Garuda Indonesia’s plan to implement a new commission and incentive policy for agents starting January 21, which the airline says would “create a healthy business environment”, is met with strong pushback from travel agency and ticketing companies’ associations in the country.
The Indonesian national carrier has so far been giving agents three per cent commission on domestic ticket sales, according to Pauline Suharno, secretary general of The Indonesian Travel Agents Association (ASTINDO). With Garuda’s planned change, this commission will be replaced by an incentive, payable after the sector is flown.
The new policy also stipulates a minimum sales of 50 million rupiah (US$3,450) for the agent in order to receive a three per cent incentive, and none if the sales is below the amount.
In a letter the Association of the Indonesian Tours and Travel Agencies (ASITA) sent to president Joko Widodo requesting for the airline’s plans to be annulled, the move was described as “damaging (to) agencies and counter-productive to the development of tourism in the country”.
Negotiations between the associations and Garuda are ongoing. Agents are expecting a favourable outcome; otherwise, ASITA said its members were ready to stage a rally.
In a media briefing in Jakarta, Asnawi Bahar, chairman of ASITA, said: “Garuda has taken a unilateral action with (the planned policy). This will bring down the performance of travel agents, and threaten the livelihood of the small travel agencies’ businesses in the country, which comprise 70 per cent of travel companies in the country.”
ASTINDO’s Pauline added: “Let’s say if the booking is for next month, we will only receive the incentive by the end of next month. As we live out of the commission, how do we survive this month?”
Commenting on the minimum sales requirement, Pauline said: “That is too hard for small agents to achieve. We have members in the region with only five million rupiah in sales.”
She also pointed out that the new commission policy would affect agents handling government agencies. “Government agencies do not recognise service fee so if the zero commission is applied agents will not profit from selling Garuda tickets.
“Moreover, travel companies are not allowed to charge the merchant discount rate of credit card payment to customers, so the zero commission policy will cause travel companies to suffer more loss.”
In addition to the new incentives, Garuda will also introduce a top-up system whereby agents deposit a sum of money with the airline and receive up to eight per cent cash-back.
Asnawi remarked that only the bigger players are likely to benefit from this. To receive the cash-back, he said an agent needs to deposit five billion rupiah to receive a one per cent top-up incentive, and a company needs to deposit 400 billion rupiah to gain eight per cent cash-back. “How can an (average) agent afford to take part in this?”
Awan Aswinabawa, chairman of West Nusa Tenggara Chapter of ASTINDO, commented: “We are shocked to hear the news. It arrived at a time when we in Lombok are working hard to get back on our feet, still struggling to recover from the impact from the disaster last year.”
The cash-back incentive also applies to Garuda’s sister carriers Citilink and Sriwijaya Air, according to Awan, although the amounts vary. Citilink’s top-up policy, for example, stipulates a minimum of 50 million rupiah to gain one per cent cash back.
Explaining the new policy, Garuda’s vice president coordinator international sales, distribution & charter, Pikri Ilham Kurniansyah, told TTG Asia: “This is to create a new airline industry ecosystem whereby every component will get sufficient benefits to grow together. I don’t want to see agents dumping prices to get passengers but not the benefits.
“We want to encourage the agents to sell Garuda tickets in a profitable way for them. The agents will still receive the three per cent sales benefit just the same, the difference is that they have been receiving it up front, and now it will be paid at the end of the month.
“By giving the incentive after sales, we expect the agents to keep the three per cent commission on their benefit instead of throwing that to the customers by selling cheap tickets like (what we’re seeing) today.”
He added that setting the minimum sales at 50 million rupiah was reasonable.
“When you look at our prices, the amount will translate to only about 20 tickets, that’s very small for a month’s sales. Out of this amount, agents only receive 1.5 million rupiah… I believe a Garuda agent sells more than that and I want them to sell and prosper from Garuda more for their livelihood.”
Still, Pikri admitted that eventually not everyone could continue to be Garuda agents. He said: “Like with any other businesses, at the end of the day there will be a natural selection. The fit ones will stay.
“My responsibility is to turn over US$10 million a day. To reach that target I need those who can really support me, otherwise the airline will collapse and in turn, the agents will not survive either.”