Consolidation expected after Covid-19 agency business slump

Published 29/05/2020

Education agencies whose business models depend on profit from commissions are under pressure, while stakeholders have indicated language businesses may merge or collaborate more closely in the future.

“Most of us have a business model where a lot of the risk is on our side and not on the university side”

“Many agents will close down, many schools will close down. Some of them will consolidate into other big groups,” said Jose Carlos Hauer Santos Jr, president of one of Brazil’s largest agencies STB.

Smaller language providers will join with larger businesses with “strong backgrounds”.

While STB is 65% down on bookings, others are 100% down, Santos Jr. revealed.

As a big platform offering a range of products from higher education to work and travel programs, STB is still seeing some bookings coming in, with a particular interest in higher education and high school sectors.

“I think people have more time because they are at home, so they start searching. So that’s where we believe the market is,” he said.

In the language sector, Julian Krinsky, English Studio, GV Vancouver and Hawaii have announced closures, but there is going to be a consolidation in this market, according to Santos Jr.

“We are prepared to take another 40 offices within the next six months…We have a good name abroad,” he said, adding that STB announced a strategic partnership with global operator LCI Education in 2019.

“You have to make partnerships,” Santos Jr. continued. “You have to see where it makes sense to actually cooperate more with your colleagues or with competitors in the industry, where it makes more sense to cooperate closer to your partners abroad.”

Founder of Danish agency EDU Danmark, Palle Steen Jensen, noted that many agencies are currently at risk due to their business model.

“Most of us have a business model where a lot of the risk is on our side and not on the university side, which means that when a situation like this occurs all of a sudden, it’ll hit us because…the main income definitely for the European agencies will be from the commission.”

Many agencies have worked closely with students over the previous year expecting to be paid in fall 2020: “All of a sudden that that is really at risk,” Jensen said.

“We’ve seen one of the big agencies in Denmark cease their recruitment operations due to this… it just shows how vulnerable agencies can be in this situation.”

While agencies in Denmark have been able to send staff on government paid leave, “agencies that have no solid funding will be in trouble”, Jensen added.

“My guess is that quite a few traditional agents whose primary revenue source is commission will not survive the long business drought that will extend to fall 2021, in many cases,” Mark Ashwill at Capstone Vietnam said.

“Those companies with deeper pockets and a more diversified business model should be fine,” he explained, adding that agents who have “put too many of your financial eggs in the basket of a major host country that failed to contain Covid-19” will definitely be at risk.

“Australia and New Zealand have a clear advantage over the UK and the US, in this respect,” he suggested.

One agent based in Africa told The PIE that business has “dramatically slowed down, and inquiries are down”. Current applicants are beginning to withdraw or defer their applications, putting an additional strain on business.

Students and agents are concerned about border closures, lack of flights and the quality of online education, they continued, while questions swirl around visa issues.

There has been a poor reception of online classes on the continent due to slow internet connections, frequent power cuts, time difference caused by virtual classes, and the perception that online education isn’t as good as face-to-face education.

Further to this, students who have started online classes are not certain they will receive visas when applications are open again.

“Countries such as Canada and Australia should continue processing visas so that even if students did start online classes, they can be certain that they have received a visa,” the agent noted.

By completing online learning, students have shown “seriousness to study”, they continued.

“Those companies with deeper pockets and a more diversified business model should be fine”

“Having a visa approved while starting online study gives students peace of mind that when and if borders open, they will be able to join and so the risk is reduced to students.”

The general sentiment towards online classes is shared by others around the world.

“Since Japan is language study market, new online study courses provided schools lately are not popular,” said Tatsu Hoshino, executive secretary of Japanese agency association JAOS.

“Agents are not happy because simply, it is not easy to sell products and the commission is lower. There are so many English schools available in Japan as well as online study services. Why students would choose overseas school online course without actual living experience provided?”

However, Hoshino highlighted that degree-seeking students could “bare with online solutions and would return quickly ones our life has been normalised”.

For the most part, Japan is predominantly a language seeking customer market. In the latest JAOS annual survey, 67% of agencies’ students chose language study.

Language schools in the Philippines – a popular destination for language learners from Japan – are at risk as the majority of their schools do not have a strong financial foothold, Hoshino continued.

“It would take longer time for language study market to recover [than the degree market]. Therefore, agents in Japan have been facing a big challenge in how they survive and overcome in this extremely difficult situation.”

In April, more than 80% of JAOS members were around 80% down on year-on-year sales, he added. Agents will suffer further as summer business – normally the biggest for Japanese agencies – will disappear.

Regarding refunds for courses postponed or cancelled due to Covid-19, STB understands the situation language schools are in.

Agreements with the Brazilian government, school, and students mean that programs can be postponed without fees or penalties and the same price guaranteed for next year or students will be refunded under certain circumstances over a longer period of time.

“For the system to work, everybody has to lose something,” Santos Jr. noted. Students can still go through the legal system if they do not agree, but 95% of people are happy with the arrangements, he revealed.

Santos Jr. agreed with comments on traditional providers switching to online provision.

“We are travel operators for education, and our business is to provide people with an experience abroad.

“For traditional language schools to actually shift from one system to another, it is very difficult and it’s not what we do,” he suggested.

Although, he proposed, there is a place for online to be used as preparation for in-person classes.

“You book for January, believing everything is going to be open. And then you can start now with one or two hours a week on the internet, to get familiarised with the system.”

Looking forward, institutions that partner with education agents will have to rely on them “now more than ever” in order to reach interested parents and students, Ashwill added.

“Colleagues should take this opportunity to reevaluate what is ideally a select group of agents based not just on “performance,” but on the quality of the relationship, including the trust factor and responsiveness,” he said.

“While nothing can take the place of face-to-face interaction, there is an abundance of online opportunities, including digital events organised by educational consulting companies, to promote their institutions.

“I’ve been amazed at how resilient our students are”

“That is likely to be the prevailing modus operandi into 2021.”

As previously noted, the largest concern had been the risk of the spread of Covid-19, this has now shifted to the response, according to Jensen.

“I’ve been amazed at how resilient our students are,” Jensen said. “In the long run, they don’t want their dreams to change too much. They might have to adapt, but they still want to pursue their international education.”

“The worry is much more about closed borders. Even if universities in the US or Australia will open sometime in fall for face-to-face delivery, will the students be able to get a visa, and when?”

EDU Danmark can keep students calm until late June, Jensen explained.

“Then it starts closing really, because everybody has to have some clarity at that point, which opportunities are there for this fall.”

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