Direct Airline Commissions: Playing the Game

(continued from Part II: Are Airlines Open to Working with Agencies of all Sizes?)

What do agencies that don’t fit into any of the models mentioned do to get a piece of the airline commissions pie? Some affiliate with agencies that have agreements.

“A lot of little agencies that have airline business but couldn’t really survive on their own, they’ve now become independent contractors to larger organizations, Protravel, Altour, Tzell,” McClure said. “Those guys have done a pretty good job of aggregating independent agents under their umbrella. The airlines view it as going to one Host agency that hosts many independent contractors and they only have one point of payment and it becomes the agency’s responsibility to properly compensate all of those high-yield independent contractors within the larger organization.”

One such agency is California-based Elite Travel International, which aligned itself with a New York-based agency and now serves as the company’s west coast affiliate.

Before Elite Travel International affiliated with the New York agency, president Stacy H. Small had booked many tickets on a particular legacy carrier, often in the front of the plane, frequently on international flights. But the airline had never taken note before.

According to Small, after the carrier found out about her new affiliation with the New York agency, with which it has a direct agreement, an airline sales rep called to introduce himself and let Small know if she ever needed anything she should contact him.

Small, who is an independent home-based travel seller, was pleasantly surprised. “The high-dollar commission contracts are reserved for the airlines’ top agency partners,” she said. But that doesn’t mean smaller agencies or home-based travel sellers can’t get in on the action. They just need to approach an agency that produces a high share of the market for an airline about a possible affiliation, she said.

According to Ruden and McClure, some agencies with such affiliations are approaching a gray area that is not always totally legal and, even when legal, airlines do not always approve.

“This has been going on for a very long time and one has to wonder whether the airlines will tolerate it much longer,” Ruden said. “From an airline’s point of view it can be argued to be an illusion if the business of each agency separated out isn’t resulting in any increase.”

While the airlines have turned a blind eye to the practice so long as the partnerships deliver market share, McClure believes the industry will see some of these Host/airline agreements broken within the next 12 to 24 months. “The airlines really don’t want to pay for this in the first place, but they’re very willing to if they can show value. But I think the airlines are going to realize that they are paying for business that they really don’t have to pay for, that they would have gotten anyway,” he said.

Valued Partners?

According to Bishins, the agency/airline direct partnership agreements are a result of the maturation of the agency/airline relationship. “I think, over time and given the maturity of the marketplace, airlines have realized that the travel agency distribution channel, which includes large travel management companies as well as small retail agents, is a very valuable channel. And that needs to be nurtured in some fashion to meet the revenue objectives every airline has,” Bishins said.

Again, ASTA’s Ruden disagrees.“I haven’t seen any major movements that suggest to me that airlines as a whole have suddenly awakened to the value of travel agents. I don’t see anything to suggest that the airlines have travel agencies in their long term vision,” he told Travel Market Report.

He did say there are some isolated cases, in particular airlines that have come back into the ARC system because they see the value of agents’ business.

When asked if they felt valued by their airline partners, Turner and McClure were lukewarm in their assessment.

“I feel valued,” Turner said, but later added, “I won’t say the airlines do a fabulous job of making us feel valued, but they do provide us with a live human being – our sales manager – to help us through issues.”

After a short burst of laughter, McClure told Travel Market Report he sees his value to the airlines but isn’t sure what the airlines think. “Without a doubt they see value and the carriers clearly reward that value. Do they enjoy that value? Maybe they do because obviously they’re getting a disproportionate market share, but on the other hand they would rather have that business direct.”

Whether the airlines value their travel agent partners or not, they do recognize the value the travel sellers present.

“Call it whatever you want,” Turner said. “The agencies that produce for a carrier are getting paid by that company, or they’ll go to another airline. And agencies still move enough business that it does matter.”

What do you think? Feel free to email your comments and experiences to editor@travelmarketreport.com