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28 Nov, 2011

Indian Travel Agents Plan Life After IATA Accreditation Status

MACAU — The Indian head of an aviation consultancy has called on Indian travel agents to move beyond talking about change and focus instead on the challenge of change. That comment set the scene for a boisterous discussion amongst members of the Travel Agents Federation of India (TAFI) about preparing for life after the “unending torture” of the IATA Agency Accreditation Programme.

Speaking at the TAFI annual convention in Macau on Nov 24, Mr. Kapil Kaul, CEO, South Asia and Middle East, Centre for Asia Pacific Aviation, cited the myriad of changes occurring across a range of geopolitical, economic and industry sectors. Referring to the convention theme, “Addressing Change – Rebrand, Reposition, Reinvent,” Mr. Kaul told the agents: “Accepting change is no longer important. Now, accepting the challenge of change is what’s more important. We saw the change coming but addressing the challenge of that change was another matter.”

Mr. Kaul said many global and industry developments had been quite unexpected. After the Cold War, the United States became the undisputed global superpower. Now, he said, who would have thought that it would be facing the kind of problems it is. “Clearly, the U.S. has not been able to manage a very tough internal and external environment.”

The same applied to the European Union. “Ten years ago, Europe was a big dream. Now, that is no longer the case, to the extent where six to seven European countries are almost bankrupt.” At the same time, everyone knew that China would be the superpower from a trade, geopolitical and strategic perspective. “The world knew that there would be a change in terms of geopolitical dynamics but nobody accepted the challenge of it.”

Downstream Impact

He said the same applied to airlines. Ten years ago, the game was all about Lufthansa, British Airways and the larger U.S. carriers. Now, he said, Emirates, Etihad, Qatar Airways are driving the game and changing the policy of aviation globally. Legacy carriers also ignored how Low Cost Carriers would dominate the skies. In India, Jet Airways was the dominant player over the last years but today it is the LCC, Indigo.

Mr. Kaul cited the downstream impact of these changes on Indian travel agents. He told them that the real issue is not about reinventing their business model but ensuring that it will be sustainable business model. He said that the IATA Agency Accreditation Programme no longer offers an equitable opportunity to its stakeholders. More important, he said, it is IATA that has to reinvent itself, and not just the agency programme. “When airlines talk of zero commission, they cannot talk about an agency programme which disorients the entire model of equitable remuneration.”

Like in numerous past TAFI conventions, relations between the agents and airlines and suppliers dominated the discussions. While changes in airline business practises, such as zero-commission payments, are disrupting the agents’ business models, opportunities are emerging in new technologies and new destinations, both of which are queuing up to have the agents either as clients or marketing partners.

Indeed, Indian agents are still a force to be reckoned with. Because internet penetration is low, inspite of having 100 million airline passengers a year, India is still not largely a do-it-yourself travel booking economy. About 85% of airline bookings still come via travel agents. Although that is down from what 95% a few years ago, the volume of business being transacted through the IATA Billings & Settlement Plan (BSP) has grown from US$6.4 billion in 2010 to an estimated US$6.6 billion this year. This makes India the second largest BSP in the world, after China. More than 50% of all travel products are being sold through the agency route. The Indian traveller’s purchasing power is rising, with more volume growth still to come from second and third tier cities.

Certain Benefits

Agents recognise that there are certain benefits that come with being an IATA agent, primarily the ability to access seats on 235 IATA member airlines and pay all of them through a single settlement window in the local currency. Agents also have to post only one bank guarantee as against the multiple guarantees required when dealing with several airlines. Many hotels ask for the IATA accreditation status before doing business with an agent. Individual travel agency staff find that having an IATA ID card gains them access to discounted travel deals.

Stephen King, General Manager, India, of Virgin Atlantic Airways, said the airlines also need confidence in the credibility of the agents. IATA accreditation gives both the airlines and the global distribution systems a “baseline level of confidence that we can all work from.”

TAFI President Ajay Prakash says that the past year has been “a very, very trying one for TAFI,” with a lot of energy, time and money being expended on the issue of airlines cutting agents’ commissions. “It’s not over yet, but the point is life has to go on. You cannot be hankering over that which you do not have.” In looking at change and how to rebrand and reposition for the future, he said, “our reliance on our so called principals has to cease to be the most important thing in our lives. We have to take charge of our business destinies and that means taking a new look at how you connect with yourselves and your customers.”

Mr Prakash declared that equitable partnership with IATA is now “a myth.” He read out a letter from IATA informing the agents that the IATA accreditation fees have increased 300% overnight from US$90 to US$270. The feeling is that the relationship is being tweaked to make life easier for airlines. “Unless it becomes easier for the agents, I see no value for it more.” The agents foresee more problems on the horizon when airlines start unbundling and start charging separately for their services.

However, Mr. Prakash did admit that to some degree, the travel agents were themselves to blame for their predicament. “We brought it upon ourselves by splitting commissions (with the customers),” he said, a practise that did not stop even as the commissions themselves were being gradually lowered.

