Making The Decision: Handling Fee Or Commissions?

Charmaine Fernz gets a holistic industry perspective on the current commission structure and handling fee even as the debate refuses to cease

The recent spat over the controversial cut in commissions from seven to five per cent pushed for by Air-India, has raised numerous questions about the relationship between airlines and agents as well as the fate of the agents community at large. Was the commission cut tenable? Where do travel agents go from here? Should they accept a transition to a handling fee regime or simply do away with their business as they know it? Is globalisation compelling the emergence of the specialist?

Not all of the above can be answered but nevertheless, the industry must take pro-active steps to safe- guard their interests just as the airlines have just done. While the agents' boycott of Air-India did little to move the airline, a bit of history was created when non-IATA association (ETAA) was invited by TAAI and TAFI on a single platform to institute a united stand against the airlines. Further according to industry sources, the joint committee that was subsequently formed could well usher the formation of a consolidated association of IATA and non-IATA agents. In view of events that have unfolded in the last month, let us analyse what lies ahead.

The Issue

Rewinding to 2001, when airlines reduced commissions from nine to seven per cent, the travel fraternity boycotted the airlines’ decision but eventually gave in. That scenario was all but precisely mirrored this year albeit it was the second such effort of the sort by an airline in under six months, the first one by a European carrier in August last year, petering into a miscalculation. The debates then and now were strikingly similar, suggesting a repitition of history. While that in fact seems imminent, the core of the agent and airline arguments could offer an insight to perhaps an amiable closure and final solution.

Gulu Jagtiani, Regional Manager - WI, Air Sahara & former travel agent

"I have been on both sides of the fence. I feel that when commissions were reduced from nine to seven per cent agents should have geared up for further reductions, prepared for it and professionalised their business by charging a service fee. Though the stand may sound a bit harsh, in actuality, it is only disciplining the market. If one has to understand the global market, the dynamics are changing as the customer is becoming more aware of his needs. Agents need to make them understand the need to incorporate a service fee, which is adopted in the right manner could work to an agent’s advantage. Though, it would certainly take a while before the concept is actually accepted, agents should look at costs incurred and take on the handling fee concept."

Praveen Chugh, MD Travel Services International & vice-president, TAFI Northern India

"In a bid to retain the goodwill of their corporate and other important clients, travel agents perform most of the travel-related services free of charge. Apart from rendering free services to travellers, agents have to take tremendous risks by paying back the airline's ticket cost irrespective of whether the customer makes the payment or not. All this is in addition to setting up offices equipped with all types of modern gadgets and trained staff. The airlines should accept the ground reality that time is not yet right to implement commission cut regime in India.

The concept of a handling fee is a difficult one to adopt in a hurry. This is because the Indian traveller is accustomed to availing such services as procuring visa, passports, delivery of tickets, planning of itinerary or even package tours, inquiries about preferences of airlines, fare structures, etc, free of charge, whereas in America and certain European countries, the tourist agrees to pay for such services. Abrupt implementation of handling fee system is simply not possible in a country like India where over 80 per cent of the bookings are done on credit.

However, we plan to conduct surveys in various countries where agents have accepted zero per cent commission and have switched over to a service fee concept. Until and unless we understand the whole concept, we would not like to recommend any specific regime.

Both airlines and travel agents should have a right to function in a respectable manner and the whole episode of reducing and abolishing of commission should not be made to look like a conspiracy to wipe out small and medium level travel agents. No concept should be imposed forcibly should be implemented through through mutual discussions and in an amicable manner.”

The National Carrier’s (Air-india) Stand

Official sources from Air-India revealed its reasons for reducing commissions,"The decision to reduce agents' commission is a consequence of the global trend that is to be replaced with a transaction fee. In fact, in many countries viz Singapore, France, Germany and USA, the commission is now zero percent. Almost all international airlines operating out of India have decided to reduce commission to five per cent effective May 1, 2005. Further, it is a well-known fact that most travel agents only retain a part of the commission given by the airline and therefore the reduction in their commission will not hurt their earnings. The agents have been aware of the global trend and would have to readjust their business strategies to remain competitive and also to ensure that their earnings are not reduced. For some years now, a large number of agents who handle the corporate accounts have signed management fee contracts with companies ranging between four to five per cent for services rendered by them. Smaller agents who are providing service to the customers would have to introduce service fees for value added services like passports, visas, delivery of tickets, etc. in addition to the commission that they are sharing with the customers. The above decision to reduce the commission from seven to five per cent was advised to travel agents as early as December 2004. However, the Travel Agents' Association gave a call to suspend the sale on Air-India effective April 01, 2005. The above call was not supported by a large number of travel agents who continued to sell the Air-India tickets. To further ensure that the customer was not put to any inconvenience, Air-India offices in India were instructed to issue tickets at market fare levels. Air India's business has been largely unaffected by suspension call given by the Travel Agents' Association. However, both A-I and TAAI are currently in discussions to resolve the matter.”

Tej Sahni, advisor, TCI

“The handling fee concept has been in place for quite sometime particularly with multilocation companies as well with companies that predominantly deal with corporates. Some of the key benefits of the handling fee as opposed to commissions can be traced back to the time when agent commissions were still at nine per cent. There were some agents, that had then, imbibed the handling fee into their business model to bring about the element of transparency in their relationship with the client. Instead of the client haggling with the agent about what the competition is offering, the commission was discounted from the cost in its entirety and the client had to pay a fee for the service delivered. Back then, the objective was to have a professional working relationship with the client. Now, the handling commission is more compellingly relevant because the whittling agent commissions that are bound for zero at some point. Further to underline the urgency of transcending to the handling fee model, let's examine some typical agent profiles. The multilocation agents as well as the smaller single location agents have one thing in common - a bouquet of services apart from the core ticket. Providing implants, airport transfers, visas - all this is value addition. But the agents who are still relying on commission have very few choices. Further, some agents who have either remained apathetic to global trends or believed that these may not influence the Indian travel trade at some point, are now ill geared to adopt the handling fee concept even if they choose to. It's not that the handling fee is only suited for the corporate business but for non-corporate travel agents to imbibe the handling fee concept, they have to offer value-added services beyond ticketing for which justifies the fee. While the corporate travel agent charges for implanting his staff in his client's office and providing other specialised services, the vanilla agent has to expand his business to include insurance, foreign exchange, holiday packages and consultancy to be able to build his business around the handling fee. If one were to cite current business practices, the conflict between the airlines and agents will appear rather odd since agents who haven't yet deployed the handling fee concept are still passing on most of that commission to the client so why not pass it all to the client and charge a fee. In fact, going back in time, the commission structure was desirable owing to the lack of technology in the form of online bookings, e-ticketing and several other advances that are today part of the business.

The handling fee structure is relevant to today's times and agents need to work towards it."

(With inputs from Bhisham Mansukhani, Mumbai)