A Modern Classic

From a new headquarters in San Jose, Calif., Classic Vacations is embarking on one of its most aggressive growth strategies in recent years, seeking to expand its dominance in a growing high-end tour market with an ambitiously crafted strategic plan that includes a plethora of new destinations, products and agent offerings. After a year of broad changes that included the molding of a new executive management team with strong industry credentials, the completion of parent company Expedia Inc.’s spin-off from IAC/InterActiveCorp. in August and another strong year for tour operators with a similar outlook for 2006, officials with the 27-year-old tour operator/packager say the company now is solidly positioned for expansion.

“This is a smart and experienced group of executives who see the opportunities very clearly and are creating innovative ways to get there,” said Classic president Gregg Brockway. “We have worked hard to complete an ambitious strategic plan that establishes clear direction ... The whole plan is built around the premise that Classic tailors total vacation experiences to the needs of discerning travelers.”

And it’s a forward-looking strategy that company executives say relies on travel agents as a foundation for the future.

“Our future success will be based on the success of our agency partners,” said Greg Bernd, who was promoted in March to vice president of sales. “We have a great network of loyal agents to whom we are obligated to provide the best products at competitive prices and the highest levels of support and service. Nothing we do will jeopardize that relationship.”

Toward that end, Classic officials are focused on aggressively reaching out to the agent community with new tools, new properties and experiences within current destinations, and expanding into new destinations such as Tahiti.

“We’re hiring additional field sales people to help our agents grow and to establish new account relationships. We have the best reservations team in the business and are investing even more in training and destination visits,” said Brockway, a founder of Internet travel startup Hotwire who was named to the Classic position in January. “We are finding ways to streamline operations and make it easier to do business with Classic.”

The Expedia Fallout

Classic’s direction may be welcome news for some travel professionals who have worried about possible repercussions since 2002 when Expedia Inc. — then owned by Barry Diller’s IAC/InterActiveCorp. — acquired Classic in an $80 million deal that added it to a massive portfolio of online travel companies including Hotwire and Hotels.com.

At the time, Ron Letterman, Classic’s president and chief executive, called the acquisition a “great opportunity” for Classic.

“With Expedia’s resources we can strengthen our travel agent relationships by providing them with expanded product offerings as well as online access and tools to increase their sales,” he said. “Travel agents can trust that Classic remains committed to the travel agency distribution system.”

Still, some feared it was a move that would push agents out of the way with Classic taking a consumer-direct online approach. In a stinging public split in December 2003, luxury travel agency network Virtuoso ended its preferred-supplier relationship with Classic, citing its concern over the issue.

Classic officials said they are pleased with their current consortia partners American Express, Vacations.com and Ensemble Travel, and Bernd said the company recently met with them to plan for 2006. He and Letterman both note, however, that they remain open to any partnerships.

“Yes, some of our former consortia partners chose to end our relationship,” said Letterman. “But we are friends with them and the door is always open. The fact is, we offer something unique to their members and still do business with most of them on an independent basis.”

Now, with the spin-off of Expedia from IAC/InterActiveCorp. complete, the 4,300-employee standalone Classic parent company has substantial cash and credit that it says sets the stage for aggressive growth in the coming year. And in a nod to travel agents, in a July executive retooling at Expedia, Classic Vacations was the only Expedia unit that was not part of the Partner Services Group that consolidated all of Expedia’s worldwide suppliers.

Letterman, who has long focused on building agent and supplier ties, is clear in reiterating that Expedia understands Classic’s unique role.

“The new management team at Expedia Inc. views the agency channel as an essential part of their travel portfolio and knows Classic Vacations is the expert in the segment,” he said.

Preece Comes Aboard

Adding to Classic’s expertise in this arena was the naming in June of David Preece as the company’s new vice president of travel trade marketing. In the position, Preece brings broad agent credibility after serving as vice president of the North America market for the Hawaii Visitors and Convention Bureau and leading The Travel Institute (formerly the Institute of Certified Travel Agents).

Preece said agents continue to remain key to Classic, which books the vast majority of its business through travel agents using the company’s state-of-the-art call center staffed by over 150 travel experts.

“All our marketing communications encourage the use of a professional travel counselor,” he said. “Just look at our new 2006 product brochures and you’ll see a page devoted to this message. As does every other wholesaler, we handle some bookings from consumers who choose to plan their travel directly with us. But importantly, we never place our agents at a disadvantage — the price is the same no matter how the travel is purchased.”

Preece said one of Classic’s key strategies in the year ahead is expanding tools for agents, including branded multi-destination promotions that will leverage consumer travel trends tied to lifestyle segments like romance and honeymoons, family gatherings, adventure travel, new discoveries and personal rejuvenation.

Preece said Classic plans to link agent performance incentives to the promotions, and the company also is developing an e-newsletter system that will allow an agent to select from standardized templates and a promotional-offer database to create and send personalized messages to their client lists.

The customized-promotion function will be extended to direct-mail programs like postcards, and all these tools will be linked to Classic’s agent Web site (www.classicforagents.com) in early 2006, he said.

Classic is also committed to current agent incentive programs, and Bernd said the company plans to review the longstanding Classic STAR (Special Travel Agent Rewards) program — in which agents can earn cash and travel rewards on qualified bookings — next year to ensure it keeps pace with all of the company’s other offerings.

