Point/Counterpoint: Incentive Poses Agent Quandary
<B> Point/Counterpoint: Incentive Poses Agent Quandary</B>
First and foremost, travel agents are an indispensable part of business travel distribution. What is in question is the future role of the travel agent and how they are compensated for services. Not long ago, agencies derived all of their revenue from commissions. Because they were difficult to collect, agencies often returned all hotel and car commissions to their corporate customers. When the day was done, the airlines often footed the total cost of agency operations.
Agencies recognized that their customers were the companies they served. Over 10 years, corporate travel agencies invented the management portfolio that companies depend on today. Products and services include hotel directories, management information systems, booking automation, customer service retreats and airline negotiation programs. In short, the agents provided companies tools to control the overall cost of business travel.
Is it reasonable to expect airlines to subsidize hotel and car bookings, or support agent-developed products designed to reduce airline costs, or, for that matter, fund corporate travel management programs through rebates? Airline commission cuts were inevitable. Stating the obvious is not anti-agent.
Smart agencies have shifted to management fees. Well-managed agencies, like your own Larry, are prospering.
Given the new environment what is the role of the agency? This is a complex question because travel agencies are multi-faceted businesses. On the one hand, business travel agencies act as expert travel distributors. They provide configuration, ordering and information services. From the airline's perspective, they follow corporate clients' policies and place travel orders. Why should an agent receive an override for placing a customer directed order?
On the other hand, agencies also operate leisure and personal travel outlets. In this business, agents often do influence a sale. Unlike a business order, agents can market destinations and direct the sale to their preferred airlines. Airlines then reward them with higher commissions. An override commission makes sense for this transaction because the agent added value for the airline.
The agents' roles of order taker and sales person poses a conflict of interest. Agents double dip when they count both orders and sales for their overrides. First, the override dilutes the potential discount to the corporate customer. Second, airline shareholder value is eroded when management pays overrides for service not rendered.
This conflict of interest is apparent when large agencies retaliate against airlines by directing agents to book away from a carrier that declines to pay incentives on company-directed business travel. Airline payments under duress are not overrides, they are pirates' tribute. Larry, these agencies hurt you too because they demand revenue that medium-sized agencies like your own do not enjoy.
We cannot expect agents to disentangle themselves from this conflict of interest. They must be competitive and profitable to survive. It is the corporate client and the airlines that need to end override double dipping. Companies can protect their discounts by requiring clauses in their airline contracts that prohibit the payment of overrides on tickets covered by the deal. Likewise, airlines can use ticket numbers to ensure that they pay only one incentive per ticket, a corporate discount or an agency override.
If airlines would muster the courage to pay a single incentive, buyers could have confidence that their discount was not eroded by an override. Lacking well-reasoned airline incentive programs, agents, clients and carriers continue to operate in an environment of distrust.