WHENBritish Airways announced it was slashing commissions 18 months ago there was uproar. ABTA planned court cases, agents branded the move ‘disgraceful’ and threats were made to switch sales to other airlines. Some retailers even predicted it would be the end of many people’s livelihood.
How times have changed.
When American Airlines announced last week it was following Oneworld partner BA with a rate cut to 7% from 9% on August 1, there was barely a whimper.
Sure, ABTA criticised the move and the Guild of Business Travel Agents called it ‘short-sighted’. But all agreed there was an air of inevitability about the cut.
United Airlines kicked-off the trend to axe normal payments in September 1997 when the self-proclaimed largest air carrier in the world reduced US commissions to 8% from 10%. Other carriers matched United, leading to fears that payments would be reduced in the UK. Two months later, BA confirmed agents’ fears and said it was to bring in a 7% basic rate.
Since then four of the biggest airlines in Europe – KLM, Lufthansa, Alitalia and SAS – have followed BA’s lead.
With American and most of BA’s franchise carriers also now in line, and others poised to make the cut this year, agents have resigned themselves to the end of traditional commercial agreements with airlines.
That is bad enough when it is with individual airlines, but when carriers have formed global alliances and pledged to co-ordinate with partners, agents stand little chance of fighting back.
ABTA’s aviation committee chairman Joe Bourke predicted BA and American’s other Oneworld partners – Cathay Pacific, Canadian Airlines, Qantas, Iberia and Finnair – would introduce 7% in the future. Star Alliance airlines have already indicated they will have a switch to 7%, as members Lufthansa and SAS have done.
As Lufthansa chairman and chief executive Jurgen Weber said recently: “Competition is not between individual airlines anymore, but between alliances.”
This collective power of seven or eight carriers also means airlines can change agreements without any consultation – a fact which infuriated retailers when BA axed its 9% rate.
American’s general sales manager UK and Ireland Matthew Hall confirmed there was no warning that the airline was to drop its rates.
“We had no consultation with ABTA on the issue of commissions,” said Hall. “The decision was made completely independently. BA is the market leader and it was not viable for us to be different.”
However, ABTA’s Bourke still believes agents can make up the shortfall by taking matters into their own hands. He said: “Agents have no option but to plan service charges when the commission has been lowered. We are coming to terms with it.”
His comments were backed up by GBTA chairman Don Lunn. He said: “Airlines need the distribution and they will have to pay for it. The charging principle will have to come into play.”
Bourke claimed BA had lost sales over the past 18 months following its dropping of the 9% commission rate, but was unsurprised others were following suit.
“During the alliance talks between BA and American we raised the issue of harmonised rates many times and were told this would not be the case. We have been proved right. This is a consequence of alliances,” he said.