Lucky Air, a subsidiary of Hainan Airlines Group, announced that from the 23rd of September, the company will cut the base commission rate for domestic ticket sales from 3% to zero. They also encourage the customers to book directly from the company’s official website, call center, Wechat service, and airline counters.
No more fixed commissions for agents
Currently, over fifty percent of domestic tickets are still sold by the ticketing agencies. Airline ticket sales is also the main revenue stream for major OTAs like Ctrip and other traditional travel agencies.
A senior executive at one major agency revealed that they receive a fixed commission rate for every ticket sold, at the highest point the commission was up to 12%, but in recent years the commission rate has been continually dropping. Currently, the Chinese airlines mainly use the so-called 2+X model commission structure, the 2 is the base commission rate and the X is determined by the seasonality and routes. With Lucky Air’s cut of the base commission agents are only left with income from the variable X.
The Zero Commission trend
One airline sales director revealed that in recent years airlines have been changing their sales models by expanding their telephone, website, App, and Wechat direct sales services. Yet for now it would still be difficult for airlines to be completely rid of the intermediary channels. For an airline to increase their direct sales it would need a significant investment which in the end may cost more than paying commission to agents.
Presently the three major airlines (Air China, China Southern Airlines, China Eastern Airline) still rely on agents to make 70% seventy percent of their ticket sales. The OTA’s share has been continually growing. While overseas airlines like British Airways, Lufthansa, Air France already have direct sales of 40%-50%.
“Right now airlines and ticket agents are involved in a game, yet even if there will be no more commissions in the future agents must seek to transition. In this business, relying solely on a single revenue source is a problem we all must consider”, said the agency director. “Overseas very few travel agents rely solely on ticket sales, usually they all will extend services to the areas of local tours, business service, and holiday planning.”(Translation by David)
