Why Are Some Megas Acting Like Dinosaurs?

<B>Why Are Some Megas Acting Like Dinosaurs?</B>

Experts in anthropology believe the dinosaurs disappeared from the face of the earth due to a cataclysmic event. Certainly the reduction of commissions and the imposition of caps were enough to shake the industry and, for some, agencies proved calamitous. Add the development of the Internet and the impact it already has had, along with rapid acceptance by travelers and you have a one-two punch that has floored many agencies and may lead to the demise of others. Are the mega agencies big enough to withstand these events, or has their long-term survival been undermined? Are some of the actions they are taking speeding their downfall?

Business travel agencies are losing market share to the Internet. Point-to-point repetitive bookings that make up the greatest percentage of business travel, where the traveler usually is more knowledgeable than the agent serving him or her, are the types of transactions at greatest risk. So, why are some agencies alienating existing clients or rejecting the opportunity to serve new companies?

In recent months, we have observed more refusals to bid by some of the major agencies than at any time in the past. After renegotiating old contracts that required rebates, agencies now are basing their pricing on management fees or transaction fees that should return a reasonable profit. Evidently, not profitable enough for some of the largest agencies. Many are withdrawing from long-term relationships and are subverting opportunities to develop new customer alliances. Without identifying either our clients or the agencies, recent examples of non-negotiable termination and rejection of a bid opportunity follow:

"Thank you for the opportunity to attend the bidder's conference and review your RFI. After assessing the information provided, our agency has decided not to respond to your RFI."

"Please accept this letter as written notice of our termination of the Travel Service Agreement entered into on Jan. 1, 1996. The many economic changes in the travel industry, coupled with your current approach to policy compliance has made it difficult to simultaneously keep costs in line, while maintaining service levels. Should you determine that the decentralized structure and unique labor requirements are not required in the future, we would welcome the opportunity to once again provide our travel management services."

With the rising tide of e-booking options that do not include the participation of a travel agency, we cannot fathom the mindset of travel agencies that walk away from business without making every effort to compete for the business or protect an existing relationship built over many years. Are we missing something or have the mega agencies developed a new strategy that enables them to shrink their business while growing market share and profits? Will some mega agencies become the dinosaurs of the travel business?

Recognizing that there are sometimes more than two sides to every story, we welcome responses to this article in an effort to further educate the business travel community.

<I>Carol Salcito, president of Stamford, Conn.-based Management Alternatives Inc./MSIG, US, worked with several of the consultancy's associates to author this article.