Travel Industry

I’m not one to say “I told you so,” but it’s darn tempting to throw that phrase at New York City officials who implemented the tax on travel agencies selling available rooms in the Big Apple.

Lots of rooms, lots of taxes

After trying to figure out what the law says and exactly how to implement it this fall, the American Society of Travel Agents and a host of big online Internet players (i.e. Expedia, Hotels.com, Orbitz, Priceline and Travelocity) responded this week with a lawsuit against the city. The grounds: extending the hotel room occupancy tax to “third-party travel intermediaries” is “unconstitutional and illegal” as the city “has no inherent power to tax.”

Other points in the lawsuit bring up the fact that New York City failed to answer critical questions and the City’s interpretation of its new rules was unacceptable. To rub salt in the wound, the City of New York imposed the tax without notice, hearing or other opportunity for meaningful input.

ASTA’s senior vice president had previously said the law was written by ”people who don’t know about the industry who just want more money.”

Technically, I predicted that travel agencies would retaliate with a huge drop in bookings in the fourth quarter. I was correct about the retaliation part — a lawsuit could deter other cities from pulling this stunt in the next six months. The move is predictably popular among travel agents, although it is aimed only at stopping taxation on online hotel bookings at the moment, which could end up giving their biggest competitors an advantage they don’t enjoy. But that’s for another day. Fighting back is the first order of business.

Happy holidays, Mayor Bloomberg.

The 2009 NACTA Independent Agents Report – a joint study by ASTA and NACTA, shows several shifts in the independent agent population, including an increasing number of independent agents working from home.

Travel Agency

Turns out that 85.1% of independent agents are now working out of their homes, as compared to 77.9% in 2006. The report also says that the average NACTA independent agent has been in the travel business for 11.9 years, and works on selling travel 33.8 hours every week.

Almost a third of respondents reported that their gross sales and revenue were up compared to the same time period in 2008. Average annual gross sales for 2008 were reported to be under $250,000, with revenue under $50,000.

57.2% of respondents say that at least 15% of their agency is dedicated to cruises, and Royal Caribbean and Carnival were the top cruise lines used. 45.9% used the telephone as the primary booking channel for cruises, down from 50.1% in 2008.

Globus was the top choice for escorted tour operator, while GoGo was the top tour provider used.

ASTA also released another report which examines the trends in the travel agency business, which shows that while most leisure agencies are expecting to recover in early 2010, corporate agencies are not expecting a recovery until the spring of 2010 or later.

Agencies were asked specifically about changes in employment and independent contractor usage to gauge how employment has been affected by the slowdown.

According to this study, when comparing the first half of 2009 to the same time period in 2008, 78.2% of agencies saw a decrease in revenue, while 75.2% saw a decrease in transactions. 63.6% of agencies saw a decrease in the number of clients when comparing the first half of 2009 to the first half of 2008. 76% are cutting operating costs and 54% took less pay in response to the economy.

More than half of all responding agencies are planning no changes in regards to employees. But a larger percentage of corporate agencies are, in fact, considering changes in regards to employees.

Data from these reports, combined with the overall trend of travel agents closing shop and moving towards a combination of part-time home based telephone and online service indicates that travel agents are working the same hours, but for lower revenues. The NACTA report reveals that only 33.8% of their members now consider selling travel as their primary source of income.

Also, as more travel agents start working both offline and online, they are opting to focus on niche travel sectors, such as family travel or cruises, and their personal connections with clients and knowledge of travel suppliers is beginning to make an impact on the web and the way travel planning sites work.

For more information or to read the full reports, visit American Society of Travel Agents (ASTA) at www.asta.org/ and The National Association of Career Travel Agents (NACTA) at www.nacta.com/

Photo by Justin Marty

The Chelsea Hotel

Welcome to the new era of “we’re so desperate for money, let’s see if this works” from cities and states.

New York City, whose mayor just last summer said it wasn’t smart to raise taxes on tourists and kill the goose that lays the golden egg, just passed a new tax on travel agency service fees for hotel sales for hotels in the Big Apple.

Yep, starting September 1, the difference between amounts received for booking a hotel room and amounts paid to the hotel operator for the room are taxable, according to Travel Trade reports, which means “any service and/or booking fees that are a condition of occupancy.” Apparently, commissions are exempt (today) and no one knows how this applies to packages.

On the other hand, this tax applies to every channel and across the globe, so if you’re an online booking engine in Switzerland, you pay NYC by remitting the amount owed 20 days from the last day of February, May, August and November. Great. Still more deadlines to keep straight. Oh, and make sure you fill out the travel seller application form in the next two weeks as well.

