To fee or not to fee…
THE services provided by a professional travel agent are clearly valuable — but despite repeated calls over the years, the industry as a whole has never really managed to come to grips with remunerating advisors for their advice. Last month’s Qantas commission cut announcement renewed the push for industry businesses to pivot to a service fee model, and while some players in the market see the current COVID-19 disruption as the perfect opportunity to shift the paradigm, others are firmly of the belief that commission is here to stay. Like Hamlet’s deep pondering, whether or not to charge service fees is a question that all agents will need to reckon with. Bruce Piper investigates.
While not exactly unexpected, the move by Qantas to slash travel agent base commission on international flights from 5% to 1% from July next year has been widely seen as kicking the industry while it’s down. The carrier says the move will save it tens of millions of dollars a year, and is part of moves to secure its future by cutting $1 billion in annual costs. Whatever the rationalisation, the bottom line is that, as the carrier’s Executive Manager of Global Sales & Distribution, Igor Kwiatkowski said, “it is expected this change will likely accelerate the growing industry trend towards a ‘fee for service’ model that has already taken place in many markets overseas”.
Indeed some agents in Australia are already successfully bolstering their bottom lines with service fees — but the “acceleration” referred to by Kwiatkowski has so far really happened at a glacial pace. Those with long memories will recall that the last time Qantas cut commission — about 15 years ago — there was plenty of weeping, wailing and gnashing of teeth, and AFTA actually operated a national roadshow and training program to help the industry shift to a fee-based model. Indeed some industry veterans remember suggestions for this change to happen as far back as 1990. And here we are, more than 30 years on, with seemingly minimal progress made.
It’s absolutely true that travel agents in other markets — particularly those with well-heeled, demanding clients — have been successful in extracting recognition of their expertise in the form of service fees. As Qantas noted, a fee for service model “compensates travel agents for the added value and bespoke service they provide customers beyond the logistics of booking, particularly for managing complex itineraries”. However the Australian retail market is markedly different to most other countries, with the approach and dominance of one of our major players perhaps limiting what the rest of the industry has been able to achieve on this front. And that’s because the bottom line is that, when it comes to leisure travel, Flight Centre simply does not believe that service fees should be part of the equation.
Flight Centre Travel Group co-founder Graham Turner is adamant that commissions will continue to be the main way that travel agencies are remunerated for their work into the future. While noting that corporate travel is generally transacted on a fee for service basis, Turner told travelBulletin “in leisure — air, packages, hotels, tours, cruise — as far as we’re concerned, it works on a commission basis. If suppliers want the business, they should pay a fair return on that”. He admitted that in the Australian domestic aviation market, where Qantas is dominant, that may be an issue given the QF approach. “But there is competition, and we’ll be surprised if competitors like Virgin, Rex, Alliance Airlines, don’t pay a reasonable margin for us to supply them with sales,” he said. And when international travel finally returns, “if Qantas doesn’t pay agents, then their competitors certainly will,” he said. “International routes are going to be very competitive — all airlines, whether from the Middle East, Asia or America — will want the business. I think our margins will actually tend to go up as the market comes back,” he optimistically opined.
Turner noted that for the mass market Flight Centre brand, effectively the company’s main competitors are the suppliers themselves. “We wouldn’t want to be charging a fee to book a flight with an airline, when that carrier is offering the same price for the ticket,” he said. “We don’t want a situation where we are more expensive than the airlines themselves.” However for higher-touch clients, perhaps through the Travel Associates brand, sometimes fees are appropriate. “For the high-end customers sometimes our consultants do extra work like booking restaurants, which aren’t commissionable, so fees are sometimes charged then. For the mass brand it’s normally commission, unless we’re doing something unusual for our customer”.
The Flight Centre MD is confident that the company’s global distribution network is something that suppliers will want to access, and therefore pay commission.
“Some suppliers are happy to target direct bookings, and that’s fine if you’re happy not to work through the distribution system. But if you do want the business that travel agents can deliver, you have to pay for it whether you like it or not.”
There’s value in expertise
While the bottom line price of a flight will always be an issue for some consumers, the current COVID-19 situation is being seen by many travel agents as providing a unique opportunity for recognition as the professionals that they are. The changing landscape of travel is likely to mean organising international trips becomes significantly more complicated, requiring vaccine passports and the navigation of perhaps rapidly changing restrictions and rules to ensure clients get where they need to be. There are plenty of clients who are prepared to pay for this expertise, and the experience of travel agents has them ideally placed to capitalise on this shift.
