Commissions & Transaction Fees

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» Posted by on Apr 6, 2014 in Travel Management Centers | 0 comments

F

  • Information and
  • Ticketing

Now they have lost these monopolies due to deregulation; information is plentiful and tickets are more and more irrelevant. By cutting agents’ commission, airlines decrease their dependence on travel agencies as a distribution channel. The process started in the United States (U.S.) in 1995 when seven airlines, (American, Delta, US, Trans World, United, Northwest and Continental Airlines) joined forces to put a cap on commissions paid to travel agencies. They set an upper limit for travel agents’ commissions fixed at 50 USD for domestic flights, and at 100 USD in 1998 for international flights. In October 1999, airline commissions were reduced to 5% and finally eliminated in the U.S. in March 2002 (on average, one commission cut every 14 months). Three key variables triggered the end of the commission model:

  • The unsustainable financial losses by airlines due to the growth of low-cost carriers leading to an increase in the number of bankruptcies
  • No negative consequences from previous commission cuts: airlines had progressively lowered the commission payments starting in February 1995
  • No effective recourse for travel agencies (group actions prohibited by US law)

So, what’s interesting to me is: where are the fees being applied?

Most travel agents have managed the commission cuts by migrating to a “fees for services” business mode; by applying charges to each transaction. The structural changes that are taking place in the industry are such that travel agents need to be able to provide added value for which they can charge the client and a lot of them are now doing better than they were before commission was cut. However, fees have raised the total cost of travel for the traveler and customers are unwilling to pay for a service they did not have to pay for in the past.

By: Anna Quartey-Smith

Disclaimer: The comments in this paper are mine and do not reflect the opinions of my employer.

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