River cruise bookings help small agencies thrive

Kate Rice talked with Bob Joselyn, president and CEO of Travel Agency Management Systems (TAMS), a financial benchmarking and networking group. Joselyn discussed what he is seeing happening with TAMS agencies with revenue between $3 million and $10 million annually. (This article originally appeared in Travel Weekly’s 2013 Travel Industry Survey. To view the full report, click here.) 

Q: How are the agencies you work within the range of $3 million to $10 million doing financially?

A: This has been a good year. They are making more money this year than they did last year. And 2013 was up over 2012. The profit before owner takeout, the money the owner has at the end of the day — and this includes whatever the owners pay themselves in salary plus bonuses and any other compensation for themselves — is about 30%, which is outstanding. The largest corporate agencies are 18.5%. Smaller agencies have to manage their business better because they operate so close to the bone. They have to watch their expenses carefully and market creatively.

Q: What is their cruise/tour mix?

A: There is a pretty good balance between cruise and tours, but there has been a shift away from cruises and toward tours. Agencies are finding tours much more lucrative. Tours have a higher commission than cruises because cruises have so many [noncommissionable fees]. I’ve had agents show me a $4,000 Alaska cruise on which the commission was 80 bucks by the time everything was deducted. So there’s a shift toward land when you can shift the customer. It’s a little bit; it’s not dramatic.

Q: What about river cruises?

A: River cruises are hot, hot, hot and hot. With the incentive deals that some of the lines are paying, commissions are really substantial. There is a lot of inventory for 2015 that is already gone.

Q: Are agents selling more experiential travel?

A: They are starting to, but not nearly enough. The problem is so much of what is sold in the agency community is basically a mass-merchandise product, and in many categories the product looks like a commodity. I’m encouraging TAMS members to wrap a commodity product with an experience that is not directly shoppable on the Internet. An example of that could be working with a [destination management company] for a custom shore excursion to build a personalized experience for the client.

Q: What’s a commoditized product?

A: It could be a sun-and-sand package in the Caribbean, five nights in Aruba, stuff like that. There is commoditization at almost every level, no matter what the price point. It happens even with expensive cruise lines. People look at Regent and Silversea and Crystal, and even though the ships are different, the issue for agents is how they can turn it into a customized experience. We are seeing some TAMS members really focus on some subspecialty niches. It’s a high percentage of their business for some.

Q: What are some examples of such subspecialties?

A: One agency focuses on Mexico and destination weddings to Mexico. One agency focuses almost exclusively on Disney. Another specialty is women traveling with women.

Q: Are you seeing any changes in the proportion of international travel that these agencies sell?

A: Most of them are promoting international travel. I am sensing that more of them see the opportunity to customize international travel. The price is higher, and the yield is higher.

A lot of international travelers are flying business class, and agencies have an opportunity to make more money on that. Everyone is trying to increase their international business, and the river cruises have helped tremendously with that.

Q: How many agencies are still in storefronts?

A: There is a shift away from storefronts. I would say it’s a little over half, about 60% [who still operate storefronts]. A lot have figured out that walk-by traffic isn’t that important to them.

We had a lot of people paying big rent for a storefront who found that if they move into an office setting it works very well for them.
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Travel Weekly Senior Editor Kate Rice covers the retail and airline industries.