New travel agency regulations to bolster confidence pinch profits
The most noticeable change for tourists this summer is that they will no longer have to worry about being left high and dry after purchasing a foreign tour from a travel agency. This is due to a new law that took effect in January requiring travel companies, such as travel agents or tour operators, to have either insurance or a bank guarantee in case the company suffers financial difficulties while clients are abroad.
"The main purpose is to help customers when they have problems to come back to Poland from abroad," said Pawel Krzykowski, a spokesman for the government's Agency of Sport and Tourism.
Although there have been relatively few incidents here recently of tour operators going bust and leaving tourists stranded, there have been a number of such incidents in other countries in the region.
Although the new law, which was originally passed in 1997, applies to both Polish and foreign companies, individual agents for companies are not required to have a license. In addition, companies that just sell air tickets and are part of the International Air Transportation Association (IATA), only require a license from this Switzerland-based group.
"It helps the clients" because they are protected from any unfortunate incidents, said Marek Gasiewski, president of Marco Polo travel agency.
While protecting tourists, the new requirement also brings Poland's tourism law into line with European legislation, which was needed as the country is preparing for European Union (EU) accession.
But the increased cost of insurance may pinch smaller tour operators who are already under pressure from falling commission rates and increased competition, especially from large foreign operators.
"Some small agencies are going to die," said Krzysztof Kolodziej, general manager for Getz International Travel, which is 100% foreign owned.
There are currently as many as 6,000 travel companies operating in Poland, of which about 250 are IATA members. However, large European companies such as Ving and Neckermann, which have greater access to capital and the ability to negotiate better deals for clients due to their size, have taken a huge bite out of the market.
Currently, foreign-owned companies have about 80% of the travel market, Gasiewski said, and in future years this number could increase to as much as 90% "because there is no force" among small, domestic operators.
This phenomenon relates to both the sales of tour packages and air tickets. Domestic travel agency PC Express had a 1.4% share of the air ticket market in 1997, according to Ryszard Posyniak, the company's president and vice president of IATA's local branch. A year later that had fallen to 1.2%, a drop Posyniak attributed to clients moving to foreign-owned agents.
The air ticket market here has grown at a healthy rate - 1998 gross airline ticket sales of more than zl. 886 million ($253 million) were up 20% on the previous year in zloty terms and 10% in dollar terms. But Polish companies have not come together to form a single, large company to compete with foreign rivals, Gasiewski said. And Orbis, the largely state-owned travel giant that went public in 1997, has not made much headway in capturing the market.
Small agents aren't just being squeezed by competitors, though. Agents are also worried about the possibility that LOT Polish Airlines, which controls about 50% of the nation's airline market, could cut commissions on international ticket sales this summer. Even small cuts would be detrimental to some agencies' financial well-being. (See WBJ, May 3-9, 1999)
"Generally for Polish companies it's worse and worse," Gasiewski said.
Kolodziej said, though, that foreign companies "are taking some business because they are doing a good job." But that doesn't mean local agencies have to be decimated. "There is lots of space for everyone," he added.
One way for a Polish travel company to survive, Gasiewski said, is for it to become an agent for a larger company. He added that local companies might also consolidate at some point, bulking up to do battle with bigger rivals.
"But not yet," he said. "Let's wait, let's learn."
The question is whether smaller companies will have enough time to wait it out.
While PC Express's 1998 ticket sales of 7,300 were up 21% over the previous year, total sales growth was just 10%, Posyniak said. "To keep market share you have to have 25% growth," he added.
At Marco Polo, 1998 revenue grew by 15-17%, compared to 30% growth the year before, Gasiewski said.
Falling growth rates were due to slowdowns in the travel industry that have been connected with spillover effects from the Russian crisis and a weaker zloty, which made costs 15% higher in dollar terms. This year, the Kosovo crisis has been scaring off travelers from southern Europe, including Italy.
Agents are hoping that the war aside, growth will be more buoyant this year. Gasiewski said he expected 30% growth this year, noting that Mediterranean destinations such as Spain and the west coast of Italy will be popular.
"Most of the traffic goes to the Mediterranean," agreed Stefan Kalisz, managing director at AngloLink travel service, which is an agent for British travel company Cosmos. In the region, Hungary has remained a popular destination.
