Agencies Should Prep For Int'l Commission Caps

<FONT SIZE="+3"><B>Op Ed: Agencies Should Prep For Int'l Commission Caps</B>

International carriers are the golden egg for travel agents. According to Airline Reporting Corporation figures for September 1996, 42 percent of total agency commissions result from international travel. Only 29 percent of the fare amounts, however, were international. Even fewer, about 18 percent of transactions were international.

In many a travel agency, given the commission cap in an already small margin business, international commissions keep the agency afloat. But trouble lurks ahead for the travel agent that is counting on international travel to fuel business.

It is inevitable that in 1997 there will be a reduction in international commissions to agents. My prediction is that 1997 will see "premium" service classes reduced from a percentage payment and capped, perhaps $50 each way. Override commissions will still be paid, but only on substantiated market share; they will be paid primarily on discretionary leisure travel. International carriers will bundle their override within their corporate deal so as not to pay twice.

International carriers will take these measures for the following reasons: International carriers are wary of paying commissions unless they are tied to market share. However, airlines have historically found it difficult to validate market share agreements. As a result, while thresholds have been set, airlines have largely relied on self-reporting to pay market share deals. Now carriers are insisting on independent audits of market share to ensure that they are being paid for incremental business. All too many agencies and corporations have market share deals with two or more carriers.

International carriers have had an opportunity to observe the success of the commission cap and its marketing fallout, as many agencies and corporations successfully move to transaction pricing. They are now prepared to implement their own commission reduction. This is already happening in Europe, with carriers such as Austrian and Lufthansa leading the way. Look for this trend to spread westward.

New technology, including point-of-sale systems, online auctions and Internet bookings will result in lower commission payment.First-class and business-class bookings are the most lucrative bookings. A Concorde trip is close to nirvana. However, there is inequity between the amount of work required for a premium international booking and the commission paid. International carriers will seek parity between the work and compensation paid.

International commissions are subsidizing low-fare carriers. Because agencies and corporations use a myriad of carriers, including low-fare domestic carriers and premium international class, international carriers' commission payments have the effect of subsidizing discounted tickets.The astute travel agency owner should be preparing for these changes. These steps should include:

* Educating clients regarding the anticipated changes in international commission restructuring.

* Using information and marketing to determine which carriers are best suited to be preferred vendors.

* Unbundling services, such as reporting, to enable a true transaction-based model.

* Creating VIP services that they can offer their most important corporate clients.

Change is opportunity. Those agencies that anticipate change and respond to it will be the winners in the coming years.

<I>Les Baker is vice president of Prism Group Inc., an information services and consulting company headquartered in Albuquerque, N.M.