BA Exec: Lower Commissions Might Be Justified

<H1>BA Exec: Lower Commissions Might Be Justified</H1><H2>Management fees would make the agent aligned to the buyer rather than the airline</H2><H3>By Amon Cohen</H3><I>London </I>- British Airways has long told the U.K. corporate market that it will not introduce a U.S.-style cap on agency commissions. Maybe not-but the airline's U.K. and Ireland sales manager dropped a heavy hint last month that commission structures will not stay the way they are for much longer.

Speaking to an Association of Corporate Travel Executives forum devoted to exploring distribution costs, Dan Brewin questioned why the commission level for international air tickets has remained at 9 percent. That figure has been the norm for at least 25 years, although the much smaller domestic market carries a commission of only 7.5 percent.

Brewin told ACTE members that the 9 percent rate had no economic basis. "I have never seen any economic justification of why it is 9 percent," Brewin said. "It is about time we made sure it deserves its place in the distribution chain."

Pressed afterwards to say whether this meant BA intended to reduce commissions, Brewin said he simply wanted to ensure that 9 percent was the appropriate level and that research might show the figure should be either higher or lower.

However, those who listened to Brewin's speech were left in little doubt as to what will happen next. "My interpretation of what he said was that a cut in commission is very firmly on the agenda," said ICI contract purchasing group business services manager Tony Archer.

Archer had mixed feelings about whether a commission reduction would be good or bad for travel purchasers. "The implication would be a fundamental change in the commercial relationship between the airline and travel agents because agents' revenue is heavily dependent on commission from airlines," he said. "It means that commercial arrangements will be driven down the line of management fees. That wouldn't be a bad thing because it would very much make the agent aligned to the corporate buyer rather than to the airline as we become their sole income stream."

The downside, naturally, is that management fees involve the agent passing all commissions and other airline payments on to the client, meaning that clients would take a direct hit if commissions were to be reduced.

"There would have to be a clear demonstration from the airlines that any savings they make will clearly be shared with their customers," said Archer, who added that he would be looking for better services and/or lower costs for the buyer, not increased mileage points for the traveler.

Archer anticipates that travel managers will have to put up a firm show of strength, both through individual commercial negotiations and through industry associations, to ensure that buyers win their slice of the distribution savings. "Inevitably, the temptation for an airline, like any company, would be to hang on to as many of its savings as possible," he said.

Agents also feel this could be the beginning of the end for 9 percent commissions, although one told BTN that BA was unlikely to scrap the figure universally.

BA's agency distribution strategy to date has been to attack overrides. In March, it eliminated overrides on all Concorde and first-class tickets and scrapped the additional bonus it paid for traffic across the North Atlantic.

Although Brewin said that only about 5 percent of its sales were made directly to corporate buyers, he also said that he is turning his attention to the corporate sector and making overtures to the travel manager trade associations.

The mood of uncertainty generated by Brewin's comments was well caught by NatWest Bank Group travel manager Ian Currie. "Ten percent would be easier to work out, but zero percent would be even easier," he said.

Currie, himself a former travel agent, concluded that the answer was to give agents a guaranteed profit so that the buyer could be ensured high-quality service. As an example, he cited Easyjet, one of a number of new European low-cost airlines that do not pay commission. Easyjet flies from Currie's local airport and he uses it often, with his travel agent making the reservation.

"Although it is not commissionable, my agent does the booking for me because its bottom line is guaranteed," Currie said.