The cost of flying looks set to rise again after a move by BA
to cut the commissions it pays to agents in order to reduce its distribution costs and improve profitability. From December 1, 2003, the airline will introduce a commission based payment scheme of 1% for UK travel agents who make British Airways’ bookings. This replaces sector payments, which were introduced in April 2001.
BA aims to cut its distribution costs by £100 million and encourage more people to book over the internet. Agents have reacted with anger to the news and say that these costs will ultimately be passed on to the customers, who will now have to pay a service fee when it comes to buying a British Airways ticket.
is “very disappointed” by the news and believes the cut in commission constitutes such a big drop that agents will not be able to absorb. They say they were not consulted over the change and cannot support the initiative.
Last year ABTA challenged BA’s reduction in sector payments on competition grounds and complained to the OFT. However, the OFT concluded that BA were entitled to reduce their commission level as agents were able to add their own mark-up or service fees to BA’s fares.
BA has changed its commission structure several times in the last few years causing bad feelings amongst agents and driving many customers to other carriers.
Tiffany Hall, British Airways head of UK & Ireland sales and marketing,
said: “Rapid changes in market conditions over the past 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 and our business plan to
2005 is focused on cost reduction and business simplification.
“To support our strategy to offer full service at low fares, we must
compete more effectively with no frills carriers who pay nothing to travel
agents. We have lowered our fares during the last 18 months and to sustain
these lower prices, we must reduce our distribution costs further,” said
“We are committed to offering customers a choice of ways to book British
Airways- through travel agents or directly with British Airways. For those
who choose to book directly with British Airways, the lowest advertised
price will be available on ba.com.”
BA used to pay agents between 7 and 9 per cent for each ticket sold, which was switched to a flat fee of between £6 and £20 per ticket depending on the destination and class of travel. Now BA wants to pay 1 per cent of the ticket price which would average a £2 fee.
Mr. KC Ong at Sagitta Travel told Internet Travel News that he was not at all surprised by BA’s move. “I don’t think BA is a national airline that looks after the travel agent. This move will make the environment even tougher for high street travel agents and many will be forced to close.
We have spoken to many competitors and it is agreed that we need a minimum £15 per booking to survive. This means that we will have to charge customers a service fee, or turn customers away. We no longer recommend BA flights to our customers.
“Technology is improving each day and as consumers get used to the internet they are increasingly opting for this medium whether or not airlines encourage them to book online”.
BA’s move has certainly sparked a lot of controversy and it will only be a matter of time before other airlines follow suit. BA is competing aggressively with the no frill carriers, yet it still claims to be a full service airline. Meanwhile it is travel agents who will be the hardest hit by these latest developments.
What should agents do when travellers ask them to book flights? Should they send customers to the Web, where the airlines want them to go and where they may realise that they don’t need travel agents after all? Or should they continue to help travelers find the best flights, even though they are no longer being paid enough to ensure their survival?