Richard Taylor from The Travel Community Hub (whom we have to thank for the ingenious “to fee or not to fee” title of this story) has been convening regular webinars to help the industry share ideas, with a high-powered triumvirate of participants providing advice from the front lines. Ann-Catherine Jones, Shelley Brice and Sonia Jones are all from different types of travel agencies, and have generously provided their input to several recent heavily attended online sessions.
Ann-Catherine Jones from Jones & Turner Travel Associates in Paddington, NSW, told travelBulletin “my experience over the past 12 months has led me to believe that certain sectors of the marketplace and certain clients are ready for fees”. She said customers were asking more and more “what is your schedule of fees?”, “how do I pay you for your service?” and “I am happy to pay for your advice”. However if advisors are still working in a ‘price beat’ style of environment, where they are competing against OTAs and trying to lure do-it-yourself clients with a deal, the situation is more difficult because travellers simply see them as a transaction facilitator. “There is always going to be a sector of the market that is price-focused, and that is not the type of traveller who will be happy to pay service fees,” she said, adding that individual agents will need to work out how to navigate this for their own businesses.
“Transparency is the key to building trust and acceptance around fees. For too long we, as an industry, have hidden behind the commissions we’ve earned and buried our fees in the product, rather than listing our fees up front and having honest conversations with our clients around how we earn our money.
“Without being honest and upfront with regard to this, we are leaving ourselves wide open to the PR nightmare of 2020 when we were all tarred as ‘rogues’ and ‘rip off merchants’ in the future, and even worse, working for zero money again,” Jones said. “As we move to non-commissionable product over the next few years (and I believe that is coming), we need to see the silver lining that having a fee structure will mean that only clients that respect your value will use your services — and clients who can’t see your value will be left navigating the wilds of the internet and OTAs themselves.”
Shelley Brice, who runs Shelley Brice Travel in Perth, agrees that the time has come to take the step towards service fees. “Now is the perfect time to flip the narrative. Pre-COVID the landscape was dog-eat-dog — all price driven by the customer. Now it’s up to you how you choose to move forward. I urge everyone to question time versus reward — the landscape has changed in terms of what we need to navigate in terms of booking someone’s arrangements, changes, border closures, entry passes — so getting paid zero commission will make you resentful to assist, whereas if you were confident in explaining what comes with the fees then the work would come from a level of service to your client,” she said.
But there’s also a mental toughness required. “Don’t whinge about doing the work and not getting paid for it — the ball is in your court as an individual and as a business owner to lay the foundations to rebuild…stand proud of your experience, connections and ability to navigate this period,” Brice told travelBulletin. “Get used to people saying no to you — that is not a reflection of you, but simply that they don’t value service and paying for it, and that is OK. It’s time to raise the standards of our industry and our profession, and I believe that starts with fees”.
The third member of the trio, Sonia Jones, operates Sonia Jones Travel in north-west Brisbane, and is also an advocate for the introduction of fees, urging agencies to “redefine what your business is — or who you are as a travel professional”.
“Demonstrate your worth, knowledge, connections and experience,” she told travelBulletin. “Many travel professionals are fearful about the reaction that they may get from their customers by introducing fees. Be prepared to lose some customers over it — but you will gain some too.” Jones said travel agents should use fees as a way to value their worth, knowledge connections and experience — “all the reasons your customers book with you in the first place!”
Another long-time advocate for service fees reflecting the industry’s professionalism is veteran Gil McLachlan from McLachlan Travel Group in the Sydney suburb of Manly. “Our very strong position is that fees have no connection whatsoever with commission levels,” he said. “The fee is a private arrangement between the advisor and the client, and is applied to cover services and benefits considered by the client to be of high value. It is not applied to make up for inadequate commissions,” he told travelBulletin. “The commission is a separate arrangement between the agent and the supplier.” Like Flight Centre’s Graham Turner, McLachlan is clear that commissions are reflective of the support provided by travel agents when they make a sale of a supplier’s product. “If the supplier reduces commission, to retain support it would need to provide an alternate commercial benefit that equals or exceeds the benefit previously provided through commission,” he suggested.
