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Sat 9 Feb 2008 04:00 AM

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The Middle East market is ready for 0% commission

SAS gm Magnus Engstrom, says a zero commission environment makes sense.

The December edition of ATN featured coverage on a roundtable staged the Business Travel Show Dubai in October involving three major airlines and five leading travel management companies (TMCs).

One of the hot topics of discussion was how the Middle East travel market was adapting to the gradual implementation of 0% commission by several international and regional carriers.

Surprisingly, the TMCs were pushing for a zero commission environment across the board to avoid client and customer confusion and to help make back office systems run more smoothly.

However, Etihad Airways said the market was not mature enough to deal with a zero commission environment and vowed to continue to remunerate agents.

In response to the roundtable commission debate, Scandinavian Airlines (SAS) general manager UAE Magnus Engstrom gives his thoughts on the issue:

"Scandinavian Airlines was one of the first carriers in Europe to introduce zero commission and the first to implement it in Sweden around four or five years ago.

Back then, travel agents were upset, but looking back, they now realise that it is a win-win situation.

It's a win for the customer because it makes buying our product more transparent; it's a win for agents because they can earn more money charging transaction, management or service fees [than they could from commission] because the prices have decreased considerably during the last few years; and it's a win for the airlines because it reduces distribution costs.

Of course, it does mean that there is more pressure on agents to provide a service because customers can compare fares on the internet and see that they are different to what the travel agent is charging. They question why they should pay the service fee.

Travel agents therefore need to focus on competence, creativity and what they do best. I think business travel agencies have a strong position today; they can negotiate with the corporate customer on fees in return for their service.

Some believe this market is not mature enough to embrace a zero commission environment, but it is developing so quickly. It might not be as advanced as Europe, because the internet penetration is low in some customer segments, but it will not stay that way for long.

The internet is here to stay and I think agents in this region need to develop their internet booking solutions and the knowledge and training of their staff.

This has worked in Europe where travel agents have survived because they have a niche product to offer and are well trained in that product.

By being under pressure [from increased competition], agents are forced to develop their skills. In addition, it's best to develop your own internet solution.

Commissions will soon be a thing of the past and every agent has the potential to overcome this and earn more money as a result.

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