Did the airlines make a mistake in removing commissions?

Back in 2002 Scandinavian Airlines decided, as one of the first airlines in the world, to stop paying commissions to travel agents. The airline bosses of IATA thanked SAS for being so brave and patted each other’s backs and followed suit. Today commission payments are history in most of the developed world and they are not likely to ever come back – or will they?

The airlines have been cutting distribution costs for a little more than a decade now. And in the process, while saving money, they lost something more precious – control.

Giving up the control of price was probably not a big issue in 2002, the impact of saving 5-7% appeared to be of higher value. But that cost advantage was eaten up many years ago.

When airlines stopped paying commissions they in fact allowed any agent to sell their tickets at any price.  As long as the agent has some sort of ancillary service they can sell at a profit, they can sell the airline ticket at a loss.

In 2009 everyone use the Internet to shop for the best price. Selling a commoditized product on a transparent market means one thing – PRICE MATTERS. If you can’t control price then you can’t control your product.

With most online travel agents now removing service fees, there’s little incentive using airline direct websites, especially since the fares often are more expensive than online travel agents.

I still believe that most online travel companies are better at taking care of their customers than most airlines. I also believe the agents should be incentivised for the job that they (we) do.

You see, what most people fail to realize is that millions of travel agents ARE in fact smarter than a few airline executives.

With an aviation industry in tailspi.jpgn I think it’s time to revisit the stroke of madness to stop paying commissions.

Our Readers Comments

  1. Interesting comments, considering that the service fee on the Travelstart is completely hidden. A service fee is mentioned as “(incl. all taxes and service fee)”, but the price breakdown shows one price for the ticket and 0 for tax. The service fee is mentioned again under extras as “(incl. all taxes and service fee)” and again shows 0 if no extras are included. Just when you start wondering whether it’s too good to be true, you see “(incl. taxes and our handling fee of R49)”. This time no mention of service fee.
    The site does not specifically state that it only charges the R49 handling fee, but by combining it with the tax and showing zero and then with the extras showing zero, it uses misdirection in the same way that magician does. The amount charged as service fee is only displayed after payment is confirmed, then you see that it is 20% of the price of the flight.
    To crown it all, Travelstart does not even make a booking. If you look at your bank statement, you see that you transacted with the airline, and Travelstart makes an extra deduction the following day.
    When looking at this situation in the context of the commission that you have mentioned, what am I to believe?

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