When travel agents close out their books for 2014, they expect to net their highest profit margins in more than a half dozen years.
That’s one of the key findings in a new report released jointly this week by ASTA and Travel Market Report.
The exclusive report––Making Tough Business Decisions: Indispensable Research for Measuring Travel Agency Success––provides an indepth look at key metrics in the agency industry, giving retail travel sellers a yardstick against which to measure their own businesses.
The report represents the first time ASTA has consolidated the most significant findings from the benchmarking surveys it conducts throughout the year with a panel of members. (See sidebar.)
More than 80% of all travel agency sales are made through ASTA members, according to the association.
Profits are up
Making Tough Business Decisions paints a comprehensive picture of the health of the travel agency industry.
This year the industry is the strongest it’s been in years. Nearly nine in 10 agents (88%) expect to end 2014 in the black.
ASTA agents project an average profit margin of 9% this year, up from 7% in 2013 and from a recent low of 6% in 2010.
Retail leisure agencies anticipate the healthiest margins this year, at 10%. ASTA defines retail leisure agencies as companies with employees that do more than 70% of their volume in leisure sales.
Independent agents, including one-person agencies and independent contractors, expect to net average profits of 8% in 2014. Corporate agencies, those reporting 70% or more of their sales in business travel, project 7% profit margins.
Other highlights from the report include:
- Tours and packages continue to account for the largest share of leisure agency sales, outpacing all other product segments, including cruise.
- A growing number of agents charge customers a fee for cruise bookings.
- Supplier commission levels have remained fairly stable.
- The majority of agents (79%) are active on social media, but for more than half of those agents, the return on investment is negligible at best.
- Salaries remain low. At retail leisure agencies, the average compensation for full time travel sellers is $32,771, including salaries, commissions and bonuses. Corporate agents earn more, an average $45,157.
- More than two-thirds (67%) of all agents use a GDS, but for most leisure agents GDSs are not a significant revenue source.
Among other findings are data on the sales and revenue productivity of frontline agents, a critical factor in agency profitability.
In 2013 full time frontline travel sellers in leisure agencies booked an average $714,077, yielding per person revenues of $90,717, or 12.7% of sales. Revenues include commissions, overrides, markups, service and transaction fees, and GDS incentives.
Full time independent agents and independent contractors sold less than half as much travel, an average $388,684, yielding revenues of $47,502, or 12.2%.
Corporate agents booked much higher volume, an average $1.11 million per agent, but the percent yield on those sales was much lower, an average $90,713, or 8.1%.
Corporate travel’s lower sales-to-revenue ratio can be explained by several factors including higher agency costs, especially for technology, and a business model based on transaction fees rather than supplier commissions, according to Melissa Teates, ASTA director of research.
Teates pointed out that corporate-focused agents serve clients for whom cutting costs is a top priority. By contrast, leisure agents “are dealing with people who are hoping for a good experience, and they’re probably generating more overrides and commissions because they’re upselling.”
Whatever their sales focus, “agencies of all sizes need to be aware that even if sales are going up, they need to make sure revenues and the bottom line are going up,” Teates said.
Most leisure agents rely on a combination of supplier commissions and service fees to generate revenue.
In 2014 agents’ median commission earnings on cruise and tour sales are 12%, ASTA found.
In all segments, commission levels have remained relatively stable in recent years, except during the recession years of 2009 and 2010, when cruise and tour commission levels dropped slightly, according to Teates.
Commissions on cruise sales are more likely to fluctuate than in any other segment. “Cruise seems to be the most volatile. If they have a factor go against them, like fuel costs go up, they try to pull money from distribution, not from the price,” Teates said.
Although agents are lately seeing healthier cruise revenues, many are hedging their bets by charging clients a fee for cruise bookings, she added. Today, 21% of ASTA agents charge an average fee of $41 on cruise sales.
Highest service fees
Agents charge their highest fees for FIT trip planning, the most labor-intensive part of the business. More than six in 10 agents (61%) charge an average $118 fee for trip-planning services.
That’s more than twice what agents charge for their next most-expensive services, booking tour packages and air-inclusive packages. Forty-two percent charge an average $53 to book air-inclusive packages, and 23% charge an average $54 when booking tour packages.
Those fees are significant when you consider that tour and package sales comprise the largest share of agents’ business, outpacing cruise sales as a share of volume by eight percentage points for both retail leisure agencies and independent agents.
Not surprisingly, all agents are most likely to charge a fee when booking air. Eighty-eight percent of leisure agents charge an average $38 for air bookings while 70% of corporate agents charge an average of $39.