Air Canada’s New Commission Structure
by Chris Ryall |
Air Canada last month announced it would be changing the commission structure on its fares. Duncan Bureau, its vice president of global sales, explained the reasoning behind that development in a talk with Travel Market Report.
As of April 1 the airline eliminated paying 7% commission on its Tango fares (its lowest fares) but said it will pay 4% for its Flex and more expensive fares.
“We made a huge investment in rolling out a time-of-ticketing commission of 7% and what we found is that investment didn’t generate anywhere near the type of returns we needed,” Bureau said.
“We spent a significant amount and we only received a third of that investment in return,” he added. “The economics just didn’t work – it wasn’t motivating the agencies or our distribution partner to do anything.”
Getting input
Before making the decision to change the fare commission structure the airline consulted with various travel agencies, both corporate and leisure, across Canada and TMCs according to Bureau.
The overriding feedback was, “make it easier for us to transact,” he said.
The decision was then made to pay commission on a GDS booking, something Air Canada has not done in a long time, Bureau said.
He argued that while Air Canada eliminated the 7% commission on Tango fares, it added the ability now to earn commission within the GDS which is important from a productivity perspective.
“We’ve got mixed feedback [from the agency community,]” Bureau said. “Those agencies who are more focused on corporate and have a high penetration of Flex and above, understand there is a benefit to both of them – us and the consumer.
“I would say smaller agencies that have relied on finding the lowest price for their customer are the ones that are going to feel some pain, because they are not articulating the value of Flex and above. There is no loyalty from that customer – so you win or lose on lowest price,” he added.
Important distribution channel
Travel agencies represent a significant amount of Air Canada’s revenue, Bureau noted. He just returned from a business trip to India and pointed out that agency contribution to airlines is in the 90% range in that market.
There are differences between the North America market and India so the agency percentage of bookings for Air Canada isn’t nearly that high, he said.
A lot of sales in North America are generated by third-party procurement on behalf of large corporations like American Express, HRG, Carlson, BCD who are managing many of their key customers and corporate accounts, he added.
But Bureau stressed the important role agents play in Air Canada’s business.
Agents’ contribution
“A large portion of our revenue comes from the travel trade and we obviously value every single dollar that they help to generate,” said Bureau.
“The role of the travel agent in my view is really to make sure that they are articulating the value and the products Air Canada has on the shelf and being able to articulate why it’s important to buy a Flex [fare] and what the benefit of a Flex or Latitude fare is rather than just price,” he said.
“I can sell based on price on my website all day long, [but] a partnership and a distribution partnership is about making sure we’re articulating the value of the product to the consumer.”
“Selling the type of fare Air Canada wants agents to sell means more of a revenue opportunity for both parties,” he added.
More cooperation
A major objective for Bureau since he took over ten months ago is fostering a better relationship with the trade. Bureau joined Air Canada last spring after senior management stints at Malaysia Airlines and WestJet Airlines.
He cited the airline’s Circle of Excellence programs and other incentive programs. The carrier has also given its sales team more training and tools to deal with the trade.
A big change that should help agents is in the group market, said Bureau. He believes group business should come through the trade so Air Canada is no longer accepting consumer-direct group inquiries. Callers are encouraged to book through agents.
Air Canada last week announced that agents can earn 5% commission on any group booked on all fare types for Domestic Canada and Transborder itineraries made on or before March 4, 2015.
The airline earlier this month also announced a new enhanced partnership with ACTA to develop a Learning Management System designed specifically for agents. As part of the partnership, Air Canada and ACTA will jointly develop various travel industry initiatives.
