Perspective – September 2012

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Ian McMahon

Commission is not a dirty word

STEVEN Greenway has described Australian travel agents as “pathetic”.

Speaking at TravelTech in Sydney earlier this month the head of commercial for Scoot claimed his budget airline wants to establish partnerships with Australian travel retailers but is being thwarted by their commission expectations.

At the same time he admitted: “We can’t distribute totally by our own website.”

Um, let’s rephrase that as follows: “Rather than make the huge investment required for optimal distribution of our product we would like to make use of the distribution resources in which travel agents have collectively invested millions of dollars. Oh yes, and we expect them to do it for nothing or next to nothing.”

Greenway said that Australian agents should look at opportunities to make money by charging fees and bundling Scoot fares with other commission-paying product.

Um, couldn’t that be paraphrased as follows: “Kindly subsidise your losses on sales of our product with the commission payments you receive from other air, coach, cruise, car and rail operators who are prepared to pay you for your efforts.”

Greenway said he has successfully negotiated a deal with an online travel agent (OTA) operating in Australia, the giant US-based Expedia.

Now Expedia has racked up some big losses over the years – it booked a $US3.3 million net loss as recently as the first quarter of this year – so I suppose it’s just possible that the company is prepared to add to those losses by generously offering its services to Scoot for nothing. Perhaps it is hoping to stem such losses with earnings from related hotel room sales.

But if that’s not the case, it would be interesting to know how Expedia can make a margin on Scoot fares.
One way would be to charge a fee to purchasers as Greenway suggests other agents should do. But Expedia certainly doesn’t agree with Greenway on that point. It proudly proclaims that it does not charge fees on airline bookings.

Another method would be for Scoot to provide Expedia with a net fare.

If that’s what’s happened, is Expedia entitled to expect that its fare offerings won’t be undercut by fares available on the Scoot website? (Incidentally, that’s a question that is at the core of the pending legal battle between Flight Centre and the Australian Consumer and Competition Commission. Interestingly enough the airline involved in that case is, coincidentally, Scoot’s parent Singapore Airlines.)

Whatever Scoot’s arrangement with Expedia, I think I can safely predict that the bulk of Australian travel agents will find themselves able to resist Greenway’s invitation to work for the airline for next to nothing. (And I don’t really believe Expedia has done that, either.) This is not pathetic.

Agents are entitled to expect payment for providing distribution facilities to principals.

Commission is not a dirty word.