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Increasing
Profit Share
Don't
stand still too long or you'll get carried away by the
continual change in the travel industry. The introduction
of another "low-cost" carrier, the growing
significance of Virgin Blue, a national carrier in cost-save
mode, coupled with a number of unpredictable world events
in recent years, and it has you wondering what
will happen next.
There
is one constant though - suppliers will continually
look for ways of reducing costs, particularly distribution
costs. Suppliers will look to reduce the cost of existing
channels, look for alternative and cheaper distribution
channels, and of course, encourage customers to deal
direct.
The
move to reduce distribution costs is certainly not new
and in overseas markets we have seen the move to commission-free
environments. The USA has a "zero" commission
environment and, closer to home, Singapore Airlines
and Air New Zealand have driven down commissions in
their home markets.
Interestingly,
in the USA where airlines have eliminated commissions
to reduce distribution costs, 75% of all airline tickets
are still issued by travel agents, and many of the
major airlines still remain unprofitable.
It
seems the TMCs who offer impartiality, variety, choice
and experience advice are winning out over suppliers
who are determined to win direct control of corporate
customers and bind them to one brand.
TMCs are more aggressively offering their corporate
and consumer customers best-fare-of-the-day solutions.
Best
fares along with secure interactive booking tools, detailed
management information and consultation and advice on
improving travel policy and processes are making TMCs
much more attractive to travel managers and CFOs.
For
some time now, Australia has been moving towards a fee-based
environment and we anticipate this trend will continue.
More and more companies and organisations are under
pressure to control their travel spend, savings in time
and money, and the flexibility to increase and decrease
travel in their organisation quite rapidly.
To
meet customer demands, TMCs are offering transparency.
More often TMCs are charging fees based on the value
they provide, and airline commissions are being handed
back to the customers.
As
the trend towards a commission-free environment gains
momentum, the travel purchaser will more clearly be
able to see the nett transactional value at the point
of sale. This will alleviate complex back-end reconciliation
of commission pass-backs and airline incentive payments.
For
some time the Australian market has been moving closer
to a zero-commission environment. We have seen
an increase in corporate "private fares",
an ever increasing utilisation of "nett"
international fares, and some suppliers are selecting
to distribute exclusive direct internet products.
Globally,
the airline industry has moved towards utilising the
Internet to distribute airline tickets, there has been
an increase of "no frills" airlines
across Europe, Asia, and Australia, and suppliers
have cut commissions or introduced processes that have
ultimately led to wiping them out.
So
what does a move to zero—commission environment
mean for the buyer?
- It
provides greater financial transparency with your
TMC
- Potentially
back-end commission payments may reduce or even disappear.
- A
heightened focus on "best" or "lowest"
fare.
- An
increase towards online self-booking tools to minimise
transaction fees.
- TMC's
articulating and providing measurable value in line
with the fee structure negotiated.
TMC's
need to embrace the change. We must continue to develop
and improve our technology and provide our travellers
with more choice and more valuable information
when they make their travel decisions. We need
to reduce costs, continue to provide transparent remuneration
models, and provide efficient service delivery platforms
- from interactive to dedicated personalised individual
attention.
But
most importantly, TMCs must provide choice, impartial
judgement on "best" option, and value, value
and more value.
©Gordon
Young 2005. All rights reserved
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