Last week ASTA released its latest Agency Profile report. Among the findings was the fact that the numbers of agencies with volume of less than $1 million or more than $10 million has been growing since 2002, while the numbers of agencies with volume of more than $1 million but less than $10 million have been steadily decreasing.

Travel Market Report was struck by these numbers and set out to discover what can explain this. And more importantly are mid-sized agencies being squeezed out of existence?

According to the ASTA Agency Profile, which surveys a cross-section of ASTA member travel agencies, 21% of ASTA responding agencies reported volume of less than $1 million in 2002. Four percent reported $10 million or more in 2002. The largest market share in 2002 went to agencies that had sales between $1 and $1.9 million (30%). However, agencies with between $2 million and $2.9 million and $3 million and $3.9 million also figured heavily in the results, with 18% and 11% market share respectively.

In 2009, the number of responding agencies that reported volume of less than $1 million had grown to 39%, a growth of 87%, and now the segment of the industry with the largest market share.

The number of agencies with volume of more than $10 had grown to 9%, a growth of 116%. Also growing in number are agencies with volume between $5 and $10 million, growing from 8% in 2002 to 11% in 2009.

As compared to 2002, the number of agencies with sales between $1 and $1.9 million, previously the market share leader, dropped to 23% in 2009, a 23% reduction.  The largest reduction was among agencies experienced volume between $4 and $4.9 million (down 61% to 3%), $2 to $2.9 million (down 55% to 8%) and $3 to $3.9 million (down 43%t to 6%).

Considering that the total number of travel agencies between 2002 and 2009 also decreased, the Agency Profile reports indicates that the middle-sized agency is slowly disappearing, perhaps getting smaller and morphing into one of the under $1 million agencies, or being bought up by larger companies and becoming part of a $10 million or more agency.

“We do believe that consolidation is causing the increase in larger agencies,” said Melissa Teates, director of research at ASTA. “At the same time smaller agencies are moving to a home-based model or a streamlined model with less employees.”

Steve Tracas, president and CEO of Vacation.com agreed. “These figures reflect the transformation of the industry over these past years, which certainly includes consolidation. Agencies have become larger via mergers, acquisitions and partnerships, which is a business opportunity.”

While he said the corporate segment has seen most of the mergers, the leisure industry has evolved the host model, which is a form of consolidation.

Tracas added that the desire to build volume is driving both mergers and the growth of host agencies, as volume is one of the most important factors to agencies and suppliers.

Inversely, “In an effort to shed costs, take more control over their personal lifestyle and because of the available technology, independent agents are now able to provide traditional services without traditional brick and mortar set-up,” Tracas said.

“Thus, you have a significant number of leisure agents providing services to the consumer out of their homes.”

Teates said it was possible this could change in the future, but statistics have been trending in this direction since 2002. However, Teates said she doesn’t believe mid-sized agencies are being squeezed out permanently.

“Cosolidations/mergers go in waves in most industries,” she said. “When the economy tightens you see the middle start to shrink as larger companies merge and buy small to mid-sized companies to increase share. Smaller companies tend to stay small or get smaller as they cut costs to ride the downturn.”

However, she added that when the economy is strong, smaller companies start to grow and may even buy other companies, transitioning into mid-sized companies.

But looking at the Travel Agency Profile numbers, even during the good years of the mid 2000’s, the growth of the smaller and larger agencies, and the shrinkage of mid-sized agencies was apparent.

In 2006 and 2007, the combined percentages for agencies with volume between $1 million and $5 million were 57% and 50%, respectively, down from 66% in 2002. The only medium-sized segment of the industry to show growth has been among agencies with sales of $5 to $10 million, which grew to 10% in 2006, shrank to 7% in 2007 and grew to 11% in 2009.

Donna Johnson, president of Red Bird Travel Plus, an agency that falls into the lower mid-sized agency category, told Travel Market Report that she feels squeezed, not by the threat of a larger agency wanting to acquire her company, but instead by the cost of overhead to maintain an office that is open to the public.

“I’m sure that most agencies under $1 million are working from home, so it would stand to reason they would make money without the office overhead. The $10 million agencies may have a lot of home wokers, but are covering their office overhead by sheer volume.”

In an attempt to keep her overhead low, Johnson said except for herself, all her agents work from home on commission only. Furthermore, she keeps the office open by appointment only. She does not take any new business that does not come from an existing client or through referral unless the new client is wiling to make an appointment and/or pay a research fee.

Johnson added that in terms of the future of her business she is more worried about the lack of young talent entering the field, than about competition from smaller or larger agencies.

However, not all groups of agencies are seeing their mid-sized agencies having trouble.

Nancy Bennett, senior vice president, global sales for TRAVELSAVERS, told TMR that while there has indeed been agency consolidation within the broader travel industry, TRAVELSAVERS is not seeing that within its own agency base.

“In fact, our agencies are reporting that they’re thriving and growing,” she added.

Robert Joselyn, of Joselyn, Tepper & Associates, Inc. and Travel Agency Management Solutions (TAMS), LLC, agreed. TAMS has 120 agencies across all consortiums, and Joselyn readily admits because of the nature of TAMS requirements, his agencies are not an accurate cross-section of the travel agency industry.

According to Joselyn, among the agencies in TAM, the mid-sized agencies are actually outperforming the very small and very large ones. He attributed the success of his mid-sized agencies to the fact that they tend to be closer to their customers than the larger agencies, having more personal relationships they can fall back on in harder times. Additionally, the mid-sized were faster to react to the recession and make necessary changes.

However, Joselyn did admit that “a few” agencies within TAMS did sell their agencies to larger agencies.

But based on his observations of the TAMS agencies he told TMR, “There is always going to be a role for mid-sized agencies as long as they carefully define their business model.”