When the global economy hit the skids in 2008, few nations suffered as sharp a downturn as tiny Latvia. For Latvia’s nascent travel agency industry, it was an abrupt comedown, following a period of exuberant growth.
Just a year earlier, Latvia’s fast-moving credit-fueled economy was logging record growth rates. Then the Baltic nation’s over-extended economy slammed into a wall. By the end of 2009, its gross domestic product was down 18%.
Latvia’s travel agencies held on.
Latvia’s privately owned travel industry traces its roots only to 1991. That was the year the former Soviet republic regained its independence, stripping the state of its monopoly on travel and creating an opening for travel entrepreneurs.
Today there are 200 registered agencies/operators in Latvia. (Under European law, agencies that customize any portion of a trip are considered operators.) Aldis Kuskis is one of them.
Kuskis launched his travel company in 2006 with his wife and co-owner, but he had been working with Latvia’s travel industry for some time, having represented Latvia in the European Parliament, from 2004 to 2009, where transportation and tourism was one of his priorities.
In a recent phone interview with Travel Market Report, the former advertising and marketing exec said he was drawn to travel because, “I traveled heavily all my life. I somehow understood the problems, challenges and opportunities.”
He established the travel agency www.theTRAVELER.eu. The outgoing “travel consultancy” specializes in custom luxury travel, including yacht charters and other experience-based travel. The agency draws its clientele from Latvia and from neighboring Estonia, Lithuania, Russia and Ukraine.
An incoming branch, theBALTICTRAVEL.eu, serves English-speaking travelers, specializing in cultural and gourmet travel. TheBALTICTRAVEL.eu is Ensemble Travel Group’s “on-location partner” for the Baltic region.
Can you give an overview of Latvia’s consumer market for vacation travel?
Kuskis: Before the crisis, when our economy was just growing like hell, too fast, the consumers who started to travel were going for vacations to foreign countries – buying packaged travel, cheap flights, resort-type packages to Turkey, Egypt, the south of Spain [etc.].
Honestly, they do not have the right to spend money in that way. It was borrowed money, money which should have been invested in your education or the education of your children.
Nowhere in the world do 80% of citizens travel. It was happening here.
You mean that 80% of Latvians were traveling internationally before the economy crashed?
Kuskis: Yes, including Estonia, Lithuania, Russia and other destinations within 300 to 800 kilometers (180 to 500 miles).
Then the recession happened?
Kuskis: Then came the crash in 2008; in 2009 were the crash results. We did not have any travel agency bankruptcy or agency closures. Customers weren’t stranded in foreign countries because of agency financial problems, probably because agencies were very conservative.
But the market was down. The bigger agencies cut a lot – let’s say half of their staff, half of everything.
Starting last year, the agency business is again growing, by double digits. The growth is still sustainable.
What’s the typical business model for Latvian travel agencies?
Kuskis: There are two successful business models – either you are the best [high quality] or you are the cheapest. There are few that are the best, because the market is small. The others fight in the cheapest category.
Do Latvian agencies charge fees?
Kuskis: In general, the outgoing travel agencies charge price plus a service fee for every step – booking tickets, $20; booking hotels, $20 – every step costs something. For a tailor-made proposal, the industry standard is $40, which is nothing.
We were the first agency to charge itinerary planning fees. We charged for every day that we tailor-made; every day was $20 to $40. But people said, ‘You are so terribly expensive.’ We had to cut that; we went back to playing as the industry plays.
Do agencies also earn commissions?
Kuskis: Different agencies work differently. Some use online booking engines, consolidators and such. They buy it from the consolidator and sell it at some other price, earning a markup.
Because we are in tailor-made, I need direct contact with the hotel or the provider [hotels, local tour companies, restaurants, etc.], because I demand this or that room, etc. We give personal recommendations; we’ve been on site inspections, and we know those general managers.
So we negotiate our small but honest commissions – 8% to 15%. If somebody gives less than 10%, then we say we will consider this our investment.
How many travel agencies are there in Latvia?
Kuskis: There are 200 registered agencies or operators, 50 in the Association of Latvian Travel Agents. [Editor’s note: The Association of Latvian Travel Agents is celebrating its 20th anniversary this year.]
Ten or 20 are very experienced – in business more than 10 years. Twenty years for us is the maximum, because the country was re-established just 20 years ago. Before that there was only Intourist, which was KGB-controlled, for incoming; we could not travel abroad, except for cultural exchanges.
We are proud of our independence up to 1941, but before that there wasn’t a travel industry. Genetically, we do not have this knowledge.
People come from different backgrounds, from service industries, from everywhere. The experienced ladies and gentlemen learn by doing. The young guys jump in, based on their business understanding or business experience from other models.
What is the main challenge facing Latvian agencies?
Kuskis: I would say, but I am not in the majority, that we didn’t use the opportunity of crisis. At the time of crisis, when everybody had problems, we should have consolidated. Because of national genetic reasons, we are better at working alone – not so cooperative naturally.
There wasn’t more than one or two cases where agencies came together, solved a problem together, and now are working as a bigger entity.
Why is consolidation important?
Kuskis: Because the numbers in the market are not big enough – 2.2 million Latvians, 1.3 million in Estonia, 3.5 in Lithuania – 7 million people in the Baltic states altogether. The three Baltic states are probably Nos. 3, 4 and 5 from the bottom of the list of European countries in spending power – which means no big budget for your vacation, for corporate travel, everything.
There is not enough money. There is a place for the quality, small agencies – no problem. But if somebody wants to build a quality big agency, this is a problem.
What would other Latvian travel agents say is the biggest challenge?
Kuskis: Taxes, fights with air companies and big operators.
Is it typical for Latvian travel agencies to handle both outbound and inbound travel?
Kuskis: That’s the trend – one company with two brands or two companies. The biggest ones, who started as incoming, now they are building outgoing as well.
What’s a big agency in Latvia, in terms of sales volume?
Kuskis: If you make $20 million U.S. in sales volume, then you are big – which is sorry. You probably have some 40 employees. You start to be serious, money and size-wise, when you have $10 million U.S. and 15 or 20 people. There are four or five big ones; serious would be an additional four or five. That’s in Latvia.
In Estonia and Lithuania, a few have been bought by international companies. For example, Carlson Wagonlit bought Kaleva Travel, a Finnish company [with offices in Latvia, Estonia and Lithuania].
There are not so many international or agency chains in the three Baltic states, which is probably one of the opportunities. If somebody were to give me many millions, I would buy two agencies in each [Baltic] country, to cover 7 million people.
What’s the impact of the Internet on Latvian travel agencies?
Kuskis: The four or five biggest agencies in Latvia have their own online booking engines – more for airline tickets, less for hotels. Some already have some success moving toward online business. There is no big-time Baltic online solution, because of the language – there are five [English, Russian, Lithuanian, Estonian and Latvian] – so it’s very expensive. Folks use Expedia, booking.com.
Is the Internet your main competition?
Kuskis: The competition from online is clear, even in the mass market, because everybody has access to the Internet. There is not so much competition from other agencies. My biggest competitor is the wife or husband with advanced-enough knowledge of the Internet to do tailor-made from the computer.
What’s the future of the outgoing agency business in Latvia?
Kuskis: As the Internet and the knowledge of people about the world and accessibility to the world improves every year, the cheapest and the best will survive. If you are just a normal agency, I do not see any reason to use your services.