This is the first in an occasional series of articles exploring revenue opportunities and best practices for travel agents.
This week in Las Vegas, Vacation.com President John Lovell introduced to his members a new program he called a "game changer."
What is so revolutionary about the new program, known as AirPro, he had told Travel Weekly two weeks earlier, is that it gives Vacation.com-member agents the ability to make money selling air. "Our agents will now be in a position to really drive the customer experience from end to end and drive a new revenue stream," he said.
That Lovell called AirPro "a new economic model" for Vacation.com members illustrates the chasm between travel sellers and airlines.
When airline commissions ended in the early 2000s, many believed it marked the collapse of a revenue model that would spell the end of the travel agent.
In fact, it did not. But it did lead to a decade in which agents snubbed ARC numbers and focused on selling cruises, tours and resorts. For them, air had become a necessary evil that they often avoided altogether when they could.
But the elimination of air commissions did something else, as well: It forced travel agents to become more creative in order to adapt and survive.
Many began charging service fees; they specialized in certain destinations or products; they quickly adopted the Internet and sold travel online.
And, paradoxically, over time quite a few accomplished something even more revolutionary: They learned to make money selling airline tickets.
Roger Block, president of the Travel Leaders Franchise Group, has long bemoaned the opportunity travel sellers lost by giving up on air and, in the process, enabling the major online travel agencies to build a competing new industry on the sale of airline tickets.
"Agencies over the last decade have almost abdicated a market to the online players," he said. "The fact is that most travel agents in today's world don't promote the fact that they sell airline tickets. Many have dropped their ARC appointments, and many do not want to promote it to their customer base. It's a huge income opportunity that they are losing."
In May 2002, there were 32,129 ARC-appointed agencies. By May 2011, that number had dropped to 16,505.
While much of that is due to consolidation, it is also because there are fewer agencies overall, and fewer still that are willing to sell air.
Block traces the reduction to smaller agencies being afraid to charge service fees, and industry leaders counseling agents to focus only on cruise and tours.
He said the danger in not promoting air goes beyond the immediate loss of income: It trains customers to book travel on their own.
He noted that vacations such as cruises and trips to Mexico, once the "exclusive domain" of retail travel agent distribution, are now being booked online, as well.
"A lot of it is that the OTAs are getting more sophisticated in their booking engines, and they are easier to use, but it's also that the comfort level is there," Block said.
The more familiar the customer gets with the online booking process, he observed, "the more they will book it themselves."
The idea of abandoning air tends to baffle the younger generation of agents, who are not disposed to cede air sales to the online giants.
For example, like other agents his age, 34-year-old Ryan McGredy of Moraga Travel in California never knew the era of straight airline commissions. For him, airplane tickets are just a source of revenue he refuses to leave on the table.
"So many people have been travel agents for so long, and there used to be money in selling air," McGredy said. "It was the primary way they got paid. Now you have to work a little harder to find money in air."
He added, "It's way more complicated. You have to be sure you book the right route, the right carriers on the right route and the right fare code to make sure you are getting paid. But you can get paid."
Share shifting
Agents who make money selling domestic airline tickets have learned to navigate a payment structure very different from that of cruises, tours and hotels, which reward travel agents for volume and pay commissions on each sale. The key, they say, is to "shift share" by steering clients to the agent's preferred airline.
Jack Mannix, the former president of Ensemble Travel who now has his own consulting firm, said many travel agencies make a lot of money selling air because they are more effective at directional selling than their peers are.
"In the domestic marketplace, if you are large enough to get an override deal from a carrier, you can make money at it, but only if you can manipulate your share of sales toward that airline," Mannix said. "The sharp ones are really good at moving share. In that way, they get to exceed their peer average, and that's where these guys make money."
He said in general, an agency only has to be able to persuade a customer to switch to the preferred airline one out of 10 times to exceed peer share.
"If the customer doesn't have a strong carrier preference, and you have good selling skills and can move the customer from what they asked for to the airline you want, that will help you exceed your peer," he said. "If you don't do anything to change market share, you'll probably end up at 100% of peer. But if only 5% to 10% of the time the customer takes what you want them to book, you can make some serious money at it."
Montrose Travel in Montrose, Calif., is an agency that has been successful at deploying a share-shifting strategy.
"Airlines will work with travel companies that truly have the ability to shift share and move business," said Joe McClure, president and co-owner of Montrose. "Inherently, airlines do not believe that travel agents and travel agencies have the ability to direct the customer to use a specific airline. That lack of control is one reason airlines don't work with many travel agencies in this regard."
