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Home > Business > Business Headline > Report

Travel agents, airlines spar over payoffs

Bipin Chandran in New Delhi | June 02, 2004 09:02 IST

Indian travel agents are at loggerheads with international airlines over the latter's decision to slash commission payments from seven per cent to five per cent.

Travel agents fear an immediate loss of revenue to the tune of Rs 100 crore (Rs 1 billion), which might go up to Rs 200 crore (Rs 2 billon) in the long run.

Large airlines, including British Airways and Lufthansa, have cut the commission offered to travel agents to manage cost. Travel agents are threatening to block ticketing services to airlines that have cut the commission and divert traffic to airlines offering a higher commission.

It is for the first time that the Rs 10,000 crore (Rs 100 billion) airline ticketing industry is caught up in such a stalemate.

However, airlines point out that a general slump in the global aviation industry and the present cost structure are forcing them to shed flab.

Travel agents and airlines have planned a meeting in the next few days to sort out the impasse. "We want to negotiate with airline companies to reconsider their decision first. If they do not, we will look at other measures," said Balbir Mayal, president, Travel Agents' Association of India.

The airlines say the decision to cut the commission reflects a change in market conditions and is consistent with the industry's strategy to manage its cost base, a key element of which is distribution cost.

Alok Sawhney, country commercial manager (India) British Airways, said: "Rapid changes in market conditions in the last year have accelerated the need to reduce our distribution costs further in order to restore profitability and ensure our survival. The business environment is even more challenging now than when our future size and shape review took place in February 2002. Our business plan for 2005 is focused on cost reduction and business simplification. Distribution costs are a significant part of our cost base and therefore a key part of this plan."

In many parts of the world, carriers are reducing remuneration to agents and the latter are charging additional fees for services.

Airline industry point out that some of the European carriers have cut commission rates in international market to zero from seven per cent. However, travel agents say this move is aimed at forcing them out of business.

"Most of the small travel agents will find it tough to exist now. More than 70 per cent of Indian travel agents are small operators," said Mayal.

Agents also fear that it they accept the commission cut offered by some of the carriers, other airlines will follow suit.

Airlines also point out that they have made major investments in technology to drastically reduce the selling costs.

They say they have invested in developing auto fares, auto ticket sales returns, centralised reservation systems, trade websites, electronic ticketing, setting up of high-technology low-cost service centre and helpdesks.

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