KEY POINTS:
New Zealand's largest privately owned travel business, House of Travel, is set to enter a new phase.
Founder Chris Paulsen is stepping away from the day-to-day running of the business and former Telecom executive Kevin Kendrick is moving into the chief executive role.
It will be a big
change for Paulsen, who began the company more than 20 years ago and will move up to being executive deputy chairman. But he hopes it will take the business to a new level as it furthers its expansion and looks to take on the global market.
Last year the company bought two businesses in Australia and it is currently tendering for a third. Its forecast turnover this year is $1 billion.
Started in 1987 in Timaru, the House of Travel business has grown at the rate of about one new business every eight to 10 weeks.
Paulsen had sold his successful wholesale travel agency Scholes Oakley and was looking around for other opportunities in an industry that was changing and being deregulated.
He saw a chance to create a retail-driven business and came up with House of Travel after studying the two main travel agencies in New Zealand.
"Thomas Cook - tended to be run by managers - and not owner operated. While they had the management skills they lacked the entrepreneurial drive. Likewise owner-operated businesses tended to be small. The owners were entrepreneurial but lacked the skills to grow the business beyond two or three people."
He combined the strategies to form a franchise system where the franchise owners own half of their business and House of Travel holdings owns the other half.
It's a concept that's been very successful. Paulsen says the average travel agency turns over between $2.6 to $2.8 million but House of Travel averages at close to $10 million.
Paulsen has just signed a deal to open the 84th branch in Albany.
It's in Auckland where he believes there are further growth opportunities for the company in New Zealand and there are plans to open another 10 stores.
But, he says, it's a matter of finding the right people to run them not just finding the prime shopping sites. "We can only do it if we can create a commercially profitable franchise operation. Each outlet needs to be profitable in its own right."
Paulsen reckons the key to the businesses success was realising right from the start that it had to be an equal partnership for it to work.
If there are disagreements between the parent company and the franchisee there is an arbitration clause but , he says, they have never enacted it in the 20 years the business has been running.
He says it has created a very strong family culture within the business.
At the same time the industry has also changed dramatically.
In 1987 Paulsen says it was very easy to make money from the travel business. The biggest challenge, unsurprisingly, has been the advent of the internet."It opened up the ability for suppliers to sell directly to the consumer."
It's a level of competition which has been reflected in a significant consolidation in the industry.
Back in 1998 there were 860 travel agencies - now there are around 440 in New Zealand.
Yet Paulsen says the amount of outbound and domestic travel has increased significantly.
Throughout the changes House of Travel has grown significantly and Paulsen says in the past three years alone the business has grown by 60 per cent.
He says the key is the firm's multi-channel approach where its online booking system is linked to all the agencies.
The strong growth in the New Zealand business has also led Paulsen to look elsewhere for further growth opportunities and last year the group bought two businesses in Australia.
Paulsen says the decision to expand across the Tasman was driven by a desire to see the business continue to be sustainable in the future.
While House of Travel has a strong brand and presence in New Zealand its brand is not well-known outside of this country.
It's main competitors Air New Zealand, Flight Centre and the currently on sale Stella Group had strong presences both here and globally.
"Our concern was that we didn't have influence in the Australasian market and we would not be sustainable without that. Most of the main carriers operate out of Australia but we had no influence out of Australia."
Others in the industry also encouraged House of Travel to expand globally based on its technology strengths.
Paulsen believes House of Travel also has a leg up on the Australian market because of the way it has had to develop in New Zealand.
"Seventy per cent of our business is either into the Pacific or Australia - that's a market which has been massively impacted by the onslaught of cheap no frills fares sold marketed directly to the consumer."
New Zealand agencies have had to evolve to cope with this but in Australia the short-haul cheap fares business is only a tiny part of the overall business. While it has had an impact on the domestic and Tasman business a lot of the Australian tourism industry involves mid-haul business to Indonesia - Bali and the Asian countries - an area where the low-cost airlines have yet to make a significant impact.
"Australian travel agencies have not had to change. They haven't been through what we have been through in New Zealand. They haven't learned a lot of the lessons we have."
But Paulsen knew the Australian expansion would not be easy for the New Zealand company.
"We were paranoid about making mistakes," he says.
He took advice from chairman Bruce Irvine, who was chairman of Kathmandu when it expanded into Australia.
Instead of buying companies and using a Kiwi team of executives to head up its operations Paulsen took time to build up a team of local executives with experience.
He bought on board former Harvey's Choice Joe Araullo as chief executive and Harvey World Travel chief executive Barry Mayo also left his job to join the board.
It was on their recommendations the company bought Fiji and Pacific Specialist Holidays early last year.
The company operates as a wholesaler getting deals directly from the airlines and the hotels and then sells them to the public through a call centre. It only sells holidays to the Pacific. Paulsen says it was this specialist expertise that attracted him to the business.
"The level of expertise is so much more - they have a huge amount of knowledge and because of that they are the second largest producer of business out of the South Pacific in Australia."
Since buying it he has expanded the concept further and this year the company opened a second call centre specialising solely in travel to the Asian market.
He says being a specialist is one way that agents can now add value in a world where information is widely available on the internet.
"Before the internet it was hard to get information. The travel agent now has to know more than what you can find out yourself."
There are plans to set up more specialist call centre sellers as well.
The second business is designed to cash in on consolidation in the market which has already taken place here.
TravelManagers is designed to attract experienced travel consultants who have a raft of clients and want to have their own business.
The consultants work from home and put together tailored packages for their clients while the business sets up the infrastructure and support systems for them.
The business had 35 consultants when Paulsen began negotiations to buy the business and had 80 by time the deal was sealed in December.
It is now adding 10 to 15 people per month.
Both businesses operate under the House of Travel brand but as neither operate in the same retail space as the Kiwi company it leaves room for House of Travel to open a retail arm there too.
"We haven't yet decided how to introduce it, but we intend to," Paulsen says.
It's likely the company will start out with some flagship stores in the main cities and build from there. Long term a global strategy is also on Paulsen's mind but one thing is certain, Paulsen is passionate about House of Travel staying a New Zealand company.
Chris Paulsen
* Founded business in 1986.
* Was chief executive before becoming executive deputy chairman this week.
* 56 years old.
* Attended St Bede's College in Christchurch.
* Began career as an office junior working for Air New Zealand.
House of Travel
* Privately owned New Zealand company.
* Launched in Timaru in 1987.
* Celebrated 20 years of business in October last year.
* Has 84 branches throughout New Zealand.
* 1350 staff across New Zealand and Australia.
* Bought two Australian businesses last year: Fiji and Pacific Specialist Holidays and TravelManagers.
* $1 billion turnover across the business predicted for 2008 of which $100 million is expected to come via its website.
