Will travel agents survive?

As you would have by now heard Qantas have announced that they are significantly decreasing base commissions paid to travel agents. Effective 1 January 05 Trans Tasman commissions reduce from 5-1% international reduces from 9-7% and 1 July 05 domestic commissions reduce from 5-1%. We have been hearing for several years that this trend has been happening around the world and Australia is one of the last markets to move. All major Travel Management Companies have been expecting the announcement and many corporate customers are also not surprised.

What does it mean? In principal it allows the TMC to operate more efficiently in a transparent environment with its customer, with these efficiencies being passed onto the customer. Up until now there was a bundling of revenue to the TMC being captured via commissions, the reduction and hopeful complete removal of these commissions will allow the customer to see clearly exactly what they are buying i.e. No hidden commissions. In turn it will create a more open environment that permit customers to menu purchase that is only buy what they want and in turn create a stronger working relationship between the TMC and the customer.

The reality is that many corporate customers have been operating in a net environment for several years.

The majority of international airfares are now net fares, which may include a TMC (hidden/unhidden) surcharge compared to published fares. Similarly domestic net ‘private’ fares have emerged in recent years.

This Qantas initiative will allow the rest of the market to catch up. British Airways have followed suit and presumably all major carriers will also follow.

For several legal and technical reasons Qantas has chosen not to go ‘all the way’ and reduce commissions entirely. This in many peoples view is a lost opportunity in being able to create the foundation for a truly net transparent trading environment. The 1% commission on Trans Tasman and domestic airfares is not sufficient for any TMC to survive on so it will/should be passed back to the customer, however the administration of processing the commission is a cost that will also be passed back to the customer. Its like showing up to a nudist camp in your underwear...........what’s the point!

How will travel agents survive? There’s no doubt that there will be significant movement within the travel agency marketplace. Many travel agents will need to fundamentally change the way they do business and understand that there revenues need to come from their customer not there supplier. For some this may prove difficult. However many travel agents and certainly all the major TMC’s have been preparing for this development for a long time and will relish the opportunity to operate in a more transparent environment.

Is this just an airline price increase? That’s yet to be seen, certainly overseas trends suggest that these reduced commissions hit the airlines bottom line and the customers see no reduction in airfares. As customers will now either receive less revenue from the TMC (via commissions) or a removal of discounts from current dealings then unless the airlines reduce the base airfare costs, customers will be paying more.

©Gordon Young 2005. All rights reserved.