It was in 1995 when Delta sent out the notice. No longer would they be paying 10% commission on airline tickets; they were capping the commission at $50. Do the math. Whenever you issued a Delta ticket valued at more than $500, you were losing money. As predicted, the other airlines followed suit. And the caps were followed by cuts. And the cuts were followed by elimination. Remember that history as we navigate 2018 and the news that Marriott has decided to reduce commissions on group bookings. We can learn much from the past.
In 1995, the bell was tolling for the travel agents. Pundits all proclaimed the industry all but dead—especially when you consider the meteoric rise of online agencies. Microsoft launched Expedia in 1996 as did the airline-owned Travelocity. Certainly legacy travel agencies were doomed. But they weren’t. They just got smarter.
Sure, many went out of business. Many of the smaller ones could not absorb (or accommodate for) the loss in revenue. But the ones that thrived and even expanded knuckled down and got to work. They implemented service fees and management contracts. They brought more to the travel table than a mouse and some forms on this thing called the World Wide Web. It was not easy. In fact, in 1997 this guy named Fred E. Flyer was the difference between a profit and a loss for my retail agency. We were late to the fee game and were figuring it all out. We sold luggage and accessories, foreign cell phone rentals, and Fred. He was all decked out as a frustrated flyer tired of the fees and lines and shrinking seats. People resonated with him and we sold prints for $25 each. We ran 500 of them at the local Kinko’s (at the time) and at tax time, we ended up turning a $11K profit for the year.
My only regret from those days was not implementing my fees sooner. So, if you are not charging fees yet—do it. Take this Marriott news as a warning. While you may be “valued partners”, you need to keep in mind you are not “valued shareholders” who hold more sway with corporate policy. I suspect that you will see similar moves from most major brands in the next six months. Will commissions be eliminated entirely? My guess is yes. Of course there will be back end deals; but for all intents and purposes, I think that hotels will join the airlines in a zero commission environment.
Will cruises and tours follow suit? Certainly at some point they may. I know Carnival always thwarts off recommendations from their investors to reduce or eliminate commissions. So far, cruises and tours still recognize the value we bring to them. But I do not think that will be forever!
So, what to do? Look back to 1995. Not in the industry then? Ask someone. Do not get caught with your pants down like I did. Evaluate your business and create a detailed document of all the value you provide to your clients. In the future, your clients are the ones that will be paying you; so you must know what you bring to the table before you can begin to figure out a price. Look at your business mix. What is profitable to you? Look at a time versus cost analysis. If you earn $100 commission on a booking that takes you 3 hours to do, have you really made anything? When you figure in your overhead for rent, insurance, equipment and software, etc. do you come out ahead or behind? Look to eliminate certain travel types (or vendors) and others. Evaluate your market. See what fees it will support. Do you need to make a change in your work environment? Smaller office? Need to upgrade your technology to work better? There are a thousand ways to look at what may be needed in the future.
The key, is to begin the process now…at your leisure…so if and when the time comes, you can implement it effectively.