A report by Teresa Ooi and Steve Creedy in The Australian says that the very public scrap between Flight Centre and Singapore Airlines couldn't come at a worse time for either party, with at the centre of the public battle a disagreement over a few percentage points of commission. Admittedly, those few points translate into millions of dollars, but the dispute shines the spotlight on something far more important -- the future of travel agencies themselves.
The open warfare broke out between Singapore, whose international airline code is SQ and Flight Centre last month, with firstly First Flight Centre launching a "Turn the screw on SQ" campaign, ordering its staff to stop selling customers tickets on Singapore Airlines or its Silkair subsidiary, then SQ telling its frequent flyers that they should go to other agents or online if they wanted to book flights.
The spat has livened up the online aviation and travel community. "Alpha Victor", writing on the Frequent Flyer blog, summarising the battle like this:
FC: "Give us better commission or we'll boycott your airline."
ACCC: "What's all this, then?"
That's cute, though not entirely accurate.
For a start, the Australian Competition and Consumer Commission will not confirm if it has anything more than a passing interest in the dispute and there are different versions about the causes of the disagreement.
Typically, all airlines pay a 5% commission fee to travel agents for each international air ticket sold in Australia, with some paying a bit more for a "preferred partner" status, and commissions or overrides can be higher if certain sales targets are met.
Singapore says that when its agreement with Flight Centre expired on March 31, the travel agency tried to impose an 8% commission on top of its existing 5%.
"That's total nonsense," says Flight Centre founder Graham "Skroo" Turner. "Singapore has been one of the lowest payers by far compared to other competitors like Emirates and Ethihad, which pay margins of 8-12%.” “What we have on the table from Singapore is 6%."
Turner says Singapore, "Is attempting to push customers to book online but they will fail as other airlines have tried in the past.” “It's not a smart thing to do at this time when there are more seats available across most airlines and not enough bumps to fill the seats," he says.
Subhas Menon, Singapore's Regional Vice-President, southwest Pacific, says his company's doors are always open to resolve the impasse but notes that, since the debacle, forward bookings on the carrier have not been damaged. "In fact, there has been an uptick," he says.
Sources say Flight Centre might be using Singapore as an example as it approaches Qantas to renegotiate its commission package, which expires on June 30.
Turner says Flight Centre, "Will be looking for a fair margin from Qantas" but adds that, "Qantas has traditionally paid us market rates and we are generally OK with our margins with Qantas".
Since the start of the Singapore spat, Flight Centre has also gone to war with other airlines it accuses of trying to undercut its prices by accepting bookings online.
In his March newsletter to staff, Turner warns that any "recalcitrant" airline that does not comply with its requests should be punished. "Again, these poor economic times give us a chance to get at and punish those carriers (only one or two) who are trying to undercut us on the web, thus costing us in price beats," the newsletter says, naming Malaysia Airlines and a possible Middle Eastern carrier as potential targets.
Flight Centre's battles, ostensibly efforts to bolster its margins, go to the heart of the dilemma for traditional "bricks and mortar" travel agencies.
With the global recession ripping into the bottom line of major airlines, it has never been cheaper to book online for a quick domestic or overseas break.
But there is one key factor to consider.
Most internet ticket bookings are straightforward, usually from point A to point B, e.g. from Adelaide to Alice Springs or Melbourne to Miami.
The problems arise when travellers want to book a holiday for four with different members of the family joining the trip at different parts of the world and each wanting a different itinerary, or when travellers want to book a packaged holiday with hotels, car hire and a night at the local opera.
This is when travellers often want to deal with an agent face to face, or at least over the phone.
The Australian Federation of Travel Agents, which represents 3,000 travel agents in the country, including Flight Centre with its 1,000 outlets in Australia and 2,000 worldwide, is stoically confident that travel agents are not a sunset industry.
"About 85% of outbound flight and holiday bookings are still done through travel agents," says AFTA CEO Jayson Westbury, adding, "For simple point-to-point flight bookings, say from Sydney to Singapore, many customers prefer to book online and get their hotel accommodation from Wotif.”
"That's fine, but the minute you want a holiday package which includes flights, hotels, tours and car hire, most customers prefer to talk to a travel agent and ask for advice before paying for the holiday.” “It is, after all, a huge expense and they prefer to see the credit card transaction completed before their eyes.” “It's a myth that internet flight bookings are cheaper than fares charged by travel agents."
