The annual Association of British Travel Agents convention, held last week in Marrakech, was dominated by Thomson’s announcement that it is lowering the commission it pays to high street travel agents for selling its holidays, from a double-digit percentage to just seven per cent. On Monday, Thomas Cook announced that it was cutting commission to a similar level. Other operators, including First Choice, seem likely to follow suit.
Some retailers have reacted by threatening to boycott sales of holidays by companies offering lower commission rates, while bullish operators have intimated that unless retailers accept the new terms they will withdraw their products.
Thomas Cook says that retailers that are not prepared to accept lower commissions and continue pushing their brand will not be given access to its packages. As the row brews it has been suggested that much of the money saved could be spent on direct marketing, as operators only rely on independent retailers for about 30 per cent of their business.
Such a move would help soften the blow if independent retailers became awkward. Paul Evans, the founder of online accommodation company Lowcosthotels.com and a former Going Places and First Choice Holidays managing director, says: “Commissions are going to be cut much more and the savings will go towards direct marketing.”
He adds that operators already want to sell more holidays directly through the Web or their own retail outlets, and cutting commissions is one way of shifting the focus towards direct selling. “Companies like easyJet never pay commission, which means they have been able to spend more on marketing and building their brand,” he explains. But Evans says that not all the benefits of lowering commissions will be passed on to the consumer, with some of the cash being spent on marketing and some finding its way into the company’s “back pocket”.
Dermot Blastland, managing director of First Choice’s mainstream sector, says 70 per cent of the company’s business is direct, with 30 per cent of that through its websites. He says that any extra money will be spent on developing sales channels that are important to the company.
Thomson sales and marketing director Miles Morgan, who made the controversial announcement in Marrakech, says his company is already developing its direct marketing strategy through DDB London, which has prepared a campaign to run early next year.
“We are increasing our CRM spend quite substantially and have our database in the best shape it’s ever been in,” he says. But he stresses that it is purely coincidental that the direct marketing push will come at a time when relations with independent retailers are becoming strained. Morgan also says that if the company found it had to move from a push to a pull strategy in attracting customers to its products, then it would spend some of the money it was saving through commissions on marketing. Thomas Cook has announced plans to revamp its website in a move designed to drive online bookings up to 20 per cent of sales in 2006.
The spat could further accelerate the decline in high street stores predicted by senior industry sources at the conference. Former Lunn Poly boss Chris Mottershead, now chief executive of specialist holiday services company Travelzest, predicts that one-third of all travel agencies will close over the next decade as the internet becomes more important. He told independent retailers: “You will never be able to compete with the marketing budgets of Expedia and Lastminute.com.”
With Thomson and other operators at loggerheads with their high street partners, the resulting price war looks certain to further encourage holidaymakers to book direct and accelerate online demand.