Ireland’s Travel Agencies Battered, but Standing Strong

Is Ireland’s travel agency industry bleeding a slow death? It may look that way, but Irish travel agents beg to differ.

True, the headcount of travel agencies has dropped dramatically. But industry members contend that the footing of Ireland’s travel trade is arguably surer now than in recent memory.

“There’s been a correction, rather than a disintegration,” said Simon Nugent, chief executive of the Irish Travel Agents Association.

In the first of a three-part series, Travel Market Report looks at the forces buffeting Ireland’s retail travel sellers today. Parts 2 and 3 will examine how Ireland’s agents are dealing with the downturn, the lessons they’ve learned and their hopes for recovery.

The stark reality
By themselves, the numbers tell a fairly bleak story – particularly the 2009 numbers.

Between 2001 and 2009, the number of licensed travel agencies in Ireland dropped 30%. Nearly half of those closures occurred in 2009.

“It was a tough year,” Nugent said of 2009.

That year, a record 17 agencies failed and another 37 did not renew their licenses, according to the Commission for Aviation Regulation, which has licensed Ireland’s travel agencies and tour operators since 2001.

The numbers sound tiny. But bear in mind that the Republic of Ireland is a small country, with a population of just 4.6 million. (By comparison, the population of metro New York, more than 19 million, is more than quadruple the size of the country.)

Jim Vaughan was president of the Irish Travel Agents Association during 2008 and 2009, two of the toughest years.

At his agency, Dublin-based Just Split Travel, Vaughan began to see a downturn in the latter half of 2008, he told Travel Market Report. The following year, 2009, sales “really took a big knock” – in some months as much as a 50% drop from the year before.

That was true for his agency and for others, said Vaughan, who founded Just Split Travel six years ago, after serving for a number of years as managing director at one of Ireland’s largest retail travel sellers.

Larger agencies felt the hit too, Vaughan said. “They were hurt by the recession, because the corporates cut their travel first.”

A tiger roars, then whimpers
Travel agents weren’t alone. All of Ireland suffered a traumatic economic comedown in 2009.

Little more than a year earlier, through the first half of 2008, the Emerald Isle was still riding high on an economic boom that had come to be known as the Celtic Tiger.

Leisure and business travel rode the wave. Between 2002 and 2008, the number of visits abroad by Irish residents jumped 70%, according to Ireland’s Central Statistics Office.

But in the latter half of 2008, the world financial crisis brought the tiger down, and Ireland entered a recession.

In short order, its exuberant real estate bubble had burst. Home prices fell. Consumer spending and business investment came skidding to a halt. And Ireland’s government, and its people, were forced to come to terms with unsustainable debt.

Needless to say, travel spending took a nosedive as well.

The tiger & the travel trade
For Ireland’s travel trade, the Celtic Tiger never packed quite the positive wallop that it had for Ireland’s economy as a whole.

In fact, even during the go-go tiger years, the travel agency industry was shrinking. At its peak, there were upwards of 400 retail travel shops in Ireland, but the number declined steadily through the last decade.

Forces all-too-familiar to U.S. and Canadian agents were buffeting the trade – namely the disappearance of air commissions and the onset of Internet competition.

Especially damaging on the leisure side was new competition from low-fare air carriers such as Ryanair and, later, Aer Lingus. The carriers had begun packaging and direct-selling the sun holiday trips that had long constituted a major share of leisure agencies’ sales volume and revenues.

By 2009, nearly three-quarters of trips abroad were being booked online. Less than 14% of outbound trips were booked through travel agents that year.

On the corporate side, starting in about 2001, Ireland’s agencies, particularly the smaller ones, were suffering from the end of air commissions, client resistance to fees, and cutbacks in business travel.

“Ireland was very exposed to American multinationals. When they cut travel costs, it dramatically affected corporate travel in Ireland,” said John Galligan of Dublin-based John Galligan Travel.

Agents also had effectively been lending their business clients money – purchasing tickets upfront, then waiting 30 days or longer for payment, without interest. As margins shrank, this practice became untenable, said Galligan, whose agency shifted away from its once heavily corporate focus to leisure travel in response.

‘Archaic’ bonding requirements
One factor making a tough situation worse for agents, they say, is Ireland’s bonding requirement.

Agents and tour operators who sell overseas travel are required to be bonded and licensed by Ireland’s Commission for Aviation Regulation. Agents are required to carry a bond equal to 4% of sales volume; tour operators, 10%.

The bonding requirements have been in place, essentially unchanged, for decades.

During tough economic times, when cash flow is tight, the bonding requirements are onerous, because they make it necessary to have so much capital on hand, agents said.

Another issue is the fact that the regulations were written before the emergence of 21st century competitors – namely foreign-owned online travel agencies and air carriers that direct-sell vacation packages to consumers. Those competitors are not subject to the same bonding requirements as traditional travel agencies.

In a letter published in the Irish Travel Trade News last fall, Galligan said the long-term effect of that discrepancy would be to “close the small Irish businesses and hand the industry to Ryanair, Aer Lingus and those foreign web-based multi-nationals outside the regulatory framework.”

Nugent of the Irish Travel Agents Association called the bonding requirements “overzealous” and the regulatory system “archaic.” 

The travel agent association is pressing for change.

Next time: How Ireland’s travel agents are dealing with the downturn.