What do zero commissions mean for brokers

Zero commission - travel agencies soon only become brokers

TOURISM | GENIOS Industry Knowledge No. 07/2005 from 07/15/2005

Contribution

Since autumn 2004, scheduled airlines have stopped paying commissions. Now the holiday flyers also demanded zero commission, but were forced by the unanimous rejection of the travel agencies to maintain their sales agent status for at least another year. For how much longer?


Airline tickets cost extra

When Lufthansa announced the cancellation of agency commissions in the spring of last year, an angry outcry went through Germany's travel agencies, but otherwise not much happened. Since September 1, 2004, there have been no more commissions for most scheduled flights, as the other major scheduled airlines hurried to jump on the train started by Lufthansa and stop paying commissions. (1), (3)

So it is common today that the customer in the travel agency not only has to pay the flight price for a scheduled flight ticket, but also a service fee that is supposed to cover the costs for the advisory and processing services of the travel agent. This sales model has been around for some time in North America and Scandinavia and is now being adopted step by step by the scheduled airlines in Europe. The so-called net price model saves the airlines from selling costs in the tens of millions, and a hidden price increase can also be implemented. The campaign is intended to strengthen the competitiveness of the low-cost airlines and improve the earnings situation. (1), (2), (3), (4), (5)

Travel agencies charge between 30 and 50 euros for processing scheduled flight bookings, and often even up to 100 euros for intercontinental connections. A surcharge that price-sensitive customers in particular do not want to pay, especially since these fees are usually lower for direct bookings via the airlines' Internet portal, and often even completely eliminated. The neutral price comparison between the airlines, which is usually carried out in the travel agency, does not apply to internet bookings. It happens again and again that customers ask the travel agency for the cheapest flight and then book it directly on the airline's website without a service charge. (5), (6), (7)


Charter airlines demanded zero commission, but initially accepted piece commissions

Charter airlines are also coming under increasing (cost) pressure from low-cost airlines. The aim here is also to reduce distribution costs. Almost at the same time, at the end of April, the travel agency desks were canceled by the four largest German charter airlines. The associations sensed anti-cartel agreements and switched on the Federal Cartel Office. In mid-June, the offices of Hapagfly, Condor, Air Berlin and LTU were examined for indications of agreements. Because the demands of the vacation flyers were pretty much identical no more commissions but net prices as well as a change in the business relationship from the commercial agent to the broker. (5), (8), (14)

The holiday flyers are dependent on travel agencies as a sales channel. The charter airlines can fill two thirds of all seats through package tours from tour operators, the rest is sold as a single seat directly to end customers. Around 75 percent of single seat sales are made through travel agencies, for which they have previously been able to count on commissions of around ten percent of the flight price. (4), (9), [Fig.1]

The reaction of the stationary travel sales was overwhelming. Travel agencies joined together in cooperation gave their representatives general negotiating power and the German Travel Agency and Tour Operator Association (DRV) set up the sales coordination committee, which coordinated the negotiations with the charter airlines. Overwhelmed by the bundled and coordinated negotiating pressure of travel sales, the retention of the commercial agent status was accepted in new offers from the airlines and commissions of varying amounts were proposed. (10), (11), (12), (13)

Only Air Berlin is currently sticking to the broker model, but is prepared to pay incentives per flight route. Condor and Hapagfly have now made up their minds to give in to the main demands of travel sales. A corresponding offer is also expected from LTU. This means that in addition to maintaining the sales representative status, it is also accepted that the same prices are offered in all sales channels. The amount of the piece commission is still being negotiated, an agreement is foreseeable. However, all airlines have unanimously declared that the offers are temporary solutions and that the zero commission will definitely come on November 1st, 2006. (10), (11), (12), (13)


What's so bad about broker status?

