Watching Commissions Shrink in Canada

Canadian travel agents who sell package holidays have taken a steady beating in recent years, as suppliers have slashed agency commissions as they become more successful with consumer-direct sales.

Not so very long ago, Canadian tour operators paid travel agents a 15% base commission on package holidays, and preferred supplier marketing override agreements could bump the number as high as 18%.

But those commission levels are long gone, having eroded steadily in recent years.

About seven or eight years ago, Canada’s vacation package suppliers migrated to a two-tiered model, paying agents 15% for advance bookings and just 8% for bookings departing within a shorter time frame.

Then, over the last three to four years, all the major package tour operators chipped away at commissions on advance bookings.

5% to 8% commissions
Today, agents selling Canadian suppliers’ package holidays generally earn 8% – and as low as 5% – regardless of the booking window. (There are occasional exceptions, where suppliers pay up to 10% for certain products in certain markets or based on performance.)

As one tour operator put it, “[cutting] distribution costs remain an opportunity for tour operators, depending on how successful they are at selling their product through direct channels.”

At Sunwing, said Deana Murphy, vice president of sales, “the regular commission is 8%. But for Sunwing Vacations the agents also earn personal Star Points that can be redeemed for cash.”

Short-term bump
Some tour operators, including Transat Holidays, Air Canada Vacations and Sunquest Vacations, dabbled with paying agent commissions on fuel surcharges, fees and taxes for a while in 2012, but those deals are now off the table.

So while package prices are displayed to the consumer inclusive of taxes and fees, agents are not paid commission on taxes and fees.

Overrides gone too
Also gone are those marketing overrides to agencies’ head offices, which at one point pushed commissions up to 18% and even as high as 20% to selected top performers.

Now, Canada’s package holiday suppliers might pay another 1% to good performers, several tour operators told Travel Market Report in off-the-record conversations. (Most tour firms declined to be quoted for this article.)

The only exception to suppliers’ lower commission levels and tight override policies appears to be in certain markets where a dominant regional agency chain can influence sales enough to demand a higher commission.

Making it worse
Another phenomenon that has developed in the absence of lucrative supplier marketing override deals is that some travel agency chain and consortia head offices now keep a point or two of commissions, so that agents are earning less than the tour operator actually pays.   

“Head offices used to be funded by the overrides, but now that those have largely disappeared or been significantly reduced, some head offices are instructing tour operators to pay a point or two directly to them off the base commission,” said one tour operator who asked not to be named.

Prices are up, but . . .
In a bit of good news for agents, selling prices were up slightly this past winter over the previous winter. But even that is misleading as it is largely due to the drop last winter in the value of the Canadian dollar against the U.S. dollar.

Average selling prices last winter for sun package holidays to Mexico and the Caribbean varied from about $1,150 to $1,500 per person, up by about $40 to $70 over the previous winter.

. . . not for the summer
However this summer promises to be a bit of a blood bath when it comes to prices, reducing travel agents’ commission earnings to dangerously low levels.

There seems to be a price war building, especially in certain markets, such as Las Vegas, where Westjet and Air Canada rouge are pricing their product very aggressively.

Agents have already seen sun destination package holidays selling this summer for less than $100, per person, plus taxes and fees that are more than the selling price.

Winter outlook
On the bright side, agents can expect prices for winter packages to rise, though this is in part due to the weakened Canadian dollar.

Another contributing factor is the strengthening of other source markets like the U.S. and Europe, which is increasing demand for popular destinations such as Cancun and the Mayan Riviera, Punta Cana and Jamaica.

Going forward, Canadian tour operators will be competing with resurging markets for rooms, and that will push up prices and with them, barring further cuts from suppliers, travel agent commissions.

Next time: Agents weigh in on the issue.