This industry comprises establishments primarily engaged in furnishing travel information and arranging tours, transportation, rental cars, and lodging for travelers. Establishments primarily engaged in arranging and assembling tours directly to travelers or through travel agents are discussed in SIC 4725: Tour Operators.
Travel agents were significantly affected by two factors in the early 2000s. First, travelers were increasingly using the Internet to book their travel, bypassing traditional agents. Second, the terrorist attacks of September 11, 2001 brought all travel—both business and leisure—within the United States to a screeching halt. In the aftermath of the attacks, security concerns and a depressed economy left agents with few customers. Just as travel agents were looking for consumers to regain confidence in the safety of travel, and as the economy showed the first signs of recovery, the United States entered into the Second Persian Gulf War in early 2003, once again leaving Americans feeling the need to stay close to home.
Experts agree that the economy, as well as the travel industry, is starting to rebound, due in large part to consumers overcoming their cautionary feelings regarding air travel. Travel agencies nationwide reported an average 4 percent increase in weekly sales figures in 2003. Nonetheless, the future role of travel agents is questionable with the ever-growing use of the Internet to plan and book travel arrangements. Agents also will have to deal with less-than-perfect relations with airlines, cruises, and tour groups—all of whom are themselves struggling to stay afloat.
The need for offering professional service in order to be successful was evident for both the online travel agency (OTA) or "self-service agency" and travel management company (TMC). There were varying opinions about whether one business model would prevail over the other one, or if they would eventually converge.
The travel agency industry is dynamic, and in a relatively constant state of transformation and growth. While no longer expanding at the explosive rate (almost 20 percent annually) of the early 1980s, the industry continues to grow. Mergers and acquisitions have been substantial during the 2000s. The mega-firm has become an important facet of the industry.
Midsize TMCs have become successful working with both mega-firms and OTAs. This was especially true for global distribution systems (GDS) experts capable of accessing multiple channels of information.
Travel agencies can be found in virtually every community in the United States. The greatest share of travel agency locations has been in the eastern United States (30 percent), with the western United States close behind (28 percent). The South had a 22 percent share, and the Midwest had 19 percent. Central city locations account for more than 50 percent of the total, and the uneven growth of the 1980s—with the suburbs and small towns gaining disproportionate numbers of locations—not only subsided, but reversed itself. The share of rural and town locations dropped quite significantly to 9 percent, from nearly 12 percent in the late 1980s. With the emergence of Satellite Ticket Printers (STPs), automated ticket distribution machines began to replace branch offices altogether, a trend that may well continue.
In examining location revenue trends in the travel agency marketplace, the pattern seems somewhat obscure. Not only is the proportion of larger agencies (those with more than $5 million in revenue) growing rapidly, the proportion of smaller ones (grossing under $1 million) is increasing at an equally conspicuous rate. The percentage of the industry's large locations has risen steadily and their share of total industry revenue has risen to more than 33 percent. At the same time, small locations and home businesses make up almost 30 percent of the industry. While seemingly contradictory, these trends are, in fact, results of the same overall movement of the industry toward consolidation into a number of "mega-agencies," or regional and national branch and franchise networks. Such firms have the resources to set up large offices in prime locations and to establish small branch agencies that are run in coordination with the main offices. Whether or not these smaller branches are profitable, they do augment name recognition, which is of utmost importance to any agency in this increasingly competitive market.
The steady expansion of the industry in the 1990s had a completely different character than the boom period advances of the 1980s. The segment of the industry that expanded most in the 1980s—comprising the majority of the independent, single-location agencies with between $1 million and $5 million in revenue—came under pressure. The majority of agency locations still fell into this category in the 1990s, but it was a dwindling majority. Especially significant was the decrease in agency locations at the lower end of this group—those grossing between $1 million and $2 million—which were not as eagerly pursued by the acquisition-minded mega-agencies as were those locations with greater revenues.
The high level of consolidation activity in the travel agency industry is best assessed through the steep upturn in acquisitions. Almost a third of all agencies have acquired another agency already, and there are no signs of the buying spree slackening. In 1991 American Express Company purchased Lifeco of Houston, a firm whose airline ticket sales exceeded $1 billion annually. This acquisition provided a new scale for the already highly charged marketplace environment. Many smaller agencies also felt they had much to gain in terms of access to the latest technological innovations and overall support than they had to lose in giving up their autonomy. For this reason, they pursued buyers. Typically, the cost of purchasing an agency location is set at between 3 percent and 7 percent of its latest annual sales.
Despite the industry's consolidation, it remains first and foremost an industry of small businesses. Even in the face of intensifying competition, single-location firms still make up the vast majority of agencies, and in addition, they have successfully developed alternative business strategies to stay afloat. One common tactic is to seek out corporate clients—89 percent of all agencies handle at least one corporate account. While only large agencies can manage the travel accounts of most medium-sized and large corporations, these accounts make up about only 28 percent of all the corporations that use travel agencies. The rest (those with fewer than 100 employees) compose a huge market for the services of smaller agencies. Quite simply, more agencies are attracting fewer business clients: certain companies may feel better served by an agency without too many other commitments. The particularized service that a small agency can provide has proven to be an effective selling point in building an agency's business travel base.
Promoting themselves in terms of the unique, personal service that they offer, small agencies have also secured a place in the leisure travel market, a market in which the travel agent is often solicited as an advisor to the traveler. Although not widespread, there has been some noteworthy fragmentation of the leisure market into agencies specializing in travel niches (e.g., singles travel, or travel to certain parts of the world).
Membership in travel consortiums is seen as a way of benefiting from consolidation without ceding direct control of the business. Through consortium membership, an agency develops close working relationships with other member agencies. An increase in purchasing power results in significantly higher override commissions from preferred suppliers and in cheaper access to expensive services that foster office efficiency. These immediate paybacks, however, are not the only focus. Many agencies feel consortiums, through annual meetings and newsletters, ensure that they remain up to date on broad developments in the industry. Consortiums also give travel agents a unified voice that increases their ability to influence supplier developments that affect them. In the 1990s nearly half of all U.S. travel agencies became affiliated with a consortium of some sort, and there are few signs of this trend slowing, since business travel consortiums have begun to catch up to leisure travel consortiums in membership numbers.
Of course, consortiums are not only set up for small agencies, and the growing number of business travel associations are welcoming more and more mega-agencies. Access to consortium arrangements will...