Agents braced for more cuts as Thomson reduce commission

ABTA Convention special report: Agents could be facing a raft of commission cuts as Thomson became the first mass market operator to reduce its base rate to 7%.

In a controversial move that will have widespread implications for the trade, the operator will introduce the reduced levels from January 1.

Observers said it will accelerate the move towards net rates with Cosmos believing the move is “inevitable.”

In a brief statement, Thomson – coinciding with the start of the ABTA Travel Convention in Marrakech where the operator is a headline sponsor – said its distribution costs remained “uncompetitively high.”

Negotiations have started with agents with an agreement with Thomas Cook already reached.

“This is a new step in its drive to reduce costs and improve its competitive position, notably against the new forms of holiday taking,” the statement said. “Over the last year Thomson has completed a major restructuring, moved its head office from London to Luton, cut thousands of jobs and invested in web development.

“Distribution costs however remain uncompetitvely high. The Thomson strategy is to reduce these costs and to regain control of the pricing of its holidays.”

The operator, which has forecast 50% of its mainstream package business will be booked online by 2008, said the new Thomas Cook deal will see its own shops receive “significantly less” commission rates.

The move – widely predicted but possibly earlier than anticipated – is highly likely to prompt other operators to follow suit.

Industry experts estimated that around 75% of Thomson’s holidays were now sold in-house. “It feels it is now the time to bite the bullet and cut commissions because it is not so dependant on other retailers anyway,” said one.

In the aviation industry, carriers cut commission rapidly once the trend had been set by British Airways.

Cosmos commercial director Stuart Jackson predicted it would not be long before other operators followed.

“For individual components of a package the move towards net rates is inevitable and the next natural step will be for pre-packaged holidays to follow suit,” he told TravelMole. “We’ll judge the reaction of retailers before we make any decisions.”

He said operators who maintain high rates of commission could be at a competitive disadvantage as brochure prices will appear more expensive than those paying less commission.

A statement from the Co-operative Travel Trading Group said: “CTTG is currently in contract negotiations with its key suppliers including Thomson. We have no comment to make on Thomson’s announcement at this stage.”

MyTravel said it would “consider the implications for the industry” before making further comment.

First Choice is known to be weighing up the implications of Thomson’s action and the impact on its own retail business.

Report by TravelMole reporters