You plan a fantasy vacation abroad. When you buy the ticket, you're also financing a 7-percent commission that the airline has to pay the travel agent. But that may change soon.
Lufthansa and Swiss are pioneering a small revolution. Next week they'll be announcing an end to the practice of paying commissions to travel agents for ticket sales. As of 2008, the companies officially will be telling the travel agencies: It's over.
The two carriers may be the first to do the deed, but they won't be the only ones eliminating commission payments.
Nor were they first to announce the revolution: back in May 2007, British Airways informed the agencies in Israel that it was going to stop charging passengers commission transferred onward. The Israel Tourism and Travel Agents Association reacted with sufficient vigor to stymie the change. British Airways' manager in Israel, Yael Katan, says the issue is now before the parent company's legal counsel in London, before it actually is instituted.
British Airways was followed by other foreign carriers, including KLM and Air France. Not all the carriers are involved: Delta, for one, doesn't mean to change its financial relations with travel agents, says its manager in Israel, Esti Hershkowitz. Delta pays the regulation 7 percent and rewards for sales beyond the target. Nor are El Al and Arkia on board with the reform.
Be that as it may, if the airlines merely collect the money from passengers and pass it on to the agencies, why do they care?
They care because the airlines have to book the commissions paid to agents in their balance sheets, under cost of sales. By abolishing the commissions, these carriers, which are under threat from no-frills airlines, hope to improve their profitability, based on "net" pricing models used, for instance, in the United States and Europe.
Will you save money if the agent's fee is excluded? That depends on the travel agent. They will indeed quote you the net price of the ticket, but then they'll be free to charge whatever they please as their commission. That will be their income, after all.
So, you say, why not bypass the agent and buy directly from the airline? Well, to make sure that the airlines aren't given an unfair advantage, they'll be slapping on a handling fee for clients who buy directly or through their Web sites.
What does the Tourism and Travel Agents Association say? Its manager, Kobi Karni, calls it "a change in behavioral patterns" that will result in a specific fee for every action by a travel agent. Updating a reservation, renting a car, buying a train ticket -- each will bear a commission.
Planetto, one of Israel's three biggest travel agencies, also means to collect such lost income from travelers. The chain's manager, Amos Sri Levy, says that assuming all the airlines stop paying commissions to travel agents, and that other suppliers -- hotels, car rental agencies and so on -- scale back their commission payments, too, the chain will have to collect the difference directly from clients.
Sri Levy notes that 95 percent of ticket sales are effected through agents. "If the agents don't sell tickets for airlines that refuse to pay commissions, the companies will rethink the policy," he says.
Amsalem Tours has a specialty line in corporate travel accounts and knows the knotty issue well. The company, which has 400 employees and an annual turnover of some NIS 155 million, handles several destinations for which prices are charged in net terms, meaning it can't collect agent's commissions. "It requires us to price things responsibly, to match our production costs," says Yaakov Amsalem. "And when people price things themselves, they price them higher."
The bottom line is that you'll be paying more, the agents say. "Even if the airlines cut ticket prices by, say, 2 to 4 percent, (the discount) won't last long," says one sector source. "They'll jack up the price again and the only thing that will disappear are the commissions."
Stuff and nonsense, say the airlines: Market forces will come into play. "It's too soon to say that travel will cost more. The final price the consumer sees will be a function of the ticket price, which changes between peak and off seasons, and the handling fee," says Avner Gordon, chief executive of Swiss Israel. "The agent can set his handling fee however he wants, based on the character of the client. The agent will control his own income, independently of us."
Prices will be a function of supply and demand, agrees Ofer Kisch of Lufthansa Israel. If anything, he foresees that the service people get from their travel agents will improve. And anyway, unless El Al is on board, he doesn't see what the big deal is. "First let's talk about El Al," he says. "It's the national carrier with 50 percent of Israel's aviation market. The foreign airlines have barely a few percent each. They won't be changing the face of the industry here."
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