Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, September 25, 1994 TAG: 9411050004
SECTION: BUSINESS PAGE: F1 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
Fare wars among airlines have sliced into the income of travel agents, who live on commissions paid by carriers, hotels and other companies with whom they book their clients. Consumers generally get the services of a travel agent for free.
Competition among airlines has caused air fares to fall, dragging down the dollars generated from formerly lucrative commissions.
Also, competition has increased among the agencies as more people have entered the business in recent years.
But the dark financial cloud in the skies is a proposal by Delta Airlines, which is considering a cut in the rate of commissions it pays agents, from the present 10 percent of fares. If a giant like Delta follows that course, other airlines are expected to follow.
Delta, which has not set a timetable for any of the proposed changes, already has closed its two Virginia sales offices, in Richmond and Norfolk. Clay McConnell, Delta spokesman in Atlanta, said the airline now markets to Virginia customers through one sales representative, based in Norfolk, who travels throughout the state.
And last month American Airlines announced it intends to cut nonlabor expenses by $250 million a year but did not specify the source of that reduction. Air fare commissions are the airline industry's largest expense after wages and fuel.
If the commission percentage falls along with the declining fare base, many agencies will be hurt, said Ted Moomaw of World Travel Service.
"Delta is getting very aggressive," said Gene Swartz of Travelmasters. "It would definitely hurt. ... That is the dominant source of our income. It is how we live."
"It would cut us a lot. It would not be good for us," agreed Heinke McDade of McDade Travel.
"We guess we could survive - we guess," said Reynolds Lynch of Travel Professionals.
The American Society of Travel Agents is not quite so sanguine.
Steve Loucks, spokesman for the Alexandria-based society, said it estimates that 5,000 of the nation's 32,336 travel agencies would go out of business if the commission level drops by a single percentage point to 9 percent.
A cut to 8 percent, Loucks said, and 10,000 agencies would fail - nearly a third of the industry. If so, 60,000 people would be out of work, he said.
And the rumored 25-percent cut being considered by Delta is 7.5 percent.
This would be added to an industry already so strained that 2,820 agencies went out of business last year, according to the Airlines Reporting Corp., the industry clearing house for airline ticket revenues.
What would be left after the potential carnage, Loucks said, are the "mega-agencies" in major metropolitan areas that deal primarily with business travelers and national corporate customers. Forced out, he said, would be the smaller, independent agencies like many in Roanoke.
Delta answers inquiries with a written statement that it "is looking at all costs. Certainly, distribution costs are one of our major expenses."
Distribution means travel agencies, which write 80 percent of all airline tickets.
Delta, which serves Roanoke through two affiliated commuter airlines that connect through Atlanta and Cincinnati, said it will not compromise safety or customer service, "but every other area is being scrutinized carefully. All options are being investigated."
The airline said it has no timetable regarding further announcements. "Any changes that are made to marketing and distribution practices will be fully communicated quickly and broadly to the travel industry."
Loucks said the American Society of Travel Agents "has a continuing dialogue with Delta."
Any change in the present distribution system "would not be without its own financial ramifications," he noted.
In short, Delta and other airlines would have to hire their own reservations sales agents to pick up the slack and serve passengers.
"We'd be mighty busy" if it had to hire people to dispense the 80 percent of its tickets that now are sold by travel agents, said Rob Gustafson, spokesman for Atlantic Southeast Airlines, a Delta-affiliated commuter airline serving Roanoke.
The airlines, Loucks said, are going through a painful time with record-breaking financial losses.
"We are holding out our hand and saying we will work with you in coming up with solutions," Loucks said.
He expects a decision on the issue within the next few weeks.
But even if Delta leaves its commissions at 10 percent, travel agents foresee difficult changes in their industry.
They also face threats from technology on the more distant horizon.
A company in Florida, for instance, has placed video kiosks in more than 800 drugstores to help travelers. Another company, Docunet Inc. of San Francisco, plans to install 1,000 ticket machines in supermarkets.
USAir, which has a 64 percent share of the Roanoke market based on the most recent passenger counts for July, is experimenting with an automated machine at its Baltimore hub.
David Shipley, spokesman for USAir, said the airline experiences a high frequency of air travel between Baltimore and Boston. As a test, it installed a machine that sells only tickets from Baltimore to Boston and return.
The machine has been in place only a few weeks, he said, but so far the airline considers the experiment to be a success. If the system works, it may be expanded.
Shipley said USAir is seeking less-expensive and more-efficient ways of selling tickets, but it is not contemplating a cut in commissions to travel agents.
Older travel agencies recall when selling airline tickets was a pain in the pocketbook.
World Travel Service was Roanoke's first travel agency. It was founded in 1923 by Frank Sherertz, who also headed the Better Business Bureau. He ran both from the same office.
