Nacil faces litigation on commission issue

Nacil faces litigation on commission issue
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First Published: Thu, Aug 07 2008. 09 52 AM IST
Updated: Thu, Aug 07 2008. 09 52 AM IST
New Delhi: A travel agent lobby group has moved court against National Aviation Co. of India Ltd, or Nacil, the state-owned company that runs Air India, challenging its decision to stop paying commissions on ticket sales starting November.
The case, filed in the Kerala high court on 7 July by Iata Agents Association of India, or IAAI, alleges breach of contract by Nacil.
Iata is short for International Air Transport Association, a global aviation industry group.
Air India and Indian Airlines were merged last year into Nacil, combining the overseas and domestic carriers.
The IAAI case is based on an April 2005 letter sent to it by P.P. Singh—then Air India’s regional director and now chief operating officer of Nacil’s international low-fare subsidiary Air India Express— committing to pay a 5% commission on tickets for four years between 1 May 2005 and 30 April 2009.
In June, the group received a letter from Air India on its plan to cut the commission to zero starting November.
“This is illegal and contrary to the written assurance given to us by Singh in 2005,” said Biji Eapen, president of IAAI, which counts nearly 600 out of 2,800 travel agents in the country as its members. “Even the government will lose money if zero commission is implemented, as the government makes 12.36% in service tax from these commissions as well as 11.33% income tax on (commission) revenues.”
Other airlines such as Jet Airways India Ltd and Kingfisher Airlines Ltd, too, plan to do away with commissions on 1 November.
A senior Nacil executive, who asked not to be identified because the matter is in court, confirmed the company has responded to the litigation.
“We will fight the case,” this official said, adding several issues will be taken up with the travel agents as the airline industry faces losses because of record fuel prices and falling passenger numbers.
The 2005 understanding for 5% commission was with the erstwhile Air India and not with Nacil, which includes Indian Airlines, the official said.
Air India’s losses are estimated at more than Rs2,000 crore for the fiscal year to March. Its accounts for the fiscal year have not yet been finalized. The carrier is seeking a bailout package from the government estimated at Rs2,300 crore.
For the airlines, the savings from not paying commissions to agent could be substantial. For example, on a Mumbai-New York-Mumbai non-stop flight with an average business class fare of Rs4 lakh, a 5% commission amounts to about Rs20,000.
Nacil, which recorded Rs16,510.84 crore in revenue from Air India and Indian Airlines in fiscal 2007, makes 80-85% of ticket sales through agents.
The percentage could be lower for other airlines, which have been aggressively marketing tickets online.
IAAI may boycott the sale of tickets of all airlines that will implement the zero commission regime.
“We have asked for a recommendation from all our members, who have time till 11 August,” said Harjit Singh Chawla, director for the western region at IAAI and proprietor of SpeedAir, a New Delhi-based travel agency. “We will then have a national committee meeting to chalk out the course of action...”
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First Published: Thu, Aug 07 2008. 09 52 AM IST