Z One Year The Impact of Zero Commission

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Z One YearThe Impact of Zero Commission

• Luc Wellens
• President, BTO

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About BTO

• The Belgian Travel Organisation was created in
  1987.
• Its objectives
• To promote the positive development of the travel
  agency industry
• To safeguard its members rights and obligations
• To assist members on issues of common interest
• To establish a dialogue with political and
  economic authorities
• To protect consumers
• To reinforce co-operation and solidarity within
  the travel trade

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BTO Members

• BSP RANKING
• TQ3 Travel Solutions
• American Express Corporate Travel
• Carlson Wagonlit
• WorldTravel BTI
• Connections
• Skyways
• Joker
• Weinberg Travel
• Uniglobe
• Omnia
• ITC Navigant
• DD Reizen
• FCM Travel

• Leading companies in the Belgian business
  community that facilitate quality, development,
  growth and profitability

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Travel Industry Reality

• Travelling is not the most exciting part of the
  travel industry.
• Survival is!

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Change Is the Status Quo

• We are managing a tremendous amount of change in
  a hostile and fragile environment.
• Consider the last five years
• The rise of the Internet
• A major economic recession
• Not one, but two wars
• Major global terrorist attacks
• Epidemics
• Natural disasters
• The loss of airline commissions

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Why Zero?

• Airlines took advantage of a system that made
  zero commission inevitable
• Beginning in 2000, unsustainable financial losses
  for airlines around the world
• No perceived negative consequences for airlines
  from previous commission cuts
• Lack of effective international collective
  measures from travel agent industry

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The Irony

• Airlines tell us that they do not have money for
  agency commission, do not have money to provide
  better service, do not have money to keep a
  working GDS distribution world intact
• But hundreds of millions of Euros just on the
  marketing for Opodo before finally selling 75
  controlling interest to Amadeus?
• Oh, well

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ZC Status in Belgium

• Vast majority of airlines have moved to zero
  commission
• 54 airlines at 0 or 1
• This represents 90 of total BeLux BSP
• Major Belgian TMCs moved to bilateral agreements
  with airlines supporting the move to 0 rather
  than 1
• BTO promoted this solution anticipating IATA
  resolution changes, wishing to avoid further
  complications in a two-phase reduction and
  improving transparency

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ZC Status in Europe

• NL
• Major airlines including KL and AF have moved to
  0 or 1
• These airlines share of BSP is similar to BEL
• Nordics
• 33 airlines of which 23 are at 0
• Germany
• 53 major airlines of which 29 at 0, including LH
  (exceptions tend to be Eastern/Middle Eastern
  airlines Qatar, Aeroflot, Turkish)
• France
• 54 airlines at which 4 at 0, including AF
  (domestic flights represent 50 of FR BSP)
• Majority at 1
• UK
• 144 airlines of which 17 at 0, including BA
• 40 at 0 or 1

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Post-ZC Trends

• Rising influence of low-cost carriers
• Increasing interest in online booking
• Focus on added values by TMCs

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Global Online Penetration
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The Struggle to Survive

• Every morning a gazelle gets up and knows that it
  must out-run the fastest lion or it will get
  eaten.
• And every morning, a lion gets up and knows that
  it must out-run the slowest gazelle or it will
  starve to death.
• So, whether you are a gazelle or a lion, every
  morning when you get up, you'd better be running.

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Post-ZC Lions or gazelles, fast or slow?

• The TMCs
• The Airlines
• The Corporates

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TMCs and 0 Commission (1)

• The shift was easier on those who had prepared
  the terrain
• Transaction and management fees were introduced
  to the BeLux market in 1999 (SN cap)
• Smaller agencies have stopped selling tickets and
  are re-grouping in niche markets
• Cut-throat competition on price
• Online transaction fees that do not cover costs
• Competition on price may make it hard for TMCs to
  invest in technologies demanded by clients only
  the deep pockets will survive
• Implementation of Online Booking Tools
• 75 costs reduction vs. Internal hidden costs
• Corporates have to have them but how do they
  manage it?

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TMCs and 0 Commission (2)

• Expansion of service offering and accent on
  consultative approach
• Supplier negotiations
• Outsourced travel management
• MICE
• End-to-end expense management
• Shift in public perception
• TMC as truly impartial third party, working for
  their clients

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Airlines and 0 Commission

• Distribution costs reduced
• But when was the last time you heard them coming
  with good news about their bottom line?
• What about the fuel surcharge? Are they in line
  with the reality?
• What about corporates refund processes for
  e-tickets? Did you process all unused tickets?
• What about the fare structures? Are they clear
  enough? Is it really transparency?

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Corporates and 0 Commission (1)

• Travel moved from profit to cost centre
• Travel managers felt pressure from executive
  management/purchasing to reduce costs
• Able to bargain on transaction price
• But is this a losing game?
• Growing interest in online solutions
• How to find the best balance between the managed
  transactions and the unmanaged transactions?

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Corporates and 0 Commission (2)

• Growing interest in low-cost carriers
• Expectation that TMCs will provide access to all
  inventory
• What are the real drivers to reach an optimum ROI
  from both TMC and travel suppliers?

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BTO Working Groups What Were We Thinking About
at the Beginning?

• November 2004
• Legal and fiscal matters
• Business model
• Technical working group
• Communications
• Cost re-engineering

• Major issues
• 1 or 0?
• Which VAT rate to use?
• Global price vs service fee?
• Fee box on the ticket?
• How to settle credit card transactions?
• CRS modifications necessary?

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What Will the Future Bring?

• More of the same!
• Airlines cutting distribution costs (watch out,
  GDS!)
• TMCs distinguishing themselves on the basis of
  the value they bring to the corporates
• Further shifts and consolidations in the TMC
  industry
• Corporates sitting in the drivers seat

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Thank you for your attention!