This week the UK's ATOC (Association of Train Operating Companies) announced new three-year commercial arrangements for ATOC-licensed travel management companies and agents.
As well as confirming that agents' commission would be maintained at the current rate (understood to be 3%) for three years from 1 April — and then renewed annually on a three-year rolling basis — the organisation disclosed that it had been fixed after consultation with the trade. A representative body has been established to ensure dialogue between suppliers and intermediaries continues.
A three-year agreement on the level of commission — and an unchanged level — means, in ATOC's words, "that TMCs will have a three-year view of commission rates when they enter into new agreements with their corporate clients".
This is in stark contrast to what has happened recently between intermediaries and another supplier, namely Lufthansa, whose lack of consultation angered its industry partners.
There are important differences between air and rail distribution, however, which buyers should note.
At present there are about 20 rail operating companies in the UK. This differs from the typical European model of a single, dominant inter-city carrier (SNCF, NS, Deutsche Bahn) and which was the case in Britain in the past and might be again if Jeremy Corbyn is elected Prime Minister.
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King's Cross station ©lovemax/iStock
Booking tools such as Evolvi and Trainline consolidate UK rail content, but it is mostly absent from the GDS. This is not surprising given that many large markets have no significant rail market and so the demand for booking rail in North America, for example, via agents is negligible.
Rail demand mostly comes from local markets and given that in the UK it is also fragmented among different companies, the intermediary agent provides a very valuable function which should indeed be rewarded. And it is transparent. Corporate clients know that their TMC will be receiving 3% of the revenue from rail bookings as remuneration.
But commissions are no longer the standard remuneration tool in the travel industry.
Airline commissions ended almost 20 years ago. The fact that a percentage commission system means that the higher the fare, the greater will be the agent's income raises all sorts of questions. A corporate client paying its TMC fees for the work done, on the other hand, reinforces the message that the TMC works on behalf of its corporate clients.
However, fees are not the only source of a TMC's income. Suppliers pay them to be "preferred partners" and receive marketing services in return. GDSs charge suppliers to distribute their content but make incentive payments to TMC in exchange for their booking that content.
For international carriers and hotels the global distribution systems are a route to market for which they are prepared to pay.
This is a cost rail companies do not have. Instead they negotiate with, and pay, their agents directly.
Lufthansa did not have a dialogue with its business travel partners before introducing its DCC. But could a company which conducts business in every continent, in numerous markets with many contracts under different laws and regulations have consulted before imposing a charge?
Maybe but probably at the price of then never implementing the DCC.
Transparency is good because buyers should know and understand money flows. But it may not always produce the answers corporates want.