidation could become accelerated, but some travel management company executives said the remaining agencies could be better suited to weather the storm this time around, as many agencies were shaken out during the early 1990s recession and the travel standstill following 9/11 and have adapted to technology innovation, commission elimination, the conversion to e-ticketing and global distribution system-generated opt-in fees.
ARC-accredited home office locations decreased 6.5 percent from 2006 to 898 in 2007, down from more than 2,000 prior to 2000.
"We as travel management companies need to figure out how to deliver the type of service they want for less money, while still managing to make a profit," said Milford, Mass.-based Atlas International Travel president Elaine Osgood." That's where using technology and other strategies comes into play. An environment like today forces you to really scrutinize what's going on internally."
Consolidation and economic challenges also have changed the way agencies do business with corporate clients by either absorbing higher costs or passing them through, and in some cases reconfiguring fee structures as TMCs aim to strip out costs and run more efficiently on leaner operations.
Omaha, Neb.-based Travel and Transport has shifted its pricing strategy in the face of a travel downturn from a management fee model to a transaction-based structure to offset costs and work more cost effectively for their corporate clients. The company, which had a 4.5 percent ARC transaction increase to 738,854 transactions, made its own acquisition move in January 2008, buying Peabody, Mass.-based Abacus Travel, which had 83,206 ARC transactions in 2007, a 9 percent increase from 2006.
While the industry has evolved from a commission fee environment to a service fee world, Carlson Wagonlit Travel's O'Neill said a mix of fee models enables agencies to remain strong in the current economic environment. "It's hard to imagine that a recession won't create a consolidation," O'Neill said. "We are in a business where no one is raising prices. If you're in a transaction fee world, you'll get hit harder during a recession. We are pretty evenly mixed between management fee clients and transaction fees. With management fees, you at least have the opportunity to take out cost with the customer."
CWT already has seen the macroeconomic conditions affecting business. In 2007, the first full year in which Navigant's totals were aggregated with CWT's numbers, the company had 11,001,156 ARC transactions, a 3.3 percent decrease from 2006. Said O'Neill, after three years of the seas steadily rising "in base business growth that was probably 3 to 5 percent for pretty good sustained periods, leveled off toward the end of last year and it's down a little bit this year."
Following the procedure first devised in 2003, Business Travel News asked travel agency 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 2007 ARC air ticket transaction and sales data.
BTN e-mailed agencies that book more than half of their sales for business travel to authorize ARC to release summarized 2007 and 2006 transaction and sales counts 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 only released figures for agencies that provided written consent from authorized agency owners or officers, and defined net air sales as the sum of the fare listed on each ticket exclusive of agency commissions. 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 through vendor Web sites, 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 Travel and all online-originating players declined to participate in this survey.