Eliminating travel agent’s commission a bad idea

I have earlier commented on this issue. Now most of the airlines in India have compromised on this issue with the travel agents. Singapore Airlines is under tremendous pressure to also give in. Travel agents in India have threatened to stop issuing Singapore Airlines ticket and supporting them. It seems that the boycott of travel agents is having a serious effect on the business of the airline. TAAI has stated that Singapore Airlines has reduced fares by 60%, its load factor is down to 20% and it has lost 80% of its monthly business.

I think this issue can also turn out to be a PR disaster for Singapore Airlines as the travel agents have threatened to start a “Quit India” movement to force the airline to leave the country.

As stated earlier, the travel agents do perform certain functions which are appreciated by the customers. Also, use the internet does not restrict the airlines from using other channels of distribution. I think they will benefit if they use both the channels to build their business.

Also, I do not believe that the commission that Travel agents earn is a constraint in the airline growing its business. So why rock the boat?

Avinash Narula

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Comments

Do u have any data on what airlines spend in distribution costs ? If not, what is the basis for yr comment that it’s not a big deal for airlines to pay agents’ commissions to grow the business ?

The fact is : airlines (in India) are heavily reliant on agents as internet penetration rates, credit card spends and general customer penchant for direct purchase is LOW across India.

HOWEVER, the facts also are :

a. Many agents do little more for customers than book tickets, hotels etc.There is hardly any “value-add” except for clients they regularly do business with. There is no concept of charging a fee for a service paid (the assumption being a higher fee for better service).

b. Agents make HUGE amounts from booking air travel segments on GDSs (Amadeus, Abacus, Galileo etc.). Funny how they keep quiet on this issue. It can be as high as 3-4USD per segment booked. And when these segments do not get cancelled (e.g. if a pax cancels his booking) by the agent in the GDS, guess who bears this cost ? So airlines pay for this too.

Let’s face it, the day agents go on a 0 commission structure, they will be forced to work harder to earn their living. What is wrong with that – unles of course u are averse to working hard (and smart) and would like yr money to come in to you without having to put in any work.

And guess what – consumers will BENEFIT from MUCH BETTER service the day that happens. Becos agents will have to fight for yr business, they will have to offer value adds to you as a customer so u will go to them. Cutting a ticket and booking yr travel is something any idiot can do (and many do it). Being a travel advisor, planner and executor is something only dedicated travel professionals can do.

Reply

Avinash Narula Reply:

Vimal hi!

Thanks for your comments. You have made certain very valuable and logical points. Let me respond to the various points raised by you as follows:

(a) First, I hope you know that practically all the customers do not pay the full amount to the travel agent. I will explain it with a simple example. Let us assume that Singapore Airlines agrees to give commission of 5% to travels agents in India. Now 90% of the customers will not pay full commission. They would want discounts from the travel agent. Also, there are so many travel agents that competition forces them to reduce prices by giving discounts. A corporate client would squeeze the travel agent quite a bit as he is more informed and also his volumes are high. So let us say that the travel agent makes on an average 2-3%. He would end up making Rs. 300 on a ticket worth Rs. 10,000. I don’t think that to the customer Rs. 300 would change his purchase decision. Also, why deprive customers of the convenience of buying from the travel agent if he is willing to pay 2-3% extra?

2. You are right that people in India are highly reliant on travel agent and they are used to buying online. The penetration of computers is also low. This is why, I have suggested that use both the channels. Give the customer a choice. Those like you who do not feel that travel agents are giving anything in return can buy online while others like me would go through the travel agent. People who buy online, give them some discount, say 1-2%. I think slowly and steadily the online business will keep on increasing at the expense of travel agents.

3. I think you have a feeling that travel agents get business easily. I don’t think that is true. Travel agents work on a very small margin. They do have to fight for business.

4. There are thousands of travel agents and their staff working for the airlines. They certainly help the once in while traveller. I think they do provide a service. Whenever, I had to travel (which is not much), I have found the travel agent reducing my hassles.

Now I do not own a travel agency nor do any of my relatives. I am all for the customer benefitting. But I am not sure if this is the right time to get rid of the travel agents.

avinash Narula

Reply

Niranjan Gupta Reply:

Hi,

Interesting to note that you know how much some of the agents get from GDS, but, sadly you only know so little of the industry.

1.The $ 3-4 earning from GDS you are talking about is for big national agents, not your neigbourhood agents. Your neighbourhood agents get $ 0-1 at the most. That is Rs. 100 per ticket at the most.

2. I guess your comment that any idiot can issue a ticket must be out of total ignorance of the travel agency business. It is like, when you someone swim, it looks like you have two stroke your hands and legs and any idiot can do it right? Try it, you will sink in the water without trace.

3. Net savvy customers have tried buying international tickets on the net and have found it is too complicated and confusing. And, have reverted back to the IDIOT agents rather than use the net. The net does not warn them, remind them of the cancellation policies, which will be in a footnote on the last page. Agents will tell them as a matter of fact upfront without waste of time.

4. Try buying ticket on the net. And, go for a visa, what if that gets rejected. And you happen to have bought a non refundable ticket. You will definite be a certified idiot without doubt.

Wishing you a happy travelling without an agent. I doubt you will ever reach an airport.

Reply

Well, it goes both ways, but i do agree because i have seen a similar behavour in US for an insurance industry where once they thought about it, they lost 3% business overnight. They turned back and started agents base only. Comparing airline to bus tickets, we do offer free services to travel agents for them to compete for free with other online agents, giving them an opportunity to make money without any investments, but unfortunately not everyone takes the advantage. I guess in this economy the Darwin’s theory is a winner :-)

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this is a very bad news for travel agents and all travel websites since if the commission is very low then there is no motivation to do the sale , hence it will lead to the exit of travel agents and shifting to new avenues of business. it’s really a bad news for travel industry.

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