TRAVEL agents who are not prepared to change their way of doing business will be like the dinosaurs - extinct.
Hong Kong-based regional director of Business Travel Inter-national Asia Pacific David Pettigrew said travel agents have to change because the market and clients require it.
Airlines are discussing how they can cut costs. With airlines capping commissions, agents can no longer depend on the old rebate system but become fee-based agents.
Airlines' commission capping started in United States and Europe and is spreading in Asia.
"It's like a whip, slow at the handle and faster as it goes down. Asia is at the end of the whip," Pettigrew said at a recent seminar organised by the Malaysian IATA Travel Agents Society (MITAS).
Airlines' overrides to agents are also disappearing and clients are becoming more cost-focused.
Pettigrew said with the management fee system the agency profit is guaranteed. Clients received all the commissions the agents used to earn but agents charge the clients for servicing and staff costs.
"The risk is with the client. If he wants more services the agent provides more staff and clients pay for that."
The management fee system, however, allows clients to see the agents' costs.
Pettigrew said: "It's called an open book because the agent is opening his books to the clients."
The problem with the open book is an agent cannot show actual cost where business is shared through a branch, unless the agent has a dedicated implant in the client's office.
Overriding agreements with airlines are difficult to audit as airlines don't give an itemised override for each account.
Besides management fees, transaction fees are also happening in Singapore.
Pettigrew said transaction fees started in the United States where 85 per cent of business is domestic.
But in Asia the major business is in international travel.
With transaction fees, clients pay the ticket cost plus a fee to agents. Payment is based on volume of work done and not sales volume.
Transactions can range from an invoice to a booking to a telephone enquiry.
With the advent of electronic ticketing agents have to think ahead.
Pettigrew said:"Clients don't pay for a ticket but for advice. If an agent's skill is only that [ticketing], then he is in trouble."
"Agents have to manage travel on behalf of their clients. A machine can issue a ticket.
"Find ways to add value to your transactions. Agents who don't do that resort to discount. Concentrate on information technology and dedicated products that clients will pay for."
Pettigrew said clients and agents have to agree on the level of services required as that will affect costs. "Clients will be looking for the lowest costs."