In addition, Bernd said the company’s Classic Suitener program that was set to end this year — offering agents bonuses, incentives and special offers for agents who book qualifying suites with hotel partners — has been so successful that it will “likely continue into 2006 for a portion of the year and then make a transition into an even bigger luxury product program” that the company expects to announce soon.

Bernd said the company also has plans to reach out to the growing number of home-based agents.

“We already have relationships with many home-based agents, but we want to work with more,” he said. “Classic will be more engaged with trade shows, media, associations and host agencies focused on the segment. Our field sales team will actively look for these opportunities.”

One thing not on the immediate horizon, however, is an online booking tool.

“We experimented with an online booking engine for agents but found that it wasn’t a good investment,” said Preece. “Our tailored approach to vacation planning is too complicated for a booking engine, and the best way to leverage our reservationists’ expertise is by talking with them.”

Growth in the Core Markets

Furthermore, the company continues to roll out new tour products, propelled by continued travel demand to its major markets of Mexico, Hawaii, the Caribbean and Europe.

The Hawaii market remains a cornerstone for Classic, with the Hawaii Visitors and Convention Bureau reporting visitor spending in the Islands up 8 percent in the first eight months of this year over 2004 (to $7.7 billion). Through August, arrivals were up 7.1 percent over last year — to a record 5.4 million — led by arrivals from the U.S. West, which were up 7.7 percent over last year.

In Hawaii, Classic added luxury condominium and townhouse properties including Kaanapali Alii and Puunoa Beach Estates on Maui; and the Mauna Lani Point and Islands of Mauna Lani on the Big Island’s Kohala Coast.

“Hawaii is our core market and our single biggest revenue source,” said Brockway. “We’re pleased with its booking pace and see good growth for 2006. We have access to the best rooms in Hawaii, and booking early for 2006 will be important as inventory remains tight. And based on agent requests, we’ve just added a few best-in-class three- and 3½-star hotels to round out the offering.”

Brockway said Classic’s Caribbean and Mexico destinations have been performing well and that is expected to continue. In Mexico, with its current attractive exchange rate, Classic added two Dreams Resorts & Spas properties — Dreams Cancun Resort and Spa and Dreams Puerto Vallarta Resort and Spa for family packages — earlier this year.

And in the Caribbean, Classic added Barbuda’s The Beach House, a 21-suite hideaway on an 18-mile white-and-pink-sand beach.

Perhaps no destination is doing quite as well as Europe, however, where the European Travel Commission expects a record 14 million Americans to visit the region this year. There, Classic launched three new destinations this year — Wales, Scotland and Poland — and three dozen new properties.

“Growth in demand for our Europe product is phenomenal,” Brockway said, noting the company marks its 10th year in the region in 2006. “Classic serves a special role in Europe as the best FIT wholesaler, filling the niche between group tour operators and boutique reservations agencies. We now serve 18 countries and are significantly expanding the range of accommodations and activities.”

Looking Ahead

Classic also recently announced plans to expand to Tahiti, a move that Brockway said was a logical expansion into the Pacific from Classic’s start in Hawaii.

“We’ve spent a lot of time there in recent months and hand-picked the best 19 properties on eight islands,” he said. “In fact, the whole Tahiti program was put together with invaluable assistance from some of our travel agencies to make sure it delivered what they were looking for.”

Brockway said Classic is exploring a wide range of new destinations, and expects to roll out new programs every year.

“This may include more of Latin America, additional countries across Europe and new markets in the Asia/Pacific area,” he said. “Our goal is to offer a full spectrum of global product to meet the needs of our agents and their travelers. We want to capture as much market share as possible among the agents who deliver the affluent clients we’re targeting.”

For the year ahead, Brockway and Letterman said Classic is optimistic about the continued growth of leisure travel, particularly among affluent consumers and what the company calls “aspirational” travelers.

“Most of the growth in leisure travel is in the high end,” Letterman added. “The affluent market is really made up of two types of travelers: those who have the discretionary income to spend on frequent travel and those who have to save up a bit to travel like they’re affluent. The latter is the ‘aspirational group.’ While their motivations may be slightly different, they tend to buy similar vacation products. Good travel agents recognize the differences and make appropriate adjustments in their sales approach.”

And while acknowledging the growing role of the Internet with today’s travel consumers, Brockway notes agent opportunities in the market segment — as well as the industry overall.

“It looks like the market for distributing travel

is settling into a place of equilibrium,” he said. “Share-growth of the online legacy players is slowing, and travel agencies with an offline heritage are smarter and expanding their use of technology. Importantly, the pricing playing field seems to be more level now, aided by broader price integrity by suppliers, which mitigates disadvantages that agents struggled with.”

And for Classic, executives also see opportunity in the market and the years ahead.

“This is by far the best executive team and strategic plan ever assembled at Classic,” Letterman said. “I share their excitement at the opportunities ahead and am completely confident in our ability to reach our goals. Classic is perfectly positioned to take advantage of all the market’s current dynamics, and good travel agents should be jumping at the chance to grow with us. Classic simply has the best product line in the business — period. If we don’t offer it, an agent shouldn’t sell it.”