The layperson wonders why travel agencies are so vehemently opposed to broker status. Because it would also mean that the travel agencies could then determine the price for which they offered the flights themselves. The reason is relatively simple: the proposed broker model would deprive travel agencies of all rights and, in addition, release the airlines from all obligations. The travel agencies would be exposed to the airlines' goodwill without a chance. The travel agencies are threatened with the omission of the source of income from commission payments, but in return they would have to charge individual service fees for their advisory services in the future, at which they compete with the cheaper Internet offers. In addition, brokerage commissions are generally subject to sales tax, which would entail further cost disadvantages for sales. The question of liability, for example in the case of short-term cancellations by the airlines, is also completely unresolved. (11)

Travel sales have grudgingly accepted that the holiday airlines want to change the sales model. Instead of being pushed into a broker position without rights, one prepares oneself internally for different dealer models. It remains to be seen whether the charter companies will like the fact that they will have to negotiate with purchasing associations in the future. (10), (11)



Case studies



Air Berlin has offered a brokerage model with which travel agencies are to receive an incentive of five euros for short-haul routes and ten euros for medium-haul routes (e.g. Canary Islands). However, this agreement is only to apply until April 2006 and then be renegotiated. Cancellations and rebookings should only be processed via a central call center in direct contact between the airline and the end customer. (13)

Hapagfly wants to pay EUR 7.50 for short routes and EUR 12 for medium-long routes. The handle proxy status is retained. From November 2006, however, the company insists on zero commission. (4)

Condor is also leaving it to the commercial agent relationship and has proposed a commission of seven euros for the short haul, twelve euros for the medium and eighteen euros for the long haul. Additional agency fees are expressly permitted. (15), (16)


numbers and facts

Figure 1: Top 10 airlines by number of tourist passengers 2003-2004 (ex Germany, single counting)



1) Condor puts the "pure" flight-only share at 27.5 percent

Source: FVW International

Taken from: FVW International 31/2004, page 26

Further reading:

(1.) O. V., Lufthansa cancels basic commission for travel agencies, Frankfurter Allgemeine Zeitung, December 9, 2003, No. 286, p. 13
from Frankfurter Allgemeine Zeitung, December 9, 2003, No. 286, p. 13

Further document

F.A.Z. Frankfurter Allgemeine Zeitung / Headline: Economy Department: Economy

Lufthansa cuts basic commission for travel agencies


Article (471 words)

for € 4.76

Abort



(2.) Noack, Hans-Christoph, the crisis of travel agents, Frankfurter Allgemeine Zeitung, August 30, 2004, No. 201, p. 15
from Frankfurter Allgemeine Zeitung, August 30, 2004, No. 201, p. 15

Further document

F.A.Z. Frankfurter Allgemeine Zeitung / Headline: Economy Department: Economy

The travel agent crisis


Article (763 words)

for € 4.76

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(3.) O. V., Lufthansa puts quality instead of price in the foreground, Frankfurter Allgemeine Zeitung, August 25, 2004, No. 197, p. 13
from Frankfurter Allgemeine Zeitung, August 25, 2004, No. 197, p. 13

Further document

F.A.Z. Frankfurter Allgemeine Zeitung / Headline: Company Department: Economy

Lufthansa focuses on quality rather than price


Article (702 words)

for € 4.76

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(4.) O. V., Hapagfly later cancels the holiday airline wants to initially pay commissions, Stuttgarter Zeitung, June 16, 2005, p. 14
from Stuttgarter Zeitung, June 16, 2005, p. 14

Further document

Abort



(5.) Wüpper, Thomas, The mouse click becomes more interesting for vacationers The cancellation of sales commissions puts the business model of travel agencies under enormous pressure, Stuttgarter Zeitung, June 17, 2005, p. 13
from Stuttgarter Zeitung, June 17, 2005, p. 13

Further document

Stuttgarter Zeitung / Economy

The mouse click becomes more interesting for vacationers


Article (657 words)

for € 3.21

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(6.) O.V., Cartel Office approves reduced online fee of Lufthansa, Frankfurter Allgemeine Zeitung, 07.01.2005, No. 5, p. 14
from Frankfurter Allgemeine Zeitung, January 7, 2005, No. 5, p. 14

Further document

F.A.Z. Frankfurter Allgemeine Zeitung / Headline: Company Department: Economy

Cartel Office approves Lufthansa’s reduced online fee


Article (401 words)

for € 4.76

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(7.) Genger, Jenny, Lufthansa intensifies dispute with travel agencies, Financial Times Deutschland from January 6, 2005, p. 3
from Financial Times Deutschland of January 6, 2005, page 3

