Hosts, consortia have agents booking air profitably again

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Contradicting long-accepted assumptions in the travel business, leisure agents — some of whom spurned air for nearly two decades — are once again taking home millions of dollars in airline commissions.

They’re able to do this because the agency marketing groups they’re associated with — host agencies and consortia — have negotiated preferred supplier agreements that come with point-of-sale commissions and end-of-year overrides.

What’s more, in an era when the acronym “GDS” can cause new entrants’ eyes to glaze over, host agencies and consortia are offering their members new ways to book air, such as air desks staffed by experts who simply take over the air portion of a booking, and easy-to-use, point-and-click, B2B air booking tools.

These air programs also come with built-in quality controls to prevent the dreaded airline debit memos, which can devastate a small agency and which have discouraged many agencies from selling air at all.

Best of all, these new preferred-supplier agreements mean agents can offer their clients exclusive products and services: seats not available to consumers in general, upgrades or waived penalty fees.

Of course, a large part of the leisure agency community never did stop selling air, primarily because they understood that airlines never entirely stopped paying commissions.

The Travel Leaders franchise group, for example, never ceded that business to online travel agencies (OTAs). And Montrose Travel, a large West Coast agency (No. 54 on Travel Weekly’s 2012 Power List), not only contAirplane globeinued to book air but made sure all its agents were trained in how to sell it.

But Travel Leaders and Montrose are large entities with the resources to negotiate with suppliers and provide their agents with the tools and protection they needed to book air comfortably. And even then, there was no question that the new air commission structure was nowhere near as lucrative as the old one, so many agencies instituted service fees when they booked seats.

After airlines abandoned their old commission structures in the mid-1990s, agencies whose main source of revenue had been airline tickets quickly shifted to selling more high-margin products such as cruises and tours. Many agents felt betrayed by their former airline partners and swore off air. Others simply found that selling other products, many of which included air, offered a better return on their time. And the ever-present specter of debit memos scared off others.

But even these leisure specialists eventually found they could no longer afford to leave air commissions on the table.

One reason the Travel Leaders Group (No. 10 on the Power List) bought the host agency Nexion two years ago, according to Travel Leaders CEO Barry Liben, was all the airline commissions its agents were leaving on the table. In 2011, Nexion agents put an additional $2.3 million worth of airline commissions in their pockets, Liben said.

Virtuoso, the luxury retail marketing travel group, saw the potential for air early on. In the 11 years since it started its Virtuoso Air Desk, it has grown its air business from sales of about $100,000 per week to between $1.5 million and $2 million a week today, according to Jim Osborne, Virtuoso’s vice president for air, space and specialty products.

Belying the belief that there is no money in air, Osborne said that the biggest commission on an airline ticket this year was a whopping $3,663.

Travelsavers, whose 3,000 agencies worldwide generate more than $20 billion in sales, introduced its TIX air program four years ago after its members demanded it, said COO Jim Mazza. Mazza would not share sales figures but said that Travelsavers would double its ARC volume this year.

And Ensemble Travel Group, whose Air by Ensemble program is three years old, is seeing “phenomenal sales,” said Brian Chapin, senior director, air and travel solutions.

The push to sell air has come both from the agent community and from the managements of hosting services and consortia. Travelsavers’ and Ensemble’s programs both resulted from members demanding it, while Virtuoso’s and Nexion’s programs were implemented from the top down.

Either way, the major motivator is money, and even agents who are intimidated by selling air tend to convert when they see the numbers.

Virtuoso has a program called “Air Challenge” that analyzes past sales that agents have made without air, and then shows them what they could have made with it.

“If you’re making $100 on a ticket, by not selling air at all, it’s money you’re throwing out the door,” Osborne said.

It’s not just so-called traditional retailers who are capitalizing on air. Most of the sales by one online booking company, Fareportal, which runs CheapOair and TravelOne, are air, and the company expects to sell between $2.5 billion and $2.75 billion worth of air this year.

Still, Fareportal is an anomaly in the online travel world, where the more common model is to use air as a loss-leader to attract customers who then buy more profitable products such as hotels, car rentals, cruises and vacation packages.

Fareportal has seen its business grow by 20% this year alone, according to Mark Drusch, the company’s new chief supply relations officer. The company, which has 1,500 agents, makes money on commissions and service fees that never go higher than $25, Drusch said.

It still makes sense for airlines to sell through agents.

Speaking at a recent conference sponsored by The Beat, a sister publication of Travel Weekly, Robert Carey, an associate principal with McKinsey & Co., said that direct airline sales produce a lower return on investment for airlines than agent sales do. Citing a recent study for an airline client, he said McKinsey found that the average revenue per booking through a travel management company was $500 and cost the airline $25.50. An average direct booking through its website was $400 and cost $21.50.

Unlike the old days, airlines now offer commissions in a highly targeted fashion, paying for achieving certain sales thresholds, for selling a certain type of seat or for selling seats on new or struggling routes.

Agent air sales represent value for consumers, too. An experienced agent working in a GDS can pull up schedules, fares and other options far faster than a consumer can on a website. Heather Dolstra, an agent with Democracy Travel in Washington, says she can immediately see not just schedules and fares but things like alternate routes through different connect points.

Vacation.com’s AirPro program offers agents B2B booking engines that are similar to consumer booking engines but with more detail than is generally found in the latter.

Hosts and consortia offer their agents a variety of tools for booking air that accommodate different skill levels. Besides using a GDS or a B2B online booking tool, agents can simply call or email their air desk. To protect agencies from debit memos, which sometimes can be large enough to devastate a small business (and which many agents believe airlines are now using more aggressively) these agency groups offer quality-control procedures.

“On debit memos, if we make the mistake, we eat it,” said Virtuoso’s Osborne. “And we have automation that stops most of them.”

Agency booking tools can be highly sophisticated and custom-tailored to the agency. Virtuoso Air, for example, lets agencies display either all airlines or only the airlines the agency wants to sell.

And for agents who are not in a hosted relationship, there’s always the time-honored option of turning to consolidators.

Centrav, a consolidator based in Burnsville, Minn., has seen its ticket sales increase 10% year over year, said Greg Rholl, Centrav’s vice president for pricing and distribution. New agents are continually signing up, he said.

“Even though air ticket sales may not be the biggest-profit ticket in the menu, it’s very important that agents handle the air sale,” Rholl said. “If they don’t, who will? Customers who want a travel agent will look for one that is capable of setting up their entire trip. Conversely, if a customer is pushed to an OTA for their air ticket, they may decide to book their cruise online, too, because that OTA will likely offer them a package deal.”

Photo courtesy of Shutterstock.

Follow Kate Rice on Twitter @krtravelweekly. 

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