Agents Resist European Carriers’ Hardline Stance

‘No Question Of Slashing Commissions’

Travel agents and six European airlines are currently locked in a confrontation over the latter’s decision to slash commissions, with a solution nowhere in sight. Bhisham Mansukhani examines both ends of the dispute and why things between the two travel partners may never be the same again

Travel agents have rallied together against European carriers’ salvo to slash agent commissions by 33 per cent from seven to five per cent effective September 1, 2004. The European carriers have intimated their decision to the agents affiliated to the International Air Transport Association (IATA) in separate letters. TAAI and TAFI have been unanimous in their denouncement of the European airlines’ stand and some of its members, defiant in the face of insinuations of a zero commissions regime. Both the associations have also met with airlines, however arriving at no conclusive solution and are set for another meeting in the course of July to find that elusive middle path of mutual appeasment.

Silence Emboldened

If the European carriers were to conclude that this report appears lopsided as an agent forum, they have their tight-lipped approach to blame. Werner Heesen, general manager - passenger sales and director, South Asia, Lufthansa and Juerg Christen, general manager for India, Sri Lanka, Maldives, Nepal, Bangladesh and Bhutan for Swiss International Air Lines, have ascribed their silence to the on-going dialogue with travel agents over the issue.

An aviation observer commented, "Though it is highly unlikely that the airlines will back down, it is not a given fact. It is hardly a coincidence that all airlines involved in this decision are European because that is the continent where the low cost airline revolution is most apparent and scheduled carriers need to keep up. So they see the Indian travel trade in the same context. The European carriers are sure that there is no going back on the commission cut but the agents differ. At the same time, other airlines are watching very closely and the domino effect will only make this crisis a bigger one. More so, the Indian outbound business travel market is on the rise and it is a cash cow for the airlines who feel they have suffered long enough to reap this harvest."

Agents Won't Fly

Most of the sceptism surrounding the agents protest, is their compliance two years ago around 2002. This time though, many insist things are different. Says TAFI president, Yatin Dossa. "We are not budging from our position. Commissions cannot be slashed any further. In fact, we see this as a situation to restate our case for a return to nine per cent rates. Why are these specific airlines comparing the United States's travel trade to ours. There are fundamental differences in our operations with regard to labour force and use of technology, which they completely ignore. India is not ready for a slash in commissions. Airlines, in the last couple of years have had a dictatorial attitude and have been concerned about their own administration. Over and above this, the airlines have unilaterally reduced commissions. There was a certain airline representative who was quoted in a business daily saying that they were pushing for zero commissions. In Greece, where the airlines attempted something similar, concerted action by the agents’ association saw commissions pegged back at nine. We have been told that we cannot interfere with the commercial decisions of airlines and it is not in our jurisdiction to say what commissions they should give. The airlines may be adamant but so are we. As far as I see it, the ball is in their court."

At a TAFI emergency meeting early last month to decide on a nationwide agents' bandh which the association went ahead with on June 11, an agent member commented, "Airlines are now offering PLBs (Profitability Linked Bonuses) and incentives

programmes that are not only available for agents but also corporates. Are they saying that they do not want agents at all? We do all the legwork for them, and provide the services and we refuse to do it if we are not going to be paid for. Passengers comes to us because there is a certain expertise that we provide. We are professionals and do nothing to protect our interests. The largest chunk of our clients have a total travel bill of just 15 lakh. What kind of travel fee are we going to charge them?"

Another agent warned against complacency just because only six of the 45 airlines were bent on reducing commissions. "It is not just six airlines that are pushing for lower commissions. It is only a matter of time before other airlines and even domestic carriers follow. Will the airline be able to provide the same kind of service as we do to their customers?" he said.

Tarakeshwar Singh, a senior TAFI managing committee member termed this move as 'unrealistic, illegal and unilateral'. He said that although it has not been done in this case, any move to change the Charter of IATA accredited members requires the prior approval of the Civil Aviation Ministry and the APJC, which mentions the rates of commission payable to the travel agents. He said that although the decision might have been taken at the meeting of Board of Airline Representatives (BAR), the body of international carriers it is not binding on the IATA accredited travel agents. "Now we will be left with no other alternative but to downsize our workforce, which we do not want to. The most affected would be the sub-agents as we, the IATA-accredited agents will not be in a position to pass-down anything to them after meeting all their expenses.”

Management Fee: Appropriately Inevitable

Corporate travel agents have foreseen a zero commission regime since the start of India's economic boom and have long since made the transition towards sustenance on a management fee. One of the leading agents, though in agreement on the inevitability, is livid at the manner of its simulation. Burjis Mehta, business head, ITH, says "As a corporate travel agent, it was not a surprise but what upsets me is the airlines call us travel partners but do not include us in the decision making process. They also claim that the travel agent's commission sticks out like a sore thumb in their distribution costs but at the same time, they sign up corporates for discounts to the tune of 10 to 25 per cent. It is agreed, there is competition which is compelling them to drive down costs, but agents need to be given an explanation as to why airlines are approaching corporates directly if distribution costs are the key reason for slashing our commissions. Eighty per cent of all our clients are on a management fee basis with us, either on a flat or transaction basis. Airlines should have asked agents when they would have been ready and how they could be helped in making this transition. It is a wake up call for agents to diversify but the airlines who have put it out have done it inappropriately."

Tej Sahni, director, Vista Travels proffers his point of view, "A management fee is primarily a relationship between the agent and his corporate client. For individual clients, the relevant concept is that of a service fee. It brings about transparency and takes undercutting out of the equation. A senior airline manager told me that certain agents also passed on segment charges from the CRS to his clients in return for a higher management fee. Management fees vary depending on the volume and range of services offered. However, this concept is applicable to large agents. Smaller agents simply are not ready in terms of technology and ability to drive down costs and furthermore not have the volumes. On the other hand, agents give back guarantee, take the trouble of collecting money and take risks for the airlines. Why should he do that for nothing? The commissions cannot be wished away. It can be done only through a study of market conditions and a bilateral dialogue within a suitable time frame. Agents will have to restructure their business in the process of which, there might be a shakeout."

Talking Chalk & Cheese?

There is an overwhelming sense that at least one of the two entangled in this imbroglio is not listening. Perhaps both are not. The European carriers' stance which scoffs at the idea of a roll back seems to have factored in the assumption that agents will, albeit grudgingly fall in line after a fairly protracted protest - something that has so far manifested itself, with a single day's bandh by only one of the agents associations. The agents on their part see this crisis as an opportunity to redeem themselves of the relatively passive approach the last time commissions receded. Controversial allegations involving airlines giving corporates PLBs and considerable discounts are only thickening this impasse. If the foreseeable end to it is another deja vu for airlines, then clearly a metamorphosis into the service fee template will be reduced to a matter of time and this event will retain its status as one of historic change in the relationship of India's most crucial "travel partners".

(With inputs from Joy Roy Chaudhary in Kolkatta)