Further document

Financial Times Germany / Company

Lufthansa intensifies dispute with travel agencies Associations consider the airline's reduced online tariffs to be a distortion of competition · Cartel Office rejects complaint


Article (477 words)

for € 3.21

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(8.) O.V., cartel office searches Hapagfly and Co. travel agencies argue against loss of commission, Börsen-Zeitung, June 15, 2005, No. 112, p. 11
from Börsen-Zeitung, June 15, 2005, number 112, page 11

Further document

Börsen-Zeitung / June 15, 2005

Cartel office searches Hapagfly and Co. Travel agencies argue against loss of commission


Article (294 words)

for € 3.57

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(9.) Haas, Sibylle, Condor benefits from low-cost flights, Süddeutsche Zeitung, June 23, 2005, Germany edition, p. 27
from Süddeutsche Zeitung, June 23, 2005, Germany edition, p. 27

Further document

Süddeutsche Zeitung / Department: Economy

Condor benefits from cheap flights


Article (655 words)

for € 4.28

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(10.) O. V., The threat of cancellation of commissions unites the travel agencies, Frankfurter Allgemeine Zeitung, May 17, 2005, No. 112, p. 20
from Frankfurter Allgemeine Zeitung, May 17, 2005, No. 112, p. 20

Further document

F.A.Z. Frankfurter Allgemeine Zeitung / Headline: Company Department: Economy

The travel agencies are united by the impending cancellation of commissions


Article (967 words)

for € 4.76

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(11.) Fischer, Christiane, Charter Commissions A Year of Transition, Touristik Report No. 14, June 30, 2005
from Frankfurter Allgemeine Zeitung, May 17, 2005, No. 112, p. 20

Further document

/

Fischer, Christiane, Charter Commissions A Year of Transition, Touristik Report No. 14, June 30, 2005


Article (967 words)

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(12.) Scharrer, Jürgen, Hunold and the consequences, Touristik Report, June 2nd, 2005
from Frankfurter Allgemeine Zeitung, May 17, 2005, No. 112, p. 20

Further document

/

Scharrer, Jürgen, Hunold and the consequences, Touristik Report, 02.06.2005


Article (967 words)

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(13.) Fischer, Christiane / Scharrer, Jürgen, Das große Zocken, Touristik Report, May 19, 2005
from Frankfurter Allgemeine Zeitung, May 17, 2005, No. 112, p. 20

Further document

/

Fischer, Christiane / Scharrer, Jürgen, Das große Zocken, Touristik Report, May 19, 2005


Article (967 words)

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(14.) Genger, Jenny, Condor insists on tighter commissions, Financial Times Deutschland, June 15, 2005, p. 6
from Financial Times Deutschland of June 15, 2005, page 6

Further document

Financial Times Germany / Company

Condor insists on tighter commissions Thomas Cook's holiday flight subsidiary is not deterred by suspected cartels · New contracts for travel agencies


Article (371 words)

for € 3.21

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(15.) Genger, Jenny, Condor vacation airline cuts commissions for travel agencies, Financial Times Deutschland, June 23, 2005, p. 7
from Financial Times Deutschland of June 23, 2005, page 7

Further document

Financial Times Germany / Company

Holiday airline Condor is cutting commissions for travel agencies Soon, the subsidies are expected to be completely discontinued


Article (315 words)

for € 3.21

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(16.) Wenzel, Frank-Thomas, Condor cuts commissions for travel agencies, Frankfurter Rundschau, June 23, 2005, p. 15, edition: S Stadt
from Frankfurter Rundschau v. June 23, 2005, page 15, edition: S City

Further document

Frankfurter Rundschau /

Condor cuts commissions for travel agencies Thomas Cook subsidiary has to cope with higher fuel costs / management is still aiming for black numbers


Article (523 words)

for € 3.14

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Author GENIOS Industry Knowledge: I. Zeilhofer-Ficker
Source: GENIOS Industry Knowledge No. 07/2005 from 07/15/2005
Document number: s_tou_20050715

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