An aging industry may be a key factor in why mid-sized travel agencies are shrinking in number, while the number of their larger and smaller counterparts continue to grow.
As reported in ASTA’s new Agency Profile study, agencies with annual sales between $1 million and $10 million have been decreasing in number for several years, while agencies at the upper and lower ends of the spectrum grew. In particular, agencies with less than $1 million in sales are booming. (See story, “ASTA Study: Mid-Sized Agencies Lagging in Sales,” March 15, 2012)
“As the economy makes solid gains, we are seeing both large and small agencies experience revenue growth,” ASTA CEO Tony Gonchar commented.
But while this trend seems to be following recessionary business trends, other factors such as the aging of the industry are coming into play, Melissa Teates, CAE, ASTA’s director of research told Travel Market Report.
Mid-sized agencies low in the saddle
At their height, the percentage share of mid-sized agencies in ASTA was 75%. Last year that percentage was 52%.
The trend for growth to favor the smaller and larger ends of the spectrum is called a “saddle effect,” Teates said.
“The saddle effect is a normal thing for industries in a downturn because the small guys get smaller and the large guys get larger and you lose your middle.”
This happens as formerly mid-sized agencies get smaller to cut costs or get larger through mergers and acquisitions.
Could be slow rebound for mid-sized agencies
But Teates also added she believes that this time the trend may have been exacerbated by other factors.
And though typically, industries see mid-sized companies return in an upturn as smaller companies start to grow in response to profits, Teates questions whether we’ll see that same level of return as in the past.
“Because of the retirement factor and the telecommuting side of things, we have to wonder if we’re actually going to come out of the saddle like we would have in the past.”
An aging ownership
The people running travel agencies are getting older. Between 2004 and 2012 the percentage share of respondents (typically owners or managers) aged 55 to 64 stayed steady at 35%, while the percentage share of those 65 and older shot up from 17% in 2002 to 31% in 2012.
At the same time, the share of owners/managers aged 45 to 54 dropped from 34% to 22%, and those aged 35 to 44 went from 12% to 9%.
So, current owners and managers are getting older and they’re not being replaced by younger people.
Owners going into retirement
And though exact numbers are unknown, Teates said ASTA knows many of the older agents, particular small agency owners, are starting to slip into semi-retirement.
“We definitely think that retirements are happening, plus when the economy slowed down it accelerated people who had been planning to semi-retire,” she said.
Semi-retirement for many agents means closing a brick and mortar shop and going home-based, as well as no longer accepting new clients and just work with existing clients.
Plus, newcomers to the industry – at the ownership level – are frequently second career types who are in their 50s or older and may also be seeking some form of semi-retirement.
Trend may remain unclear for awhile
Teates said sorting through all these factors will remain difficult until the economy has normalized for at least two to three years. Only then will the industry we able to see if the trend towards smaller and larger agencies has been permanent or not.
Some growth predicted
However, Teates said even if things don’t go back to where they were in 2003, the industry will see mid-sized agencies re-gain some ground.
“When the economy really improves and business gets better, some of the small agencies will start to take advantage and grow. They will because that’s what happens.”
Additionally she said in really good times many of the largest companies may start to break up into pieces.
When times are bad companies want to be bigger for the economies of scale, but when times are good they want to be agile and able to adapt quickly, something that’s much more difficult for large companies to do, Teates explained.
“I firmly believe that we will see the return of mid-sized agencies,” she said.
One sign of growth
Two statistics from this year’s Agency Profile study may be proof that mid-sized agencies are starting their slow comeback.
In 2009, the percentage share of agencies seeing sales between $1 million and $2.9 million was 31%. Last year that number rose to 34%, the first time that sales bracket has seen positive growth in percentage share since 2005.
More important, the total percentage share of agencies with sales between $1 million and $10 million was 52% in 2011, up from 49% in 2010 and 51% in 2009, though still down from 54% in 2008.