‘A Zero Per Cent Commission Regime In India Is Simply Not Tenable’

TAAI’s new vice-president Ashwini Kakkar in conversation with Bhisham Mansukhani offers a solution that could lay to rest a recently rescinded conflict between the travel agents and airlines

What do you make of the entire crisis that played out between the travel trade partners?

Indian travel agents bring in Rs 20,000 crore of annual BSP cash collection. We collect this cash and put into a BSP account which is subsequently disbursed to the airline. This is a huge task and any error is presumed as the incumbency of the agent as far as the BSP is concerned. The risk is unequivocally that of the agent. This is a service we provide and the airlines on their own do not have the ability to collect this money. Now, this figure of Rs 20,000 crore is growing at eight per cent year on year. Additionally, we also provide credit to our clients. If the agent stops this, the volumes of overall business for the principles will dip considerably. This figure of credit extended to corporates and agents alone is Rs 18,000 crore for domestic and international air travel. In the event of a default, it is solely the agent who stands to lose. Furthermore, the credit that we extend is off the balance sheet for corporates so therefore, the ability of those corporates to borrow to enhance growth is not impaired. There is a standard debt equity ratio that needs to be maintained according to Indian law wherein no company is allowed to borrow more than twice their equity base. For instance, Thomas Cook's lending to a large company like TCS on an ongoing basis is upto Rs 40 crore daily.

Is a zero commission regime really sustainable in the Indian context?

In Europe, this problem does not exist because the customer buys the airline ticket from the travel agent by means of credit card. That very moment, the airline is liable to pay a two and a half per cent commission and the agent gets his money within twenty four hours of the transaction. The agent has no cash risk at all. This scenario when juxtaposed with the India scenario allows for an objective evaluation of the value that the Indian travel agent provides the principle. A 30 day credit extension in the Indian economy translates to one per cent over and above the two and a half per cent credit card liability. In India, it is the agent who exhausts legwork in obtaining his clients' visa and if he does not the client cannot fly so add another percentage. A cumulative assessment of the above legitimises the remittance of commissions by the airlines to the agents. So the new model is one where whoever asks the agents to provide a service should pay for it, be it the customer or the agent and herein there is a case to prove that both are presently doing, precisely that.

So, there is no point going around in circles over this issue. A zero per cent commission regime in India is simply not tenable unless every customer buys through credit card. Even then, the cost to the airline remains the same.