Guardian

A FRESH dispute between travel agents and airlines operating in Nigeria may erupt over commissions airlines pay on tickets the agents sell to travellers.

All airlines operating in Nigeria with the exception of British Airways, Qatar and Iberia pay nine per cent commission. There are indications that many others have concluded plans to also cut commission to the agents.

Just this week, Nigeria’s leading airline, Arik Air had reportedly slashed six per cent commission it hitherto gave them to 0.5 per cent, a situation that had drawn the ire of the agents.

According to a statement sent to travel agents “From August 1, 2012, Arik Air will be amending its rate of commission offered to travel agencies on general sales on all routes. Agents will be entitled to the new applicable rate of 0.5 per cent commission on Arik Air sales.”

The Vice President Lagos Zone, Mr. Segun Adewale, who is also the managing director, Aeroland Travels, was not happy about the development and said they have taken the issue to the Director-General of the Nigerian Civil Aviation Authority, NCAA.

“This is also a signal that airlines are trying to frustrate the activities of travel agencies and using the control they have over the market to cause this harm. Arik being the major operator locally have decided to keep Commissions to them.”

The dispute over commission began in November 2008 when airlines passed a ‘zero commission’ policy and asked agents to get their remuneration from passengers in form of transaction fee.

This was not taken kindly by the Director General of the Nigeria Civil Aviation Authority (NCAA), Dr. Harold Demuren, who viewed this as helping to put those who sell their tickets out of job.

A group of travel agents under the aegis of the National Association of Nigerian Travel Agents, had taken British Airways to court over the matter, saying the abolition was capable of destroying the TMC industry, which is a major growth booster in the economy. The travel agents argued that the decision taken by BA could lay a bad precedence for other international carriers operating in the country, which might also take similar decisions in the nearest future.
Some of the travel agents stated that the TMC sub-sector represented the downstream sector of the industry, and was the only way the Nigerian economy was benefiting from the foreign carriers. A NANTA member said, “That is the only way Nigerians are benefiting from the foreign airlines. If you introduce zero-commission, lots of jobs will be lost, as many travel agents will be forced to close down. More so, they only money coming into Nigeria out of the billions these airlines are making is being closed up too.”

As the name implies, a travel agency’s main function is to act as an agent that is to say, selling travel products and services on behalf of a supplier. Consequently, unlike other retail businesses, they do not keep a stock in hand.

A package holiday or a ticket is not purchased from a supplier unless a customer requests that purchase. The holiday or ticket is supplied to them at a discount. The profit is therefore the difference between the advertised price, which the customer pays and the discounted price at which it is supplied to the agent. This is known as the commission.

In some countries, airlines have stopped giving commission to travel agencies. Therefore, travel agencies are now forced to charge a percentage premium or a standard flat fee, per sale.

However, some companies still give them a set percentage for selling their product.    Major tour companies can afford to do this; because if they were to sell a thousand trips at a cheaper rate, they still come out better than if they sell a hundred trips at a higher rate. This process benefits both parties.

Most travel agencies operate on a commission-basis, meaning that the compensation from the airlines, car rentals, cruise lines, hotels, railways, sightseeing tours, tour operators, etc., is expected in the form of a commission from their bookings.     Most often, the commission consists of a set percentage of the sale.

In the United States, most airlines pay no commission at all to travel agencies. In this case, an agency usually adds a service fee to the net price. Reduced commissions have taken place since 1995, when first commission reductions hit North America: a cap of $50 on return trips and $25 on one way.

A travel agent who craved anonymity said, “Like it or not, we are living in an age of “zero guarantees”. Customers are increasingly demanding better value for their money spent. In these hard economic times, my customers are demanding that I cut costs, improve service, and be available to them when they need me. In return I am guaranteed nothing. Just an opportunity to do business, not even the business itself, just the opportunity.

Any entity in business, survives only due to the value they add in the supply chain. The day someone or something else can improve the value chain, existing links will be re-aligned. It applies equally to professional relationships as it does to products. An employer looses employees the moment the value chain is superseded by another, and vice-versa

Over the years, technology has caught up with the agents. Today, customers are perusing the Internet, making phone calls, and obtaining the best value for my money, just as we do for any other product or service.

During this time, many travel agents became air-ticket churning machines, falling in to complacency and sloth, showing an amazing lack of business foresight that borders on outright incompetence.

Corporate customers, are no different. In return for their large business volumes, they take discounts in the form of lines of credit, free airline tickets, and other such incentives.
In effect, travel agents were already operating in a “zero commission” regime. The recent actions of the airlines have only formalised the reality.

As much as people do not like to say it, the faster the travel agents face the situation, the better off they will be.