Living with zero

A zero commission environment has existed in the US and UK for some time now, but many agencies in the Middle East still rely on regional carriers paying them 7% commission on airfare bookings.

However, at a time when more carriers are taking the zero commission approach and customers can easily access competitively-priced airfares through internet search engines like Orbitz and Expedia, or guaranteed best rates on airline websites, it's high time all agencies started preparing to switch their business from a commission-based to a service fee-based structure.

"In a previous era, travel agents were extremely useful because they had the information systems that allowed them to easily track all the different airlines," explained V. Jayaram general manager at Dubai-based Sharaf Travel.

"Even into the 1990s, travel agents could make money as mere portals to GDS networks, which were the only way to quickly compare fares on several different airlines. But the internet changed all that. Online travel agents provide free portals to GDS systems, and independent travelers can now compare airlines' own deals in a few clicks."

Until the mid-1990s, airlines paid up to 10% of the value of the ticket in commission to agencies for each ticket sold and selling air tickets was a guaranteed revenue-earner.

It used to be common practice for agencies to discount fares - effectively giving away their commission in order to guarantee a customer would not go next door to a rival agency - but many markets including Bahrain, Qatar and Abu Dhabi have placed a ban on this practice, implementing strict 0% discount policies. Agents found breaking the rules can - and should - be fined.

Yet there is overwhelming evidence to suggest that this practice continues, giving some smaller agencies a competitive edge when catering to the cost-conscious segment of the leisure market.

But customers are becoming more savvy; if they still opt to book their travel through an agency rather then online, the chances are that it is because they want to be guaranteed good service, meaning that they are unlikely to opt for a small agency that is willing to compromise its own profitability just to stay afloat, and probably offer an inferior service.

The time has come for all agencies to draw up a service fee strategy, whether a fixed 7% fee to replace the lost commission - like in Bahrain - or a transaction-based fee according to the services the client requires.

Many corporate-bent travel agencies, particularly travel management companies (TMCs), have already started to implement such practices and many opt for a management fee when catering to large blue-chip clients.

But not every travel agent can see the light at the end of the tunnel in terms of the profit earning opportunities that a zero commission environment can generate.

"Like any new initiative there will always be initial apprehension until everybody is familiarised with the new modus operandi," explained Mark Turner, manager of airline affairs, Dnata.

"Zero percent commission is already working worldwide and we are only adapting ourselves to the best global practices. I believe that we are moving towards an international approach."

What the regional airlines said:

Qatar has become the latest GCC market to bear the brunt of zero commission following the announcement by national carrier, Qatar Airways, that it will implement a zero commission policy in its home market "very soon".

This follows in the footsteps Gulf Air implementing zero commission in Bahrain last year.

Both Bahrain-based travel agents and the airline concurred that the changeover process ran smoothly because of the decision to implement a fixed 7% service charge, which agents have to calculate and add on to the net cost of a ticket.

Meanwhile the UAE's full service carriers, Emirates Airlines and Etihad Airways continue to pay agents commission and both have said that they will continue to do so in the immediate future.

"Emirates believes travel agents are important partners and allies and it values their business," an Emirates spokesperson told ATN.

"While most airlines have taken steps to reduce or remove commissions, Emirates has demonstrated its commitment to the trade by ensuring that rates remain competitive and travel agents continue to earn substantial commission payments when selling its tickets."

Likewise, the UAE flag carrier Etihad Airways has made paying agents 7% commission one of its "main objectives" since launching its operations four years ago, according to executive vice president sales and services, Geert Boven.

"It meant we got our name into the market [because we] were agent friendly, and we want to be agent friendly still," he explained.

"We think they do a great job at promoting and selling us and we think that commission is one of the best tools to use to reward them."

Boven noted that the mechanics of European markets were different, with more people booking flights online than in the GCC. This made ditching commissions an affordable proposition for carriers operating out of these markets, he explained.

"This will happen here eventually," he said. "Things will change in the future as we see more customers going directly to the web and to our own offices.

"But clearly, here in the UAE, we will not abolish the commission as long as our competitors pay commission. We have to be on a level playing field."

What the agents said:

N.M Shafiq, operations manager, Regency Travel, Qatar: I think it's a fantastic idea. We can make a lot more money this way. It will also mean that a lot of unprofessional companies will go out of the window and the quality of agents overall will improve. We will be able to concentrate on our incremental business.

There are a lot of good opportunities. We already charge a management fee for a couple of transactions and services, like refunds, for example.

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