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26 Feb, 2001

If Airlines Sold Paint

Mike Hatton

What if airlines sold paint the way they sell seats? Mike Hatton, Chief Executive, Australian Federation of Travel Agents, once worked in the hardware business and now paints a typically hilarious Aussie dialogue if a customer walks into the offices of Royal Paint Airlines.

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By Mike Hatton, Chief Executive, Australian Federation of Travel Agents

(Editor’s Note: This is a heavily-edited excerpt from a 9,300-word speech that Mr Hatton delivered at the Association of South African Travel Agents convention in Bangkok on February 24.)

I came from “another life” into this industry just on 5 years ago, and I therefore thought that comparison (of the airline industry) to another industry might be a useful exercise. As a result, let us compare ourselves to the hardware industry with which I have some familiarity. Let us assume that you visit your local hardware store to buy some paint. In all probability the conversation would go something like this:

Customer: Howzit, how much is you paint?

Clerk: We have regular quality for $12 a litre, and premium for $18. How many litres would you like?

Customer: Five litres of regular quality please.

Clerk: Thank you. That will be $60.

Now let us assume that you bought paint from an airline:

Customer: Howzit, how much is your paint?

Clerk: Well sir, that all depends.

Customer: Depends on what?

Clerk: Well, there are a lot of things.

Customer: Well then, how about giving me an average price?

Clerk: Sorry sir, that is just too hard a question. The lowest price is $9 a litre, and we have 150 different prices up to $200 a litre.

Customer: What is the difference in the paint?

Clerk: Oh there isn’t any difference; it’s all the same paint.

Customer: Well, I’d like some of the $9 paint.

Clerk: Well, first I need to ask you a few questions. When do you intend to use the paint?

Customer: I want to paint tomorrow on my day off.

Clerk: Sorry sir, the paint for tomorrow is the $200 paint.

Customer: What !! When would I have to paint in order to get the $9 paint?

Clerk: That would be in three weeks sir, but you would have to agree to start painting before Friday of that week, and continue to paint until at least Sunday.

Customer: You’ve got to be kidding.

Clerk: Sir, we don’t kid around here. Of course, I will have to check to see if we have any of that paint available before I can sell it to you.

Customer: What do you mean check to see if you can sell it to me? You have shelves full of the stuff. I can see it right there.

Clerk: Just because you can see it doesn’t mean that we have it. It may be the same paint, but we only sell a certain number of litres on any given weekend. Oh, and by the way, the price just went up to $12.

Customer: What ?!!

Clerk: That’s right sir. You see we change the prices and the rules hundreds of times a day, and since you haven’t actually walked out of the store with your paint yet, we just decided to change. Unless you want the same thing to happen again, I would suggest that you get on with your purchase. Now how many litres do you want?

Customer: I don’t know exactly – maybe five litres. Maybe I will buy six litres just to make sure that I have enough.

Clerk: Oh no sir, you can’t do that. If you buy the paint and then don’t use it, you will be liable for penalties and possible confiscation of the paint you already have.

Customer: What ??!

Clerk: That’s right. We can sell you enough paint to do your kitchen, bathroom, hall and third bedroom, but if you stop before you do the bedroom, you will be in violation of our rules.

Customer: But what does it matter to you whether I use all the paint? I have already paid for it.

Clerk: Sir there is no point in getting upset; that’s just the way it is. We make plans based on the idea that you will use all the paint, and when you don’t, it just causes us all sorts of problems.

Customer: This is crazy ! I suppose something terrible will happen if I don’t keep painting until after Saturday night.

Clerk: Yes it will.

Customer: Well that does it ! I am going elsewhere to buy my paint.

Clerk: Well, that won’t do you any good sir. We all have the same rules. Oh and by the way, thanks for flying — er, I mean, painting, with our airline.

In Australia, in the past we only ever went to the Post Office – or the GPO as it was commonly called – to buy a stamp or mail a letter. The Post Office – over a period of time – realised they had a possible little growth and loss making business on their hands. The only immediate way out of this situation was to continually increase the price of stamps – not a real crowd pleaser for its’ customers, nor a long term viable solution to the problem. So – what did the Post Office do? It re-invented itself as Australia Post – embraced technology; looked for niche markets where it could increase sales and remain a viable business, increase profitability and – all importantly – drive more customers through the door. As a result, today we Aussies still go to the Post Office to buy a stamp and post a letter, but – in addition – pay credit card bills, household bills, obtain money from teller machines, purchase cards and stationery and a host of other things – and we still, thanks to this reinvention, only pay the same price to mail a letter.

The message is very simple really – if a government Post Office can achieve such a change, so can we travel agents.

