Believe it or not, airlines still love travel agencies. That, in a nutshell, is what Conrad Clifford, who replaced retired Maunu von Lueders as IATA vice president Asia-Pacific in February 2014.
As IATA regional vice president Asia-Pacific, how much time do you spend on the travel agency sector?
About a third of my time. It’s huge and important because the sector brings a lot of revenue to our members – more than 50 per cent (of airline tickets sold).
Despite airlines going direct?
Yes. It would have been more before. It also depends on the market. Japan, for example, is still agency-driven; others are not so, partly due to ease of Internet payment. Also, it depends on segments – the corporate business still relies on agencies; people want to hand over their corporate travel for somebody to manage.
What is the difference between the sector here than in the US and Europe?
Things are changing. Asia-Pacific is becoming the largest market in the world and is evolving its own approaches to customers. You see customers in Asia-Pacific wanting a higher level of service and there are people who are prepared to provide that service. So we don’t see in Asia-Pacific the big push to go direct and cut out the middleman as we do in the US.
Is that good for airlines though?
It is. What we also see in Asia-Pacific is an enormous percentage of first-time travellers. They need a lot of advice and assistance and if there is somebody who can do that for them effectively, it is the agencies.
But airlines want to reduce the distribution fee.
Yes, in the olden days, we had percentage commissions and now it is fee-based, the logic being the customer pays for what he gets, which is more efficient and does not burden the airlines with additional costs.
How would you describe the relationship between IATA and the agency community in Asia-Pacific today?
It is good. We’ve done a lot of work with travel agency associations and have been able to reach agreements on key issues through a lot of consultation and discussion. So you don’t have the kind of combative relationship that you might see in other markets.
What’s an ongoing key issue?
For us, it’s always the constant pressure to get the money for our members faster, so we’ve tended to reduce the days of the credit period, which has been in some cases a challenge for the agency community.
Airlines look at the payments they get from direct selling and it’s pretty immediate, within 48 hours. Then they look at the typical agency system, where they get paid in 14 days and they say, ‘I think I know which way I’m going to go.’ Agencies need to be cognisant that airlines is always going to be looking at payment direct vs payment via agency and that ideally they want the same payment period.
As well, we have full service members and LCCs. The LCCs have a completely different model – if you are an agency that wants to transact with an LCC, you must put your money in advance and draw down against that. So the full service carriers look at that and say, ‘why is it that with LCCs you pay in advance and with us you need credit?’
It’s just the way LCCs are set up and the way full service has been running. Force of habit. Making changes to an existing business model is much more difficult than embracing a completely new business.
Like commission cuts.
Exactly. It’s fair to say airlines have been able to change that but it took a long while.
Do you think the day will come when airlines will succeed in reducing credit period to 48 hours?
I believe reduction of credit period will continue but whether there is an end target is a decision our members will need to make. Right now, we’re not getting the pressure to reduce it in markets with shorter credit periods, but in some markets, like Japan, which is a big market, we are reducing the credit period, from 21 days currently to 15 days from October.
What’s the average credit period now?
In Asia-Pacific, around 17 days.
We discussed one example of how the trade should be cognisant of how airlines think. How about the reverse?
I think airlines have to value all of the sources of business, that there still is a significant number of customers who do not want to deal direct. So recognising that and working together with the channel of distribution to make that the best experience for customers is the way to go.
This is why we (IATA) want to continue innovating and experimenting ways to support the travel trade better.
I supposed IATA’s NDC (New Distribution Capability) is a good example?
Yes, it’s big. The old-fashioned GDS distributes the very minimum, ie, seat and price, and what airlines want is to display more of their products – extra legroom, meals, other ancillaries – to consultants so they can give customers better informed decisions. NDC is about providing the system feasibility to drive that content through the GDS to the agency office.
That will improve the environment for travel consultants immensely. Today, they have to feed in a customer booking, go into another system to update his frequent flyer details, and they can’t sell add-ons because a lot of times they don’t even know they are there, plus it’s not linked to the back office accounting. NDC will make the agency look more professional and knowledgable, all in one screen.
(IATA is also piloting Easy Pay in South Korea and exploring a global default insurance scheme which will lower the cost of insurance for agents, TTG Asia e-Daily, May 14, 2015.)
So how do you spend the other two-thirds of your time at work?
Safety is another important strand. And advocacy.
Yes, I read that you said many of the region’s governments see aviation as critical to their economic strategies yet struggle to provide the foundation for the industry’s success. Example?
Countries, such as Indonesia, realise aviation has huge value to their economies but to harness the value, you need to make it easier for airlines to operate, and to provide the infrastructure for them to do so in a safe and efficient way.
In Indonesia, there’s high fuel taxation; the airports are inadequate – the regional airports’ runways don’t have enough lighting and in big hubs like Soekarno-Hatta in Jakarta, there aren’t enough slots, for example.
What do governments tend to do?
They sort of try and catch up later (laughs). This is why the first thing we say to them is, ‘let’s have a masterplan’; let’s consult members in the industry so that legislation is not made in a vacuum and results in unintended consequences; let’s see if there are best practices that they can implement, say, a slot management best practice – if it has worked in 200 airports around the world, why wouldn’t it work for them?
This article was first published in TTG Asia, June 19, 2015 issue, on page 10 To read more, please view our digital edition or click here to subscribe.