Consolidation Is The Key To Biz Travel Agency Success

<B>Consolidation Is The Key To Biz Travel Agency Success</B>

Changing relationships between suppliers, customers, employees and competitors have affected the travel industry from top to bottom. Today, it is difficult for small travel agencies to survive on their own. The prevailing view in the industry is that bigger is better for all but highly specialized travel distributors. It is important for smaller companies to realize that the fragmented travel industry will continue to consolidate and that consolidation is the key to growth.

The forces driving consolidation in travel services are stronger and more plentiful than ever. Most independent agencies and distributors are either members of a larger consortium, franchise organization or sufficiently concerned to be in the process of aligning, selling, buying or merging with a larger company.

<LI> Major travel suppliers are forcing their distributors to become larger and more efficient. The airlines are taking the most strides in this direction, but are not alone as they push toward a dealership model by eliminating front-end commissions in favor of preferred partnership offerings for larger agencies.

<LI>Corporate travelers are demanding higher levels of service and sophistication, broader product selection and, at the same time, more competitive pricing. Having effectively migrated to a cost-plus model, corporate agencies are being challenged to reduce costs per transaction while increasing investments in training and technology.

Alternative purchasing avenues, from online booking to seller direct, and the popular perception of the airline seat as a commodity, support the customer's expectation that travel professionals must add value to earn a fee or commission. Travel managers also are more attuned to issues of stability and longevity among their agencies. All of these factors point to the benefits of larger scale resources.

<LI> Qualified, motivated people are the lifeblood of the travel industry. The majority of transactions will require human interaction, even in the most bullish Internet-based booking scenarios. Many experienced travel pros have left the industry altogether due to fear of the future and the lure of opportunities in other sectors. Retention and recruitment will remain critical issues, as larger companies will be able to offer better compensation, benefits, training and career paths.

<LI> As in other industries, consolidation has become self-perpetuating, as newly formed large players have changed the competitive landscape and placed more pressure on the remaining independents to join the trend.

The rise of e-commerce businesses and increasing threats from suppliers themselves to go direct also have raised the standards to be successful.

In the face of such forces, what is the best business model to accomplish the objectives of company owners and other parties at interest? Consortium, franchise, sale/merger or acquisition of others?

Generally speaking, experience has indicated that: Each model offers advantages over remaining independent, mainly by providing scale and resources; none have proven successful at meeting all objectives; and the changing industry environment influences outcomes in unexpected ways.

Having said this, it is possible to make the following observations:

<LI> Franchise and consortium models fall short to the extent that group negotiations are weakened by the inability to deliver individual member commitments. They also fail to provide owners with an exit strategy, financial liquidity or participation in group value creation.

<LI>Large companies with strong management and a highly controlled financial strategy successfully can acquire smaller companies and integrate them.

<LI> Sale to, or merger with, a larger consolidator can accomplish most objectives, except maintenance of control, which is typically ceded to the buyer. There are many variations of this model, with the form of consideration, ongoing roles and participation in future value creation among the more significant variables.

<LI>The most successful travel companies have reached their position in part through acquisition. Many are public companies that continue to acquire, recognizing that size matters. Large companies with significant resources and relationships will keep the travel industry prosperous and cutting-edge into the 21st century and beyond.

<I>James R. Tolzien is president, chief financial officer and treasurer at Miami-based travel management firm TraveLeaders Group.