The American Society of Travel Agents has spoken up against this idea, with the senior vice president for legal and industry affairs pointing out that this is double taxation, as the travel agents will also get hit for income taxes on this same amount. Such laws, he said, have been written by ”people who don’t know about the industry who just want more money.”

Well, their grasping while hotels are gasping could be city officials’ downfall. The procedure to file and track these pennies, nickels and dimes is so unwieldy, in the real world, the tax is an incentive to walk away from selling NYC hotel rooms. And since the tax encompasses the big boys like Expedia, Hotwire, Priceline, Travelocity and Orbitz (to name a few), that adds up to substantial cash flow coming into New York’s coffers.

The tax also sets up an adversarial relationship that travel agencies feel compelled to win, lest every city jump on the bandwagon and small businesses spend their days tracking who has their hand outstretched instead of actually selling travel products to consumers. My prediction: Look for a huge drop in room occupancy in NYC for the fourth quarter.

Photography credit: Jim Linwood

Picture of frustration

The horror stories are beginning to pile up now as planeloads of passengers find themselves trapped in a seat on the tarmac waiting on flight clearance.

The latest victims: 47 early morning travelers on a Continental Express jet at Rochester, Minnesota. They boarded in Houston aiming to exit at Minneapolis until bad weather threw in this unexpected stop. They sat on the tarmac dealing with a food shortage, a blanket/pillow shortage and apparently a shortage on bathroom deodorizers to cover up the broken toilet as well. After 7 hours of asking folks not to also display short fuses under the circumstances, they arrived at the original destination.

JetBlue, Delta and American have also made headlines for trapping customers in their seats for hours. It’s an equal opportunity fail for every airline.

Consumer rights groups have predictably gone running to the federal government, asking for laws against this form of hostage-taking. Both the House and Senate have bills circulating to let these travelers go, which airlines have said is not practical given how flight times and union rules work. They make valid points, and they know more about how the internal operations affect the situation than the average citizen. Paul Ruden, senior vice president of the American Society of Travel Agents, was on the airlines’ side.

But today, his task force on the issue is advising Congress to go ahead and do something, preferably instill a time-limit on such in-seat waits. After all, the State of New York went ahead with its passengers bill of rights, and two airlines (yep, chalk up one for Jet Blue) updated their policies to better protect their customers from tarmac butt rash. And still it continues to happen with enough frequency to make taking prisoners the norm rather than the exception, mainly because the airlines won’t back down on this “at our discretion” angle. Pretty words aside, it boils down to “we’re saying what you want to hear but we’re not responding to the problem” as they go about business as usual.

Trapped sardines

Heck, even the Senate committee version on passenger rights sets this misery marathon at three-hour tarmac delays … unless the pilot deems it unsafe or the flight could take off within 30 minutes, which basically means they don’t have to comply.

“I hoped the airlines would get it,” Ruden told the Tampa Bay Tribune this week. “Well, they don’t.”

The entire issue has become a Mexican standoff  because no one was willing to challenge and rewrite the system in the name of customer service  — a system constructed around what worked best for business suits in the first place. Passengers (a.k.a. customers) were left out of the mix from the get-go. Now they’re inserting themselves into the conversation, and if airlines don’t wise up, they’ll find themselves as trapped victims of more legislation.

Photography: Sundaykofax, daquella manera

UA's idea isn't flying with the industry

United Airlines has found a sure-fire way to stir the pot this summer. Its announcement last week that the airline will no longer allow some travel agencies to use its merchant account to book United products after July 20 has heaped coals on officials’ heads.

Basically, a handful of agencies (no one has revealed just who and how many) will have to use their own merchant accounts to accept payments and then pay United in cash. The penalty for forgetting is $75 per ticket. Consultants like Robert Joselyn immediately said this smelled like a pilot program to shift the credit card fees and fraud liability to all travel agencies down the road.

And that’s just the opening volley. Among the anonymous comments posted at Travel Weekly within the first 48 hours of the bombshell:

• “With UA continually on the brink of another bankruptcy, what agency wants to pay with cash and take the risk of holding the bag??”

• “United seems bent on angering and alienating everyone they do business with – whether it be the passenger (I can’t tell you how many clients will say never again will they fly on UA) or their ‘travel partners’ who they seem oblivious to damaging their relationship with in every way imaginable.”

