Online travel industry squeezes smaller storefront operations

Storefront travel agents are closing shop at a startling pace - about 300 a month since January - as their business is siphoned off by online travel companies catering to an ever-increasing number of Internet-savvy consumers hooked on low rates and fast service.

With airline commissions eliminated for independent agents and carriers offering incentives only for the largest travel companies, smaller agencies are scrambling for new sources of revenue, such as adding fees for services and in some cases transforming into online companies themselves, before they are shut out of the Internet booking world.

"When you have customers constantly saying, 'I can get that on the Internet for less,' you start to realize what you have to do," said Kelly Mayhew, an agent at Best Travel in San Antonio. "You have to get the deals for your clients online while somehow getting paid for it. It's hard not to look at the Internet as the big bad wolf, but you have no choice." Traditional travel agents still handle more than half of all leisure travel bookings. But online travel bookings have been rising while bricks-and-mortar agencies have been going dark.

12 percent drop

As of June, there were 26,120 U.S. travel agencies, a 12 percent drop from June 2001, according to the American Society of Travel Agents. Meanwhile, online companies continued to profit from the more than 21 million consumers who are now buying their travel exclusively over the Internet. Priceline.com recently said its second-quarter profit more than doubled to $6.31 million, and industry experts said online travel bookings will top $26 billion this year - up 31 percent from 2001.

Joe McClure, president of Montrose Travel in Glendale, Calif., said there is still so much confusion over finding the best deal on the Internet that traditional business for his 150 employees remains strong. The company, one of the largest independent agencies in the United States, logs $118 million a year in bookings and has its own Web site on which customers can make reservations while still having an agent assist them, he said.

"When you go out online and try to search for a good fare, you'll get so many choices it's mind-boggling," McClure said. "And even if you do have 10 hours to go through every single one, who's to say if it was even worth it in the end." Montrose Travel charges fees for some of its services, helping to recoup lost commissions, which began shrinking for all agents even before the travel slowdown that followed the Sept. 11 terrorist attacks.

In October, major carriers eliminated commissions for online travel companies - although the largest ones have been able to negotiate special fees based on volume, similar to what many high-volume travel agencies do to keep commissions coming. Agents who work for larger agencies have less to worry about because airlines give bonuses to the companies that bring them the most business, and bigger agencies have a better chance of making high-volume sales.

"We haven't felt the pinch because we are still making enough money for the airlines that they continue to reward us for it," said James Toler, a leisure travel manager at TravelWorld in Irvine, Calif., which averages $75 million a year in bookings. Most storefront agencies do less than $4 million per year in sales. "So we don't have to worry so much about the Internet."

At least one Internet upstart is tweaking the cyberspace booking model to include traditional agents on its payroll.

Dave Pederson, founder of the Reservation Company, said paying commissions to a base of loyal travel agents - while offering more services for customers at cut-rate prices - is an approach he hopes will give him an edge in the fast-growing online travel business.

"There are some traditional elements to travel that are not going to change, and one is the use of travel agents," Pederson said. "They're still key to making an online travel business work, because consumers still want those traditional services no matter how much Web surfing they do."

The Reservation Company's model is different from other online giants, such as Expedia Inc. and Travelocity, because it pays commissions directly to travel agents who book trips on its Web site and offers package deals that include entertainment such as tickets to plays, concerts and reservations for golf tee times.

Because the company contracts special rates with airlines and hotels, agents can offer Web-only deals to their customers while still getting commissions they otherwise wouldn't - anywhere from 5 percent for booking a tee time to up to 50 percent for an airline ticket.

Pederson said the Las Vegas-based, privately held company, which was launched three years ago as BookVegas.com, posted $17 million in sales in 2001, and said it is on track to double that figure this year. The site began as a niche travel service focusing on hotels, casinos and Vegas shows, but has since added 12 other U.S. cities, including San Diego, Los Angeles, New York and Miami. About 14,000 travel agents have begun using his Web site, he said.

Lynne Erikson of Breton Village Travel Services in Grand Rapids, Mich., called the model impossible to refuse.

"Why would I go to one of the big online sites where I won't make a dime?" said Erikson, who routinely books package trips to Las Vegas through www.thereservationcompany.com.

"They are very, very smart to romance the travel agents this way. I don't know why more online companies aren't making nice with us."