In an aggressive move that counters recent trends among packagers, Funjet Vacations has reduced the commission levels for its lowest-producing agents.
The idea, said Funjet President Mike Going, is to generate more commitment from the agent channel.
“What we’re looking for is to inspire those agents to engage with us, pick up the phone, call a salesperson, commit to some volume, because you’re looking at less than a booking a month,” Going said. “So it is [aimed at] very lightly engaged people. … We’re looking to say, ‘Let’s cut a deal, let’s get back to the commissions you minimally were at with some volume commitment.’”
Funjet scaled back commissions for its lowest-producing preferred agencies to between 7% and 10% and cut the rates for its lowest-producing, nonpreferred accounts to between 5% and 8%. The industry standard is 10%.
Going said that the move would affect 2% of Funjet’s business.
But for Stephanie Diehl of Travel Designed by Stephanie, who saw her Funjet commission rate cut to 5%, the move is reminiscent of when the airlines began making similar commission cutbacks to encourage agent loyalty. Those cutbacks ultimately resulted in a complete elimination of commissions.
“It could set a precedent for other tour operators to follow suit,” said Diehl, who predominantly books with Apple Vacations and uses Funjet as her backup. “For example, Apple Vacations or Gogo could say, ‘Funjet’s getting away with it; why can’t we?’”
Thus far, other packagers seem to be in no hurry to follow suit.
“As all of us know in this industry, pulling back commissions is one of the hardest things to do, and you only do it as a last resort,” said David Hu, president of Classic Vacations. Hu would not divulge Classic’s commission structure, but he said it had not changed and would not change anytime soon.
Funjet’s decision to challenge its lowest-producing agents to make stronger commitments or face lower commission levels comes just as the wholesaler invested millions to offer a guaranteed 5% commission on the air portion of all international and Hawaii packages that include scheduled service with United Airlines, Delta Air Lines, US Airways, American Airlines, AirTran and Alaska Airlines. That compares with the 5% or less on scheduled air that Funjet had been paying.
“We’re not afraid to take risks,” Going said. “It gives us the opportunity for a larger discussion. I’d love to sit with an agent and go, ‘Funjet looking bad? Gee. I’ve got multiple million-dollar investments just in commissions.’ We haven’t even started talking about people, sales resources, marketing resources, co-op monies, which quite frankly I’d like to see more agents getting a piece of, than sitting there taking one of the smallest pieces of a program and having that define me. If someone wants to think of me that way, I’ll risk it.”
Funjet’s low-tier commission slash appears to counter a recent onslaught of agent incentives being rolled out in the wholesale space, a competitive momentum that has been snowballing in recent months.
A recent ASTA survey showed that the number of travelers who use agents has risen to 13% in the past year, up from 11% in 2010, and that means there is more trade business for wholesalers to compete for. Additionally, Apple Leisure Group’s acquisition of Travel Impressions this past summer brought together the inventory and trade relationships of two major vacation package companies, ALG’s Apple Vacations and Travel Impressions, heating up competition in the marketplace.
Packagers have been responding to the competitive environment with better agent incentives and agent-focused technology upgrades.
In December, MLT Vacations, which operates Delta Vacations, introduced a more aggressive price-match policy that gives agents more immediate price-match confirmations, followed by a new rewards program that enables agents to earn points redeemable for personal travel year-round.
Mark Travel, which owns Funjet and took over the management of United Vacations from MLT in December, has also been enhancing its best-price guarantee program in recent months.
And Classic Vacations, after four years of allowing both agents and consumers to book its vacation product online, in November restricted its online booking capability exclusively to agents.
But if all those indicators seem to position Funjet’s recent move as contrarian, Going isn’t about to back down.
“There’s a risk in everything in life, “ he said. “There’s a risk in staying the same. Sometimes the safest is the most dangerous. We’d rather push it and be aggressive and inspire agents to bring us more, make more and acquire new customers.”
Follow Michelle Baran on Twitter @mbtravelweekly.