Posts Tagged bonding
Why Airlines and IATA Need To Tread Carefully…
Posted by murray in Latest News on May 16th, 2009
Airline revenue falls, BSP revenue falls – BSP being, amongst others, the monthly income payment that airlines received from travel agents – panic sets in. So, what are we talking about? The figures do look big – BSP churns some 240 billion dollars worth a year; a fair chunk of that being from the 58,000 travel agents world wide. IATA-BSP lost, last year 85 billion in bad debts – horrors! Well, not really when you bear in mind that this represents some 0.35% of turnover (an expression used loosely). Now, airline revenue comes mainly from BSP – some 80% to be exact – which means that travel agents – online AND offline – still represent the main source of airline income, despite the increasingly despotic attempts by airlines to drive traffic away from the various agency networks.
Of this BSP income for the airlines (and about 95% of the world’s airlines are in IATA BSP – and certainly nearly all of the “legacy” carriers) 80% of the UK airline income is generated by just 140 of 1,300-ish UK IATA agents – and half of it by just 30 agents (thank you, Travel Weekly).
The knee jerk reaction of airlines is to demand that BSP (and so, agents) start paying every two weeks rather than monthly, as they do now. In other words, the airlines get less money but on a more regular basis. Failing that, in order to “stop the bad debts” (which is running at, you will recall, 0.35% of turnover) IATA BSP wish to impose bonding on everyone who looks even slightly less than gold plated. This, at a time when bonds and loans are, of course, very easy to come by.
From this, we can deduce that airlines have clearly failed the marshmallow test. Take now! And hang the consequences! Well, What are the consequences? Agents, especially, will remember British Airways arrogantly proclaiming that they “Did not owe agents a living” whilst taking away the commission paid on airline tickets. Fine, said agents, who went away and in the words used in a PhoCus Wright study promptly “….. responded strategically, tactically and most of all aggresively to adapt, survive and succeed” in other words, showed the airlines two fingers and got on with the job of selling travel.
The worm turns, agents (and remember I mean online as much as any other; even Expedia and Travelocity are agents) do not owe airlines a living, either. There is a mutual dependency – the likes of Travelocity are very good at what they do, retailing (or shall we say, distributing content) whereas airlines are supposed to be good at what they do, which is shipping people from A to B. Travelocity et alia make a profit; airlines don’t – which says an awful lot about who actually owes whom, what. Airlines (and to a greater or lesser extent IATA) still ponitificate Canute-like about what they are going to do. Actually at the moment, they can. Just. Where they are taking their eye of the ball, if they ever had it on the ball, is by not watching those BSP statistics. That 50% of their income is dependent upon 30 agents – such as AMEX -at present.
Any precipative action, such as going to two week payments may well have exceedingly uncomfortable side affects, say 80% of their income coming subsequently from 30 (or less) agents. Why is this? Simple – “Divide and Rule”. Airlines could only pontificate and rule the roost because they had a wide and diverse distribution network through many channels, they did not need to really listen to any one product distributor simply because there wasn’t one. Yet, since the demise of commission, there is – or rather there are 30 of them and as they impose more onerous restrictions that number will fall, or rather that 30 will control and ever greater share of the income pie – and that is when you really start to sweat.
You do not need to be an expert to see this all too clearly. Where do you buy your daily bread? Yes, TESCO, Sainsbury or ASDA . Where did you buy your last PC? Yes, PC World or DELL. Your last thingy for fixing that irritating squeak? Yes, B&Q, WICKS (or Halfords, depending). Take the old IBM story where arrogance spawned Microsoft. Or just take a look what has happended to the local pub, even. All these are examples of what happens when people take a short term view by people with a short term interest. Airlines are lining themselves up, very nicely, thank you, for exactly the same treatment. They will soon be told what they can sell, where they can sell it and for how much. They behave or wallop! All that valuable, say, BA, trans-atlantic traffic goes to AA or UA or VS.
