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Airline No Commission

R.O.A.R.: Why no commission in India won’t work

Hector Dsouza  Apr 23, 2009

Am giving below a number of reasons why “no commission” will not work in India.

Firstly, airlines (in India) are creating preferred selling agents in the belief they will need to service fewer agents at a lower cost. This is incorrect because preferred agents will demand higher productivity linked bonuses for servicing agents and sub agents. As of today, PLB (Productivity-linked Bonus) is being offered by no less than six airlines out of Mumbai, which makes an absolute mockery of no commission to travel agencies. Why do airlines offer PLB when they are not willing to part with basic commission to a majority of agents? This vast majority of agents will have no recourse but to buy from preferred agents. In course of time higher commission will need to be dished out by the airlines. The net result will be the same. However, concentration too much of power with too few suppliers is not a healthy idea.

Secondly, if zero commission is being termed as a major success worldwide, how is it most airlines are suffering huge losses. Quite obviously pricing policies seem to have gone haywire. Close to half a dozen airlines in the USA and a couple of major airlines in Canada filed for Chapter 11 after the 9/11 attacks, zero commission was in force much before. Did this in any way help stem the losses? No it didn’t. In fact the biggest gainers were the consolidators who were earning as much as 20 percent on some sectors while the airlines were bleeding. Blindly following a policy that has not worked well in the western world should give the airlines sufficient ground to retrospect and think whether it is a workable model in the developing world.

Thirdly, by working selectively and forming small cartels airlines are being myopic in the manner they are viewing the future of this fluctuating industry. Many airlines are following the capitalistic model, which (if recent memory serves me right) has been the cause of the greatest recession in the history of the world, and has resulted in a 3 trillion dollar loss in the sub prime mortgage crisis itself. The reasons are not hard to find, unhealthy speculation, concentration on wealth in few hands, great desire to over speculate and belief that nothing will go wrong (remember AIG?). Have the airlines not learned from this major crisis? Absolute power (to a few) corrupts absolutely.

What would happen if a preferred agent went bankrupt? Instead of spreading risk, airlines are doing just the opposite. In a couple of years these airlines will be at the mercy of the wholesalers. If it is a ploy of airlines to buy time, so that, say, in a couple of years clients will be buying all tickets on the Internet, then they are sadly mistaken. While the Internet will definitely see buying and selling patterns changing, clients will definitely not give up the travel agent. In fact in North America, there are greater number of home based agents and brick-n-mortar travel agencies than ever before. The outside agent is still the major link between airlines and clients. We all thought movie houses would disappear, have they?

Airlines (in India) should try and cut down the competition between each other and arrive at workable prices instead of trying to overcome the competition with unhealthy pricing policies. Instead of “cutting the very hand” that brings in revenue, airlines should concentrate on forging better relations with travel agency community all over India. Simply following models that have not helped stem losses in airlines is not the best way to improve profitability.

And finally, airlines which have been making profits over the years have been doing so in spite of paying commission to travel agents. These handful of airlines are remembered for their network, punctuality, fleet age and reliability. They have been reaping profits in spite of paying commission to agencies.

Quite honestly the problem lies elsewhere. No commission to an agent who is an extended arm of the airline and who goes about supplying information, coordinating reservations, effecting payments, following up on delayed departures is no solution at all.

R.O.A.R.: Why no commission in India won’t work
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