Mumbai: Indian travel agencies, which employ nearly one million people, could soon see a major earning drying up if airlines decide to do away with commissions they pay on tickets the agents sell.
According to a person close to the development, domestic and international airlines are holding informal meetings to finalize a strategy to pay no commissions to cut costs, with “an Indian full-service airline leading the charge”.
The civil aviation industry, beset with fierce competition and high fuel costs, currently pays travel agents 5% on the base fare that excludes taxes, down from 9% only a few years ago.
Private carrier Jet Airways (India) Ltd’s chief executive officer Wolfgang Prock-Schauer said the US, Canada, western Europe, some countries in West Asia and Singapore do not pay commission on tickets to travel agents, who now charge a transaction fee from customers.
“Since 1998, travel agents worldwide are moving towards a zero percent commission regime. Indian travel agents should also focus on service fee from their customers rather than on commissions,” Sudheer Raghavan, chief commercial officer at Jet Airways, had said earlier this month.
P.K. Gupta, executive director of sales and marketing for National Aviation Co. of India Ltd, that runs Air India, said he was not aware of any such move, but “will try and adopt international practices on its own in cutting distribution cost.”
However, travel agents are unmoved with this latest development as 85% of the business is done through them and they claim that they are “aware about airlines’ secret agenda”.
Flying economy: An airlines counter at the IGI airport in New Delhi. The civil aviation industry, beset with fierce competition and high fuel costs, pays travel agents 5% on the base fare, excluding taxes. (Madhu Kapparath / Mint)
“Airlines just cannot forget that travel agents are an integral part of their business. We are happy to have a constructive dialogue with them in this regard, considering they are facing burdens of rising costs, especially of jet fuel,” said Ajay Prakash, national general secretary of Travel Agents Federation of India, a trade body.
Prakash said the airlines should ensure that travel agents are compensated through a service or consultancy fee, which could even be levied from customers.
Another senior travel house representative, who did not wish to be named, said agents are planning informal talks with the airlines, including international carriers, in the next 10 days.
“It will not be that easy to do away with the commission without discussion and alternatives,” he said.
Anoop Kanuga, director of Bathija Travels Pvt. Ltd and chairman of the western region of Travel Agents’ Association of India, another industry association, said agents are now transforming themselves to adapt to a lower commission regime. “Apart from air tickets, agents are now into car rental, tour packages, hotel bookings and various other things.”
R. Ramanunni, who launched travel agency firm Pushpak Tours and Travels seven months ago, said, “This will make life of small travel agents miserable. Big travel houses can survive since they can adjust the losses in big tour packages and hence, secure incentives from airlines. We will be forced to impose a service fee of Rs100 per ticket in domestic and Rs500 in international sectors.”
“We currently charge Rs100 as transaction fee on tickets sold for low-fare carriers, which do not offer any commission. Certainly, we will lose individual customers, who will gradually go for direct online booking. We will have to solely depend upon corporate customers,” Ramanunni said.
Naresh Goyal, founder and chairman of Jet Airways, the country’s largest carrier by passengers, said early this month that Indian carriers will lose nearly $1 billion, or Rs4,000 crore, due to high fuel prices and cut-throat competition.
International Air Travel Association, a global association of 240 airlines comprising 94% of scheduled international traffic, said the spike in fuel prices is expected to add $14 billion to the industry’s fuel bill, driving it up to $149 billion. The calculations are based on an average price of $78 per barrel.
Edward Kennedy, who works with a multinational oil firm in Saudi Arabia and travels frequently to Mumbai and Chennai, said he will book tickets online than depend on his travel agent if he charges him a service fee.
“Why would I pay additional charges to my travel agents if I can get a better deal by surfing the Internet?” asked Kennedy, who has an agent booking his tickets now.