As of late, the hot spot for Polish vacationers has been Tunisia.
"It was well advertised" by the Tunisian government, Posyniak said.
"The main purpose is to help customers when they have problems to come back to Poland from abroad," said Pawel Krzykowski, a spokesman for the government's Agency of Sport and Tourism.
Although there have been relatively few incidents here recently of tour operators going bust and leaving tourists stranded, there have been a number of such incidents in other countries in the region.
Although the new law, which was originally passed in 1997, applies to both Polish and foreign companies, individual agents for companies are not required to have a license. In addition, companies that just sell air tickets and are part of the International Air Transportation Association (IATA), only require a license from this Switzerland-based group.
"It helps the clients" because they are protected from any unfortunate incidents, said Marek Gasiewski, president of Marco Polo travel agency.
While protecting tourists, the new requirement also brings Poland's tourism law into line with European legislation, which was needed as the country is preparing for European Union (EU) accession.
But the increased cost of insurance may pinch smaller tour operators who are already under pressure from falling commission rates and increased competition, especially from large foreign operators.
"Some small agencies are going to die," said Krzysztof Kolodziej, general manager for Getz International Travel, which is 100% foreign owned.
There are currently as many as 6,000 travel companies operating in Poland, of which about 250 are IATA members. However, large European companies such as Ving and Neckermann, which have greater access to capital and the ability to negotiate better deals for clients due to their size, have taken a huge bite out of the market.
Currently, foreign-owned companies have about 80% of the travel market, Gasiewski said, and in future years this number could increase to as much as 90% "because there is no force" among small, domestic operators.
This phenomenon relates to both the sales of tour packages and air tickets. Domestic travel agency PC Express had a 1.4% share of the air ticket market in 1997, according to Ryszard Posyniak, the company's president and vice president of IATA's local branch. A year later that had fallen to 1.2%, a drop Posyniak attributed to clients moving to foreign-owned agents.
The air ticket market here has grown at a healthy rate - 1998 gross airline ticket sales of more than zl. 886 million ($253 million) were up 20% on the previous year in zloty terms and 10% in dollar terms. But Polish companies have not come together to form a single, large company to compete with foreign rivals, Gasiewski said. And Orbis, the largely state-owned travel giant that went public in 1997, has not made much headway in capturing the market.
Small agents aren't just being squeezed by competitors, though. Agents are also worried about the possibility that LOT Polish Airlines, which controls about 50% of the nation's airline market, could cut commissions on international ticket sales this summer. Even small cuts would be detrimental to some agencies' financial well-being. (See WBJ, May 3-9, 1999)
"Generally for Polish companies it's worse and worse," Gasiewski said.
Kolodziej said, though, that foreign companies "are taking some business because they are doing a good job." But that doesn't mean local agencies have to be decimated. "There is lots of space for everyone," he added.
One way for a Polish travel company to survive, Gasiewski said, is for it to become an agent for a larger company. He added that local companies might also consolidate at some point, bulking up to do battle with bigger rivals.
"But not yet," he said. "Let's wait, let's learn."
The question is whether smaller companies will have enough time to wait it out.
While PC Express's 1998 ticket sales of 7,300 were up 21% over the previous year, total sales growth was just 10%, Posyniak said. "To keep market share you have to have 25% growth," he added.
At Marco Polo, 1998 revenue grew by 15-17%, compared to 30% growth the year before, Gasiewski said.
Falling growth rates were due to slowdowns in the travel industry that have been connected with spillover effects from the Russian crisis and a weaker zloty, which made costs 15% higher in dollar terms. This year, the Kosovo crisis has been scaring off travelers from southern Europe, including Italy.
Agents are hoping that the war aside, growth will be more buoyant this year. Gasiewski said he expected 30% growth this year, noting that Mediterranean destinations such as Spain and the west coast of Italy will be popular.
"Most of the traffic goes to the Mediterranean," agreed Stefan Kalisz, managing director at AngloLink travel service, which is an agent for British travel company Cosmos. In the region, Hungary has remained a popular destination.
As of late, the hot spot for Polish vacationers has been Tunisia.
"It was well advertised" by the Tunisian government, Posyniak said.
