Mumbai: Pushpak Tours and Travels, a travel agency, was launched by R. Ramanunni at a Mumbai suburb 10 months ago. Today, he also sells train tickets and stationery to various firms. And no, he is not diversifying by choice.
“I cannot survive by selling air tickets alone,” Ramanunni says. He earns 5% commission on every airline ticket he sells, but from October the airlines will stop even this. “I have four employees and planned to double the number, but that plan does not exist any more,” the new entrepreneur says.
Regi Philip, who runs Cosmos Agencies, a travel agency in Mumbai accredited by the International Air Travel Association, or Iata, has already handed out pink slips to five of his staff. “I will save at least Rs50,000 a month by reducing the number of employees.” Philip is diversifying into other travel-related businesses.
As domestic and international airlines are readying to stop paying commission to travel agents in India as part of their efforts to cut costs, agents such as Ramanunni and Philip are changing their roles—from sellers of airline tickets to tour consultants.
Diversifying: Online travel agents have started looking for alternative sources of revenue as airlines plan to scrap commissions from October.
“I book hotel rooms, arrange car hire and sell customized tour packages along with travel insurance. I have also started arranging passports and visa for my customers,” Philip says.
Industry experts say most small-time agents will be forced to shut shops but the bigger ones will not face any problem as they will earn special bonuses, instead of commission, from airlines by raising the volume of business.
There are nearly 3,000 Iata-accredited agents and at least 40,000 non-Iata agents in an industry that employs around 500,000 people across India. Less than 10% of them are big-ticket agents.
According to Ajay Prakash, national general secretary of the Travel Agents’ Federation of India, there is bound to be a shake-out. “When similar thing happened in the US early this century, 30% travel agents downed shutters. Here, if the airlines want to stop commissions, it should be done in phases,” he says.
Between 2003 and 2005, Australian carrier Qantas Airways Ltd had spent $600,000 (about Rs2.6 crore) to sensitize consumers when it stopped paying commission on domestic travel. Travel agents raised their service charges when airlines stopped paying commissions to them.
“Qantas still pays 5-7% commission for international tickets. It’s not correct that only Indian carriers pay commission. (Airlines in) countries such as Japan, Greece and Sri Lanka pay commission,” says Prakash. “Indian travel agents will definitely survive this crisis, but there will be pain.”
C. Venkateshwara Prasad, president of Travel Agents Association of India, or Taai says the smaller travel agents will start operating from home. These agents will also broad-base activities by handling tours for cruise ships or adventure spots, he adds.
Online travel agents, or OTAs, such as Ezeego1.com, Yatra.com and Makemytrip.com have also started finding alternative sources of revenue. “We took a strategic decision of shifting our focus to hotel booking model in mid-2006,” says Ashwin Damera, founder and chief executive of Travelguru.com. “Now online bookings account for 70% of all hotel stays through OTAs in India,” Damera says.
With airlines doing away with commissions, some agencies will fold up while others will add fees to their once-free services, Damera forecasts.
The focus will shift to volumes, according to Sandeep Murthy, chief of Cleartrip.com, another OTA.
According to Taai’s Prasad, in the zero-commission regime, travel agents will walk an extra mile to get customers a better deal. He also expects a consolidation in the market.
“Travel agents will find it difficult to stay afloat without commission but they will be around as airlines will have to depend on them to fill up their planes,” he says.
Meanwhile, Philip and Ramanunni are busy selling rail tickets and incessantly scanning opportunities to cut costs, much like the airlines.