An agency business model that works

December 5, 2000

Close your eyes. Think of a handful of Asia's foremost companies. Not the biggest, the most hyped, but the ones who have it where it counts – the bottom line. Open your eyes. Was one of those companies a travel agency?

The Asian Wall Street Journal just undertook exactly the same task (see today's Daily News), but with their critical eyes open. It found that of all the wider region's companies, the second greatest "value creator" in the region was indeed a retail travel agency, Flight Centre Limited.

Surprised? Well, probably not about the name of the company – TravelWeekly East has covered Flight Centre and its international growth path in depth this year. But what may surprise many is that an agency business is in this grouping at all. Indeed, it initially surprised an executive from Holt Value Associates, the company which did the survey: "I was skeptical of that business until I actually saw the results. Each office has a very strong profit motive and that gives them a very strong service incentive."

This confirms something I've often felt about corporate culture – it's often driven more by hype than by hard data. While economists may try to dress it all up as a hard science, to me the corporate world is closer to the laws of the Paris catwalks in its fads, fashions and false alarms than to the laws of physics.

One of those laws is what goes up must come down. The law of gravity. And if this year's battle field strewn with dotcom fatalities shows, the bigger you claim you'll be, the harder you can fall.

Travel agents don't make so much noise – the good ones just make money, then spend it making plans for future growth. Flight Centre's model is to play it straight – CEO Graham Turner doesn't go for flashy suits or big cars. He uses the media to speak his mind forthrightly about the industry rather than to massage his ego.

Flight Centre Ltd's numbers speak for themselves – Three-Year Average Cash Returns are 22.8 percent; Three-Year Average Sales Growth is 23.1 percent; and Three-Year Share Price gain is 623 percent. What can we learn from this? Firstly that an agency business model can deliver the goods if it's done properly. The industry could be less reticent and negative and spend more time convincing future investors of this fact.

Secondly, we should study both the dynamics of this model and the environment in which the model works. While the Journal readily claims this business as "Asian" – just as it did the top two winning Large-Cap value Creators (from Australia); and the top two Small-Cap value creators (from New Zealand) – it has actually had a lot of hesitation in operating within the Asian environment. As Turner told TravelWeekly East earlier in the year, Flight Centre has relied on having a strong knowledge of a new market:

"Setting up a basically wholly-owned operation overseas is quite a difficult thing, so we've tended to stick to the English-speaking ones so far. And they're tough enough."

This doesn't reflect badly on Asia, nor does it mean it couldn't work here – Turner says it just means reducing the unknown variables.

"The issue is, we know the English-speaking, Westernised cultures better. We know our current existing model will work there. Whereas with some of these Asian market, you will have to adapt. And we don't need to now."

Close your eyes again. Think what you consider "business success" in terms of how it's hyped. Is it about moving rapidly beyond core competencies into new areas of business? Does it involve rapid expansion into widely touted growth markets, ready or not?

Now let's open our eyes, and keep them open. Simply go with what we know, in places we know best. And occasionally let's try to remind the noisier cats in the corporate jungle just how good we can be at doing it.

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