The rocky road to new airline sales incentives

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Airlines’ sales incentives are vehicles for increasing market share – or, in other words, standing out from the competition. This means that airlines offer incentives to travel agencies, based on sales targets and market share growth. For travel agencies, these incentives are important, since they affect the profit margins on an annual basis.

Tracking airlines’ sales incentives today is not only hard, it’s virtually impossible – a travel agency typically gets dozens of terms of agreements from tens of airlines, each with a different structure, conditions, dates, numbers, RBDs and similar. On top of that, most airlines only emit the payout for the so-called “flown revenue” – a net revenue from consumers who bought their tickets from a travel agency, got on board of the aircraft and actually flew. The flown data is stored in an airline’s database and manually filtered per travel agency, so it takes time for the airline (typically 30 to 60 days) to update the agency on their performance.

Inconvenience for travel agencies, a tremendous problem for airlines

The question of sales incentives’ effectiveness is raised every year when airlines are setting up the sales targets for travel agencies. In the past several years, most of them stopped paying base commissions. Having said that, as the industry grows, and becomes more competitive, the number of travelers is growing exponentially (4.3 billion travelers in 2018, according to IATA), so existing airlines have to find a way to work more closely with travel agencies in the commercial sense and position themselves better in the market.

On the other hand, travel agencies use different methods to try and cope with this problem from their side – opting for software like Avian, Airline Metrics which are connected to the GDSs and provide real-time performance and flown revenue data. Some still adhere to gigantic excel sheets and manage everything themselves, investing resources to try and catch up with the sheer number of airlines.

The future is even more complex

More and more airlines are releasing their own “direct connect” channel, which enables travel agencies to book directly through an airline booking platform. The most recent example is an Australian airline – Quantas – which released its distribution system only a few weeks ago. The NDC, “new distribution capabilities” standard that IATA released several years ago, is creating a whole new sector of self-maintaining booking platforms / APIs for the airlines.

Therefore, new booking channels and tools are being placed upon travel agencies, which they will have to implement eventually. Nowadays, GDSs are paying commissions and incentives to travel agencies for using their booking platforms; in order for a travel agency to change its point of sale, these must be attractive not just in terms of the rich content and better user experience, but economy as well.

Airlines are already adding different incentives through different channels on different RBDs and ancillaries. Taking into account the software that is needed to facilitate this state or at least provide more transparency on sales data, travel agencies will have an even harder time keeping track of the changes and complicated terms of the agreements with airlines all by themselves.

Some of the world’s largest airlines are actively seeking solutions to better manage incentives budgets and improve the communication of sales targets to travel agencies – both as a long-term investment, i.e. the incentives to travel agencies for using their booking and NDC channels, and short-term solutions, to strengthen the commercial relationship between these two parties.

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