Airlines Slash Travel Agent Commissions

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Many international airlines are about to slash the commissions they pay to Australian travel agents by as much as 80%, upending the traditional business model of travel agencies.

From tomorrow (1 July 2022), airlines including Qantas and British Airways will reduce the base commission paid to travel agents via Billing and Settlement Plan (BSP) on international bookings departing Australia from 5% to just 1%.

Air New Zealand is also reducing its base commission on long-haul flights from 5% to 1%, while removing commission on short-haul flight sales entirely. Meanwhile, Malaysia Airlines is about to halve the commission paid to Australian travel agents from 4% to 2%.

From 1 October 2022, Singapore Airlines, All Nippon Airways (ANA) and Japan Airlines will also reduce the base commission paid to travel agents for Australian bookings to 1%.

It is possible that some airlines will continue to offer additional “back-end” incentives beyond the base commissions to travel agents who sell a certain volume of flights on their airline. But overall, these changes are going to hurt travel agents a lot.

Australian travel agents already generally earn no commission on domestic bookings, or for bookings where the first flight originates outside of Australia. Qantas also does not pay commission on trans-Tasman bookings.

Virgin Australia continues to pay 2% commission to travel agents on international short-haul bookings and 5% commission on international long-haul bookings, except on Economy Lite tickets and the three cheapest Economy Choice fare classes.

Other airlines including Air Canada and Finnair continue to offer 5% commission to Australian travel agents. In fact, Air Canada has publicly stated that it has no plans to reduce this.

How do the airlines justify reducing travel agent commissions by 80%?

Qantas was one of the first airlines to announce in May 2021 that it would slash the agent commission paid on international bookings from 5% to 1% of the ticket sale price. At the time, it said:

Qantas will work with the agency community to develop ways to evolve their business models and grow again. This will also include collaborating with the Government and industry as travel bubbles emerge and working on digital health passes, all of which will benefit the industry in accelerating sales when international travel resumes.

It is expected this change will likely accelerate the growing industry trend towards a “fee for service” model that has already taken place in many markets overseas and among several agency chains in Australia.  This compensates travel agents for the added value and bespoke service they provide customers beyond the logistics of booking, particularly for managing complex itineraries.

Singapore Airlines advised travel agents of its changes in January 2022. At the time, the airline’s General Manager of Agency Sales told travel agents:

The decision to reduce BSP commission has not been taken lightly. It has been influenced by a number of factors, including the highly challenging operating environment, a need to better align to the local, regional and global market conditions, and SIA’s focus on adopting, and investing in new technologies. These technologies will provide new selling opportunities for our trade partners, while delivering an improved experience for our mutual customers into the future.

SIA recognises the impact this decision will have on our agency partners and is committed to ongoing engagement with key partners in the months ahead in preparation for the change.

Malaysia Airlines, which only advised travel agents of the change with less than a month’s notice, said the reduction in commission was necessary “in order to remain competitive in a tough post-pandemic market”.

How are travel agents responding?

These cuts come at a time when travel agents are more useful than ever as they help clients navigate complex travel requirements and deal with airlines that are taking hours to answer their phones.

Obviously, many travel agents are unhappy about this as airline commissions have traditionally been one of their main sources of revenue. Many have not traditionally charged extra fees to their clients for their expertise and time, as they have made money on the airfare commission instead. But the commission earned on many airfares will no longer be nearly enough for agents to pay the bills.

Predictably, the Australian Federation of Travel Agents (AFTA) has expressed great disappointment about these changes. But the reality is that travel agents lack the bargaining power to change the much larger airlines’ minds. These changes were imposed on travel agents unilaterally, whether they like them or not.

Ultimately, the slashed commissions have forced many travel agencies to rethink their business models and focus on ways of generating revenue other than base commissions from airlines. For example, travel agents may start pushing more package tours, airport transfers, hotel bookings, cruise bookings and travel insurance sales, which attract much higher commissions than airfares.

Many travel agencies have also been forced to introduce or raise their service fees for flight bookings.

Some travel agents say they will no longer book passengers on Qantas flights due to the very low commissions and increased hassle of dealing with Qantas compared to other airlines. It would not be surprising if more agents also start actively discouraging bookings on other airlines that pay no or low commission, while pushing airlines offering higher commissions. Ultimately, this could harm the airlines that have chosen to slash base commissions more than it helps them.

 

You can leave a comment or discuss this topic on the Australian Frequent Flyer forum.

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Matt Graham
The editor of Australian Frequent Flyer, Matt's passion for travel has taken him to over 60 countries… with the help of frequent flyer points, of course!
Matt's favourite destinations (so far) are Germany, Brazil, New Zealand & Kazakhstan. His interests include economics, aviation & foreign languages, and he has a soft spot for good food and red wine.

You can contact Matt at [email protected]ntflyer.com.au

Community Comments

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I assume this doesn't reduce the price if you purchase tickets on these airlines directly..

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can people that book from travel agents now contact the airlines directly to solve issues then?

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can people that book from travel agents now contact the airlines directly to solve issues then?

I think it's still status quo...

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This is the same as the financial advice business. They had to evolve to a fee for service model when commissions were banned. I disagree with Matt - if agents stop recommending airlines because of commission they will lose credibility and business. Better to evolve to being open about where commissions are earned and not and charge a fee for service.

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Qantas wants travel agents to be free customer support for them, while paying them almost nothing.

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But there are a few TAs that now will recommend other airlines over QF. The problem for QF is that what they are telling their clients is the truth. A lot of better airlines than QF out there.

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I assume this doesn't reduce the price if you purchase tickets on these airlines directly..

No, they've slashed our commission and in many cases (Qantas) hiked up the fares that the consumer will pay.

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Qantas wants travel agents to be free customer support for them, while paying them almost nothing.

Qantas, like any other travel provider, wants people to book direct.

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Qantas, like any other travel provider, wants people to book direct.

Yes, but sadly I don't think they've allocated the staff to deal with the incoming calls. Their wait times now are horrendous and they will only get worse as agents elcet not to sell them and clients have to deal direct.

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I assume this doesn't reduce the price if you purchase tickets on these airlines directly..

Correct.

can people that book from travel agents now contact the airlines directly to solve issues then?

No, you will still need to go via the TA, at least for the first sector. For me, thats the tremedous advantage of using a TA - they fix issues along the way. Like drron, I've had a magnificent TA for 15 or so years now. A number of times I've offered to pay a fee for an itinery preparation because it was complex and i changed it a couple of times. Always declined. Maybe not in the future, but i'd still happily pay it.

And they know not to offer me Qantas internationally these days unless its unavoidable.

Welcome to AFF @LizC . As a TA you have a number of friends here (and equally, those who are keen on DIY :) )

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