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Are airlines clipping its own wings with IATA's weekly settlement plan?
05 Jun 2012

Many things have gone against the interests of the Indian travel trade this year. Increased UDF charges at international airports, increased service taxes and the sliding rupee have affected their businesses severely. The International Air Transport Association’s (IATA) latest move regarding Billing and Settlement Plan (BSP) has only added to their woes.

India is still considered a traditional booking market. 85% of international passengers from India still go to their travel agents to book their tickets. Many of these tickets are booked on credit on the basis of an understanding developed between the agent and the customer. Agents would remit their sales proceeds to the airlines on a fortnightly basis after collecting outstanding amounts from their customers.

According to IATA’s Billing and Settlement Plan (BSP), with effect from June 1, travel agencies were to remit air-ticket sales proceeds to airlines on a weekly basis, which was earlier on a bi-monthly basis in India. Since credit card usage in the country is relatively low, the move was met with stiff resistance from the travel trade, forcing IATA to defer the weekly settlement plan till November (Read: IATA defers weekly settlement after stiff opposition from travel trade).

Taut opposition from the travel trade has also forced the IATA to rethink its BSP. They will now vote on changing the remittance period from weekly to thrice monthly.

“Agents have always paid the airlines on time; it is the airlines that have not paid their suppliers on time. Airlines very conveniently transferred the blame on agents, by reducing their credit period. Three airlines, Air India, Kingfisher and Jet Airways attended the IATA Passenger Agency Conference and demanded a shorter credit period. Since IATA is the club of airlines, it needs to do whatever its members ask it to do. IATA approved the proposal. But the Indian market is not ready for situation like this,” Travel Agents Federation of India (TAFI) president, Ajay Prakash told India Tourism Review.

“How can you expect agents to remit money in seven days in a country where credit card usage is still low?” Prakash asked.

When contacted, Albert Tjoeng, Assistant Director, Corporate Communications, IATA, said that the Indian carriers had participated in Billing and Settlement Plan (BSP) and proposed an increase in BSP remittance frequency in India.

“The proposal for weekly remittance was discussed by the Agency Program Joint Council (APJC) in India prior to being submitted to the Passenger Agency Conference in October 2011. The APJC comprises of seven airlines and agents (who represent their associations).  Furthermore, this matter has been discussed with the agents association since 2009,” said Tjoeng. 

“IATA does not determine the remittance frequency. The aim is to improve cash flow for airlines and reduce credit exposure,” added Tjoeng.

Reduction in commission

It is no secret that airlines have been reducing commission on tickets paid to agents over the years. From a fixed 9% commission in 2001 to 0% in 2008, the journey has been a tedious one for the travel trade.

“Commission used to be 9% on the total sale of tickets by the travel agent in 2001. After the 9/11 attack, it reduced to 7%. In 2005 commission paid was 5 per cent, while in 2008 many airlines went to zero per cent commission. At present, very few airlines are paying 5 percent, while most are paying 3 per cent. There are many international and domestic airlines which pay us 0% commission,” Prakash said.

Travel agents opine that their commission has been steadily declining with the emergence and growth of Online Travel Agents (OTAs).  

“With the help of IATA, all airlines want to give 0% commission to agents. We at TAAI believe that this is a huge blunder in a market like India where 85% bookings are still done through agents. Airlines are getting trapped by OTAs and consolidators. They think that the commission they are paying to offline agents is not worthwhile,” Travel Agents Association of India (TAAI) President Iqbal Mulla said.

“Travel agents do not support or promote certain airlines which pay 0% commission. At times, we are forced to book tickets on these airlines on basis of demands made by passengers,” Mulla added.

Subhash Goyal, Chairman, Stic Group of Companies said that because of the 0% commission policy by certain airlines, a travel agent is forced to charge its customers a transaction fee.

“The commission we currently receive is just not sufficient. It is becoming more and more difficult for agents to survive,” Goyal said.

On reduction of commission, IATA said that the body is not involved in the “commercial decisions by individual airlines.”

Distribution costs of airlines have gone up because of automation and GDS companies. Airlines pay the GDS companies on per segment basis, hence they have to pay more to these software providers and they are left with no option but to reduce the commission of the travel agent.

Ajay Prakash said that reduction in commission is a “very short sighted policy.”

"The current scenario is the fall out of what happened in the US in 2000-2001 when Delta started reducing commission slowly and finally they eliminated commission all together in the US. They might try doing it in the rest of the world. But in India, it is like cutting the branch you are sitting on,” Prakash said.

Most international bookings done by agents

Why agents feel cheated with IATA’s latest move is the fact that 80-85% of international bookings are still done through them. The technology is available to customers to book tickets online themselves, but majority of them still prefer going to the travel agent personally to make their bookings.

“It is true that over 80 per cent of International bookings are done through travel agents in India. However, for domestic travel only 40-45 per cent of the people book through agents. For low cost airlines about 90 per cent of the bookings are done online,” Goyal said.

“Travel agents not only sell the ticket but they also guide the customer which is the best route, best way and the most economical way of travelling. Obviously they are not just travel agents but travel consultants,” Mulla said.