Show of Hands

Mr. Prakash asked for a show of hands. Asked if it was time to relinquish the IATA Agency Accreditation programme if there is no change in it, a majority of hands went up. Asked if the agents agreed that there was no value in the programme, another majority of hands rose. But a third question asking if there should be a pullout was met with substantially fewer hands.

The agents still feel they are being short shrifted, and their historic role in contributing to the growth of the airline industry is being ignored. Said Mr. P.Sampath Kumar, TAFI’s National General Secretary, “Long gone are the days when agents valued IATA Accreditation which had some meaning, respect and value. Today being an IATA Accredited Agent has just become a symbol of torture unending. The Agent has no time to devote in what he or she does best — marketing, bring value to the distribution chain and serving the end customer/passenger…which is the very reason for our existence.”

Mr. Sampath noted that agents existed much before airlines and were selling rail tickets, voyages on shipping lines, conducting coach tours, and whatever accommodation that existed at the time. “It was the airlines that came to us for marketing support when there were no modern day contraptions like “the Computer”. They wanted our support in selling, handling, processing and servicing traffic besides issuing the ticket. This partnership of equals over decades made many of the modern international airlines the Mega Giants they are today.”

(The full text of Mr. Sampath’s statement, as prepared for delivery, has been reprinted here).

Mr. Sampath also wondered what good it was doing for airlines to go “cheap, cheap, cheap”. As “real buffet pricing gave way to a la carte, would somebody tell me from airlines, IATA what is included in the base fare today? Everything is in the form of extras. (He got a round of applause) They are saying it is transparency, which is the name of the game.” Then, deviating from his prepared text, he said, “I would like to know in which other industry this kind of transparency exists. If you buy a bottle of water, do you pay separately for the bottle and the cap, for the distribution, marketing and other costs?”

Closures and Consolidation

Mr. Sunil Chopra, Asst Director, India & Nepal, IATA, said there were 55,000 IATA accredited agents worldwide. This figure has fallen over the years, some due to outright closures but also because of consolidations amongst the agencies. He said that in India, the number of accredited IATA agents was actually rising, with new entrants exceeding the number of exits.

Mr. Chopra said IATA recognised the business being done by agents, as well as the need to help them maintain their productivity. “If you don’t have productivity you don’t have profitability,” he said, adding however, that the cost to IATA of managing the entire agency programme is rising significantly.

He added, “IATA is aware that we ourselves have to become more and more relevant. We need to follow some of the things we have discussed here as the forum theme.” He said many changes were already under way, such as IATA’s e-ticket campaign, a part of it’s “Simplifying the Business” project, which had benefitted the agents too.

Air India’s Executive Director (Sales & Marketing) K.D.Row (pronounced Rao), said the position the airlines find themselves today is unprecedented. “We are blundering our way through the situation. We don’t have the answers. We are looking for answers. We need to survive and thrive together. In the process of finding ourselves out of this, we will make mistakes but we will walk together (with the agents).”

Finding An Alternative

The problem is finding an alternative. Mr. Prakash said this has been explored, including the possibility of setting up something along the lines of a cooperative structure with an ISO-style certification scheme that would be recognised by both the airlines and the public.

However, progress had got “stuck on a couple of points.” He said, “The key problem is the payment scheme for interlining. If it’s only one airline (being booked), that’s okay but when multiple airlines are involved, (making payments) becomes a problem.” Also, as one agent pointed out, who should replace IATA as the central body for managing and policing the accreditation scheme. There appears to be little appetite for handing charge to India’s Civil Aviation Department.

The agents spent much time discussing life after IATA. They got an update on selling niche-products, making better use of new technologies and websites such as mobile apps and websites such as TripAdvisor. Much discussion raged about what to “brand” themselves so that they can charge for their services, be it as “advisers” or “consultants”. Bharat Dhabolkar of the advertising agency Ad Guru gave a delightful presentation on how other non-travel products and services rebrand themselves. The agents also learnt details of India’s anti-trust laws that strive to protect the interests of small and medium sized enterprises by preventing the large corporations from undertaking market practises that distort competition.

One saving grace is that the Indian agents are finding no shortage of suppliers wanting to take advantage of the country’s outbound tourism boom to sell destinations. A line-up of destinations extended sponsorship support to the TAFI congress, including Turkey, South Africa, Tuscany, Canada and Dubai (through the private company, Lama Tours, represented by Managing Director Kulwant Singh).

Host destination Macau was a major beneficiary. TAFI was the first Indian travel agents convention to be held in the city of casinos, naturally with help from the Macau Government Tourist Office. Based on the huge turnout of nearly 1,100 delegates and accompanying persons, the generally positive reaction towards Macau and the uptick in Indian visitor arrivals that has followed previous TAFI conventions in destinations such as Kota Kinabalu, Chiang Mai and Dubai, a boom in Indian business to Macau is a foregone conclusion. Next stop in 2012: Durban, South Africa.