As the cost of doing business climbs, host agencies, retail groups say they have options

As the cost of doing business climbs, host agencies, retail groups say they have options

This story originally ran in the March 28th, 2019 issue of Travelweek magazine. To get Travelweek delivered to your agency for free, subscribe here.

TORONTO — It’s one thing to know that owning and operating a travel agency comes with significant financial responsibilities. It’s another to see many of those costs itemized in black and white.

In this third installment of Travelweek’s 5-part series, looking at options for owners for small to mid-size agencies who may be looking to downsize their responsibilities – or even to sell while still staying in the industry they love – we talked to agents and agency groups, from host agencies looking to grow their membership ranks, to retail groups interested in acquiring smaller agencies, about the costs of doing business.

Not including rent and staff payroll and other major expenses, which vary widely from city to city, an owner’s list of pesky but must-pay items for a small to mid-size agency in Ontario might look like this (all prices per year and approximate):

  • Audit: $3,500
  • TICO: $1,000
  • Telephone system: $3,500
  • E & O insurance: $1,500
  • IATA: $400
  • Website: $3,000 per year
  • Booking engines: $1,500
  • Accounting system: $3,000
  • CLIA membership: $400

Flemming Friisdahl, founder of The Travel Agent Next Door, says the major concerns he’s hearing from owners of agencies in the $1 – $3 million bracket, are threefold. “One, there is too much work outside just selling travel, from audits, to making sure you are PCI compliant, to bank reconciliation, to figuring out if you are getting the best prices on phone systems to insurance for the office (like Errors & Omissions).

“Two, owners are asking ‘How do I make sure that I keep the customers I have presently, plus cover the costs of a website, the cost of the booking engines on the site and then how do I keep it up to date?’ And they’re also saying, ‘And then for other marketing like e-mail campaigns, I don’t do it but I need to stay in front of my customers. And how do I provide magazines/print marketing to my customers when I am not making a lot of money as it is?’

“Three, I’m hearing ‘How do I make sure I get the maximum commission, even being with a consortium? The suppliers are tiering the agencies much more, so it’s hard to keep the sales up.’

“And four, I’m hearing ‘How do I not lose my agents to home-based agencies, they have better programs and can afford to pay them more commission.’”

Asked if The Travel Agent Next Door has seen an increase in the number of inquiries from agencies looking for options as they face the future, Friisdahl says an emphatic “YES”.

He adds: “Most certainly, and as most costs (rent, phone, insurances, bank fees, compliance requirements) are getting higher it is harder to make money. Most agents love selling travel but are not enjoying the admin side of running the office, payroll, doing contracts with agents, to doing all the requirements you have with TICO or CPBC (Consumer Protection B.C). The key is, most agency owners can make more money, doing less work and selling only the kind of trips they like to sell, while still (if they wish) slow down a little and smell the roses.”

With The Travel Agent Next Door, says Friisdahl, agency owners “can still own their business and offload all the back end work while making more commissions”.

Other host agencies with storefront options include TPI and Independent by Flight Centre. IFC General Manager Lee Zanello says agencies with $3 million or less in sales fit perfectly with a host model as they have enough back end support needed to justify switching to a host model to ease that burden.

Says Zanello: “These agencies will often have multiple agents working in the office or as a part of the team working offsite and the technology and communications systems we offer as a part of the host experience can help bring efficiency to that team dynamic.  Put simply, we have the ability to take all the parts of running their business that they don’t like off their plate so that they have more time for the parts they do enjoy.”

Technology is a major obstacle for many smaller agencies, confirms Brian Robertson, President, Vision Travel Solutions. “Many small- to medium-sized agencies are having a hard time keeping up with evolving technology and the associated costs,” says Roberston. “They got into the travel business to sell travel and find the operational overhead takes up too much time. In addition, the globalization of travel is removing a whole segment of client and future opportunity from the SME agency. Most of them cannot qualify for these opportunities simply because they do not have the network to support it.”

Uniglobe’s Regional VP Eastern Canada, Joel Kopstick, agrees. “To be competitive in today’s world, you need technology which is out of reach for most small to mid size agencies in terms of cost and human resourses to operate it.” He adds that Uniglobe offers corporate programs, marketing and leading-edge technology which allow agencies to compete and thrive while maintaining their independence.

A B.C. agent shared her experience. Powell River Cruise & Travel’s Viv Watson opened her storefront about 20 years ago. “I loved being in control of my own destiny but really didn’t enjoy all the paperwork and regulations that is actually fairly onerous in the travel industry. And also the costs of rent, licensing, fees, etc. I got into the business in the first place because I loved the interaction with people and was finding that more and more of my time was spent on administration.”

An economic downturn made it harder and harder to keep the doors open as a brick-and-mortar shop. “And even though I am in the ‘sunset’ of my career, I wasn’t quite ready to retire, so started exploring other avenues that would keep me in the industry on my own terms,” she says.

Her decision to join forces with a host agency, says Watson, who now runs her storefront as part of The Travel Agent Next Door network, meant a higher rate of commission on sales from preferred suppliers, less paperwork, lower fees for licensing and registrations, a marketing program and commissions paid twice a month with direct deposit.

Travelweek’s 5-part special series looks at the options available particularly to owners of small to mid-size agencies with annual sales of up to $3 million or so, who may be looking to sell, or downsize their responsibilities, while remaining in the industry. Click here for Part 1 and here for Part 2.

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