Zero % Commission from airlines and the repelling effects on travel agencies (Part 1)

According to the US Bureau of Labor Statistics, the number of full-time travel agents in the U.S. dropped from a high of 124,000 in 2000 to around 74,000 in 2014. I did not chance upon any Statistics for Ghana. If they are available I will be glad to receive them. A travel agency is a retail business that sells travel related products and services to customers on behalf of suppliers such as airlines, car rentals, cruise lines, hotels, railways, sightseeing tours and package holidays that combine several products. In addition to dealing with ordinary tourists most travel agencies have a separate department devoted to making travel arrangements for business travelers and some travel agencies specialize in commercial and business travel only. There are also travel agencies that serve as general sales agents for foreign travel companies, allowing them to have offices in countries other than where their headquarters are located (Brownell Travel, 2011).

In other words they are middlemen between the producers and wholesalers of tourism and travel services and the consumers of such products who are the travellers or tourists. Unlike the normal retailers in the world of business and commerce who own the products they sell, travel agents virtually do not own the products or services they sell. They are paid a commission for each sale. Because of their mode of operations, many are popularly known as ‘connection man’ in Ghana. They truly connect you. Therefore being in business selling someone else’s services or product could be a great disaster should the owner of the services or products decide not to pay any commission. Many travel Agents in Ghana were confortable selling services they do not own most especially airline tickets which use to be their main source of income. Travel Agents were also to meet specific requirements by IATA member airlines before being appointed an IATA Travel Agent. Among the requirements was to have a bond with a bank before an airline will give the said agent its tickets stock. Evidently, with the advance in technology, the airlines deemed it not necessary having to print tickets down in large quantities. Since 1995, many airlines around the world and most airlines in the United States now do not pay any commission to travel agencies. This means, an agency adds a service fee to the net price (Marian, 2002). In 1999, European airlines began eliminating or reducing commissions, while Singapore Airlines did so in parts of Asia. In 2002, Delta Air Lines announced a zero-commission base for the U.S. and Canada; after a few months United Airlines, American Airlines, Continental Airlines, Northwest Airlines, US Airways and American Trans Air all followed suit. Travel agencies are now forced to charge a percentage premium or a standard flat fee, per sale (Michael, 2010)

The state of travel agencies in Ghana in the past few years is not inspiring. The real state of the travel agencies in Ghana today was exhibited when I visited their website; Ghana Association of Travel and Tourist Agent (GHATTA) website www.gattagh.com. The website still displayed pictures of a former deputy minister for tourism under the erstwhile Mills administration and that was far back in 2010. Based on this picture, will it be fair to say that; the last time the website was updated was about seven years ago? There was no current information projecting current activities of the association. I remember some executives of the association protesting the introduction of the zero % commission yet their efforts did not see the light of day. I suggest they  put their website up to date.

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History of Travel Agency

The modern travel agency first appeared in the second half of the 19th century with its root in 1758 as establishment of Cox & Kings Ltd. In the year 1970, Cox & Kings the longest established travel company centered its focus on its business of travel and tourism. Lately Thomas Cook also established a chain of agencies in the last quarter of the 19th century, in association with the Midland Railway. They not only sold their own tours to the public, but in addition, represented other tour companies. Other British pioneer travel agencies were Dean & Dawson, the Polytechnic Touring Association, and the Co-operative Wholesale Society. The oldest travel agency in the United States is Brownell Travel. There was limited information regarding the oldest travel agency in Ghana. I hope anyone with that information can share it me. On 4 July 1887, Walter T. Brownell led ten travelers on a European tour, setting sail from New York on the SS Devonia. Travel agencies became more commonplace with the development of commercial aviation, starting in the 1920s. Originally, travel agencies largely catered to middle and upper class customers, but the post-war boom in mass-market package holidays resulted in the proliferation of travel agencies on the main streets of most British towns, catering to a working class clientele looking for a convenient way to book overseas beach holidays.

In the 19th and 20th century, being a travel agent was deeming very necessary and a good source of earning income. However, with the dawn of the internet and technology, travel agents still hoping for commission from airline shall be living still in the past. The world has moved on. They need to re-strategize.

In 1992, there were an estimated 67,000 travel agents world-wide, of which 47 per cent were in the United States and 30 per cent in Europe, the Middle East and Africa. Technological changes, including on-line services and ticketless travel, are significantly reducing the need for travel intermediaries.

According to a survey conducted by Amadeus (2007) among 600 Amadeus travel agencies customers and prospects, 34% of the interviewees quoted the “reduced revenues from commission” as their biggest challenge. Indeed the decision by the airlines to reduce and/or eliminate travel agency commission has led them to use technology that many of them distrust or are not inclined to use, and to compare prices and travel schedules constantly. Amadeus further asserts that to reduce their reliance on airline commission payments, travel agencies are applying one or more of the following strategic options: streamlining their operations, controlling staff costs whilst ensuring the customer feels as little impact as possible; expanding or moving into the leisure business where commissions on non-air products remain high (cruise, hotel, etc); specializing in geographic areas or becoming niche players for specific leisure products (e.g. destination weddings, student travel, group travel, cruises only, etc.); establishing a service fee driven business model.

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Pricewaterhousecoopers (PWC) in 2007 said, the commissions that airlines paid to +8/-intermediaries were progressively shaved down, to a point where now zero commission is the norm. For example, BA began to cut commissions paid to agencies in 2003 – and by 2006, it was down to zero per cent. As a consequence, travel agents had no alternative but to charge their customers a fee for these services. According to Huxley (2004), commission remains the lifeblood of the travel agent and the single biggest expense for the supplier. Many tour Operators and Hoteliers are looking at dealing directly with customers through the internet thereby further alienating travel agents.

A study to assess the effects of airline zero commission on the performance of travel agents was carried out in Nairobi Kenya by Victoria Mwende Stephen. A population of 350 travel agents was identified out of which a sample of (35) 10% were randomly selected. The findings indicate that travel agents had been affected by the zero commission. Their profitability, customer satisfaction, employee morale and internal processes were affected negatively. Findings also indicated that charging fees, cost leadership, differentiation, specializing in geographical areas or becoming niche players for specific leisure products, improvement in customer service and increased marketing and communication , expansion of the product base , strategic partnership and external linkages with other service providers were some of the strategic responses being adopted by travel agents. Findings also indicated that Travel agents have increased investment in financial resources, human resources, knowledgeable and creative workforce, and improvement in brand name, a unifying corporate culture, robust IT infrastructure and corporate governance as an effort to recover from the zero commission problems.

I have also conducted research among travel agents in Ghana that reflect similar findings. Many of the prominent travel agencies of the past are no more. Those who are still operating are doing something different to keep themselves in business by not depending on ticket sales. We further explore in the next article what the challenges are in Ghana and globally and we shall offer solutions to some of the few daring travel agents aimed at revamping their business. But the reality of the 21st century is that technology may keep businesses that are not willing to move with the change that is happening in our world today. We need to strategize our business plans and keep up with the demand of the 21st century.

Credit: Philip Gebu

Philip Gebu is a Tourism Lecturer. He is the C.E.O of FoReal Destinations Ltd, a Tourism Destinations Management and Marketing Company based in Ghana and with partners in many other countries. Please contact Philip with your comments and suggestions. Write to forealdestinations@gmail.com/info@forealdestinations.com. Visit our website at www.forealdestinations.com or call or WhatsApp +233(0)244295901/0264295901.Visist our social media sites Facebook, Twitter and Instagram: FoReal Destinations.

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