• Has United lost their minds??? We are free employees, selling United’s tickets for nothing and hoping maybe we can receive a service fee. The people at United hate the airline and Glen Tilton because they are Harvard MBAs who are in it for themselves and no one else … It’s just a method to drive down labor costs. Sorry, you airline MBAs, it is not going to work for you. You will see!!!”

• “It sounds more like they are having cash flow problems and want to pass the buck. We already push more and more people onto the discount airlines. and if this follow through the gds’s will have a problem and the discount carriers will benefit.”

Except at United Airlines

The ironic twist, of course, is that United isn’t the first to suggest credit card fees are a problem — Continental’s CFO mentioned in January 2007 that it was looking at ways to get around credit cards, including direct bank transfers. British Airways spent three years earlier this decade locked in a legal battle trying to shift American Express merchant fees from its corporate business. It finally pitched its tent and went home in 2005.

But talking and doing are different things, so it’s UA that the American Society of Travel Agents’ legal team now says it intends to take up with the U.S. Justice Department. According to Paul Ruden, the senior vice president of legal and industry affairs at ASTA, this could mean carriers are relaying their intentions without words to get around the antitrust law. He has some damning facts on his side.

As a travel agent and a business journalist, I’m torn between the two sides. Obviously, cost-cutting is a key ingredient in business survival, and I do it myself. Business is not for the faint of heart: it’s a rough and tumble game.

The problems stem when you play out the consequences. Agencies, as many experts point out, will have to charge more service fees beyond the current $10 mark-up at online databases to cover their costs. Meanwhile, consumers are becoming restless and feisty about fees instead of numb and accepting. When airlines unbundled services and began charging $15 here, $25 there, the result was mass irritation. Tacking on another $10 for using an credit card falls in that same category. Not to mention many Americans are beginning to see holes in their income stream and simply can’t afford to pay another sawbuck.

So, naturally, they’ll trot to the airlines’ URL sites directly to book without fees — bad for travel agents, but remember: This is business. Put on your big girl panties or don’t play. However, this also means the passenger load is now the airlines’ full responsibility — their employees are on the hot seat to handle processing changes, cancellations/credits and notifying folks of new itineraries.

It doesn’t take any in-depth musing to determine labor costs could outstrip the estimated $171 million United now pays in credit card fees. From that standpoint alone, it would be nice to save United Airlines from itself.

Which lends some weight to Ruden’s theory that the real end game is to save GDS fees. “Maybe this is partly or all about getting out from under their full-content agreements,” he told ATW. And there are some rules to this game that shouldn’t be broken — like honoring your contracts.

Photography: cliff1066, szlea

Someone always has an opinion on anything, and as my mother always told us growing up: It never hurts to be optimistic.

Apparently a lot of travel industry leaders had their ears pressed to the windows and doors of our house, because I’m seeing this attitude in spades as travel figures out how to market itself when things get shaky.

Take Craig Banikowski, currently the global travel management director for Hilton Hotels Corp, who is running unopposed for the National Business Travel Association’s president and CEO spot, and should be named to this position at the August convention. (August seems to be the month of change, as Hilton moves into its new headquarters in McLean, Virginia, then, too.)  His official platform statement isn’t due out until the end of June, but he gave Travel Management a nice preview:

• Tough economic times are an opportunity for travel management expertise to show the industry just how effective this discipline can be. Suppliers tend to work more closely together to smooth out the highs and lows, and thus form a relationship that really kicks butt in better times as well.

• We need to keep up with technology. Banikowski personally loves Twitter. “I do think ListServ is an awesome tool, but we have to keep up with the times. Everything evolves,” he said.

• With mainstream media and the government ganging up on meetings and events. “now is not the time to put your head down and try to stay low under the radar,” Banikowski believes. The spotlight is on, it’s bright, and it’s time to perform.

Meanwhile, Vacation.com president and CEO Steve Tracas told his travel agents and vendors at its annual conference to stay the course, because travel is wired into the human experience and therefore “isn’t going anywhere any time soon.”

And early registration numbers for THETRADESHOW 2009 event in Las Vegas September 13 – 15 (brought to you by ASTA, ACTA, CLIA, ETOA, IGLTA, NACTA, NBTA, NTA, The Travel Institute, U.S. Travel Association and USTOA) are up 20 percent ahead of where they were last year at the “15 weeks to go” mark. Seminar topics include how to use social media as part of a marketing campaign.

But, my mother’s platitudes and pep talks aside, the real question becomes not can the travel industry survive, but will the players follow their own advice to that end? Share your opinion!