Thursday 17 September

Doubts raised over future of travel agents

In an article by Travel Today this week, it seems there is a disagreement over commission percentages between Flight Centre and Singapore Airlines.  Admittedly, the percentage points being argued over translate into millions of dollars.  But the dispute focuses attention on something far more important, the future of travel agencies themselves.

Open warfare broke out between Singapore Airlines (SQ) and Flight Centre last month.  First Flight Centre launched a "Turn the screw on SQ" campaign, ordering its staff to stop selling customers tickets on Singapore Airlines or its Silkair subsidiary. Then Singapore told its frequent flyers that they should go to other agents or online if they wanted to book flights.

Typically, all airlines pay a 5% commission fee to travel agents for each international air ticket sold in Australia. Singapore says that when its agreement with Flight Centre expired on March 31, the travel agency tried to impose an 8% commission on top of its existing 5% cut. "That's total nonsense," says Flight Centre founder Graham Turner.  "(Singapore) has been one of the lowest payers by far compared to other competitors like Emirates and Ethihad, which pay margins of 8-12 %.  What we have on the table from (Singapore) is 6%."

Turner says Singapore "is attempting to push customers to book online but they will fail as other airlines have tried in the past.  It's not a smart thing to do at this time when there are more seats available across most airlines and not enough bums to fill the seats," he says.

Subhas Menon, Singapore's regional vice-president, southwest Pacific, says his company's doors are always open to resolve the impasse but notes that, since the debacle, forward bookings on the carrier have not been damaged. "In fact, there has been an uptick," he says.

Since the start of the Singapore spat, Flight Centre has also gone to war with other airlines it accuses of trying to undercut its prices by accepting bookings online.  In his March newsletter to staff, Turner warns that any "recalcitrant" airline that does not comply with its requests should be punished.   "Again, these poor economic times give us a chance to get at and punish those carriers (only one or two) who are trying to undercut us on the web, thus costing us in price beats," the newsletter says.

Flight Centre's battle goes to the heart of the dilemma for traditional "bricks and mortar" travel agencies.  With the global recession ripping into the bottom line of major airlines, it has never been cheaper to book online for a quick domestic or overseas break.

Virgin says it has seen constant growth in its Blue Holidays online offering and says its booking engine is constantly evolving. The airline says an interesting development is the increased use of social networking travel sites where consumers get updated and supposedly unbiased recommendations for hotels, tours and other services.   Nonetheless, it is still not ready to predict the death of travel agents.  "There is, and always will be, a large population that prefers to deal with a travel agent they can meet in person," says Virgin spokeswoman Heather Jeffery.

Jetstar says about two-thirds of the airline's fares are booked online by travellers and chief executive Bruce Buchanan says most people are happy to book flights online but there is some reluctance when it comes to holidays, despite advances that allow people to package accommodation and flights.

Qantas says about 50% of its domestic bookings and 20% of its international bookings are made through its qantas.com website, which has been rated by Hitwise as Australia's biggest travel and commercial aviation website with about eight million visits a month.  It's interesting to note that Nielsen Research reported that more people (8.3million) visited a travel website in July than any Australian bank website. 

Qantas report that customers are booking significantly more complex bookings online.  However Qantas still believes travel agents will continue to play a key role in its distribution network and the spokeswoman says the airline continues "to have a strong relationship with the agent community".

JPMorgan analyst Bryan Johnson says that as more customers move to online channels and demand remains soft, "we expect the high fixed costs associated with Flight Centre's bricks and mortar style shops will negatively impact earnings margins and group profit.  But Graham Turner recalls that "12 years ago, analysts were writing about the demise of Flight Centre's bricks and mortar shops. Today they are still writing the same thing. Nothing has changed".