To Fee or Not to Fee

Over the past decade, falling commissions, shrinking margins and the rise in the number of customers choosing to make their own travel arrangements online has made a large dent in the revenue streams of bricks and mortar agencies, as Kris Madden writes.

By Kris Maddento fee or not to fee

Over the past decade, falling commissions, shrinking margins and the rise in the number of customers choosing to make their own travel arrangements online has made a large dent in the revenue streams of bricks and mortar agencies.

Against this backdrop, and fuelled by tough economic times, Australian travel agencies have been forced to find alternative ways of making money. Charging fees for services such as hotel bookings and airline tickets have been adopted by many in the industry, but it seems that charging purely for advice has been slower to catch on.
However, some savvy agents are turning to the one revenue model that enables them to determine their own margins; professional fees. Unlike traditional transaction fees, agents who embrace a professional fees model are charging for their brainpower.

“As is the reality in every other service based industry, it has become imperative for travel agents to charge for their expertise and time,” says Carole Grassby, director of Sydney-based independent agency Travel on Q.

“In the past few years, airlines have been steadily reducing their commissions to agents so that they pay at most 5% to zero commission on domestic Australian, South pacific and inter-European flights.

“As a consequence of these changes, agents have had to move towards a consumer-pays system of reimbursement. Like any other small business, we have overheads which have not been reduced.

“We advertise our fees and explain them to our existing and prospective clients. Most are happy to pay as they know that our fee covers pre, during, and post travel advice and support,” says Grassby.

Travel on Q charges $75 for the first hour, or part thereof for an initial consultation, with a further consultation and written itinerary preparation charged at $125. Fees are deducted from the final account for bookings over $5000.
“Good travel agents are well trained professionals and deserve to be paid for their enormous amount of expertise and knowledge like any other professional,” she says.

One agent, who asked to remain anonymous, said: “Bricks and mortar agents offer a far different service than websites, and just like the service H&R Block offers on their accounting … it’s no different in travel.

“I’d rather lose a so-called potential customer who is never going to book with us than keep hoping that one day they will make a booking, knowing full well that there are tour operators who have no qualms about selling directly instead of referring the customer to the travel agent.

“The purpose of the management fee is not to gouge money from a client, but to stop people using travel agents as an information bureau. For decades travel agents have offered a free service, but consumers must realise that it’s an old business model, and that if you want service, you should expect to pay for it.”

Supplier revenue doesn’t cover the time the travel agent spends providing the service to the customer. FITs are the perfect example of how irrational the commission model has become. They can take hours of time, but many of an FIT’s components generate no commissions, small commissions or irregularly paid commissions.

The American Society of Travel Agents (ASTA) reports that more than 60% of its members charge for planning FITs. In the US, fees are already accounting for between 10% and 50% of revenue, and that share is widely expected to grow in the future.

Some agents who are not charging such consulting fees cite reasons such as customer resistance to pay, difficulty in processing and collecting the fees, staff resistance, or simply that they are not sure how to introduce them.

The experience from the US shows that once travel agents overcame their initial hesitation to charge professional fees, they quickly discovered that the implementation of such fees did not result in a loss of clients.

On the other hand, shifting to the professional fees model is not simply a matter of owners telling agents to do so. It requires preparation and training. First, agents have to recognise their value.

Professional fees can often also result in higher self-esteem for agents who embrace the model because it attracts only clients who value the retailer’s knowledge and professionalism, according to ASTA. If you decide what your consulting fees are, you are sending a message to your clients telling them what your time and expertise are worth.
Fees can be tailored to suit individual customers. This helps travel agencies target their customers with tailored services based on their past purchasing patterns, and to identify services for which customers’ willingness to pay is greater.

In today’s highly competitive industry, agencies must find new revenue streams to stay ahead of the game. Perhaps it is time for the industry to move into the professional realm of accountants, health providers and management consultants and charge for their true worth, rather than risk financial future to the whims of a supplier board room.

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