Finding the Sweet Spot in Corporate Travel

Are you a mid-sized corporate agency? If so, you’ve got problems. Mega-agencies are undercutting you on price, while small and niche market agencies are outperforming you on service.

That’s the warning contained in a new report on the travel agency industry from IbisWorld, an economic and labor market consultancy in Southern California.

In 2011, four large players, Carlson, American Express, Expedia and Priceline.com, accounted for 75% of the total travel agency market, including both leisure and corporate, according to the report.

Growth at both ends
IbisWorld found strong growth among agencies with more than $5 million in annual sales and at the niche end of the market in regional and local markets.

Midsized agencies are losing business to both ends of the size spectrum – most often to online agencies and to direct consumer bookings with airlines, hotels and other suppliers.

The same pattern is playing out in business travel, where online agencies are continuing to capture market share.

“Business travel bookings are increasingly being concentrated in the hands of the largest agencies, and direct booking with hotels and airlines is also increasing,” the report noted.

Dominated by 4 players
The business travel market is dominated by Carlson, Amex, Expedia, Travelocity and Orbitz, said IbisWorld research analyst Nima Samedi. BCD Travel is also a key player, but is difficult to evaluate because it is a private company, Samedi told Travel Market Report.

“Most traditional agencies are still losing business to online agencies,” Samedi said.

“Some traditional agencies have a strong online presence that is helping them fight back. Flight Centre, for example, lets you book online but has real agents to talk to for more complex needs. Maritz Travel has a very successful online business travel operation.”

Where smaller agencies shine
“But in the broader sense, the use of travel agencies is being limited to smaller markets or niche markets where you need personal attention,” Samedi continued.

“Just look at the amount of business travel that is now going to China. There are a growing number of important factory destinations that are located in what amount to villages.

“There might be a couple of hotels, but an online agency doesn’t know which is the traditional Chinese hotel and which has more Western-style amenities that business travelers expect and need. That is the kind of specialized niche where the travel agent can still shine and add value.”

Doing well locally
But that doesn’t mean agencies that don’t have personal knowledge of faraway business destinations should close the doors. Local agencies that cater to smaller business clients are doing extremely well.

“There are good opportunities with smaller companies that want or need the service of a good business travel agency but that don’t have the kind of volume to attract a larger agency,” Samedi said.

“The ones that do a great job with services that provide obvious value are the agencies that are still going to be in business five years from now.”

Best opportunities for traditional agencies

Wendy Burk

That’s no surprise to Wendy Burk, president and CEO of Cadence Travel, a San Diego-based firm whose business is about one-third corporate, one-third meetings and one-third leisure.

The sweet spot for corporate clients is $500,000 to $1 million in annual travel spend, Burk said. The lower end of that range offers the greater opportunity.

“The travel management company can really develop a relationship with a company at that $500,000 level,” she said.

“You are bringing significant and very obvious value to the table. And you are bringing that travel management value directly to top corporate decision makers, often the CEO. That’s the base of our entire business.”

Relationship drives loyalty
The relationship aspect is key to longer-term profits, Burke said.

The mega-agencies aren’t interested in a $500,000 account, but they push hard to win accounts as companies grow to the $3 million to $5 million range.

But corporate execs who grew up with a smaller, service-oriented TMC tend to want to stay with providers who served them well during those tough early years when every management tool helped keep the company alive and growing.

That gives the TMC a degree of insulation and protection when procurement departments start pushing for mega- and online agencies.

“It helps to have established relationships with the top decision makers,” she said. “Once travel falls under procurement, it is all about how low you can go on fees.”