On the other hand, he added, "If you can prove to an airline that you have control and can shift share, that's a game changer. They will reward you for that loyalty."
Montrose, he said, has made a lot of money selling air by being "loyal" to the airlines it partners with, by not playing the game with everybody and by having the technology set up to control it.
"You have to have technology programmed so you don't have leakage," McClure said, explaining that only certain tickets qualify for commissions and that the programs are very fluid, with certain classes and service and routes often changing or becoming a part of the program for short periods of time.
"Unless the technology is properly programmed to attach the correct account and contract code, then the reporting won't be accurate," he said. "Without accurate reporting, we won't be able to properly control share shift.
"Getting the deal is one thing, but using it and taking advantage of it is another."
Montrose agents are given incentives to help support the carriers the company works with.
"We create a holistic environment that supports our airline relationships," he said. "The earnings that we get are far greater than the incentives that we pay out. ... It is a valuable part of our business, and it is a revenue generator."
International tickets
For agencies that are too small to play the share-shift game, there is also money to be made directly from airlines on international tickets, one of the few areas where airlines pay point-of-sale commissions.
McClure said the commission levels vary widely, ranging from as low as 1% to as high as 25%, with the average being between 5% to 12%.
"With first- and business-class tickets, it's not unheard of to get a 25% commission in certain markets internationally on some international carriers," he said.
In this realm, airlines often compensate travel agents differently than cruise and tour operators do, rewarding them for selling up.
"Some pay for business and not coach, but they all pay more for business," said Moraga Travel's McGredy. He also said that there seems to be a correlation between airlines with the highest service levels and the highest commissions, adding, "They realize there's a little bit of a sell there."
Virgin Atlantic was the airline most cited by agents in terms of not just a willingness to pay commission but, as McGredy put it, for understanding the value of a travel agent.
Andy Grodecki, North America vice president of sales for Virgin, said that one reason the airline is so trade-friendly is that its highest average ticket price comes through travel agents.
"We have a very high focus on our premium business as an organization," he said. "It is no secret that we have made a huge investment in the premium cabins. We focus on getting a return on that, and we see that value given to us by the trade. They are selling the premium tickets."
Commissions are part of what Grodecki calls a decision the airline made post-9/11 to "seize the trade" even as market leaders like British Airways moved away from travel agents.
"We had a choice to either follow them as the dominant carrier or seize the opportunity and seize the trade and invest in the trade," Grodecki said.
He said the strategy was a "huge success" in the U.K. and is a growing success here.
Part of Virgin's strategy is to get as many travel agents as possible to try the product.
"It makes a huge difference if we can get the decision-makers onboard," Grodecki said.
As for other airlines' policies, travel sellers say they vary greatly, by airline and even by the day.
McGredy said, "It depends on the week, the year, the day. The major carriers tend to be cyclical. Some years they love us, and some years they try to cut us out."
McClure said Montrose has created great friendships with the airlines, and he warned that maintaining an airline vendetta is counterproductive.
"We don't kick the airline in the shin," McClure said. "You can stay negative and whine and complain, or you can embrace them. Embracing airline relationships is much healthier than complaining about them. Complaining is not going to do too much."
One travel agent said that as cruise prices have fallen, there is sometimes more money to be made selling first-class and business-class airline tickets than on the cruise.
Service fees
Despite these success stories, smaller travel agencies do not generate enough volume to make much commission from airlines. But they always have the option to charge a service fee for ticketing.
Travel Leaders' Block has long advocated fees as one of the simplest ways agents can make money selling air, and he said every Travel Leaders agent charges service fees.
"The typical travel agents makes less than $30,000 per year," he said. "If a customer wants to buy an airline ticket from point A to B, it's probably less than a 15-minute transaction. If you can make a $25 transaction fee, plus the segment fee from the GDS, that could be close to $30 without any override.
"For 15 minutes, that's pretty good income on an hourly basis."
Besides, Block and other industry leaders pointed out, selling air makes the travel agent full service, which in itself adds value and trains the customer to rely on that agent.
McGredy said his agents charge what he calls an "air consultant fee." He said they try to help the customers look at air holistically and not worry about small changes in price if it means leaving when they want to and spending less time on the flight.
"It's a lot of the reason why people come back to us for all kinds of trips," he said. "Because they booked air with us."