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Opening Your Own Travel Agency

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In spite of the emergence of mega agencies, the travel agency industry is still overwhelmingly small business and entrepreneurial. It is still a relatively inexpensive business to start sup pliers even provide your inventory, in the form of brochures. All you do need is an office accessible to the public (which does not prevent you from opening an agency in your home), a telephone, and a manager with two years of ticketing experience (who may be the owner). An agency must post a bond or letter of credit of $20,000 and be open a certain number of hours. (Some airlines also impose a rule that no more than 20 percent of your business can be done with yourself in order to prevent corporations from setting up their own travel agency to save commissions). It is increasingly necessary to have an airline computerized reservations system which probably will add about $1,000 per month to operating expenses. Still, you can open an agency with only about $75,000 to $100,000 in operating capital.

While there is no federal licensing, some states may require a license. The Airlines Reporting Corporation (ARC) and to a lesser degree the International Airlines Travel Agent Network (IATAN) set out the rules and regulations for appointments and operations.

Donna Conklin, formerly assistant director of ARC, now has a service to assist people in obtaining ARC appointments (Conklin & Associates, 4216 Evergreen Lane, Ste. 115, Annandale, VA 22003, tel. 703 941 5486). 'Virtually everyone gets approved," she noted. The fee, including application fee, is about $425 and takes about 30 to 35 days (compared with 90 days if you do it yourself).

The more daunting obstacles to opening your own agency are likely to be the lease on office space (typically three years) and an automation contract (typically five years, which can amount to $60,000). You will be liable for both if you have to close.

Travel agencies used to be opened typically by doctors' wives and divorcees or were used as tax write offs or for the purpose of obtaining free travel for the owners. That is, they were used for a tax loss and not for profit; consequently, nearly half were operated at a loss.

However, the steady increases in commission levels have made the travel agency business, if not lucrative, at least profit able. In 1990, domestic commission rates (before override) aver aged 9.8 percent, and international commission rates averaged 12.8 percent, with agents netting $4.9 billion in all. Still, after expenses, travel agencies typically clear 1 to 2.5 percent, a dismal profit margin compared with most other retail industries. Nonetheless, the industry now attracts serious professionals often people retiring from other businesses.

Travel agencies had been opening at the rate of 9 to 10 percent a year (about 3,000 new outlets) to the point where there seemed to be travel agencies literally on every corner. In recent years, the rate has slowed down; in 1990, the number of retail locations grew by only 2 percent to 32,077. However, there has been an explosion in STP (satellite ticket printer) locations actually a device located in the office of a large corporate client which grew by 49 percent in 1990 to 5,730 locations.

To open an agency, you have to choose a location, which means evaluating potential customers, the competition, and the overhead costs (rent, utilities).

Doug Thompson, in his book How to Open Your Own Travel Agency (Dendrobium Books, 76 Gough St., San Francisco, CA, 94102), recommends telephoning agencies within a five mile radius of your proposed location as though you were a potential customer to find out about their hours, specialties, policies on ticket delivery, staff, special services, and brochure offerings. Then you should go through the process of booking a trip in person to see how the competition operates. Thompson now sells two different start up programs for new agencies as well. ASTA also offers a manual on how to start a travel agency.

The ease of opening an agency dupes many people, particularly those who have been successful in other businesses, into believing that the business is also easy. Operating a successful travel agency is deceptively difficult, there are nuances to the business that have tripped up some of the mightiest companies, including ABC Network, which thought it could make a go of it and then failed.

Consequently, instead of starting from scratch, many new comers buy an existing agency or purchase a franchise. There are advantages and disadvantages to buying an existing agency. You may, in fact, be buying an agency with a poor reputation or poor business methods. Look for one where the owner is retiring after a successful career, and retain his or her services on a consultant basis.

Franchises and Consortiums

Travel agency franchises sell for $10,000 to $32,500 and are not of the same value as real estate or fast food franchises. Unlike the hamburger, which can be standardized from restaurant to restaurant, or the home you buy once in five or ten years or a lifetime, travel is a service purchased frequently. Success depends on personal relationships between the agent and the customer.

