Macroview

‘Zero commission regime is best’

The president of the Association of South African Travel Agents (ASATA), Amanda Harrod, has a story to tell the Indian travel agents, only this is a real one. She talks to Bhisham Mansukhani about how her association steered South Africa's once commission-bred agents towards a zero commission regime.

How have Indian agents responded to the model of zero commission regime?

A lot of them have said that their clients will not pay and that is exactly what our agents said four years ago. The transition required in India, as was perpetuated in South Africa, is more attitudinal than official. Surprisingly, in case of South Africa, the client was more willing even before the agents got onboard. That was one of the driving factors of our success.

How did ASATA manage to sweep South Africa's agents towards their industry's most notable tectonic shift?

We studied the American market, Canadian, Australian and the British markets where zero commission structures had already been embraced. We stumbled on the greatest myth in our context which, I think, Indian agents can learn from. Size is not the issue. To say that what worked in the US cannot work in India is to say that it couldn't have worked in the UK, which is smaller than the Indian market.

What did the research of the previous commission regime in South Africa reveal?

The research brought out some startling facts. Take the example of a domestic air ticket; it cost travel agents more to sell them than what we earned unless we were selling a full fare ticket, which would still give us only a wafer-thin margin. So we had been ignorantly enduring a farcical situation wherein it was costing us 185 rand to issue a domestic air ticket while we were receiving a mere 110 rand. We didn't cite the precise losses in the past because these were in a way subsidised by the sale of international first and business class tickets. There are perhaps similar anomalies that exist in the Indian market.

How did South African agents react to this?

While for four years prior to that realisation, they had fought hard against the airlines that were keen to recede commissions, they soon realised that what they thought they stood for was against their own best interest. Our biggest success was to get all the agents together and arrive at one solution. Following intense negotiations, we settled on a common denominator and as the long term benefits were cited, there was consensus.

Were there any challenges encountered in taking the dive into a service fee regime?

The unique challenge that we faced was that we were not allowed to fix a benchmark fee structure. South Africa has a very strong Competition Commission that forbids any fixing of costs and such an activity invites a multi-million dollar fine.

How do South African agents view their business models now?

The other side is quite literally so much greener. A zero commission regime leads invariably to the service fee regime wherein the agent charges a fee for every service they deliver, benefiting from the classic 'double dipper' effect. Now, while airlines in South Africa have stopped paying commission, hotels and insurance companies have not. So agents earn a commission as well as service fee. This model is superior, more so because it is driven by cost-effective automated technology.

How did you manage to convince the South African agents so easily?

It was not easy initially. We did a fundamental analysis of travel; a step-by-step process wherein we published a booklet that allowed the agents to probe their own business and the market they operated in. It zeroed in on the basic motivation for being a travel agent, what the clients were willing to pay for and articulated the diverse dynamics of the South African travel trade. We launched a nation-wide campaign of seminars along with South African Airways where presentations were made to the trade and the booklets distributed. When the agents returned after having introspected and done the math, the change in perspective was striking.

When do you think Indian agents will see sense in what you have achieved?

There is a full circle to this transition. As I see it, Indian agents are stuck in what they see as a comfort zone while what this inertia is actually doing is bleeding away their profits. Even if airline commissions continue to stand, the actual remittance will continue to be eroded by falling ticket prices which reduce the base on which the agents earn their commission.

How will the zero per cent regime change the agent-airline relationship?

The airlines will still give incentives to agents in one way or the other because they realise their importance in so much as the volumes they turn in. They will focus on the agents that sell more. It's that simple.