The travel agency sector is crowded with suppliers, wholesalers and retailers, but two major players dominate the local scene. Emily Morgan reports.
WITH a supply chain like a snakes and ladders board and two huge multinational companies dominating the sector, getting a handle on the travel agent business in Western Australia is a convoluted process.
The largest two holding companies in Australia (and WA) are Flight Centre (number one on the WA Business News ‘Book of Lists’) and The Jetset Travelworld Group, companies that share a hunger for growth and have common ground in their listing on the ASX.
Between them these businesses dominate the industry, with large numbers of retail and wholesale companies under different names, and in some cases destination management companies (see graphic).
They have slowly created a market in which most travel agents come under either of the two major names.
Last September, Jetset Travelworld bought Stella Travel Services and its subsidiaries, which included Harvey World Travel, TravelScene American Express (which acts as a retail banner), Leederville-based online flight wholesaler Best Flights, and 130-year-old Newmans Holidays.
Consequently, The Jetset Travelworld Group has a sizeable market share of retail, wholesale and destination management companies (otherwise known as travel management companies).
At the time of the merger announcement last September, Jetset Travelworld chairman Tom Dery said it represented a significant improvement on the competitive positioning of the company.
That was putting it mildly.
“The merger proposal is a step towards JTG becoming one of Australia’s leading integrated travel companies. It will result in increased scale, larger wholesale, retail and online offerings, additional geographic exposure, a platform for future growth for JTG and a range of financial benefits for the enlarged JTG Group,’’ Jetset Travelworld’s merger proposal report says.
A move that brings together such large players has obvious effects on others operating in the industry, as well as different links along the food chain.
Subiaco-based travel wholesaler Wildlife Safari chief executive, Trevor Fernandes, has been operating since the 1980s and has witnessed the changing landscape.
“There has been incredible consolidation in the industry in this country in the last 12 months especially,” Mr Fernandes says.
According to Mr Fernandes, Jetset Travelworld and Flight Centre have become the “supernovas” of the industry.
“They are just going to keep getting bigger and bigger as they swallow up other bits and pieces,” he says.
“It is free-market enterprise in its purest form.”
The effect this will have on the industry is clear; with two great power players that dominate the retail and wholesale lines of business, smaller businesses are going to be drawn to the brand power.
“A lot of the independents are gone from the retail point of view. In retail you pretty much have to be in one camp or another now, you have to throw your hat in with the Jetset guys or the Flight Centre guys,” Mr Fernandes told WA Business News.
“Everyone has to be aligned with someone, you have got to be a part of some buying group; there will be one or two hard-headed guys, but to be honest everyone has to be with someone in the industry to survive and get ahead, the buying power, the deals and so on.”
As an independent wholesaler of African safaris with its operations headquarters in Perth, Wildlife Safari has a destination management company in Nairobi, and is still privately owned.
Mr Fernandes says it may ultimately become necessary to partner with a global name.
The industry’s way of operating with ‘preferred suppliers’ – a system through which retailers sign agreements to push end-supplier and wholesaler products like flights and tour packages as preferred options to end users – makes this even more necessary.
“Each of these companies has its preferred suppliers – tour operators, airlines, hotel groups, insurance even. Does it restrict competition? Is the public getting a fair deal? I suppose my message would be to shop around,’’Mr Fernandes says.
“Here’s the bottom line: is it good for the public? No it’s not, because there is less competition. However you could also then argue that the public have the whole world to choose from on the worldwide web.”
Snakes and ladders
The industry’s supply chain is long and meanders through several levels before the end user meets the end supplier.
Traditionally, a prospective traveller visits a retail travel agent, who contacts a wholesale travel agent (the business that puts travel packages and glossy brochures together), who contacts the destination management company (the ground operator), who liaises with the end supplier.
The consolidation of the industry has complicated the chain and when you start to delve into business ownership, it becomes clear that owning multiple links in multiple chains has become the way of the travel world.
Flight Centre has 36 travel brands under its name and has developed organically rather than acquiring businesses. It has between 30 and 40 wholesalers on its books, but uses its own wholesaler, Infinity Holidays, as its main wholesale agent.
Its main wholesale agent used to be Qantas Holidays but the company moved away from using an outside wholesaler in 2007 in order to avoid paying margins that could otherwise go to its parent company’s wallet.
Flight Centre has 900 retail stores in Australia but also owns FCm Travel Solutions (number 12 on the ‘Book of Lists’), and Travel Associates, Student Flights and quickbeds.com, an online hotel booking site.
Meanwhile, Jetset Travelworld has been aggressive in its growth strategy for the past decade. It bought Qantas Holidays – one of the country’s largest travel wholesalers – and Qantas Business Travel in 2008. At the time the move meant Qantas became a majority shareholder in Jetset Travelworld with 58 per cent of share capital.
That figure has since been reduced following the Jetset and Stella merger, and Qantas now owns 29 per cent of the company.
Interestingly, privately owned Consolidated Travel Group’s (number 11 on the WA Business News travel agencies list) chief executive Spiros Alysandratos has a 12.6 per cent ownership stake in Jetset Travelworld Group.
Making money
With so many layers and wholly owned subsidiary players, and the global financial crisis leaving the travel world dependent on discounted airfares for the best part of the last two years, it is a wonder anyone in the travel agency world makes any money.
The financials of listed companies Flight Centre and Jetset Travelworld Group indicate that the length of supply chain ensures each level receives a small piece of the pie.
Flight Centre’s full year accounts for 2009-10 financial year show it had an actual total transaction value of $11 billion but net profit after tax of only $139.9 million.
That figure might seem small in comparison to the TTV, but Flight Centre says it is a record and a 267 per cent increase on 2008-09.
In its report, the company says it is initially targeting net profit before tax of between $220 million and $240 million, and that its future growth drivers will be mainly through shop expansion (it aims for 10 per cent global growth annually), modest recovery in airfare yields, increasing its corporate travel management business and improved contributions from its businesses in the US and India.
With Flight Centre’s retail arm (116 stores in WA) being the main contributor to company profits in Australia – with 80 per cent of that in the leisure market and 20 per cent in corporate travel management – it is no wonder the company is continuing on its retail branch growth strategy.
