The agents' profit margins is expected to fall further to 3-4%
The Supreme Court directing airlines not to collect transaction fee from passengers will hit travel agents. Air India and Jet Airways introduced the fee last year after slashing agents commission to one percent from the earlier three percent while low cost airlines have been collecting the fee from earlier.
Profit margins in selling air tickets have fallen from around 7 to 8% to around 5 to 6%. With the slash of the transaction fees, the agents' profit margins is expected to fall further to 3-4%, said a travel agent.
The Supreme Court ruling will benefit the passengers but will impact the agents hard as many airlines have reduced commission or offer no commision at all. The transaction fee is one of the source of income for agents others being commission, productivity bonuses and incentives from global distribution systems.
“The transaction fee shall not be collected from any passenger in any form or under any other name,” a bench of justices D K Jain and Madan B Lokur said. The apex court also directed the Directorate General of Civil Aviation (DGCA) to examine the tariff structure of the airlines in view of their wide range of base prices for air tickets.
The DGCA had on December 17 ordered that no airline would charge transaction fee and "strict action" would be initiated if they continued to do so. The directive of the aviation regulator had come after the issue of transaction fee was raised in the Winter Session of Parliament, with members demanding its withdrawal.
The DGCA circular had then said that the provision in the Aircraft Rules "does not allow any transaction fee as part of air fare. Therefore if any airline charges transaction fee in violation of rule 135 of the Aircraft Rules, as part of air fare, strict action would be initiated against such airline".
Transaction fee was introduced by airlines after they adopted a zero commission policy for travel agents. Under the fee, agents charge customers any amount of their choice and there is no uniformity in it. It can range from Rs 50 to Rs 200 on domestic and Rs 400 to Rs 700 on international tickets.
Iqbal Mulla, president of Travel Agents Association of India said, "Our legal department is examining the order. How can we service customers and airlines when there is neither a commission nor a transaction fee?" He demanded that the government help in restoration of the commission.
A GoAir spokesperson said,“The ruling is not applicable to us. At GoAir. we believe in complete transparency and value addition to our passengers.'' The spokesperson said the only additional charge (Rs 50 )it collects is to pay third party vendors of electronic services.
One of the reasons why Air India and Jet airways decided to slash commisiion is because of the huge sales and distribution expenses
Before reducing the commission to 1% , Air India spent about Rs 1,000 crore annually on distribution, which includes agent commission and fees for use of reservation systems and global distribution systems that hold ticket inventories. This is about six% of the Air India’s annual expense. Over 80% of the airline’s tickets are sold through offline agents and portals. Both Air India and Jet Airways are trying to increase web sales to reduce distribution costs.
Jet Airways spent Rs 1,261 crore on ticket distribution and sales in 2010-11 and this accounted for 10% of its expenditure, according to its annual report. At a recent interaction with equity analysts senior Jet executives had said the airline was looking to restructure agents’ commission.
International airlines, like Air France, KLM, British Airways and Lufthansa, do not pay regular commission. Indian low-cost airlines too, do not pay commission and agents charge a transaction fee on bookings on these airlines. Those who give commission include Emirates, Cathay Pacific, Gulf Air and Sri Lankan Airlines, among others.
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