Thomas Cook the latest to cut commission

Thursday, 28 Nov, 2005 0

ABTA Convention special report: Thomas Cook has become the latest major tour operator to confirm that it will be cutting commissions.

Market leader Thomson announced on the eve of the ABTA Travel Convention that it was reducing base commissions to 7% from January 1 and First Choice quickly followed suit.

Thomas Cook UK & Ireland chief executive Manny Fontenla-Novoa said it could not afford to be uncompetitive against its major rivals.

“If you ask me whether we are going to cut commissions, then yes we are and we’ll pass on the savings to the customers,” said Fontenla-Novoa. “We just can’t afford to pay an extra few percent than our rivals.”

However, he said some high producing agents, such as some branches of the Co-op, were tied in to deals which lasted until summer 2006 and Thomas Cook would honour these contracts.

Fontenla- Novoa said that retailers could still retain the same levels of pay by keeping hold of the commission payments rather than discounting.

“The key is how much retained commission they have,” said Fontenla-Novoa. “At the moment the industry average commission is around 14% and then 6% is given away in discounts. It doesn’t make sense and we want to take back control of our pricing.”

Fontenla-Novoa confirmed it had a tit-for-tat agreement with Thomson, whereby both operators cut commissions to each other’s retailers.

The company later released a statement saying it “can confirm that it is aware that Thomson is to reduce its commission level it pays to its agents that sell its holidays.”

Fontenla-Novoa said in the statement: “We can confirm that we’ve agreed new commercial terms with Thomson. This move is not wholly unexpected since many of our direct competitors have cost of sale advantages over us.

“Clearly we operate in a highly competitive and price sensitive market and we cannot allow Thomson or any competitor to gain a competitive price advantage over us.

“As a business it is our strategy to be the lowest cost provider, as well as to offer our customers the best value holidays. This move clearly has significant implications to us achieving this aim, and therefore we have no alternative but to, and with immediate effect, work closely with our partners to review our cost of sale position.”

Report by Jeremy Skidmore