When you franchise, you get assistance with site selection, training, help in hiring a manager with the necessary experience for the agency to become appointed, and promises of advertising. Usually, there is also a program for obtaining override (bonus) commissions from preferred suppliers. But the franchiser may also take a royalty of sales plus annual fees.

Since the travel industry has not had an especially good track record with franchising, you should scrutinize the company carefully, do background checks, and interview franchisees. Check to see whether there are legal actions against the franchise company.

Rent A Desk

A new concept and an alternative to opening your own agency are "rent a desk." This concept affords the best of both owning your own agency and working for someone else in the form of independence and an opportunity to retain 100 percent of the commissions on travel bookings, but with lower overhead and reduced risk (and stress). Instead, agents pay a monthly rental and, in exchange, have access to computer reservations systems and the use of an appointed outlet.

One of the first to be successful at the concept is The Travel Society, Denver, founded in 1987 by two travel industry veterans, one from the travel agency side and the other from the airlines.

Bill O'Connor, the cofounder, quickly noted that the concept is more akin to a "cooperative" than to "rent a desk." In effect, the individual "associates," who pay a fixed fee ($1,600 a month), are set up as if they were branch offices. They keep 100 percent of the commission on the travel they book plus a majority of overrides and, in exchange, are provided with delivery service, accounting, and automation. The agency negotiates overrides with preferred suppliers; commissions are sent to the agency and then distributed on a pro rata basis.

'It's really more like a micro franchise, or an executive suite, or a cooperative," said O'Connor. As such, the arrangement frees up the associate to concentrate on being a travel arranger rather than a financier or an accountant. Agents are provided income statements, balance sheets, commissions tracking (so they know which suppliers are paying what), accounts payable and receivable, vendor analysis, and corporate reports.

So far, the company operates two offices in Denver, with a total of 27 associates, who have generated a total of $15 million in sales, or about $650,000 each. If the associates were working as employees, they would likely earn about $20,000 a year; as associates, they net $40,000 on average.

The program works best when an agent comes with his or her own following rather than when someone just enters the field, O'Connor advised. Other outlets are planned in new markets.

A variation on the theme is an enterprise that sets agents up in home based businesses (cottage agencies) linked by computer to an appointed agency. Pacifica Plaza Travel, Culver City, CA, is one of these businesses.

Future Trends

The travel agency industry is evolving in response to changing market conditions. The past few years have been a period of transition and shakeout, of consolidation and retrenchment. The industry is still very new to discount pricing, and, frequently, agencies do not know the true cost of handling an account when they make a bid that includes a rebate to a client. Negotiating rates and marketing services are still new concepts.

Airlines are actively introducing technology that gives commercial and leisure customer's direct access to their schedules and fares on personal computers. They are also moving to a "ticketless ticket," which could make it easier still for passengers to book air tickets directly with airlines.

Travel agents, meanwhile, are moving into several new areas. They are working with banks to set up retail travel agencies; beginning to sell their services through personal computers; installing satellite printers outside the agencies; establishing travel clubs, promotional programs, and frequent traveler clubs, and generally becoming much more marketing and sales oriented. Many are establishing travel schools not only as a source of new staff but also for the substantial profits the schools generate.

New methods of retailing (or merchandising) travel have been introduced, and agents are beginning to take advantage of them. Negotiations skills, forecasting, and pre-planning are becoming an increasing part of travel agency operations and will result in new kinds of jobs. The emergence of massive travel agency organizations, many with global links, will result in new tiers of management, new specialties, and greater opportunities for graduates of four year and business administration programs.

"You get satisfaction in making someone's dreams come true, of doing things for people they can't do as well for themselves," concluded Joseph Hallissey, president of Hallissey Travel, a founder of Conlin Hallissey Travel Schools and a former chairman and chief executive officer of the American Society of Travel Agents. Added Hallissey, who entered the travel business in 1968 after being a social worker for 18 years, "We are dream makers, still."
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