Airlines told, go to zero, don’t do it in drips

20 April 2001

Amid speculation that Cathay Pacific is preparing to cut commissions to five percent, a leading corporate travel agent has challenged airlines to bite the bullet and scrap commissions totally, instead of doing it bit by bit.

David Pettigrew, regional director Asia/Pacific of Business Travel Intenational (BTI), said, “I am not sure why the airlines prefer to gradually decrease commissions rather than scrap them in one go. Maybe they are trying to soften the blow, but I think they actually make things more difficult for us because each cut requires us to re-evaluate our finances and re-negotiate with our clients. Each time this happens we seem to make less money.”

Pettigrew raised the issue during the Association of Corporate Travel Executives (ACTE) forum held in Hong Kong recently.

Cathay, whose turnover increased 20.3 percent to HK$34,523 million (US$4.3 million) in 2000 over the previous year, trimmed commissions from nine percent to seven percent in January 2000.

A spokesman for Cathay said there has been discussion with the trade about reducing rates further to five percent but no fixed date has been set. “There have been some indications from local travel trade bodies that five percent would be an acceptable level, and they do not see this figure being a problem for the trade as a whole.”

Nicholas Ferri, general sales manager for United Airlines, said, “UA is committed to working with travel agents in HK and elsewhere. In Hong Kong, they represent 90 percent of our total sales. As a good business partner, we would not implement changes that we believe are detrimental to the survival or well-being of our partners.”

Not all agents are in agreement with Pettigrew in going for zero commissions right away. Pauline Tso, corporate travel manager for Swire Travel, said while it would be simpler for larger agencies, it would not benefit customers.

“It is easier for the customer to adapt to the environment (of gradual commission cuts). In Hong Kong, people have lived with commissions for years, and it would be hard to take them away at once.

Global agents can stay alive; it’s easy for them to cope, but smaller agents, like those without IATA, will have to change the way they do business.”

Pettigrew said the only winners were the airlines. “I don’t know how much longer the bleeding can go on. Airlines are doing well; they seem to find a way to get their share of the spoils.”

Patrick Li, commercial sales manager for Cathay, said all major travel industry players were benefitting from the improved economy.

“I can’t say that I am in 100 percent agreement that airlines are doing better than the rest. Yes, Cathay had an exceptionally good year last year, but major travel agencies handled more corporate travellers and hoteliers benefited from the influx of travellers as well.”

Pettigrew predicted that “Hong Kong will get to zero by the end of next year but the rest of Asia (including Japan) will take much longer because the local carriers are not quite so dominant as in Hong Kong and Singapore.”

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