Majors Alter Incentives: Agents, Buyers Get Performance-Based Payouts

Airlines in recent weeks have stepped up their compensation programs for select travel management companies and corporate clients with new pay-for-performance programs characterized by increased override incentives, deeper corporate discounts and larger point-of-sale payments tied to aggressive market share commitments.

The concept was publicized by Delta Air Lines in March, upon the elimination of base commissions. At that time, Delta said its new "pay-for-performance program will reward key travel agencies that achieve superior sales results."

Other major carriers contacted by BTN said they have stepped up their pay-for-performance activities by targeting specific travel management companies for sweeter deals in exchange for more market share. The deals have the potential to match or exceed the compensation provided by base commissions, but only for agencies and corporations with whom the airlines choose to partner.

According to several agency and buyer sources, the new deals, in some cases, double domestic overrides—typically paid at 3 percent to 7 percent by carriers—and include new point-of-sale compensation upwards of $25 per ticket on certain city pairs.

Pay for performance now is an industrywide phenomenon: "All the major carriers are participating in new incentive programs," said Tammy Troilo-Krings, chairman of Westerville, Ohio-based travel management company Travel Solutions Inc. and CEO and president of consultancy Troilo & Associates Inc. "Most programs are very similar to traditional overrides, with a little more emphasis on market share movement. Typically, the inflated overrides are based on buyers or agencies delivering a combination of full network and specific city-pair market share to preferred carriers." She added that payment on these programs does "approach the level of compensation for base commissions, with the possibility of going even higher on a sliding scale based on market share movement."

While less than forthcoming about the details, mega agencies also noted some stirrings in the world of airline-agency dealings. "There certainly has been a lot of activity in the area of overrides and commissions, but in every case increased payment comes with better performance on market share, and the ink is not yet dry on any of the new agreements I've heard of," said Thom Nulty, president of Denver-based Navigant International.

"We very much are in dialogue with our airline partners, trying to get some commissions back into the picture," said Pam Arway, executive vice president and general manager of American Express Corporate Travel, but she would not elaborate.

Savvy regional agencies, too, are pursuing new compensation programs with carriers. According to Bill Chiles, chairman and CEO of Saddle Brook, N.J.-based Hickory Travel Systems—an international network of 150 agencies with total annual air sales of more than $14 billion—"Most of our agencies have new deals since the elimination of base commissions that are based on market share targets." He would not name the carriers that have upped their compensation packages, but said that "Continental is, by far, the best carrier to work with in terms of their support of the industry."

Brent Garback, CEO of Total Travel Management in Troy, Mich., has heard from three major airlines regarding changes to their incentive programs: "In many cases, carriers have either lowered their thresholds for overrides or increased payments." In certain cases, he said, "transcontinental bonuses are back in place to the tune of $25 per booking."

Because they emphasize market share commitments, Chiles said, the new override-based compensation plans are "a better deal than base commissions for the airlines. But on the agency and travel buyer side, you've got to run a more disciplined program and make your market share commitments. There is no room for sloppy management."

In fact, the changes in compensation likely will prompt some buyers to renegotiate their carrier agreements. Said an anonymous travel buyer with an Airlines Reporting Corp.-accredited Corporate Travel Department, "I've netted out our overrides in exchange for discounts of over 20 percent, but with the changes in incentives that I'm hearing about, I'm wondering if I could be missing the boat on greater savings."

Another buyer wishing to remain anonymous said, "The airlines have offered some new point-of-sale discounts, but they also are asking for more market share. They want more than they wanted last year. To take advantage of the discounts, I'm coming up with a strategy. I cannot satisfy every carrier, nor are we going to sign deals with every carrier. I'm considering the discounts offered on our top markets, and how commitments to suppliers on those routes will affect our entire air program."

Meanwhile, Travel Solution's Troilo-Krings said the new pay-for-performance systems are "very complex to administer. We have to be very sure the carriers with whom we will partner will maximize our savings." Troilo is planning a client forum for June to educate buyers on the changing landscape of the airlines' incentive programs.

Agency executives also testified to the complex nature of the airlines' latest incentives. One agency president said, "The airlines are offering everything from upfront commission at the point of sale to increased back-end quarterly overrides to individual city pairs and segment commissions. They started aggressively rolling out the plans about two weeks ago." One of the major carriers, the agency president said, "is basically doubling my override incentives. They used to range from 0 percent to 5 percent of our sales, and now they will be ramped up to 10 percent. I've heard rumors that there are point-of-sale commission incentives as high as 15 percent for transcontinental flights. It's complicated."

Bill Hubric, vice president of New Milford, Conn.-based consulting firm Management Alternatives, said, "If you compare what the airlines will pay out in point-of-sale commissions and overrides to what they paid in base commissions, the airlines will save a lot of money with their new programs. Even in the days of base commissions, it's always been overrides and other special arrangements that really signify who your partners are."