September 29 2022, Kimpton Fitzroy London
Friday 30 September 2022, JW Marriott Grosvenor
21 November 2022, Hilton London Metropole
New research by Amadeus shows that globally 34% of agents see the loss of commission as the "Number One Challenge" facing their business. The concern runs deeper in Western Europe where 50% of agents said it is their biggest worry.The poll of 600 agents also revealed that globally 27% saw increased competition from the Internet as the greatest threat. These are two of the many significant changes in business travel over the past decade and they have not worked in the agents' favour.Amadeus, in its new White Paper "Service Fees and Commission Cuts: Opportunities and Best Practices for Travel Agencies", comments that the decision by the airlines to reduce and/or eliminate commission "has led them (agents) to use technology that many of them distrust or are not inclined to use, and to compare prices and travel schedules constantly."This has put traditional agencies at a "competitive disadvantage" to online travel agencies and airlines which have their own direct websites.But the Paper takes the more optimistic line that the changes can also be opportunities for agents if they switch to service fee business models."Service fees are not only a way to compensate for the loss of airline commission but also a way to generate new revenue sources” to guarantee long-term profitability.It points to Scandinavia as being the best European example and where business travel agents earn 73% of their revenue from service fees.The Paper also dismisses the "common perception" that the service fee model lead to a loss of customers. Agents in the US where a high number use service fee report 90% client retention.But there is no doubt that the virtual ending of commissions (there is still a handful of airlines in Europe paying 1%) had a severe impact on agents. In the US, their numbers fell from 30,000 in 2000 to 21,000 in 2005.In Europe, Amadeus says they were faced with great difficulties because the process was faster. These difficulties, exacerbated by the liberalisation of aviation, included the rise of the low cost carriers, new airlines and new routes and the need for airlines to cut costs.In France where research questioned 988 agencies, 43% said the ending of commissions had a "very strong impact" on them while 29% said it was "moderate". It led to agents, especially smaller ones, working more closely together and forming networks and alliances.The reaction of European agents to commissions cuts has been varied. Some streamlined their operations, others moved more into leisure (cruises still pay high commissions), others began specialising, perhaps in group travel, and still others began to adopt the service fee model.Scandinavia where commissions were abolished by 2003, led the way in Europe. The Paper says: "Scandinavian countries have â€¦developed a very successful service-fee model and travel agents are now becoming true consultants: they apply 'do-it-yourself' transactions and are destination specialists."Service-based pricing schemes are gaining notoriety and sooner or later may become universal."In the case of business travel agencies, service fee calculations vary according to the sales channel, the type of product sold and the destination. "They work with transparent service fees."Amadeus said research in 2005 found that Scandinavian agencies also achieved the best ratio of revenue to sales (10.7%).This was mainly because 73% of their revenue came from fees. The Paper added: "Their core reservation processes (including customer needs assessments6, search / proposal and negotiation and booking and sales) represent the most significant expenses" for business agencies."They accounted for more than 40% of their total costs andâ€¦it was therefore considered betterto make customers pay for these services."Only the UK, where commissions were abolished in 2005, achieved the same revenue/sales ratio. But in Britain only 54% of income comes from fees. Others countries polled included Poland where 51% came from fees and Italy where the figure was lower at 39%.In Germany, Amadeus said a slightly different model was taking hold. Since the end of commissions in 2004, business travel agents had significantly shifted to a transaction fee model."There will still be management fees or mixed calculation in some special cases (e.g. fees charged for a specific period: per month, per year, etc. regardless of either transaction or volume) but the model that will be widely adopted is the transaction-fee model," Amadeus said.It was a model which offered most transparency as clients could see exactly how much they had paid for particular services, like consultancy or ticket reservations. The transaction-fee model "is expected to be the most commonly applied model in the future," Amadeus said.The GDS concluded its study by offering four tips on how agents can adopt a service fee model and generate more income.These were: * Educate staff with training programmes on service-fee schemes and high margin products* Be upfront about fees with clients, tell them of the new model â€“ they will pay if they benefit from the services* Automate processes to avoid errors and make the agency more efficient* Identify the services which custom value and will pay for â€“ these are usually for business agencies trip planning and hotel-only bookings.