Agency Universe Grows Total Volume; Consolidation Remains at the Forefront

They say the universe is simultaneously expanding and contracting, and the same could be said of the U.S. travel management company sector. Its expansion comes from another year of broad-based air transaction increases, while the contraction stems from ongoing consolidation that chips away at the number of players.

It appears both trends will continue for the remainder of this year. There is broad optimism about corporate travel demand and signs of sustained market growth. Then there is the promise of further mergers and acquisitions to come, following notable activity from Corporate Travel Management, Direct Travel and, most recently, BCD Travel.

Even so, TMCs remain a fragmented business when set beside the highly concentrated U.S. airline and rental car industries and the oligopolistic global distribution segment.

Marketwide Conditions

2014 was a healthy, if not spectacular, year of transaction growth for the U.S. travel agency market, including not just corporate agencies but online and retail operators as well. Ticket transactions processed by ARC rose 2.4 percent year over year to almost 146 million. As airfares also grew, ARC recorded a new high watermark for the dollar value of airline tickets sold by United States-based agencies, up 4 percent from 2013 to $89.6 billion.

While dollar volume of air tickets sold this year by U.S. agencies has been relatively flat, overall transactions—which are where agencies make money—are up almost 5 percent from the first quarter of 2014, based on ARC data.

The dominant U.S. global distribution system, Sabre, which has strong penetration among BTN survey participants, reported that first-quarter bookings rose 2.7 percent worldwide, with momentum gaining further into the second quarter.

Click here to view the digital edition of the June 15, 2015, issue of Business Travel News, featuring a full-page chart of the survey results.

Macroeconomic trends in managed travel demand vary by region, said BCD Travel CEO John Snyder. “The Americas still seems to be reasonably robust. We’re seeing good uplift on a client base within the Americas. Same in Asia/Pacific, very robust growth. Europe still seems to be a little wait-and-see as to whether the economic recovery is going to fully kick in. But that’s different from country to country in Europe. If you look at the U.K., the growth has been robust the past couple of years. Mainland Europe has been fairly slow.”

The rising tide can lift all boats, but patterns among the corporate travel agencies that participated in BTN’s annual survey varied. The vast majority showed growth in 2014: Ten of the 24 on this year’s list posted double-digit ARC transaction increases. Acquisitions drove some of those increases but not all. Quite a few agencies indicated solid organic growth.

Growth, Both Acquisitive & Organic

The two biggest growers on BTN’s annual list bought quite a bit but not all of their 2014 growth. Starting from a small U.S. base, Australia-based Corporate Travel Management roughly doubled the number of ARC transactions from 2013. CTM in 2014 bought Alaska’s USTravel, Houston-based Avia International Travel and the D.C. area’s Diplomat Travel. Those followed TravelCorp in 2013 and Polk Majestic Travel Group the prior year.

“We could keep buying until we die—and that’s our plan,” managing director Jamie Pherous said during an earnings call this year. Pherous sees more agencies competing for acquisitions. He also noted that CTM was winning new business and achieving its fair share of organic growth.

Christopherson Business Travel’s 2014 transactions jumped 37.8 percent year over year, the second-largest growth rate of ARC transactions in this year’s survey. “We did acquire All Seasons, which was part of it,” said CEO Mike Cameron. “But there was a lot of organic growth as well.” Independent of its All Seasons acquisition, Christopherson last year added 84 corporate clients, he said. Indeed, Christopherson had set a goal to double its sales volume from 2010 to 2015 but met that goal a year early, in 2014.

No discussion of TMC acquisition activity can exclude Direct Travel, which declined to authorize ARC data releases for BTN’s study. CEO Ed Adams late last year expected the agency to make up to six acquisitions in 2015, and last month it acquired its ninth agency in 12 months. It’s all part of an ongoing agency roll-up plan initiated in 2011. Last year Direct Travel acquired Best Travel & Tours Inc., Caldwell Travel of Nashville, Child Albany Travel of New York and Vermont, Hurley Travel Experts, Peak Travel Group and Travel Destinations Management. In 2014, Direct Travel handled “just under” $1 billion in net air sales, according to the company.