For travel agents the message is very clear. The days of the independent operator, not aligned to a multi group and technologically inferior, are rapidly drawing to a close – faster in fact than many of us understand or appreciate. As air alliances and even CRS alliances with online travel operators increase, so shall the consolidation and alliance of major travel agency groups increase in order to ensure survival.

In Australia, the recent purchase of the National World Travel chain by the Internet Travel Group, and of Thomas Cook in Australia and New Zealand by Harvey World Travel are examples of this trend. The simple airline mathematics of having to have an arrangement with a preferred global alliance partner, will ensure that the same mathematical proposition flows through to the Agency sector.

On the supplier front, it will be difficult, if not impossible, for travel agents to be all things to all suppliers in our industry, and hence agents will further strengthen preferred arrangements to maintain and enhance financial viability. In past years we smirked when people told us we would be “in this camp or that camp” as far as suppliers are concerned, but the saying has reached fruition. Our suppliers have seen the writing on the wall, and have scrambled to ensure their survival through shareholdings, alliances and preferred arrangements, and we must inevitably do the same.

The time has come to make the choice and put your allegiance where your profit comes from, and where your client base dictates it should be.

YES I believe we will survive and prosper, but in an environment where we will see:

(-) A decline in airline commission income;

(-) Air sales representing a decreasing proportion of agency turnover;

(-) Increased emphasis on niche marketing;

(-) Agents monitoring their business so closely that they will very quickly latch on to new and profitable income streams such as cruising, and equally as rapidly discard the old and non profitable income streams – in short total flexibility with the ability to switch sales channel emphasis in the blink of an eye;

(-) Corporate agents expanding their professionalism and income in the management of accounts on a management fee or transaction fee basis;

(-) Agents gaining more income from value added selling and implementation of a 100% fee for service regime within their agency;

(-) Clients becoming more demanding and cost conscious leading to continued low air fare pricing;

(-) Expansion of mergers and alliances both within the agent and supplier communities, and possibly within the CRS sector of the industry;

(-) Even more cut-throat competition and pricing amongst suppliers;

(-) Increased action by agents demanding a fairer supplier-agent relationship, including demand for equality in contractual arrangements;

(-) And ultimate agent survival dependent on the agent embracing technology and staying ahead of the game in the technology stakes.

Central to this survival is unity. I must confess that I have never before worked in an industry that has such a propensity for tearing itself apart on the front pages of the Press. In saying that, I acknowledge that we are not unique in this situation, but this phenomenon is not evident all around the world. In countries where agents have united in burying their fears, and simply put their head down and got on with the job of ensuring their survival, this phenomenon is non existent.

However, such outbursts are symptomatic of an industry under stress, and of people who fear what lies ahead – and fear the change that is inherent in our ongoing viability as travel agents. As President Roosevelt said, we have nothing to fear but fear itself, and if we remember that at all times, then our success will follow.

It is very easy for both sides of the industry to criticise each other, and take the easy way out by inflicting financial pain on each other. At the end of the day nothing is achieved in all of this. We all have our five minutes of getting the steam off our chest, and then we go back to the same old ways with the same old arguments day in and day out. Surely this is not the way to run a railroad? – if I may coin a phrase.

We must as an industry work through these issues together. Talk is cheap, but it is only through consultation and agreement on the way forward that we are going to ensure the survival of all who work in this industry – both agents and suppliers. Unilateral action against one another serves no purpose and bears no fruit in the long term – nobody ever won a war no matter that they may think they did.

A planned approach to the massive changes that face us is the only solution – and that approach has to be planned by agents and suppliers in consultation and in tandem, or else we shall tear the house down to the point where it may never be able to be rebuilt.

Therefore it is my fervent wish that we all act like people – and reasonable people at that – and acknowledge the fact that in this age of selfishness and greed in which we live, we in this industry have the opportunity through co-operation and respect for our fellow human and his or her needs, to ensure survival for all, and give an example that others may follow as globalisation and massive change continues to rampage through world economies. As both agents and suppliers – united we stand, and divided we fall. We are joined in an industry where we are dependent upon one another for our very lifeblood, and if we loose sight of that fact and do not work together with a common goal, then we are doomed.

I am the eternal optimist, but I also believe in telling it like it is. I am passionate about this industry, and the benefits that we bring to world economies through tourism and the facilitation of travel. I am also passionate about the fact that we in this industry – through our ability to make people’s dreams come true – are also true ambassadors for world peace and prosperity. Yes – we may at times get jaded about what we do, but whilst we are the ones that have had the opportunity to travel and experience new horizons, we must always remember that for the majority of our clients it is a whole new adventure.

 

 

  • Vincent Kok

    Good article and great observations by Mr Hatton

  • Andrew Wood

    Wise words!
    Enjoyed this analogy Imtiaz thank you! Warm wishes Andrew