Canada Agents Adapt as Commissions Shrink

In the face of shrinking commissions on Canada’s traditional package holidays, savvy travel agents across Canada are looking to higher-margin products to boost their earnings.

It seems both the large consortia and individual agents have figured out that much as clients might want fly-and-stay package holidays, it is not worth agents’ while to sell these products unless the client insists.

Travel professionals told Travel Market Report that rather than sell commoditized packages, they’re now steering clients to bespoke holidays, coach tours, river cruises and other higher-paying products. (See sidebar.)

Charging service fees and catering to luxury travelers and the group market are also playing a growing role for successful agencies.

New directions
Muriel Lee, CTC, ACC, of CruiseNet Tours & Travel in Oakville, Ontario, is one agent who has moved away from selling Canada’s traditional package holidays.

Lee said it was when cruise commissions started to shrink, due largely to rising non-commissionables , or NCFs, that she began to rethink her strategy. “There was no point fighting it, so we decided to change our direction completely,” she said.

“We began to move our agency to product that the consumer could not easily purchase online or that was at a price point that warranted consultation and advice from us,” she said.

“We do not put any effort into promoting or offering all-inclusive sun destination [packages], unless our existing client base requests it.”   

High-yield products
Lee said her agency looks for travel products that have a high yield, good customer repeat rates and are exciting to sell.

“We constantly train ourselves on new and exciting products and enjoy presenting them to our clients, while at the same time working with those suppliers in attracting and building new client bases,” she said.

While there are lots of wonderful travel products out there that can offer good yields for agents, agents must keep evolving, Lee said. “After 30 years in this business, the challenges have never stopped, just changed.”

Charging higher fees
At Ensemble Travel Group, co-president Lindsay Pearlman said he sees more agents commanding respectable service fees for putting together complicated FIT itineraries.

Canadian agents are charging anywhere from $200 to $500, especially those who specialize in wedding groups, exotic honeymoon itineraries and adventure travel.

“Young customers are quite willing to pay a fee for a travel professional when they need one. Yes, they book on line, but not for Cambodia or somewhere like that,” said Pearlman.

Agents are also focusing on high-end products such as river cruises that pay good commissions, Pearlman said, noting that river cruises pay as much as 16% to 18%.

“We find luxury numbers are way up. People will pay for the right products, and a travel professional is key to those sales,” he said.

Cyclical supplier strategies
Regarding reduced commissions, Pearlman agreed that margin suppression has been going on for the last seven years, at the same time that suppliers have increased their direct-to-consumer sales.

But he doesn’t see suppliers turning away from agents because of costs. “Yes, suppliers have increased direct sales, but with that increase came increased operational costs. I think suppliers have recognized that they need both channels and that both channels have costs attached.”

In fact, Pearlman said, he sees suppliers, including cruise lines, turning back to travel agents. Even some cruise lines are reducing NCFs and even paying commissions on NCFs, he noted. “It is a question of supply and demand.”

“These things go in cycles,” Pearlman said of suppliers’ distribution strategies. “If you want to sell a product that is not commoditized, then you have to pay a travel professional to sell it for you.”  

A positive side to lower commissions?
Pearlman also suggested there is a positive side to the lowered commissions on packaged holidays – it has put a stop to rampant discounting.

“Agents used to get paid 15% and were forced to discount up to 13% in order to compete with the discounters. I have been saying for years that agents actually make more on packages now that discounting has been stopped.”

Broken commission model
Richard Vanderlubbe, president of tripcentral.ca, which encompasses a large OTA, a call center operation and bricks and mortar agency locations, said he sees a problem with the supplier commission model altogether.

“The problem with the broken commission model is that it only rewards the shopping and booking portion of the consumer buying cycle,” he said. “Travel agencies play a significant role in the marketing of travel product in earlier stages of the consumer buying cycle and are not rewarded for it.

“For example, agencies in high-rent malls are promoting destinations and products as well as distributing sales brochures and material. Agents speaking to prospective customers in these high-rent locations may contribute to selling products but may not book it,” Vanderlubbe said.  

“This happens a great deal where traditional agents dispense product knowledge in advance of selling, only to have consumers book online or with call centers.”

As a result, traditional agents need to charge service fees to make up for costs associated with promoting products they don’t end up selling. But even service fees aren’t a solution, he suggested. “The problem is, again, they only collect it when they make a sale.”