NATAS BENCHMARKING REPORT FOR THE TRAVEL INDUSTRY
QUARTER 2, 2003

This is an excerpt of the industry report:



No of travel Agents
Net Margin
Below
Above
Gross Margin Above
9
2
Below
3
7


Chart Analysis

The chart above is divided into four sectors by the industry averages for Gross Margin and Net Margin.

The travel industry experienced a wider variation in net margin in Quarter 2 compared to Quarter 1 of 2003. The net margins for most of the travel agents varied within a 14 percentage points range (from -10% to 4%) in Quarter 1 whereas in Quarter 2, the range has widen to 50 percentage points, from -30% to 20%

Out of the 20 travel agents on the chart, 8 travel agents managed to record positive gain in their businesses for the quarter 2 of this year. These 8 travel agents were mainly involved in the air ticketing except one which has generated almost 75% of its revenue from outbound tour packages.

The remaining 12 travel agents suffered a net loss ranging from 3% to 58%. These agents were mainly selling outbound & inbound tour packages and surface transport services.


Commentary

The Singapore travel industry averages were computed from a total of 21 travel agents and their sales receipts represented about 30% of total receipts from all the travel agents in Singapore. (Source: Total Receipts were obtained from the Economic Surveys Series 2001 by the Singapore Department of Statistics).

The travel industry suffered a net loss of 0.6% for Quarter 2 of 2003, a decline of 1.9 percentage point from a net gain of 1.4% in Quarter 2 of 2002. The loss was mainly caused by lower sales as a result of reduced traveling by both corporate and retail customers. This was mainly due to the outbreak of SARS, with Singapore being listed as a SARS affected area by the World Health Organization (WHO). Sales generated for Quarter 2 were 59% of last year and gross profits have correspondingly declined by 42%. Average gross margin was not affected by the post SARS promotions launched in the May/June period.

Average operating cost decreased by 24% following the cost cutting measures implemented by the travel agents. The operating cost did not decrease as much as the sales revenue in percentage term and this has pushed up the operating cost as a percentage of sales by 1.9 percentage point (from 6.6% to 8.5%). Possible reasons for not being able to reduce the operating cost by the same proportion were the presence of fixed operating costs such as office rental and the need to maintain a minimum level of operations to support the current sales activities.

Cost cutting measures such as compulsory paid leave and unpaid leave have reduced the salary costs by 20% over the same period last year. However, the reduction was smaller compared to the percentage decline in sales. As a result, salary cost as a percentage of sales went up from 4.1% to 5.6%, representing a 1.5 percentage point increase over last year.

Business continuity index measures the company's ability to meet the demand for immediate payment for all its current liabilities. The index measures the solvency of the company and not the liquidity of the company. The industry average of negative 8 months indicates that most travel agents would not be able to survive if the above scenario comes true. Assuming that the current assets except cash are able to pay off all the current liabilities, the companies in the survey would be able to operate for about 8 months without sales (by taking the total cash available and divide by the operating cost). This, however, requires the strong support and high confidence of the suppliers, believing that the travel agents have no problem paying them in the long run.

Note

SynergyWorks is commissioned by the National Association of Travel Agents Singapore (NATAS) to conduct this benchmarking study.

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