Branches May Be Answer for Ask Mr. Foster : Agency Seeks Independent Associates in Ignored Markets to Enhance Image
In the early 1880s, Ward G. Foster gave out train and steamship schedules from his gift shop facing the venerable Ponce de Leon Hotel in St. Augustine, Fla. As legend has it, puzzled travelers at the hotel were directed by bellhops and clerks to “Ask Mr. Foster. He’ll know.”
Foster only had a small business, but he had a big reputation around town as the guy who knew where to find what, and how to get where.
A century later, Ask Mr. Foster is the second-largest travel agency chain in the country. Only American Express is bigger. But the chain’s growth has not brought it the reputation nationally that the founder had in his community.
“The problem is,” said Alan Prince, senior vice president and general manager, “we’re almost 100 years old, a leader in the industry and almost no one’s heard of us.”
Reaching Ignored Markets
Last September, the Van Nuys-based company launched a strategy that officials say is helping it gain recognition. Through an “associate program,” it began recruiting into the the Ask Mr. Foster network independent travel agencies in small- to medium-sized markets it previously ignored.
Modeling its growth after such successful chains as H & R Block tax preparers and Century 21 real estate, Ask Mr. Foster has added 50 associate offices in cities such as Lansing, Mich., Albuquerque, N.M., and Burlington, Vt.
The company is hardly a novice at the branch office concept. With annual sales in excess of $550 million, Ask Mr. Foster has more than 2,200 employees at 339 offices nationwide. And, for the past five years, Ask Mr. Foster has been a subsidiary of the Carlson Cos. of Minneapolis, a privately held conglomerate whose other interests include such chains as Radisson hotels, Country Kitchen restaurants and TGI Friday’s taverns.
Ask Mr. Foster is thinking big, hoping to follow the lead of Peter Ueberroth, who ran the company from 1972 to 1979, before going on to fame as the organizer of the 1984 Summer Olympics and later as commissioner of baseball.
National Identity Sought
“We want to be the McTravel of the travel business,” said chain President Hans de Lange, 49, a hearty Dutch native with a hint of an accent. “Ask Mr. Foster needs a nationwide identity.”
Since the program began, associates have been added in 14 states that previously were not served by Ask Mr. Foster. By the end of this year, De Lange said, he hopes to sign on 50 more associates.
For recognition-hungry Ask Mr. Foster executives, the associate program means expansion beyond the 25 top travel markets the chain previously targeted for growth, without increased overhead expenses for new offices and staff.
For the licensees, the program offers the Ask Mr. Foster name and expertise in exchange for paying the chain part of their commission income. The sliding percentage fee based on agency size helps offset the costs of training and other services, Prince said. Licensees also must contribute to a national advertising fund and agree to abide by company standards.
‘Don’t Mean to Gouge’
“We don’t mean to gouge them with the fees,” Prince said. “Benefits to us will be in the long-range growth plan.” For example, Prince said, an increased advertising budget from the associates will allow the chain to promote itself in general-circulation national magazines and on television, neither of which it has done in the past.
The associate program was orchestrated by Prince, who marvels at its simplicity. “We pick out a city and check industry reference guides for candidate agencies,” he explained. “Then we call cold and ask them to join up.”
De Lange said Ask Mr. Foster is careful to avoid signing up money-losing agencies. During the screening, the independent agencies must submit audited financial statements. Once an independent has signed on, it must send in monthly management reports.
“And they call us, two to three times a week, monitoring us, asking us if we need any help,” said Frank Ierulli, whose three Alexander Travel agencies in Peoria, Ill., joined the Foster chain last year. His main agency is now called Ask Mr. Foster/Alexander Travel and the others have changed their names similarly.
Program Called Less Risky
De Lange said the associate program is less risky than the company’s previous strategy of expanding only through wholly owned outlets. But, he conceded, “Just because the financial data says they do well, it doesn’t mean they’ll do well forever.”
If a licensee were to fail, De Lange said, “we’d go in and buy it because we need a stable network. We can’t have a presence in a city one day and not be there the next.”
But some of Ask Mr. Foster’s leading competitors think the licensing strategy is too risky.
IVI Travel, the third largest agency chain with 1984 sales in the United States of about $500 million, has 49 wholly owned offices across the country. “We’ve looked at licensing and decided against it,” said its president, Richard Imcandela. “When the agencies are yours, from service levels to pricing, you can do anything you want with them. You don’t have to encourage them.”
The 65 U.S. branches of Thomas Cook, the fourth-largest chain operating in the United States with sales of about $300 million in 1984, also are fully owned.
American Express, with U.S. sales last year in excess of $1 billion, has what it calls a “representative program” similar to Ask Mr. Foster’s associate program. The company has 280 wholly owned agencies and 300 representatives. Affiliated agencies, which also pay a fee, are less likely to use the American Express name, but benefit from being able to offer services such as traveler’s check sales and refunds.
Ask Mr. Foster agencies are formidable competition for independent travel agencies. “They’re extremely aggressive,” said Karen Rubin, senior editor of Travel Agent, a semiweekly trade magazine. “A lot of small agencies complain they’re losing accounts to Ask Mr. Foster.”
Still, the chains are a small part of the overall travel business. Ask Mr. Foster books only 2.5% of all reservations made by 26,000 travel agencies nationwide. Even No. 1 American Express has only about 5% of the market share, according to industry estimates.
“Most agents are independent. It’s still mostly a mom-and-pop business, a step above a cottage industry,” De Lange said.
In 1978, when the airline industry was deregulated, there were 15,000 travel agencies in the United States. Deregulation has meant more fares to figure out, more new cut-rate airlines and an increased need for travel agents.