Express Travel Group is also on board, with Executive General Manager Ari Magoutis telling travelBulletin “in an environment where all moving parts of the travel value chain are rationalising costs, where there is complexity in booking and “un-booking” travel (as we have seen extensively last year and is still continuing), there should be no doubt at all as to the importance of a professional travel advisor in this process and their right to charge a fee for this service.” Magoutis said the question should not be “to fee or not to fee”, but rather, how much is an adequate rate for service.
“At ETG we have always advocated for fair and reasonable fees to be charged considering the expertise of our members in planning and booking travel for their clients. An open conversation about these charges during the travel planning process should alleviate any client concerns or surprises after the event,” he added, noting the group also provides a generic Terms of Trade document, should members require a reference point as to how to include fees in their own agency terms.
Flee from the fear
Like many in the industry, MTA Travel co-founder Karen Merricks is somewhat bemused at the longstanding reluctance of many agents to charge fees. But she acknowledges that historically there may have been a good reason. “Sometimes ‘mark-ups’ were included in parts of travel itineraries — in essence service fees by another name. These were often not disclosed to the customer and incorporated in an overall price — possibly to avoid having to justify or discuss the ‘fee’ with the end customer. One of the fears that result in fees being hidden is that they get found out and customer distrust is the result,” Merricks told travelBulletin.
“In the past agents had been nervous about charging a service fee for fear that they wouldn’t be competitive with an agent who didn’t charge service fees. Additionally, while agents understand the need to charge a fee for services provided, it’s the ‘how’ that becomes the challenge,” she said.
“Fears such as what happens if the customer says no are common. Am I able to confidently communicate my value proposition (do I in fact know what my value proposition is?) — and am I willing to let the customer go if they decline to pay the service fee?”
Merricks noted that in the MTA model, advisors are continuing to move away from single transaction customers in favour of highly valued repeat clientele. “It is necessary to know your customers and segregate your customer base to ensure that you are spending more time with people who value and are willing to pay for your expertise…if you are spending large amounts of time on a transactional type customer you are perhaps reducing the amount of time you can work on your high-value customers and potentially placing your business at risk.” She said ultimately the choice regarding fees is up to an individual agent — noting that “often we have found that the fear of introducing a service fee is often greater than the actuality”.
Rival home-based network TravelManagers has also facilitated the charging of fees by its members, having provided training on the topic for many years. “TravelManagers is a long-time advocate for charging a fee for service where commissions are not applicable, or not at a level to cover the cost of consultation,” according to TravelManagers Executive General Manager Michael Gazal. “This applies whether it is a ‘plan to go’ or ‘commitment deposit’, right through to providing a full schedule of fees covering services such as frequent flyer redemptions, amendments to bookings and any other non-remunerated services advisors offer their clients”.
Unity is strength – but is also very unlikely
Given the crossroads that the industry finds itself in at the moment, some have made the eminently sensible suggestion that a standardised form of service fees could be introduced by the Australian Federation of Travel Agents. If, as MTA’s Merricks has suggested, reluctance to introduce service fees comes from fear that a rival agent will then be able to undercut and steal a client, having a universal table of recommended charges would surely facilitate this “new” way for the industry to have a viable income stream.
However unfortunately there are many issues with such a suggestion — not least of which is that as noted earlier, Flight Centre doesn’t see service fees as a way forward. With Flight Centre MD Graham Turner being vice-Chairman of AFTA, and the organisation also holding another board seat, it’s extremely unlikely that a unified voice on this issue will be achieved through the industry peak body. And in fact if Flight Centre sees airlines as its direct competitors and doesn’t want to be undercut by them, then the same principle would definitely apply to rival travel agencies. AFTA Chairman Tom Manwaring, who heads up Express Travel Group, noted that “service means respect — and you pay for service” but also highlighted the “diverse” views within the AFTA board.
The Australian Competition and Consumer Competition has long prioritised the interests of consumers, and it’s extremely likely that standardising service fees would be seen as anti-competitive and require an exemption from competition law — something that AFTA in its current form is unlikely to seek. So in the end it is up to each individual agency — but given the massive amount of expertise and experience in the Australian travel industry there’s absolutely no reason that consultants should not be confident to charge for their professional services.