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Savings from commission cuts will ‘reduce reliance on agencies’
Commission cutting by major operators will force all travel companies even more rapidly towards the web and a closure of more travel agencies, a travel website specialist claims.
Peter Matthews, managing director of Nucleus, says a growing percentage of full margin web revenue by the big four operators [15-20% next year] has provided the strength for three of them to reduce agency commissions, “creating a paradigm shift for the whole industry”.
He was responding to Thomson’s downward shift to 7% base commission from January 1, which is being matched by Thomas Cook and First Choice.
“The growing percentage of direct, full margin web revenue, together with the savings from reduced commissions, will now create greater returns for shareholders and also to reduce prices to customers, ” Matthews said.
But he warned that these price benefits are likely only to be experienced by direct web customers, “creating differentials between channels and reducing further their reliance on travel agencies”.
He added: “In these circumstances a combination of closing more of their own high street stores and squeezing commissions to agents is inevitable. The writing is on the wall.”
Matthews believes smaller operators left with higher cost bases than their big four rivals will either have to follow suit, raise prices or quickly increase their own direct business via the web.
Travel agents have even fewer options and are even further behind in leveraging the web, according to Nucleus. With growing percentages of lower commission revenue (7% commission is up to a 30% cut in current margin) agents will need to cut costs dramatically or find new ways of going to market.
“With margins squeezed and squeezed again it will be survival of the fittest – or fastest on their feet. Again, the web may be both the problem and the solution. Moving online could reduce operational costs; emarketing brings down the costs of customer acquisition; and dynamic packaging can provide customers with increased flexibility, choice and improved personalisation,” the company said.
Report by Phil Davies
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