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While it is impossible to predict the full impact of the coronavirus crisis on travel agencies, most observers are expecting consolidation, similar to what occurred following 9/11 and the airline commission cuts that began in the mid-1990s.
Bob Joselyn, president and CEO of Joselyn Consulting Group, is already hearing from agencies interested in combining operations to cut down on expenses such as rent and staffing.
When the coronavirus began to spread, Joselyn said, he believed some 25% of travel agencies would not survive. Now he believes about 20% of U.S. agencies will close and 20% will come out of the crisis in a different form — perhaps merged with another agency or acquired by another agency.
Joselyn, who is helping agencies work through these issues, described his work as helping clients “fail softly.” On the other side of the pandemic, the agency won’t look like it did prior, but it will still be in operation.
“There is going to be no meaningful revenue until at least the second quarter of 2021, I think, and even then, 2021 is not going to look anything like 2019,” he said. “The brutal fact is, they have to figure out how they financially survive until they get through the end of the tunnel.”
Even though coronavirus has paused most forms of travel, there are buyers interested in acquiring agencies.
Innovative Travel Acquisitions CEO Robert Sweeney said a number of agencies have used the pause in travel to reevaluate their businesses.
“The industry is going to reshape, for sure,” Sweeney said. “There will be fewer brick-and-mortar agencies. Some people will walk away from leases. Other leases will just wind down naturally.”
Innovative has a list of about 20 parties looking for potential acquisitions. The source of their liquidity differs by buyer, Sweeney said, but one, for example, is a private equity company that sold the majority of its companies in January and February. Another comes from outside the travel industry and is interested in a deal. Most want midsize agencies.
“It has shifted from a seller’s market in February to a buyer’s market,” he said.
The current environment calls for some creative deals, according to Sweeney. In many cases, he expects to see smaller down payments, then a “two bites of the apple” approach, in which the buyer pays a portion of the purchase price after the close of 2021 and a second part at the end of 2022.
“If you’ve built a good agency and it does indeed bounce back fairly well in 2021 and really well in 2022, you can still have the same [aggregate purchase price] you would have if you sold back in February,” he said.
Consolidation brings with it a number of benefits, said Jack Mannix, founder and principal of Jack E. Mannix & Associates: better economies of scale, less brand confusion in a fragmented industry and better leverage for supplier negotiations. For those reasons, he said he would “virtually guarantee” further consolidation.
In light of the pandemic, consolidation also looks a little sweeter to many because of the associated cost savings, he said.
It might even help some companies come out stronger on the other side.
If an agency isn’t interested in consolidation, costs may be reduced by streamlining operations in order to come out stronger on the other side.
That is the hope at Internova Travel Group, formerly Travel Leaders Group, which recently announced a major reshuffling of brands and reorganization effort.
CEO J.D. O’Hara said one of its goals was to “accelerate recovery.”
“When travel begins to rebound, we will be in the strongest position ever to hit the ground running and provide our advisors and agencies with maximum support and service in their return to profitability,” he said.
Source: travelweekly.com