Larry Norman’s column created quite a stir—as was expected. The conversation got even more heated in the TRO Community. Some folks agreed and others vehemently opposed but what is becoming very clear is that there is a yet another fundamental change in the way we do business looming on the horizon. But if you have been in the industry for any length of time, you will realize that the more things change, the more they stay the same. The discussion is on non-airline suppliers and their imminent shift to a different model of compensation—or perhaps a model featuring no compensation. Where have we heard this discussion before?
Déjà vu
If you take the word “cruise” and do a word replacement in every conversation with the word “air” you will see that this is essentially the same conversation that was being had in 1996 when the airline “partners” began to whittle away commissions to zero. Back then, many (if not most) agencies relied on airline commissions for a majority of their income. In fact, in 1996, you could make more money selling a single ticket from the US to Australia than you could selling a cruise or tour to a family of four.
Back then, the attitude of most agents was initially, “they would never do that” followed by “this will never stick.” Well folks, it stuck! Back then, the answer to tack on a $10, $25, $40, or $50 fee for the additional service we provided to what was now a commodity. It certainly helped to offset the loss of the commission. But I am sure that there are very few agencies whose fees truly replaced the lost commission—if you are one, send me an email, I would like to do a story on you! Ultimately, what happened was that a travel agency (in general terms) went from a 13% margin business to a 10% margin business if you were lucky. If you extrapolate that, the 3% is a huge cut—30%. Since most agents today are home based, let me put it in terms that might hit home. Assume you sell a half million dollars of travel a year at 13%. That is $65K of gross income. From this you need to pay yourself, your expenses, etc. Now that is reduced to 10% and your income is now $50K. Can you survive? What if you weren’t lucky enough to see that 10%? Many agencies I know fall between the 6% and 8% range. Now ask yourself if you can afford to absorb that when (there is no if any longer) that the cruise and tour operators begin to follow the airlines a decade and a half later.
Now we are looking at another large segment of most agency business. Are we as an industry prepared to revise our business plan so it “just helps” or are we preparing our business plan to allow us to continue to remain profitable?
Nolan Burris made a fantastic comment on Larry’s article that we need to depend on us, not them to put food on the table.
Right now, travel professionals have two choices.
- We can continue to second guess the suppliers, or we can proactively react. We can second guess the travel suppliers till the sun goes down, but in the end, we do not have a seat at their dinner table. We can think that they would never go net/direct/eliminate commissions/ etc, but again, we have no say and any changes they do make–will necessitate a reactionary response from us.
- Or we can get our act together and learn to survive on the backs of ourselves. Now is the time to look deeply into your business and your abilities and pull out the strengths and benefits you bring to the table. You need to look at some difficult scenarios—do you downsize, fire clients, fire suppliers? Do you get out entirely? Do you find a niche that you handle particularly well?
Now is the time to look into these alternatives rather than later.
If you are still not convinced that the suppliers are prepared to go to a different model, when was the last time a first time cruiser contacted you and did not mention Carnival? When was the last time an engaged couple came to discuss honeymoon plans and did not mention Sandals? Do you really think that Sandals and Carnival are not prepared to go direct when they have that strong of a brand recognition and market penetration into the psyche of your client?