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How’s Business: Travel Woes

travel-agency business certainly would qualify.

By Joe Palumbo

If there were a contest for the most beaten-down industry, the

travel-agency business certainly would qualify.

It used to be a real fun industry, but its beginning blight began as

early as 1978 with the clouds of airline deregulation, and its downhill

momentum started in the early 1990s.

Up to that point some travel agents made as much as 15 percent in direct deduction commission, depending on their productivity with a given airline. But then airlines decided that their commissions (their highest cost component) needed to be cut in order to reduce costs and remain competitive and solvent.

Subsequently, standard commissions dropped from as high as 12 percent to 0 percent to 8 percent to 5 percent. But the real pain was suffered when airlines decided to pay zippo! That left the travel agent industry to rely mainly on self-imposed service fees direct to the public.

The question then was: Was this really a cut in agency commission or a

concealed airline fare increase to the public?

Then there was the tragedy of Sept. 11, which hit the travel industry

hard across the board. Granted, there were some selective travel agents

who would maintain what is known as special override commission

agreements due to their company's size and production, which allowed

them to weather the storm longer than the average neighborhood

mom-and-pop shops with an even larger death toll.

Anna Berger of Zig Zag Travel in Rego Park said that the phones just did not ring and everything came to a standstill. She added that she had to dip into her reserves to keep the business afloat and thought about giving up. But she could not because she loves her business too much. Because of her expertise and foresight, as well as her dedicated and professional staff, Berger turned a lemon into lemonade and today is on full production and doing very well.

Unfortunately, many agencies didn't fare as well and were forced to

close their doors. With commissions at zero, how does one make up the

loss? How much can an agent charge as a service fee? Even service fees

of $25 to $35 don't make up the slack.

John Zotos of Arista Travel in Astoria said his costs continue to rise

but his income has been declining. How can he maintain his business?

Zotos said he would need to gain 400 percent market share just to break

even.

In spite of the odds Arista is holding its own quite well. So how's

business for travel agents? Tough with a capital T! Unless you have a

very special niche, opening such a business at this time may not be a

good idea.

Joe Palumbo is a private asset manager as well as the fund manager for

The Palco Group, Inc., an investment company at www.palcogroup.com or

461-8317.

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