Auto Club Faces Probe of Secrecy in Tour Deal
The state attorney general’s office said Friday it is opening an inquiry into the Automobile Club of Southern California’s failure to disclose for the past two years its majority ownership of tour packager Pleasant Holidays. The Auto Club’s travel agency has been steering most of its Hawaii-bound members to the tour company.
The club’s ownership stake in Pleasant Holidays, revealed this week, has sparked protests from consumer advocates about a potential conflict of interest. At least one rival travel firm said it had seen a dropoff in Auto Club referrals after the purchase of Pleasant Holidays in early 1999.
“We’re going to look at whether or not the Automobile Club had an affirmative duty to disclose its ownership interest [to its members],” said Deputy Atty. Gen. Jerry Smilowitz.
Though the purchase of Pleasant Holidays itself does not appear to violate any laws, Smilowitz said, his staff will look into whether the club’s actions in keeping it secret amount to deceptive business practices.
The Auto Club provides a travel service, among other things, for its nearly 5 million dues-paying members. Club agents routinely refer members to several tour operators, but since January, Pleasant Holidays has been the only “preferred provider” to Hawaii. This arrangement gives the Auto Club extra commissions in exchange for booking customers with the tour operator.
After Smilowitz disclosed the inquiry to The Times late Friday, Auto Club officials said it was standard practice to keep such deals under wraps, within legal limits.
Public disclosure was never discussed, said Carol Thorp, spokeswoman for the Los Angeles-based Auto Club, part of the nationwide Automobile Assn. of America. And the club would not say whether it has similar stakes in any other travel services, hotels or myriad other businesses it works with.
Travel agents at the Automobile Club’s big operations center in Costa Mesa were told Thursday about the club’s financial relationship with Pleasant Holidays. While some of the agents said they were somewhat surprised by the disclosure, they said no orders had ever been given--prior to the purchase or since--that changed the way they do business.
The club’s purchase of Pleasant Holidays for an undisclosed sum brought one of the nation’s biggest tour operators under control of one of the largest networks of travel agents.
The 101-year-old club has been widely perceived as an organization that, in addition to its core auto insurance business, provides research and independent recommendations, such as the diamond-rating system for hotels found in Auto Club guidebooks nationwide.
“Their failure to disclose--that to me is a serious omission,” said Arthur Frommer, the New York-based guidebook author, budget travel guru and editor of Arthur Frommer’s Budget Travel Magazine. “Certainly a stockbroker who recommended to you a stock without disclosing his interest in it would be called to account.”
The club is a nonprofit mutual company that operates largely like a privately held business, selling services, making investments and paying state and federal taxes.
Pleasant Holidays, based in Westlake Village, sent about 450,000 travelers to Hawaii last year via its Pleasant Hawaiian Holidays subsidiary. Pleasant Holidays, which had revenues of about $450 million last year, also sends travelers to other Pacific Rim destinations, including Mexico, via other subsidiaries.
In recent years, following a trend among auto clubs nationwide, the Southern California club took a more aggressive stance in its travel agency operations, shortening its list of favorite travel suppliers so that it could enjoy higher commissions with the chosen companies.
But no other U.S. auto club has taken such a dramatic step into the marketplace by buying a major supplier, industry veterans say.
Many travel industry veterans were reluctant to criticize the delayed disclosure, noting Pleasant Holidays has enjoyed a top-notch reputation for decades. They also noted that for years, travel agencies routinely have made undisclosed “preferred provider” agreements.
But since Tuesday, when the deal was disclosed by the trade publication Travel Weekly, industry veterans have been buzzing about the move’s implications. The attorney general office’s probe was launched after calls from a Times reporter seeking comment, Smilowitz said.
One Pleasant Holidays competitor said he now understands a fall-off in business from the Auto Club. The club “pretty much discontinued doing business with us [about two years ago],” said Ron Letterman, president of Classic Custom Vacations in San Jose. “We didn’t know why that happened.”
Letterman said he sees no problem with the transaction but believes the secrecy was a bad decision. “You should fully disclose who owns you and who you’re doing business with,” he said.
Thorp said the Southern California club’s “preferred” relationship with Classic Custom Vacations lapsed in January, but that they still do “substantial” business with each other.
At Minneapolis-based Carlson Wagonlit, a national travel agency network that has agreements with Pleasant Holidays and competes with the auto club, spokesman Steve Loucks said: “We’re asking a lot of questions, but we’re pretty sure that there’s probably not going to be a substantive change in our relationship.”
One longtime Auto Club agent, who requested anonymity, said she didn’t know until now about the purchase of Pleasant Holidays. “It’s almost better that we didn’t know about [the Automobile Club/Pleasant Holidays deal] at all, because we never changed how we do things. Everything’s been the same. We direct people to a lot of different businesses, not just Pleasant.”
Another agent said she didn’t think the Auto Club had done anything wrong, and wondered if most customers would be concerned about any perceived conflict related to Pleasant Holidays. “We are a travel agency,” she said. “We behave like one, and I think most of our members know that.”
Others in the trade noted that the arrangement fits into a broader trend of “vertical integration” in the travel business, as major players look to reduce the intermediaries between them and the consumer.
Carlson Cos. Inc. owns Carlson Wagonlit as well as the Radisson and Regent hotel chains. American Express, one of the leading travel agency networks in the U.S., owns wholesaler Travel Impressions. New York travel agency Liberty Travel and tour company Gogo Worldwide Vacations also share ownership.
However, industry veterans note that none of those relationships have been kept under the wraps that concealed the Auto Club-Pleasant Holidays deal until this week.
Pleasant Holidays filed with the state the required paperwork on its ownership change in March 1999, but because the auto club listed a holding company as the new Pleasant owner, the link wasn’t immediately clear, Smilowitz said. At Pleasant Holidays offices, spokesman Ken Phillips said the company has received “a few calls” from hotels, visitor bureaus and other travel agencies.
“And essentially the response that we have is that it’s really not new news,” he said. “It’s something that’s been in place for 2 1/2 years, and has in no way affected our relationships with any of our travel partners. We continue to operate as a totally separate company.”
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Times staff writer Bonnie Harris contributed to this report.
