Hotel commissions – the cheque’s in the mail…(!)

Travel agents rightly expect remuneration for distributing the products they sell, but getting paid in some cases still involves paper cheques and snail mail - although it looks like change is finally in the wings. BRUCE PIPER comments.

The business of a travel agent is, put simply, to sell. Travellers rely on the expertise of their travel professional, both to make recommendations and secure bookings – and in turn the suppliers whose products are being distributed via the agency channel recognise the value travel advisors are adding when they sell particular items of inventory, whether that be a seat on an aircraft, a cruise ship berth or a hotel bed. This recognition can come in a variety of forms, but as in most standard business relationships, generally involves a margin or commission payment.

When it comes to hotels, the remittance of these commission payments can clearly become complex. And that’s where a bit of a history lesson will come in handy to explain the context of this issue. An individual travel consultant may sell hundreds or even thousands of different hotels each year, and it’s unrealistic to expect those individual properties to remit the required commission to each individual travel agency or reseller of their products. Multiply that by the explosive boom in travel over the last 50 years and the complexity becomes almost unimaginable.

Enter the hotel commission intermediary. Way back in the early 1990s a meeting of the world’s major hospitality companies and leading travel agencies led to the creation of Pegasus Solutions, a “gateway” to manage commission payments from hoteliers to travel agents. Based in Dallas, Texas, Pegasus grew rapidly based on the clear need for a transparent, accountable third party. Speaking back in 2003, former senior Pegasus executive Jeff Bzdawka (now CEO of hospitality meetings and events sales organisation Knowland) noted that the topic of commissions was extremely sensitive among travel agents and hoteliers.

“Travel agencies were unconvinced that hotels were paying all commissions due, and hotels were spending too much time and effort managing the intensive task of cutting thousands of commission cheques. The lack of a simple and effective industry-wide commission processing system often created turbulence on both sides of the commission equation,” Bzdawka said.

Pegasus became a publicly listed company traded on New York’s NASDAQ exchange, with a global network of about 20 offices in 11 countries around the world. Then about a decade ago a private equity firm called H.I.G. Capital purchased the commissions processing division of Pegasus and relaunched it under the new Onyx Payments brand. In 2013 the company claimed turnover of more than US$500 million, servicing 40,000 hotel properties across the globe as well as “the majority of travel distributors in more than 200 countries”.

Now known as OnyxCenterSource, the business has grown fourfold to facilitate over US$2.1 billion in annual payments, partnering with more than 150,000 accommodation providers.

So what’s the problem?

Clearly Onyx provides a solution to a problem faced by all hoteliers and travel distributors. And so it’s no wonder that the company has effectively become the de facto way that hotel companies ensure that their valuable travel agency partners are remunerated. However, as was reported in several Travel Daily issues this week, it appears it may not all be plain sailing for travel distributors wanting their rightful commissions.

As highlighted by Melbourne’s Bayview Travel, Onyx gives travel agencies the option of joining its “SurePay” platform, which offers weekly consolidated payments directly to a bank account, along with electronic reporting. Many agents simply join this program, and are happy to wear the associated costs which see Onyx clipping the ticket to the tune of about 6%. However others – like Bayview – prefer to manage things themselves. According to Bayview’s Operations Manager, Tracey Williams, the agency has chosen not to be a member of any of the Onyx programs since 2016.

“We no longer wanted to hand over a sizeable amount of our commissions for something that we were entitled to anyway, and very capable of managing ourselves,” Williams said.

She claims Onyx has the ability to “double-dip” because it’s already charging hoteliers to undertake the onerous commission processing task, and the SurePay membership cost (notwithstanding all of its advantages) is a potential further impost on travel agents who, as Williams points out, are already entitled to receive the full amount of the accommodation commissions. Based on 2023 transactions, she estimated the cost to the business of being a SurePay participant would have been about $10,000 annually.

The cheque’s in the mail!

Things have run smoothly for Bayview under its longstanding arrangements with Onyx – albeit with an administrative overhead, because the intermediary has been choosing to pay commissions to non-member agencies by cheque. Clearly in this day and age it’s an outdated solution – and the use of snail mail and paper cheques for these commissions becomes even more difficult to comprehend because it appears Bayview does also receive some Onyx commission payments directly into its bank account, including remuneration under the Expedia TAAP scheme.

Now, however, plans by Australian authorities to phase out the antiquated use of cheques over the next few years have brought the vexed issue to an ugly head. Since December last year those mailed commission cheques from Onyx became denominated in US$ rather than Aussie dollars. The costs of depositing American cheques in Australia is proving prohibitive, with banks charging high fees and commissions on exchange rates, meaning a further erosion of those hard-earnt hotel payments for travel agencies like Bayview Travel. Williams gave an example of a recent commission payment where the conversion charges and bank fees equated to a hefty 14% chunk of the payout.

It also appears that Onyx and agencies like Bayview are caught in a pincer movement due to the Australian Government’s stated intention to eliminate cheques. On top of that, Onyx, being a US corporation, banks with Citibank which is itself disentangling itself from the Australian market having offloaded its local retail banking operations to NAB about 18 months ago. This likely means Citibank no longer has the capability of issuing cheques in Australian dollars.

Backed into a corner?

Williams believes Bayview was being forced into a situation which could potentially force the agency to pay Onyx’s SurePay membership fees simply to receive even a part of the commissions to which it is undeniably entitled. She said the agency was recently told there was no current solution for non-members, apart from receiving US$ cheques in the mail, and no timeline for a resolution. Bayview felt this was putting pressure on it to join SurePay and pay the associated fees because it was the only option being proposed by Onyx.

For their part, hoteliers may also be largely unaware of the issues around ensuring that some of their key distribution partners are effectively remunerated for the business they are delivering.

Onyx disputes the claims made by Bayview, and in any case certainly appears to be swiftly reacting to the controversy. Approached for comment, Onyx CenterSource Chief Commercial Officer, Tom Wagner, categorically denied there was any coercion involved in encouraging travel agents to subscribe to SurePay in order to receive commission payments in a timely and effective manner.

“We’ve never indicated to them that’s the only way they can receive their funds,” Wagner said.

He also confirmed that just two weeks ago, at the end of January, a temporary hold was placed on cheque payments “so we could begin moving customers away from cheques because of the uncertainty of their banks being able to accept them”. Wagner promised that going forward Onyx CenterSource would be offering payments via virtual credit cards – part of navigating an “uncertain and inconsistent payment landscape” in Australia due to the Federal Government’s move to phase out cheques.

Clarity is coming…

The rapid shift in policy by Onyx is being keenly watched by agencies across the country – although about 95% of them are believed to be members of SurePay anyway. Onyx itself is working hard to resolve the matter – and today confirmed to travelBulletin that those virtual credit card payments would be facilitated by WEX, and be paid in Australian dollars.

So it looks as though, as Shakespeare wrote, all’s well that ends well. No more US$ cheques piling up uncashed, timely payments to travel agencies via VCCs, and overall a swift resolution to the issues which looked to be impacting this vital component of the global travel distribution system. It’s a win for travel agents, a win for efficiency, and a win for Onyx which looks to have responded with admirable alacrity.

Bayview Travel’s Tracey Williams should be congratulated by the whole industry for shining a light on an issue which affects anyone in the business of selling travel.

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