Avoya Travel, kicking off Part One of its virtual travel conference this week, is strongly advocating that travel industry suppliers adopt a new split commission program—a "deposit commission" and a "departure/final payment commission." The goal is improve cash flow for independent agencies and keep the travel industry distribution system solid for the benefit of suppliers.
Speaking to reporters in a pre-conference briefing, Jeff Anderson, co-president, Avoya Travel, said his group will test such a split payment system with one supplier in November; that unnamed supplier is creating its own technology solution.
Avoya is also working closely with other suppliers on the issue, too, and has developed the Instant Commission 2.0 technology solution. That's an enhancement on a proprietary technology product for split commission that Avoya developed a decade ago. In that version, Avoya itself (not the supplier) pays the agent a deposit commission, and then is reimbursed from the agent's departure commission payment from the supplier. Now, however, Instant Commission 2.0 is designed to help suppliers themselves move from an outdated “legacy” process of how travel agencies are paid. But whether suppliers go with Avoya's system or create their own technology solution, Anderson said it's the concept industrywide for split commission that's critical.
Cash Flow Crisis
Cash flow issues caused by the pandemic and its resultant loss of agency sales, coupled with a "legacy terms" commission payment process—created in a past era—could ultimately threaten the health of the overall travel distribution system, he stressed, giving an example of an advisor who's sold a luxury product.
That advisor has done much hand-holding, educating, selling and servicing up front, yet must wait 12, 15 or 18 months for any payment. Meanwhile, the supplier gets the immediate cash benefit of the deposit, but it is generally not shared with the advisor who did the work on that booking.
That said, a few suppliers have initiated paying agent commission well prior to departure if a booking is paid in full. That's certainly helpful, but paying in full a year or more in advance isn't an option for all clients. Anderson also said clients can be leery about paying all their funds up front, given the financial impact of the pandemic on travel suppliers.
Avoya Travel's Jeff Anderson, co-president, greeted travel advisors at last year's annual conference (shown above) and is advocating for a split commission approach for advisors' payments from suppliers.
Industry-wide, “we know that COVID-19 has basically crushed everybody’s cash position and so that these COVID-19 challenges have resulted in this massive cash shortage,” said Anderson. At the same time, the pandemic has created a significant new workload.
“If we’re going to get people back on planes, trains and ships, it’s going to take more convincing than ever before,” Anderson said, noting that every company wants to participate in a rapid recovery but if they don’t have great cash reserves, then it’s an issue.
Anderson said his group has been fortunate, as it has deep financial resources as do some of its competitors. His take? "We still feel pretty good at being a major contributor to the general recovery but we also need to be mindful that even if you took all the big players and you left the small ones behind, the big players will not be able to succeed."
Those smaller independent agencies are truly an important part of the industry, he said, and with a cash crunch, they’re having a more difficult time than ever before. Advisors who are awaiting their commission with limited cash flow could leave the system.
“If we can’t figure out a different way of adjusting the commission structure, the investment that suppliers have made over many decades into the travel distribution system—it’s going to be lost," he stresses.
Anderson asks suppliers to consider the situation this way. If they have a ship, plane or hotel property, they know that “we’re going to want to hold onto it because it’s an asset that has future value,” Anderson says. "The travel distribution system needs to be the exact same way. We are an asset that they have invested tremendously in and will have great future value" but that value must be preserved."
Suppliers have the flexibility of working out the split commission models that work for their business. In an example Anderson gave, a 16 percent commission owed to an advisor could be paid 5 percent as a deposit commission, and 11 percent at departure/final payment. But it could be 8 percent and 8 percent, or 6 percent and 10 percent.
“There’s all different ways to play with this and different suppliers would talk about what the right way is for their businesses,” Anderson said. Whatever that level of deposit commission, "we believe that the volume of work done at that point in time is significant enough to say: ‘Seller, you have earned it. We’re going to honor the 5 percent.’”
Travel agencies were able to make the legacy system work in the past, and “the finance departments of the suppliers convinced us that it was okay for us to wait for 12 months for work that we are doing today," he notes, but COVID-19 changed all that.
Cash flow today for travel suppliers has come in the form of deposits that aren't shared in any way with advisors. “So, in order for the recovery to really happen here the way that is best for the industry, you [have to] bring everybody kind of back up to closer where they were from a cash flow perspective, and we believe that these new terms would deliver that," Anderson stressed.
One element of the proposed solution, though, is that “I don’t think it should be done at the travelers' expense,” he said, noting that could undermine recovery efforts. Avoya is also advocating that an advisor's deposit commission be viewed as non-recallable, because it's for work already completed and because recalls can be complex.
Cost to Suppliers
Using Instant Commission 2.0 as an example of one technological solution (and Anderson continued to stress to reporters that suppliers could also develop their own solution), the cost to a supplier, modeled on a few anecdotal supplier examples, could be anywhere from $4,000 per million dollars in sales to $17,000 per million dollars in sales.
The return on investment (ROI) for this type of program that rewards sales quicker still could be far more cost effective to suppliers than other revenue management, marketing or sales efforts, according to Anderson. Yes, suppliers could just reduce all their prices, “but that seems awfully expensive,” he said. “If we can get the sales distribution force [industrywide] back up to strength, we believe that they will be the critical part of the recovery.” Motivating advisors via quicker commission payments could also build even more sales
Anderson is encouraged that philosophically many suppliers over the past several weeks seem more willing to discuss split commission. "So, we plant a lot of seeds and then water, water, water," he said, adding that suppliers who make the leap to split commission soonest will likely "get a huge benefit of the share shift that will come.”
Keep Customers Dreaming
Travel advisors have been instrumental is keeping customers dreaming, said Anderson: “We know that the anticipation of travel is a positive psychological experience. We can still do a great service to travelers by talking and marketing and selling travel.”
Anderson also said he's seeing more optimism in the cruise industry the past few weeks as “MSC and Costa in Europe show that we can [cruise] safely and travelers actually want to do it.” He also noted that some suppliers are now opening up sales further out in time. In luxury, Anderson said, they’re focused much on 2022 and 2023 “which becomes very challenging if in advisor isn’t getting paid and isn’t going to be paid until" the customer travels.
That's another reason for suppliers to strike up the conversation, he believes. Stay tuned here for more on Part One of the virtual Avoya Conference.