“We had a pretty good year last year,” Adams said regarding organic growth. “We’re on track this year to have a very good year. The first couple years it was a challenge: People didn’t know who we were, and trying to sell into limited markets was a challenge. We’ve since brought on some talented sales people and so we’re seeing some of that success.”

Another nonparticipant in BTN’s survey, BCD Travel last month sealed the deal to acquire World Travel Service Inc., whose ARC transaction volume fell roughly 4 percent from 2013 to 2014. BCD plans to step up acquisition activity going forward, Snyder said.

Meanwhile, Los Angeles-based TravelStore indicated it acquired Camarillo, Calif.-based Sterling Travel and Santa Barbara-based Travel World last year. Its ARC air transactions rose 14.8 percent from 2013.

“All TMCs in it for the long haul have to look at acquisition strategies,” said Ron DiLeo, executive vice president and chief commercial officer of Altour International, whose ARC volumes rose around 6 percent from 2013 to 2014, all organic. Altour has set ambitious growth targets this year as it expands bids for Fortune 500 clients, an area it previously did not focus on. But the company’s growth is not contingent on buying others, noted DiLeo.

Indeed, there are plenty of agencies growing without buying.

National Travel Service’s 2014 ARC transactions rose 18.5 percent year over year, the third biggest increase among survey participants. As a government contractor, National Travel Service weathered heavy exposure to sharp federal travel cuts tied to budget sequestration in 2013. Transactions declined 16 percent year over year in 2013 and last year bounced back.

Growth among current clients and a strong sales year propelled a 14 percent spike in ARC transactions for Travel and Transport, which also owns the separately branded Ultramar.

“We had a very nice year,” T&T CEO Kevin O’Malley said. “Our company’s been around 68 years, and the past five years have been the best five years in our company’s history. The past two years have been the two biggest new sales years in our company’s history.”

While Egencia has signaled plans to get involved in corporate-focused acquisitions, the Expedia-owned TMC didn’t need them to lift full-year gross bookings 14 percent from 2013. “We believe this business can grow nicely on an organic basis, but we’ll continue to look opportunistically at acquisitions to accelerate growth and further scale the business over time,” said Dara Khosrowshahi, CEO of parent company Expedia, during an earnings call earlier this year.

World Travel Inc. transactions rose 8.4 percent year over year, representing what CEO Liz Mandarino called “a really successful year for us in sales.” World Travel never has been an active acquirer and doesn’t have designs to become one.

A first-time participant in BTN’s survey that is considered a “mega” by ARC’s measure, HRG also posted double-digit transaction growth in the United States, even if some markets in Europe, a key HRG region, have been marked by macroeconomic doldrums.

North America was HRG’s best-performing region for customer activity for its fiscal year ended March 31. The United Kingdom-based company reported that North American managed travel client spend rose 20 percent and bookings increased 14 percent for the 12-month period. “The macroeconomic climate in North America remains generally strong, and business confidence is typically high amongst the group’s North American clients,” HRG reported in its annual report in May.

The BTN survey does not garner participation from some of the largest United States-based TMCs, including American Express Global Business Travel, BCD Travel and Carlson Wagonlit Travel. Last year, American Express Global Business Travel completed its transition to a joint-venture structure, in which an investor group led by Certares took 50 percent with a $900 million investment. American Express GBT previously released corporate travel sales volumes as part of its publicly traded parent company’s public disclosures but has ceased to do so.

Also last year, Carlson Companies took full ownership of Carlson Wagonlit Travel by buying JPMorgan Chase’s stake. For full-year 2014, CWT, too, claimed solid growth: North American transactions rose 6.3 percent from 2013 and worldwide transactions increased 3.3 percent to 62.3 million.