The demands on travel agents have changed as result. Travel agencies once were used primarily as vacation counselors and for the convenience of business travelers, but now their ability to track the lowest fares is most important to customers, according to Richard S. Kahn, executive editor of Travel Agent magazine.
“The incentive for a travel agent offering the lowest fare is no different from a shoe store’s,” Kahn said. “The agent wants you to come back.”
But the earnings of travel agencies, which never have charged customers for their services, also hinge on the size of the bill. They make money through commissions averaging 10% from airlines and other carriers, and from hotels, according to the American Society of Travel Agents, the largest industry trade group, with 20,000 members in 128 countries.
Most Are Corporate Clients
Chain agencies say they offer customers the advantage of negotiating power for hotel reservations, for example, when others may be unsuccessful. They also say they are able to get their customers the lowest fares by using several computer systems simultaneously for their information. Few independents can afford more than one system.
Corporate clients make up 70% of Ask Mr. Foster’s business, compared to an industry average of 53%. Big companies are coveted by travel agencies, in part because business travel is less affected by changes in the economy than leisure travel. Agencies fight for corporate accounts and even rebate a percentage of commissions to clients who offer a high volume of business.
Looking for corporate accounts, Alexander Travel in Peoria pursued Ask Mr. Foster to become an associate. “Since joining six months ago, we’ve gone from 10% corporate to 25%,” Ierulli said. “By the end of this year, we hope to be at around 50%.”
The affiliation enabled Ierulli to advertise that his agencies were part of a network extending to cities frequented by traveling executives. Ask Mr. Foster also gave him an automated bookkeeping system that can send companies monthly records of their travel expenses.
Seminar on China
The company also handed Ierulli one of his biggest accounts, for the Peoria business of Dallas-based Dresser Industries. Alexander Travel uses its new bookkeeping system to send travel bills directly to the company’s headquarters.
When Ierulli reported to headquarters in Van Nuys that one of his major clients anticipated new business in China, a seminar was organized in Chicago for two of his counselors with specialists in Far East travel.
Ask Mr. Foster has a history of growth and decline.
Ward Foster had Florida offices in Jacksonville, Daytona and Palm Beach by the turn of the century. (It was not the first travel agency chain in the country. Thomas Cook, founded in 1841 in England, opened a U.S. agency in Philadelphia in 1867.) Foster sold out to a group of investors in 1928 and the chain changed hands several times in the following decades.
World War II Intervenes
By the late 1930s, Ask Mr. Foster had 75 offices. But World War II was a devastating time for the leisure-oriented travel business. In 1972, when Ueberroth bought Ask Mr. Foster for less than $1 million cash, it had only 28 branches with revenues of $33 million. Six years later, Ask Mr. Foster had 80 locations with revenues of $100 million.
Nevertheless, Ueberroth said, “it’s certainly been managed better in recent years than when I was there. But then our resources were much more limited.”
When Ueberroth bought the chain, he moved its headquarters to Encino. In 1977, the corporate offices were moved to their present location, a single story, ivy-covered, red brick building in a Van Nuys industrial park. There are 200 employees at the headquarters, and more in the company’s five branch agencies around the San Fernando Valley.
In his days managing Ask Mr. Foster, Ueberroth said, he, too, was troubled by a lack of recognition for the company. Unlike other big agencies, “we didn’t have auxiliary businesses like credit cards or traveler’s checks to make a name for ourselves,” he said.
Sold by Ueberroth
Ueberroth sold Ask Mr. Foster to the Carlson Cos. in 1979, when he assumed his post with the Olympics committee, for $10.4 million. John Ueberroth, his brother, still heads the parent Carlson Travel Group in Minneapolis.
Like Peter Ueberroth, De Lange is an energetic businessman. In 1957, after leaving the Dutch army, he began a career in the travel business with the London office of KLM Royal Dutch Airlines. Two years later, De Lange and his wife moved to Fresno, where he started his own travel agency.
He sold the agency after two years and went to work for TWA in San Francisco as an account executive, and later as a supervisor for travel agency sales. Comfortable speaking Dutch, French, German and English, De Lange was sent by TWA to Europe, Africa and the Middle East to promote local air traffic on the American carrier.
Since he joined Ask Mr. Foster at Peter Ueberroth’s urging, he has been an advocate of expansion and the push for a high profile.
De Lange, who restlessly paces his office as he speaks, a mug of coffee in his burly fist, said he sees the company’s future tied to high technology. “The big boys will get bigger,” De Lange said. “We can afford to go into new computer technology and things like automated ticket machines. The middle-sized and small agencies won’t be able to compete.”
Projected revenues for 1985 are $900 million, De Lange said. By 1989, he predicted, Ask Mr. Foster will be a multibillion-dollar company with a market share of up to 9%.
De Lange said the Carlson Cos. give him a lot of “elbow room.” In 1982, for example, although profits were down, Carlson did not object to continued expansion, he said. “As a private company, there are no stockholders to report to,” he noted.
Still, economic downturns may get in the way. “It’s a vulnerable business. We go down fast and take longer to recover,” De Lange said. The company is more dependent on corporate than leisure travel, but a serious recession could affect business travel too, he said.
“But we’ll stay profitable barring a 1930s-style depression. We have a confident parent company that continues to invest in us, so we can remain bullish.”
LEADING TRAVEL AGENCIES OPERATING IN THE UNITED STATES
1984 U.S. SALES U.S. LOCATIONS Thomas Cook Travel U.S.A. New York $300 million 65 IVI Travel Inc. Northbrook, Ill. $500 million 49 Ask Mr. Foster Van Nuys $550 million 339 American Express New York $1 billion 580