The travel agents sector has been in a furor since today's announcement by El Al Israel Airlines Ltd. (TASE: ELAL) of the cancelation of commissions starting in June 2019. "The sector is in a state of turmoil," an industry source said. "The agents have convened ad hoc meetings in order to understand how to deal with the situation. The fear is of a chain reaction. United Airlines, which made an exception by keeping its commissions in Israel only because of El Al, will probably do the same thing as El Al now, and maybe also Delta Airlines and Turkish Airlines, which are still paying commissions."
El Al is following the example of airlines like Lufthansa and all the airlines in that group: British Airways, Air France, KLM, and others.
El Al has consistently said that it was continuing its commissions, given its special ties with the travel agents. It will now switch to a system of incentives based on destinations, for example.
The angry agents are saying that its measure will damage El Al. One of them said, "We are the ones who push passengers to fly El Al. Without us, they will have a very hard time." Some support what El Al is doing and are enthusiastic about it. Ofakim Travel and Tours CEO Edith Padan says, "I'm glad about the decision. It's about time."
Padan is not worried that the agents will lose profits. She explains, "I believe in competition. We have to charge people handlings fees for our work. Since 2007, when Lufthansa switched to zero commissions, we said we'd manage, and when we considered the matter in depth, we realized that we preferred this approach, because we believe that Israeli consumers should pay for the services they get. The thinking of consumers in Israel, who tell us 'Give me a discount because you're getting a commission, subtract the commission,' and so forth, does not facilitate competition and service. You can't give good service when the entire market structure gets the money from somebody else. This exists in almost no sector. An agent who wants to grow and be outstanding in his field is measured by the consumer and what is being sold to him or her. A commissions structure that dictates your profit structure doesn't make it possible to grow and stand out, because how am I different from others in such a place?"
"Globes": What about business travelers, who account for a large proportion of the travel agents' business?
Padan: Half of our business consists of business customers. Global companies long ago switched to a method in which they pay everything net and pay handling fees."
Do these handling fees correspond to the commission paid by airlines (5% in the case of El Al, for example)?
"No. In short flights it can be more and on long flights it's less. Judging by the results, as soon as Lufthansa switched to zero commissions, no agent lost. We know how to charge handling fees that cover it."
Maybe the result is that you sell passengers airlines that still pay commissions.
"We don't channel passengers to other airlines. The agents don't influence the market prices. As soon as an external party dictates your profit to you, there is little ability to do something with it. It may be comfortable, but there are changes in the aviation market that are global. Passenger traffic is going in the direction of the Internet, and someone who is unable to provide added value as an agent will be unable to analyze this trend.
"In effect, the Internet said that it's possible to get rid of commissions and sell cheaply. An agent should know that he or she doesn't make a profit from aviation, but from selling tourism around the flight. It has to be with ground services and other things. An agent isn't judged by his ability to sell a flight to Paris - you don’t' need an agent for that. In the entire sphere of leisure travelers, the agent is judged by his ability to plan a route, provide ground services, save money for the passenger, and provide solutions that save both time and money. For business passengers, the agent is judged by the ability to provide a short and cheap route and rescue the customers from every mess they get into; that's what an agent should get money for."
Do you have a model of service fees that you plan to use for billing? Is it a fixed premium, or is it versatile according to the price of the flight?
"There shouldn't be any fixed premium. It should be according to destinations or according to the length and complexity of the flight. You can be creative. Around the world, for example, agents charge handling fees on every transaction. They even charge for service given by telephone outside of work hours."
The rationale of charging for services is penetrating the aviation sector with the introduction of low-cost airlines. They have taught passengers to buy a "naked" flight and pay for everything added to it: the seat, check-in, luggage, and food. For Padan, payment for the agent is also derived from this. She says, "There are all sorts of models for charging service fees. It should be proportional to the ticket price and the other services."
The Israel Tourist and Travel Agents Association said, "We are still studying the matter."
Published by Globes [online], Israel business news - www.globes-online.com - on May 29, 2018
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