Moomaw's mother, Gwen Moomaw, bought the agency about 1960, changing its name from FJS Worldwide to World Travel.
"Travel agencies have always faced challenges of one kind or another," Moomaw observed.
Prior to the mid-1970s, the challenge was working in a noncomputerized environment. Customers called the agent, who had to telephone the airline for schedules, then call back the customer for a decision. That meant another call to the airline, then writing the ticket by hand.
Travelmasters was Roanoke's second travel agency, opening in 1958. Swartz bought the place in 1972.
He can remember agents waiting for airlines to answer a phone call, much as people must hold today if they call USAir or other busy airlines directly. When one agent finally contacted an airline, he said, the phone was passed around the office until all the agents had an answer to pending questions.
There was no money in airline tickets in those days.
They became the bread and butter of the travel-agency business with the arrival of the computer. Today an agent can provide the customer with information about flights and fares, make the reservation, then print the ticket within minutes - all in one brief call.
Local agencies declined to discuss their revenues. Nationally, however, airline tickets accounted for 61 percent of travel-agency revenues in 1992. Industry surveys suggest this figure has dropped to about 50 percent and is expected to shrink further.
The tendency, therefore, is to emphasize business travel - tickets, hotel rooms and rental cars - over leisure travel. But Moomaw said most agencies try to stay diversified.
The two types of travel are very different aspects of the business in agents' approach and attitude, Moomaw said. He operates them with different staffs on separate floors of his downtown building. (He has other branches at Blacksburg, Tanglewood and Pulaski.)
Business travelers want immediate confirmations for their arrangements, he said. Business is the point of the trip, and the transportation is just the means of getting there.
Swartz said the average commercial traveler books no more than four days in advance and, more often than not, makes at least one change in those plans because of a change in a meeting. He retains a California company with a toll-free number that is available around-the-clock to amend bookings while clients are on the road.
In leisure travel, on the other hand, the trip is the point in going, Moomaw said. Clients talk to travel agents to explore their options for a vacation, and they want brochures. A great deal of research is required.
And in contrast to the quick service emphasized for a business traveler, Swartz estimated that his agents spend 45 minutes to an hour with vacationers before they book anything.
Location of the agency is also a factor. Travelmasters' downtown Roanoke office handles commercial bookings almost exclusively, while the one at Townside Festival shopping center is devoted largely to leisure travel. The agency also has an office in Blacksburg.
The business is also seasonal, with leisure travel limited largely to summer when commercial trips drop off.
The two aspects of the business seldom overlap. Swartz said most business travelers seem to prefer to drive to the beach rather than negotiate still another airport. Or, more likely, they have enough frequent-flyer miles to claim free air tickets.
Moomaw said both types of business are profitable, although in recent years business travel was more profitable because it could be handled more efficiently and effectively by computer.
Then came the airline wars with declining revenue for everyone and huge losses for the airlines. Moomaw said it often is necessary to rewrite tickets that already have been issued, at great cost to the travel agency, when air fares suddenly drop.
In one air-fare war, he said, World Travel saved its customers $35,000 by rewriting tickets even though its commissions fell $3,000 at the same time. (Some $5,000 of the customer savings were in taxes, to which no commissions apply.)
On a more positive note, Moomaw said the hotel business bottomed out two to three years ago. With increased travel, hotels are well able to afford their commissions paid to agents.
Some agencies in other cities, Moomaw said, are trying to increase revenue by turning themselves into travel boutiques. They sell battery shavers, neck pillows, money belts, passport photos and other travel paraphernalia.
Others are trying to find niches, such as agencies in convention locations who specialize in meetings and conventions. Still others book only a certain type of travel, such as cruises.
A newer specialty, Moomaw said, is incentive travel or arranging trip packages as prizes for client contests.
McDade Travel operated as a branch of the nationwide Carlson Travel Network for several years, but Heinke McDade said she dropped the franchise Aug. 1. She joined the independents that dominate the Roanoke market.
McDade explained that she believed she was paying more to the national network than she was receiving in benefits.
Moomaw said he has seen the number of travel agencies here double in his 25 years in the business.
That trend seems to have abated, however.
Lynch said he believes his agency is the newest in Roanoke, and it was founded Nov. 1, 1988. The one that opened subsequently, Uniglobe at Crossroads Mall, went out of business.
Even though the market "is pretty well saturated," Lynch said, his agency has performed well, thanks to his wife's long experience in the travel industry and his own background in business and accounting.
Travel Professionals moved in January from Century Business Center, where 90 percent of its sales were in commercial travel, to the Forum on Starkey Road, where leisure travel has claimed 25 percent of the revenue.
The ideal that every travel agency works toward in an uncertain world, he said, is a 50-50 split between the two types of business.
by CNB