Estimates on what percentage of bookings are made online vary significantly between airlines and between the airlines and the travel agencies, but all agree that they are growing in number and complexity. However, even the airlines are not rushing to dance on the grave of travel agents just yet.
Qantas, Virgin Blue and Jetstar all say travel agents are still the preferred way of booking complicated itineraries and believe they will continue to play a key role in the way people book travel.
At 90%, Virgin Blue claims the highest number of online bookings among the three major airlines but says it does not differentiate between direct bookings from travellers and those from travel agents.
Virgin offers the same web fares to everyone and does not pay base commission on its domestic network, instead leaving it to agents to charge a booking fee if they arrange travel on behalf of clients. It has performance agreements with major agencies and also pays base commission on international offshoot V Australia.
Virgin National Sales Manager Mathias Friess says this means it is hard to say what comes from a direct traveller and what comes from a travel agent.
"People go online but the majority who used to be travel agent loyalists are seeking the neutral advice, shall we say, of an online travel agency."
Virgin has seen constant growth in its Blue Holidays online offering and says its booking engine is constantly evolving, including the recent addition of Polipay as an alternative to credit cards.
The airline says an interesting development is the increased use of social networking travel sites where consumers get updated and supposedly unbiased recommendations for hotels, tours and other services
Nonetheless, it is still not ready to predict the death of travel agents. "There is, and always will be, a large population that prefers to deal with a travel agent they can meet in person," says Virgin spokeswoman Heather Jeffery.
"We see that, especially on international trips, customers still see the need to book through an agent that helps with visa requirements and gives a level of comfort, knowing who to call when things go wrong."
Jetstar says about two-thirds of the airline's fares are booked online by travellers and this has not changed significantly since the airline began.
"You can slice and dice it 15 different ways, depending on what you put in it, because you've got agents booking online as well and that jumps the number up a lot," says chief executive Bruce Buchanan. "But if you're talking about direct consumer online, that's about 65%."
Buchanan says most people are happy to book flights online but there is some reluctance when it comes to holidays, despite advances that allow people to package accommodation and flights.
The airline also finds that travellers in non-branded markets, such as Europe and the US, tend to book through traditional channels rather than online.
"What we're seeing is people adding bits and pieces online, but in the package holiday market we're still doing a lot of that business through a call centre," Buchanan says.
"There are a lot more questions.” “If they're going to the same place, it's fine, but what we find if people are going to a different place, they want some advice about the hotel room or the package and do they get the meals and so on."
Qantas says about 50% of its domestic bookings and 20% of its international bookings are made through its qantas.com website, which has been rated by Hitwise as Australia's biggest travel and commercial aviation website with about eight million visits a month. "Package holiday bookings are still growing but are significantly less than flights and will remain so for the foreseeable future," a spokeswoman says.
"We are finding new features, many exclusive to qantas.com, mean that customers are booking significantly more complex bookings online, multi-sector itineraries, open-jaw itineraries (where you can book a flight from different arrival and departure points), stopovers and round the world bookings."
Qantas has been offering international and domestic packages on its website for about 18 months and introduced new payment mechanisms and the ability to add other products to flight bookings such as insurance, hire cars, hotels, transfers, and carbon offsets. Other refinements include ways to search for flights, warnings when seats are running out and filters that can sort flights by parameters such as date or cost.
Qantas also believes travel agents will continue to play a key role in its distribution network and the spokeswoman says the airline continues "to have a strong relationship with the agent community".
The airline would not talk about costs savings and refused to comment on the stoush between Singapore Airlines and Flight Centre.
But Virgin's Friess says it will be closely watched by the airline community. "It is interesting and we will watch it very closely because it does define the relationship between airlines and agents," he says.
JPMorgan analyst Bryan Johnson says that as more customers move to online channels and demand remains soft, "We expect the high fixed costs associated with Flight Centre's bricks and mortar style shops will negatively impact earnings margins and group profit.” “We see little signs of marked recovery in travel activity within Flight Centre's core markets and hence expect a significant degree of downside risk in the short term".
But Turner recalls that "12 years ago, analysts were writing about the demise of Flight Centre's bricks and mortar shops.” “Today they are still writing the same thing.” “Nothing has changed".
A Report from The Australian