The Fees Story in the Travel field

A fee is the price one pays as remuneration for services.

Traditionally, professionals in Great Britain received a fee in contradistinction to a payment, salary, or wage, and would often use guineas rather than pounds as units of account. Fees usually allow for overhead, wages, costs, and markup.

Under the feudal system, a Knight’s fee was what was given to a knight for his service, usually the usage of land.

Airlines have long charged fees for changing flights, and for excess luggage. However, with the oil price increases since 2003, many are increasing fees. In May 2008, it was announced that some would be charging even for just one checked bag, making it nearly impossible to avoid. Airlines have also invented fees for nearly every “service” that has always previously been included in the ticket price. While the extra income may be necessary to prevent bankruptcy, the practice of not including mandatory fees in the stated price is deceptive.

Airports also charge landing fees to airlines in order to cover costs, particularly airport security.

Travel agencies were used to operate on a commission-basis, meaning that the compensation from the airlines, car rentals, cruise lines, hotels, railways, sightseeing tours, tour operators, etc., was expected in the form of a commission from their bookings. Actually most airlines pay very low commission or no commision at all to travel agencies, in order to reduce costs; in this case, an agency usually adds a service fee to the net price. What started with airlines, probably will involve also car rentals, cruise lines, hotels, railways, sightseeing tours, tour operators, etc. creating definitevely a new model on fee-basis.

The following is a breakdown of fees and reduced commissions that have taken place since 1995:

1995:

  • First commission reductions hit North America:  a cap of US$50 on return trips and US$25 on one way.

1996:

  • April: Lufthansa does not pay any commission for airport and security taxes in Germany.
  • October: Lufthansa reduces in Germany commission for domestic flights from 9 to 5%.

1997:

  • North America – Additional reduction of the commission percentage reduced from 10% to 8% on top of the existing commission cap.
  • Several leisure operators and hotels begin commission reductions.

1999:

  • Additional commission reductions in North America.
  • European airlines begin eliminating or reducing commissions.
  • Singapore Airlines goes to zero in parts of S.E. Asia.
  • South African Airways announces plans for zero.
  • Sabena goes to zero in Belgium.
  • Cruise Lines restructure their commission levels based on sales volume for individual agencies.
  • Germany: Lufthansa caps commission for tickets.  Europe from 9 to 5%. Intercontinental flights from 9 to 7%.
  • Austria: Austrian Airlines follows LH and introduces commission capping.

2001:

British Airways commissions in the U.K.:

  • Domestic and discounted fares to Europe ₤2.50 per sector
  • Business Class and Full Fare to Europe ₤5.00 per sector
  • Discounted long haul Economy ₤11.00 per sector
  • Full Fare and Premium long haul ₤20.00 per sector

  • North American Air commissions reduced to 5% with a cap of CDN $14 one way, USD $10 one way
  • 0% commission for Internet bookings.
  • Airlines in India reduce commission from 9% to 7%

2002:

  • Delta Airlines announces a zero commission base for USA and Canada.
  • Airlines in India reduce commissions further.
  • United, American, Continental, Northwest Airlines, US Airways and American Trans Air join Delta Airlines in zero commission base.
  • Vanguard Airlines become the first carrier to publicly announce 5% base commission with no caps for agent business.

2004:

  • Germany/Austria:

September: Lufthansa eliminates commission at all – 0 commission environment.

  • Canada – Domestic airlines are incentivizing agencies to book online by paying commission (5%)

2005:

  • South Africa – March 31st – SAA goes to zero commission.
  • Air India, supported by a host of European carriers, is leading the charge to cut commissions from current levels of 7% on every ticket sold to 5%.  The commission cut will be applicable from April 1, 2005.
  • Lufthansa announced a commission cut September 2004 however, they ended up with egg on their face.  The airline was boycotted by agents and had to restore commission levels to 7%.  This time around, the critical difference is that A-I, which has the strongest domestic presence, is backing the move.

Beyond 2005:

  • Markets around the world are moving towards a lower commission base and the move has sped up with the success of low-cost carriers, which use the Internet as a primary distribution tool.  Airlines, supported by their lobby group, IATA (International Air Transport Association), say they will move to a 0% commission by 2008.

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