Indians go to an agent because of the personalized services they get.

“If one books through us, there is always a person you can reach when things go wrong. If you have booked your tickets through a website, you don’t know whom to speak to. The after sale service is assured when the tickets are booked through agents. That is why travelers prefer us,” Prakash said.

“In case of cancellations, they are not lost, they know where to go to get refunds and make alternative bookings.  In case of online travel, they just do not know what to do,” said Goyal.

Effect on customers

The Indian travel trade feels that the weekly settlement scheme will finally affect their customers.

“Customers better get used to pay money upfront, because otherwise no agent would be able to issue their customers any ticket. I cannot be financing my customers. I am travel service provider and not a banking institution or money lender,” said Prakash.

IATA, however, said that agents can still maintain the same credit period.

“This is very much a commercial decision between the agent and their customers.  The agents can still provide the same credit period depending on the cash flow of the business,” Tjoeng said. 

Opposition

The various travel and tours associations in India are working aggressively to voice their displeasure to airlines, IATA and the concerned Ministries to get a rollback of the decision.

Mulla said that TAAI is in constant dialogue with the Tourism Ministry and Civil Aviation Ministry.

“We have to push through and educate the general customers, the ministries concerned and the DGCA about our problems,” said Mulla.

Ajay Prakash said that TAFI is trying to convince IATA and the airlines to reach to an amicable situation.

“We have explained to them that seven day payment cycle would be impractical in the current scenario,” said Ajay.

“The association I am associated with – the Indian Association of Tour Operators (IATO) have taken up the issue of Service Tax which is affecting majority of our members and our sister associations like TAAI, TAFI & IAAI have taken up the issue of commissions and weekly payments.  IATO supports them and is committed to stand with them,” Goyal said.

TAFI has suggested an amended payment cycle which will give more credit period to an agent. The suggestion has been made directly to IATA, which is yet to respond.

“IATA being a mediator between airlines and travel community should look at the interest of both the parties. If they don’t agree then we have no other option but to go for a legal procedure,” said Mulla.

When asked if they have a proposal to find a solution for the issue, IATA’s Tjoeng said, “The Passenger Agency Conference is voting on the proposal to change the remittance period from weekly to thrice monthly."

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Lalith Kumar
27 Jul 2012

Reducing travel agents commission and improving margins is a wrong tact. Now whom will the airlines blame for future losses or will its top brass offer to reduce salaries?

Pls note many airlines do have LCC's too which are also in red ( no commission is paid there)

Noorzaleha
06 Jun 2012

Well said Mulla , I concur and agree with your comments. I just want to share briefly what happen in Kuala Lumpur, Malaysia.
1)IATA Malaysia had written to accredited agents informing that Default Insurance Program (DIP) will be expire in Malaysia on 31MAY2012, and the programme will be disconnected once expired.IATA asking to put in a BG of a stated amount by 20MAY2012, which is given these agent only about 7 weeks notice to raise a BG in lieu of the DIP once expired.
DIP was brokered by Contractor Bonding LTD (CBL)
2) We have communicated with IATA KUL , both in writing and discussion on the said matter, but as of now, no respond from them.
3) 140 DIP agents are not happy with the situation and intent to protest.
4) We had send email seeking help from Mr Joe Foged of Travel Agency Commissioner(TAC) to look into the matter,and 1st replied from Mr Foged that he is not able to assist.

Securities provided by agents to meet financial criteria under the sales agency rules - criteria for the evaluation , approval and review of providers and products established pursuant to passenger agency conference resolution 850, under the following clauses as below :
5.4.3 - IATA may withdraw its approval of the product at 6months notice and in order defined circumstances including as a result of a Periodic Review are as included in the terms of the product.
5.4.4 - The provider must give the manager 6 months notice of its intention to cease to make the Product available to agents in the country concerned so that agents may make alternative arrangement for coverage.

Basically the above clauses stated that insurer has to provided a 6 months notice before any withdrawal of termination of DIP to enable the agents to make alternative arrangement for coverage such as raising the necessary BG required. By giving the agents about 7 weeks notice is definitely insufficient period for the agent to raise the necessary BG for them to continue with ticketing business.
Failure to submit the said BG will lead to issuing of notice of irregularity (NOI) and inhibition of ticketing facility.
The conclusion is we have no choice is to abide by their demand.
IATA dont bother to listen to you...just be prepared...

HILAL A DAR
06 Jun 2012

I endorsed Mr Goyal wrightly submitted, that we are travel consultants, it is not only to book a ticket at own and forget about it we guide the customer in many ways like air routing, economical clasification, air port assistance, refunds process and also we are taking care of customer right from reservation till departure. So to ignore the travel agent will effect the airlines also, travel agent can add the few more products to servive like passport consultancy, inbound/ outbound tours, medical tourism etc. but at the airline swl suffer also.

Santa
05 Jun 2012

Lets concentrate on other value adds that we could give to the end customers. As airlines themselves are in bad shapes they really can't help. So rather pleading with them we would have to gear up/

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