When the COVID-19 pandemic brought the travel industry to a grinding halt, it broke the supplier commission lifecycle that travel advisors depend on. With no one traveling, but lots of travel plans being canceled and changed ad infinitum, advisors were, for the first time, working with no pay coming in whatsoever. Much of the work they were doing will, in fact, never be paid for. It’s a problem with a departure-based payment system that may have been theoretical in the past, but became very real, very quickly.
“I call it departure commission,” said Jeff Anderson, co-CEO of Avoya Travel. “They pay us commission because there's a departure that's going to happen. They’ll pay it 60 to 120 days in advance once that final payment comes in, but pretty much the things that we book, we aren’t paid on until a month or two or 10 or 12 months.”
During “normal” times it wasn’t much of a problem for established advisors.
“If you think about it, advisors had a pipeline,” said Jackie Friedman, president of Nexion Travel Group during a recent six-month check-in with TMR. “Before the pandemic, they had stuff that they sold two years ago who might be traveling now and they were getting paid. They had that flow going. [During the pandemic] that pipeline clogged. Bookings fell off, were canceled.”
“I just think that the model broke in COVID,” Anderson added. “To no fault of any supplier.”
Most advisors had to start over from scratch, which anyone in the industry knows is a hard place to be. The first year or two of an advisor’s business are notorious for no to low cash flow.
“We need advisors staying in the business,” said Jackie Friedman, president of Nexion Travel Group. “There’s no question they’re busier… ’23 and ’24 are looking great in terms of advanced bookings, which is fantastic. The challenge is that advisors won’t get compensated on that until the time of travel or at least the time of final payment.”
Though over time this will be less of an issue, “as the pipeline starts building again,” Friedman said, in the short term, advisors need more money up front.
Payment Lag Time is Challenge
“If we want people to get into this industry and stay in this industry, they have to believe they can get compensation, and that lag is a challenge,” she said, adding “when they get compensated and how they get compensated” are key to their survival.
Whether the issue of lagging commissions becomes more relevant as time passes is irrelevant, Jeff Anderson, co-president of Avoya Travel told TMR. For him, no one should have to go unpaid for so long.
“If you’re a supplier, you have to spend lots of marketing money in order to get demand to your product,” he said. “All of those things, they’re paid for. Google doesn’t wait until departure to charge for marketing. Neither does the U.S. Postmaster. If you want to put a brochure in somebody’s mailbox, you’re going to pay them up front.”
When travel advisors are compensated needs to be earlier in the timeframe, as well, he said. Said another way, suppliers need to switch from departure commissions to booking commissions.
“There’s a portion of that total commission that needs to be paid at the time of booking – and by booking, I mean an actual deposit with a real credit card… There’s this deposit money coming in. The supplier keeps 100% of it. That doesn’t quite pencil out for us being their fundraiser. There’s got to be a fairing of revenue that happens at the time of booking when the actual deposit is made…”
While Anderson admits it’s easier to do with non-refundable deposits or fares, that doesn’t mean it can’t be done. In fact, it’s something Avoya has been doing with its own advisors for almost a decade through a program called Instant Commission.
“We pay commission out on bookings, even if we haven’t received the money from the supplier,” he said.
But some suppliers are getting in on the concept too, which is why, Anderson said, he knows it can be done, despite the pushback from many suppliers about systems not being built for faster commission payments.
“We know it can be done… One of the biggest things we’ve heard for the last two years is ‘My system can’t handle this.’ But we’ve partnered with suppliers, using our technology, to build it out so that at least our independent agencies were able to have it… we’ve come up with lots of solutions…”
Faster commissions also will require customers to change their mindset, he said.
“Travelers are going to have to make some adjustments. They’ve been booking air for decades now without being able to get their money refunded. All the hotel companies are moving to discounted prices for nonrefundable fares. Some of the cruise lines are doing this. I just think it needs to gain more steam.”
Anderson added that every supplier that’s participated in providing faster commission payments has seen their business with Avoya agencies go up.
“Every time a supplier does this with us, whether it’s short term or long term, the sustained increases that we’re seeing for those brands relative to their peer groups, it’s very clear that sales people are incented by their pay.”
Anderson added that he feels bad that the lion’s share of the burden falls on suppliers to figure out, but reminds suppliers advisors have had plenty of challenges too. “Like working for the last two years and never getting a penny worth of deposit money.”
When asked if he feels this switch should be permanent Anderson told TMR, “There’s no question that the impetus for the need was because departures stopped happening. The question is… Can suppliers continue to pay us the exact same way that they did pre-COVID? I’m not sure that the answer to that is going to be yes, not if they want us to sell their products.”
“Travel advisors have gotten smarter and savvier financially,” he added. “We’ve had to. Am I going to keep working for free? I’m already paid based on performance. If I don’t sell something, I’m not going to get a commission. I already know that… I’ve already taken on that risk. Do I want to risk how long it’s going to take for them to pay me out?”
“I think that if suppliers want the most professional travel advisors selling their products, they cannot wait to pay them until the very end of the process,” he said.
Service Fees as Stop Gap?
Travel advisors who have been charging fees since before the COVID-19 pandemic were in a slightly better position during the shutdown than other advisors. While not a lot of money, cancellation and rebooking fees at least meant some weren’t working entirely for free.
It’s something Friedman said she’d like to see more advisors start doing.
“I’d love to see more advisors realize the importance of charging professional fees. That certainly helps,” she said, adding that combining fees with a change in the commission payment timeline would be the best solution for travel advisors.
Anderson is more conflicted when it comes to service fees.
“We don’t want to be a direct competitor of any direct team that’s out there,” he said. “And putting a service fee on top of what we offer means that now we’ve got to be in deeper direct competition with suppliers themselves.”
But, he admitted, service fees “probably have a better place today,” than they did pre-COVID. “Customers also know that you don’t necessarily want to be one-on-one with a supplier, so more travelers are recognizing that it’s better to book through an intermediary like a travel advisor than being on your own.”
He added, “In the 20 years I’ve been doing this, I’ve never been as supportive of charging professional service fees than I am today. It is in some ways a necessity. In other ways, totally well-deserved… but the reality is, if it makes us less competitive with direct teams, that could be a big enough problem to where it’s not the right direction… but I’m supportive of those that have been able to figure it out.”