Of course, airlines say that they “talk” to the agents (Talk rather than “communicate with” – of course) but to whom are they are talking? Yes, you are right, to that 30. And that 30 have their own agenda, which is, of course, to control 80% or 90% of that BSP revenue, not 50%. I do not know what the critical mass is, but it cannot be far off. So, AMEX becomes the air travel business’s answer to B&Q. If you are an airline, you do what AMEX says, or you get nothing. Up to you, of course. Yes, they can distribute themselves and will have to. What we have here, however, is a service providor, a maufacturer, trying to retail and as I say, retailers are a lot better at retailing than manufacturers. Just look down the Times Rich List. Even Old Beardie once answered the question “How do you become a millionaire?” with “Start with 10 million and open an airline”.
So, airlines need to think things through (they won’t) and so does IATA (it can’t – think, that is). IATA is a body which believes that Stalin’s way of doing things was rather soft. And Airlines, like Sir Anthony Eden, still think they rule an empire. Things have changed dramatically over the last ten years or so and will indeed continue to do so. It is just intereting to note that the very architects of that change process, those that pulled down the orginal edifice with first checking to see what still needed support, now find themselves in turbulent air whereas those they lectured about that change, the agents, have quietly and efficently got on with the job. Airlines and IATA can talk the talk, they just cannot walk the walk.
Why Travel is Failing it’s Public
Posted by murray in Latest News on May 5th, 2009
After writing about stabiliser, which may be a solution to the ills we face, we should take a look at the problem. Here, I am thinking about the recent collapse of Freedom Direct and wish to pose some questions as well as areas where travel is clearly failing to provide reassurance.
Travel is a funny old world and comes complete with it’s own language, it’s own sayings and it’s own way of doing things. In many ways, it is unique; one of which, is that action to any request is usually required now. It’s no good getting around to sorting something out next week, if the client is stuck at Amsterdam airport and should be in Paris. The trouble is, the travelling public are simply not au fait with travel’s unique language and foibles. What is clear, however, from many of those that booked on Freedom Direct is that they are genuine folk from all walks of life and not all from a strata of society that can grasp the basics of rocket science in 10 seconds flat.
One thing the EEC managed to bring was chaos out of order and between them, the fumblings of HM’s Grateful Government, Trading Standards and the FSA, they have managed to create an impenetrable forest of systems and procedures which leave even travel agents dazed and confused. Heavens knows how Jo Public is supposed to understand it – so in turn, Jo Public is left dazed, confused and above all, angry. Very angry.
What do we need?
1. An understaning of what can happen if a modern agent goes down. In the past, we have had to deal with operator crashes and airline failures, where things have, on balance, been fairly clear cut. There is a side issue of bonding of scheduled airlines, but that is a debate for another place. We have had travel agents go down but what we have not seen, is large-ish online agents go down. What we are not prepared for is, say – What would happen if Expedia went down? Or Ebookers? This can never happen, of course. Just like Rolls Royce cannot go bust or Coca Cola cannot make a major cock-up with bottled water or the banking system cannot fail. So let’s get real, can we cope with a major online failure? No. The powers that be need to stress test their systems now.
2. A clear route map for those in trouble. ABTA deals with their bit, the CAA theirs and if one is lucky, another agent comes along and tries to pick up the pieces. Trading Standards could not give a rancid roadkilled rodent, the Financial Standards Authority now holds, in the eye of the Public, about as much respect as one may give, say, a small piece of green goo and the credit card companies try and fob people off by telling Jo Public they should claim from ABTA, the CAA or a little man that runs a road side cafe just off the A34. In his blog, Alex Bainbridge suggested that we (I hope, meaning the travel industry) should make more of an effort to help those who get into trouble, at least to evaluate their booking paperwork and point people in the right direction. This, he suggests, may be a task that could be undertaken by the newly retired or the newly unemployed, though I think the former may be better – in their circumstances, Jo Public, I am sure, would feel better if they were asking a “wise old head” .
