Singapore To Sling Aside Travel Agency Commissions
<B> Singapore To Sling Aside Travel Agency Commissions</B>
By Amon Cohen
Singapore Airlines is the surprise winner of the worldwide race to abolish agency commissions. Following the examples of Star Alliance partners United Airlines in North America and Lufthansa and SAS in Europe as commission cutting pioneers, Singapore Airlines has gone from the traditional nine percent to zero in one fell swoop. However, to prevent this tiny but commercially powerful country's agents from going broke overnight, it has introduced a transitional "documentation" fee of 5 percent that will be valid until October 2001.
Only Cathay Pacific has emulated SIA so far in axing commissions totally but several other major players have taken the opportuinty to reduce to between 5 and 7 percent.
The cuts have been accompanied by two other major changes to the remunerative triangle between airline, client and agent. SIA has decided to offer direct net fares to a wider range of clients and members of the National Association of Travel Agents Singapore have introduced a range of service fees for clients. SIA, along with a few other carriers such as British Airways, Qantas, Lufthansa and Swissair, already gave net deals to its largest corporate clients but has now dropped the bar considerably. Any company with an annual travel spend of S$500,000 (US$297,000) with the airline is entitled to the fares, which provide a discount of 9 to 13 percent. Up to four clients with a combined spend of S$500,000 also can come together as what SIA calls an economic grouping to earn the discounts. Agents do not earn the documentation fee on rebated net fares.
SIA claims the new system benefits all parties concerned and that NATAS members voted overwhelmingly in its favor. However, the agents may have had little option since SIA enjoys a colossal 64 percent share of its home market.
The airline also claims the deal is good for clients. "Currently, agents receive a rebate from the airline and compete with each other to pass on some or all of the rebate to corporate clients," a spokeswoman said.
"This means that client companies do not always know if they are being offered the lowest fare because agents do not offer the same rebate to all clients. The new scheme is transparent and in the best interests of the consumer."
Tony Hughes, managing director of British agency P&O Business Travel and a board director of P&O Travel Singapore, is less elated. "It's not good," he said. "Despite everything that has been said, this pushes the cost toward the end user."
Hughes said smaller clients who do not qualify for the net fares effectively have been handed a significant price increase because they now have to pay full published fare plus an agency transaction fee and have no hope of a rebated net fare. He also argued that larger clients will suffer ultimately, since one-off net fare rebates soon will be offset by fare increases.
In addition, the new arrangements have created major administrative problems for agents, who are having to levy transaction fees for SIA and Cathay tickets but remain on more conventional systems for clients who are as unaccustomed to new-style remuneration as they are. "The market is in chaos," said Hughes. "A lot of agents are looking at moving their ticketing operations across the water to Malaysia."
In spite of Hughes' criticisms, Seagram director of global travel management for Europe, the Middle East and Africa Tom Stone gave the news a qualified welcome. "It is another step to transparency of service and reducing the complexity of the business," said Stone. "However, I question the wisdom of doing it so suddenly. Also, if airlines reduce commission, I expect them to transfer the savings to me as a corporate. If they don't, I will have a problem with what they have done." Stone also asserted that the benefits were rather more questionable for smaller companies without buying leverage.
As an additional twist, airlines in Singapore have tackled the thorny question of who pays for credit card transactions. SIA has said it willcarry the merchant fee for net fares. BA and Qantas are making their payment of a 2 percent "marketing" fee conditional upon agents agreeing to accept cards and carrying the charge themselves for published and non-published fares.
Meanwhile, the zero commission idea could spread. Cathay is said to be pondering it in Hong Kong and BA has told U.K. agents it is considering the model as one option for its new commission structure, to be unveiled in early 2000. Although BA and other transatlantic airlines may move toward a zero rate, the carrier is thought unlikely to do so while its market share continues to suffer.