European travel agents need to start convincing airlines of their worth. The decisions by alliance partners Lufthansa and SAS, as well as KLM, to slash their agents' commissions are expected to trigger Europe-wide cuts, following the trend set by US carriers.

KLM plans to lower domestic commissions from 9 per cent to 7.5 per cent from 1 May. Lufthansa is cutting its domestic commissions from 9 per cent to 5 per cent in May, and introducing performance-related bonuses, including higher commissions for sales to destinations such as the US and Thailand. SAS will reduce its rates in the Scandinavian market from 9 per cent to 5 per cent from September.

British Airways, which first raised the issue of commission in the wake of the US carriers' initiative in early 1995, says it is monitoring industry developments. Other European airlines will almost certainly follow the downward trend. 'The moves are probably going to end the era of travel agency commissions in Europe,' says Peter Nordström at Andersen Consulting in Stockholm.

However, some airlines may fear an antitrust suit after the experience of US carriers, which in 1995 were accused of conspiring to fix commissions at lower rates and then concealing their agreements. 'SAS and Lufthansa could easily be accused of antitrust [activity] by the European Commission,' suggests one source. 'I'm surprised that the partners are taking such similar steps and not following a more differentiated process.'

Frank Wade of consultants SH&E says European airlines will go their separate ways in cutting commissions, unlike their US counterparts, because of the lack of homogeneity. European travel agents are dominant in their respective national markets, with differing rates of commission and loyalty to national carriers. Wade points out that European carriers face a different challenge because purchasing patterns prevalent in the US mean that passengers there are more likely to book tickets directly than their European counterparts.

Another consultant sees commission cuts in Europe as a case of 'tacit and not active collusion' by carriers. He points out that the carriers are rejecting travel agents in favour of emerging distribution methods such as direct sales and electronic ticketing. 'The contribution you get from travel agents just isn't worth it - it's a more expensive distribution form that may be impossible to sustain alongside other distribution structures,' he says.

Agents seem powerless to protest. SAS merely delayed the introduction of lower commission rates from April to September following complaints by the Norwegian travel agency association and a threatened boycott by Swedish and Danish agents. Unofficial threats by Dutch agents to sue KLM merely led the Dutch airline to scrap its original plan to offer differentiated commission rates linked to the value of the ticket sold in favour of the more popular lower commission rates.

Peter Nordström believes that most agents have not prepared themselves for the changes and advises travel agents to 'radically restructure if they want to avoid job losses'. He adds: 'Today's commission-based system of compensation will disappear and be replaced by compensation in relation to added value.'

One senior agency representative predicts more fee-based contracts, where the commission is passed on to the client, and direct deals are struck between corporate clients and airlines.


Source: Airline Business