3. Make sure that such systems that do exist, work. Certain firms bask in their membership of ABTA. Yet when the chips are down, they seem to forget this. ABTA, inter alia, winds up having to beg, cajoal, shout at and bang heads together in order to make the system work. This is not good. If you accept the mantle of respectability any upright trade body holds, one must act and abide by the precepts that mantle gives – and at all times. And especially when the proverbial hits the fan. One hotel booking company I saw in passing, displays ABTA membership on its front page – even a travel industry award – yet you have to route around to find the number. That said, it is an improvement. Bonding is the big issue. Yet who is bonded and for what? To whom? IATA bonds agents, but that is only to make sure that the airlines, not Jo Public, get their dosh. Advantage bonds agents for their CAPS (a direct debit system for agents to pay the tour operators) which indirectly holds a fair chunk of money which can help Jo Public. ABTA bonds, the CAA bonds – the list goes on.
4. Explain in simple English and keep procedures simple. The travel business needs to learn English and a version of English which all can understand. This is, of course, closely tied into number 2, for I have heard it said that instructions on what to do and how to do it, have been issued by all sorts of people – but a lot of it is in travel speak; starting with “a package holiday” – very few, outside (and by all accounts, some inside) the travel industry understand what a “package holiday” is and more importantly, how it is presented to them. People have received a travel agents account for, say an Easyjet flight, yet that money has been debited direct from the clients card by Easyjet, not the agent – we in travel know what is going on, but as far as many are concerned, they are wondering how Easyjet has got their credit card details (Easyjet have done nothing wrong, by the way) Since the demise of ABTA as the “WYSIWYG” one-stop-bonding-shop, Jo Public has to become a travel agent – and quite a skilled one, to boot – to work out, even, whom to call first. It is no good writing reams about catergory this and category that – asking a member of the opublic to see if they hold a holiday booking where Freedom Direct “….acted as agents for other ATOL holders” is the same as asking me if I could go and fix the CERN proton speeder-upper, thingy, device. Keep it simple and clear.
5. Restore Honour. Very important. Company fails and suddenly, up pops the same outfit under a new guise as if nothing had happened. Not good enough. If you fail, you fail. Certain firms have failed and some people treat such failure as no more than an occupational hazard. This is, from an industry point of view, less than constructive and demonstrates a total lack of sensitivity. Those that fail should be required, freely and voluntarily, to help sort out the mess. To man the telphones, to explain. The trade bodies that do exist, do not have enough staff to cope with big, complex failures (see “stress testing”, passim) but what they should have – what we in the industry should have – is a voluntary system that can click into place to, at least, explain to those that have been caught up, where they should go for help. If required, then those in the travel industry that do help (including the frontline troops of the failed company) should be paid a fair sum and such money should come from – and be part of – any bonding system.
6) Bonding should come, once again, under one body. For everything. The old stabiliser system was, effectively, a one-stop-shop. Though I bang on about getting back to this old system which worked, I also recognise that to do such may not be practical. We must, though, co-ordinate bonding under one body (ABTA would be the obvious one). Bonding must be complete and we in the travel industry must stop trying to find ways around it. One of the complaints about the old Stabiliser system was the high entry barrier and many of the larger operators objected to the large bonding sums required. People sort ways out – or rather -ways around it. Some even threatened to leave some trade bodies, if those bodies did not do things their way. This was and is, despicable. The level was high because firms were dealing with large sums and had low margins. Those large sums (as I have said before) would be a hard working famillies biggest single annual outlay. Protection for that money, that outlay, is not something that should be “got around”.
The above may not be a pancea, but it may be a start. As we have progressed the road of regulation since 1992, we have branched out, turned around and that wide open motorway has withered to become tiny lanes through the backwaters of the industry. We do not need more regulation, or laws or instruction. The pieces of the puzzle are already on that broad and open table, we just need someone to fit them together. To understand them and to translate them for a public whose respect and tolerance for an industry that was once hailed as a beacon of self-regulation, has sunk beneath a mire of verbage and confusion to a shameful level.
