The introduction of service fees in response to commission cuts by airlines undermines the agency relationship to the detriment of all concerned.
The customer has the perception he is paying more, the airline loses absolute control of the price at which the product is offered, and the agent is embroiled in additional administration and VATcosts which have to be recouped in the charge to the client.
What is the answer?I believe the entire problem stems from the fixation of airline finance chiefs with accounting costs.
Are travel agency commissions an internal cost of airline operations or are they effectively the retailer’s mark up? When an airline sells fares on a net basis to agents/consolidators there is no commission cost recorded in the books.
Why then are agent commissions not simply discounted from the net revenue accruing to the airline?
This way both published fares and net fares would be accounted for on a consistent basis.
In its accounts, British Airways records ticket sales gross and commissions are charged to cost of sales. Conversely, Virgin records turnover net of commissions in its accounts.
Is it accounting policies that determine differing approaches to agent commissions? If all airlines were to adopt Virgin’s policy then agents’ commission levels may well be back under the direct control of the airlines’ marketing and sales departments, where they belong.
Breaking down the cost of a ticket between air fare, Air Passenger Duty, airport passenger service charges and travel agent commission/service charge does nothing for the individual client who just wants to know what the total price is.
If commissions are to be replaced with a separate component for travel agent service fees, it follows that yields will need to fall to compensate.
Basic economies and the laws of supply and demand dictate that there will ultimately be no benefit to the airline.
The price to the consumer has not been reduced, rather it is purely a paper exercise in cost shifting from principal to intermediary.
Modern airlines have already introduced sophisticated yield management systems (no, I don’t mean overbooking).
Surely it is not beyond our collective intellectual capacity to assess the economic impact of changes in commission structure in a more reasoned and comprehensive manner.