Japan Travel Trade Weekly News
Keeping you abreast of what's going on in the
Japanese travel and tourism industries.
News consolidated by Travel Vision, Inc. updated every week.
Transition to 0% Agency Commission to Bring Drastic Changes to
Distribution Channel Including Retail Market; JTB Considers Strict
Observance of Transaction Fee Collection
Early-June 2008
Northwest Airlines has announced its transition to 0% agency
commission, following the notification by United Airlines, American
Airlines and Continental Airlines of the reduction of their agency
commission from 5% to 3% as from July 1.
Consequently, some concerns have already been voiced that the
other American airlines will follow suit after Northwest with a
transition to 0% agency commission from October this year. Regarding
the move by two major Japanese airlines that can influence the
market, there is a rumor circulating as well that "the 0% agency
commission will be introduced latest by next year."
The local market is concerned about when American airlines will
follow suit after Northwest Airlines and even more concerned about a
response by Japanese airlines which European and Asian airlines are
now closely monitoring. The possible transition to a lower agency
commission by the Japanese airlines attracts concerns about domestic
air tickets, let alone international air tickets. The eminent
transformation of a business model of travel agents may not only
affect business travel demand, but also ripple through Japan's whole
travel industry.
*Further Foreseeable Realignment Among Travel Agents
While the reactions from travel agents are not all that
favorable, as Bernier, NWA Managing Director Japan puts it, many
seemed to have voiced opinions that "They prefer the 0% commission to
the current 3%."
It must be noted, however, that there exist other standing
opinions such as "Unless all respective airlines join forces on the
said transition, it would otherwise be difficult to convince the
customers," and "We'll have to shift the business to other airlines."
The biggest question is whether or not the travel agents are
ready to collect transaction fees from their customers, many of them
voiced their concerns.
Should the travel agents continue the present business practice
which doest not call for service and transaction fees, it would be a
heavy financial burden on them, "causing a possible decline in the
profits with some travel agents quickly left by the wayside", it is
observed. In the near future, each and every travel agent will be
forced to build a new business model and embrace the further
alignment among the travel industry in order to survive the move to
0% commission.
An abolishment of the airline commission may bring a change to
the distribution structure among the travel agents. Consequently,
non-IATA retail agents will substantially be affected. The retail
agents so far get commission from the IATA licensed wholesaler. If
the commission from airlines is eventually scrapped, they may no
longer receive profits from the wholesalers.
On one hand, the IATA wholesale agents may join forces to
purchase seats from their respective influential airlines, hence some
predict, that even further alignment will be inevitable among the
travel agents.
The impact on in-house travel agents will not be an exception.
The financial results of many private sectors continue to suffer a
decline in the profits due to rising prices of crude oil and other
resources. They are becoming extremely cost-conscious, under which
circumstances the in-house agents tend to feel hesitant about
debiting "fees" to the parent companies. An in-house agent said,
"We'll simply watch how things will develop," monitoring the moves by
other airlines eyeing the Northwest decision and those by other
in-house agents.
*JTB Considers Strict Observance of Transaction Fee Collection
Over-The-Counter Sales
Following the transition to the 0% agency commission by Northwest
Airlines, JTB is reportedly considering a strict observance by every
sales counter to collect service and transaction fees from the
customers.
At every JTB sales counter, a table of tariff for transaction
fees is placed on the wall, but in reality, it is not necessarily
always possible to collect a ticketing fee from customers for issuing
international air ticket departing from Japan. According to the JTB
public relations office, some of JTB offices in Japan charge a
transaction fee of 5,250 yen to arrange for a ticket to be issued
overseas.
JTB says, "We are now undergoing a significant change into a
transaction-fee-business." All JTB counter sales offices, including
JTB Traveland, are said to be considering launching a campaign in
efforts to disseminate collection of the transaction fees from the
customers.
Yoshinori Ochi, Senior Managing Director, Kinki Nippon Tourist
has also indicated that the company will follow JTB to collect the
transaction fees. While commenting, "If the agency commission should
all become 0%, it would be easier to ask our customers for the
transaction fees," he maintained that "We must by all means avoid
price-cutting competition over the transaction fees," outlining a
direction for a future business model and urging a clear departure
from the current throat-cutting competition.
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