<B> BA Increases Commissions</B>
<I>Effort To Regain Market Share Results In Un-Capping</I>
By Amon Cohen
U.K. travel managers are having to reappraise their turbulent relationships with British Airways yet again after the self-proclaimed "World's Favorite Airline" announced a surprise increase in agency commission.
BA has bucked the worldwide trend for cutting commission by increasing payments to U.K. agents to a maximum of 10 percent. The basic rate had been cut from 9 percent to 7 percent in January 1998. However, all is not as it first appears. Basic commission remains at 7 percent; what is new is a 1 percent bonus for tickets that BA also pays out to the corporate customer and 3 percent that it does not.
Corporate deals are not affected directly by the commission change, but corporate clients on fee-based agreements with their agents will of course have more commission passed on than the 7 percent they previously received. However, this unusual state of affairs may only last seven months.
The new arrangement has been introduced as an emergency interim measure following the European Commission ruling in July that BA's override incentive payments to agents were anti-competitive and illegal (<I>BTN,</I> July 19). The airline is carrying out a thorough review of its sales program, which it will announce in time for its new financial year beginning April 1.
Nothing is being ruled out or in for next year's agreement, but what is clear is that BA will make a more genuine effort to consult corporate clients and agents than in the past. "We have been criticized in the past for handling issues on our own instead of working with agents and corporates," said newly appointed general manager for U.K. & Ireland sales Tiffany Hall. "It doesn't mean that we will do what everyone wants us to do, but if we don't do what people want, we will tell them why."
In any case, it will be impossible to satisfy everyone. Hall already has spoken to numerous agents since July and while some have pleaded for the basic rate to be returned to 9 percent, others have urged the airline to scrap commissions altogether. As far as travel purchasers are concerned, U.K. & Ireland Institute of Travel Management chairman Ian Hall hopes BA will use the changes forced on it to devise a radical new paradigm for the airline-corporate-agency relationship. "Commission muddies the waters," Hall said. "We want to see more useful fare structures, such as net deals. This is a fantastic opportunity for rethinking costs, structures and distribution."
An additional element in the interim sales agreement suggests that BA may well seize the opportunity for radical new thinking. Agents can earn an additional bonus for demonstrably adding value to their relationship with BA. Examples include timely delivery of client information and measures to reduce distribution costs, such as switching to e-ticketing and making less use of the BA agent inquiry telephone line.
Leading British agents have been arguing for some time that airlines should introduce a menu-based system of remuneration parallel to the increasingly common agency-client fee system, whereby the agency's reward is tied much more closely to specified tasks. Whatever happens next April, the interim deal is at least a temporary lifeline for small U.K. business travel agents and is likely to halt the spread of agency service fees for small corporate clients.
But Tony Hughes, managing director of the U.K.'s seventh-largest agency, P&O Business Travel, warned corporates on management fees not to expect a massive improvement in commission passed on by their agents. "We are not talking about sudden gargantuan extra earnings here," he said. "This is only 1 percent more than BA was paying at the end of 1997, and now there are no overrides. However, it is nice not to have to work on a feast-or-famine basis."
By Hall's own admission, the relatively generous terms of the interim deal partly are intended to revive BA fortunes when it is faring badly. The airline saw pre-tax profits for the quarter ending June 30 plummet 84 percent to £23 million (US$37 million) before exceptional gains. Observers believe the interim agreement is a tacit admission by the airline that switch-selling by agents has succeeded.
"Key agents are all saying they are doing less market share with BA," one agent told BTN, while another major agency in the United Kingdom told BTN it has lowered BA's share of its business from more than 50 percent seven years ago to 40 percent today, including a 5 percent drop in the past year alone. "Home airlines all over Europe are losing market share, but BA is doing particularly badly," a senior agency figure said. "BA is totally confused. It has told the (U.K.) Guild of Business Travel Agents that it will do whatever it takes to stop losing market share, but in the field the sales force is being told to keep yield up. North American airlines are marketing much more aggressively."
If BA is to reverse its fortunes, it also will have to mend bridges directly with corporate clients. The airline is notorious among travel managers on both sides of the Atlantic for its refusal to negotiate deals as readily as other airlines, preferring to trade instead on its former good reputation for product and service.
A travel manager of one Top 100 company in the United Kingdom, who wishes to remain anonymous, revealed his turbulent relationship with BA to BTN. He has steadily reduced market share with the airline as have most travel managers that he knows.
"My BA deal is nothing like my other deals," the travel manager said. "They are coming back to the table at the moment but that is because the only lesson they know is when you take business away from them. BA doesn't seem to understand how good some of the deals are in the marketplace. When BA chief executive Robert Ayling leaves, there may be a difference."
The same travel manager noted that BA is the only airline unwilling to discuss net fares with him, but he believes the carrier will have to change its attitude to clients as well as agents. "
BA is trying to sweet-talk the agents having tried to bat with the traveler," he said. "It used to woo the traveler with air miles, fancy lounges and good service and believed that the corporate could not move travelers away, but corporates are saying that they cannot ignore the savings with other carriers anymore. At the moment, it is a good time to be a travel manager.