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.
United Airlines to Lower Agent Commission to 3 Percent - Transition
to Zero Percent Commission Imminent
Mid-May 2008
United Airlines (UA) decided to reduce its agent commission for
tickets issued in Japan on and after July 1 and informed the travel
agents to that effect on May 2. In September 2006, Northwest Airlines
opted to become the first airline ever in the Japan market to reduce
the agent commission from 7% to 5%. This time, United Airlines has
taken a lead over other airlines, paving the way for an eventual zero
percent agency commission within the Japanese travel industry.
According to several travel agents, United Airlines has
simultaneously notified its travel agents of the reduction both in
writing and in conversation on May 2 without ever sounding them out
on the reduction of the agent commission.
The notice reads, "With the rising operational costs due to the
ever soaring fuel prices, we, United Airlines, strive for
company-wide cost-cutting measures in an effort to continue to ensure
the scheduled flight operations for our customers and travel agents.
We kindly ask for your understanding for the reduction of the agency
commission as part of our cost reduction measurements." Thus, the
airline points out an extreme uncertainty surrounding the airlines as
a main reasoning behind the reduction of the agency commission. The
airline's sales representatives are reportedly calling on the travel
agents for further details.
Unlike in 2006, no particular harsh comments have been expressed
by the travel agents. Many travel agents share more or less the same
opinion, citing, "The commission will anyhow be nil sooner or later,"
"The other airlines will follow suit," and "The current market trend
will be inevitable."
Some leisure-oriented travel agents said, "Following the
abolishment of the lowest price limit this past January, we have been
working on new package programs using PEX fares. With a focus on the
zero commission being practiced in U.S.A. and other countries, we
must get ready for the transition to 0% commission in order to keep
ourselves firmly established in the travel industry.
Other travel agents voiced their concerns that since normal fare
tickets attract mainly technical visit traffic and business traffic
from government offices, the reduced commission may bring a negative
impact on the normal fare traffic sales. With the impending changes
to the agent commission, some other travel agents commented, "We'll
have to see in the future whether we should consider offering our
customers the IT fares as well now that the PEX fares are expected to
become even lower.
On May 2, when United Airlines notified the travel agents of the
change, Theo Panagiotoulias, Vice President Asia & the Pacific of
American Airlines said during an interview by Travel Vision,
commenting on agency commission, "I understand that basically, it
helps our business partners (travel agents) to enhance their
distribution channels in favor of us, airlines." "What does our
commission really mean? Its meaning may vary from one airline to
another. In an effort to explain exactly what our commission means,
we, American Airlines, will talk to our travel agents to obtain a
dialogue with more transparency. However, we should not look back to
the past if we try to assure the success of our business." "Nothing
has been decided yet," he added.
*3% - what does it mean?
Commenting on the reduction by United Airlines, senior personnel
of a travel agent said, "Unless an incentive scheme like sales
incentive, overriding commission and volume incentive will be
offered, we fail to see any sales strategy by the airline."
Amid conflicting reports about the imminent reduction of the
commission, many travel agents only heard that, specifically, United
Airlines "will simply lower the commission." There seem to be only a
few travel agents briefed on a possible shift of 2%, which is the
rate of reduction, to the sales incentive scheme.
Primarily, the reduction of agent commission is a strategy with a
main aim of cost reduction. United Airlines Japan reportedly managed
"to hold it at the 3% level" when its head office had the intention
to go straight down to zero percent. While air fares tend to become
even cheaper, if United Airlines pays only 3% commission, and not any
sort of incentive scheme, the airline's future distribution strategy
will eventually give its travel agents no reward.
One travel agent, who revealed that a certain airline was also
considering the transition to zero percent commission, maintained
that IATA-approved agents expect both agent commission and incentive
scheme as a total package. If this is the case, the United Airlines
strategy seems to "lack direction."
Travel agents would naturally "shift to airlines other than
United Airlines. "The wholesalers in particular have no other choice
but to select other specific airlines for favorable deals, thereby
United Airlines would also select travel agents to which it offers
its incentive scheme.
The market has seen the same move when the commission was lowered
from 7% to 5%.Should this move accelerate, a retailer would start
choosing an influential major travel agent for each airline to secure
space. A wholesaler will not bean exception, either. The whole travel
industry will definitely face the impending changes more than ever.
In any case, the reduced agent commission of 3% would hit
directly the business traffic market segment. However, compared to
2006, the transition to zero percent commission will become more
imminent. Travel agents will quickly have to work on structures to
collect a management fee from the customers. Not only business
traffic, but also leisure traffic must seek new added value without
any delay.
In 2010, when the number of take-off and landing slots increase
at Narita, and Haneda becomes international, the capacity supply is
expected to boost. At the same time, a trend of "Open Skies" policy
has brought the travel industry an abolishment of the lowest tour
price level and a deregulation of sales of airplane seats.
Travel agents and airlines should redefine each positioning in
the market as a business partner, and by joining forces to find new
ways and means to boost mutual profit; they should prepare themselves
for the forthcoming implementation of the aviation Big Bang.
(J.Suzuki, Editorial Chief)
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