In 2017, global travel gross bookings reached $1.6 trillion. Many of those bookings came from first-time travelers out of developing countries. Travel is believed to be one of the largest and fastest growing economic sectors in the world. Though not all these bookings are made through travel agencies, the numbers still represent a lot of bookings. Also in 2017, more than half of all U.S. travel was booked off-line, $112.8 billion of which was booked through U.S. travel agencies.
Travel Agents Rely on Commissions
Travel agents’ livelihood depends upon commissions earned from these bookings -- more than 96% of their income, in fact. Though commission rates vary across the various travel products (air, accommodations, cruises, vacation packages, transportation, etc.), if we just apply an average of 10% commission rate to the $112.8 billion in U.S. travel bookings, that would amount to $11.28 billion in U.S. travel agent commissions earned. That’s a lot of commissions to account for.
If we use an average commission of $100 per booking, that would mean there are more than 110 million booking transactions in a single year that have to be tracked and paid-out in order for the travel agent to actually collect their commissions earned and take that money to the bank.
Sadly, and what most people don’t realize, is that today, none of this process is wholly automated. For every booking transaction, the agent has to generate an invoice and that invoice needs to contain the details of the specific transaction. When the agent books through multiple suppliers (a hotel, a rental car company and a tour operator, for instance), each of those suppliers need to receive only the details related to their booking. Agents only get paid for bookings redeemed – this means that if a travel agent’s client plans and books their trip several months in advance, the agent only gets paid when the traveler actually takes their trip. The agent could be waiting several months or beyond to collect his or her payment. And if a guest cancels a booking – their hotel room, a flight, or a rental car, for instance -- the agent is not eligible for that commission.
The Complexity of Collecting Travel Agent Commissions
As of 2017, there were an estimated 260,000 U.S. adults employed as travel agents, 67,000 of which are considered “in-house” employees. To further complicate matters, 70% of today’s U.S. travel agents are independent contractors, working out-of-house through a larger “host” agency that owns the agency ID number (IATA) through which the booking is associated. These independent travel agents must submit their invoices to the host agency and wait for that agency to be paid by the supplier before getting paid themselves. Not only are they further removed from the commission payment process, but oftentimes the transaction detail on their invoice gets accidentally aggregated or stripped from the invoice that goes to or is processed by the supplier. This means that even when the host agency gets paid, they may not realize the payment should really have been earmarked for the independent contractor agent. To say that this whole process is multi-layered and complex is an understatement.
And yet, in order for travel agents to ultimately be paid the commissions they earn, they have to deal with this messy situation and unavoidable pain. The lack of a modern, automated solution and industry accountability has held travel agencies in a lock-grip for decades. Numerous agents resort to using homemade spreadsheets to help them track every booking. These spreadsheets contain row after row of transactions and the associated details: client name, name of supplier(s) booked, date the transaction was made, date(s) the booking was for, the number of nights and rooms booked, the transaction dollar value, the commission value, the date the transaction was invoiced, and the date the commission was paid. Day after day the agent goes into this spreadsheet to enter new transactions and check on outstanding ones… and that’s even if they have the time. Unfortunately, this antiquated and cumbersome, manual process has become accepted as “industry standard.”
When payments don’t come through in a timely fashion, the agent needs to begin a follow-up process to track them down. This might begin by contacting their host agent if they’re an independent agent, or it might involve contacting the supplier from whom the payment is late. Keeping track of commissions due and then having to do protracted following-up just to be paid is not only an unfortunate part of the travel agent’s job, but every entry and follow-up is also a new sales opportunity lost.
Opportunity Costs Reimagined
Just how many hours do travel agents spend on this transaction entry, invoicing, tracking, and follow-up process? No one knows. Suffice it to say that it’s countless. All of these hours represent time that the agent could instead be using towards positively affecting and growing his or her business. What could an agent be doing with those lost hours?
- Developing new business strategies;
- Audit and work to improve business processes and efficiencies, including helpful new tools and technologies to reduce overhead and optimize workflow;
- Executing marketing ideas;
- Networking to meet new client prospects;
- Doing research for existing clients;
- Improving relationships with existing clients and suppliers;
- Negotiate new rates for clients’ future bookings;
- Confirming upcoming trip details for traveling clients;
- Reading about the industry or new hot locations and activities to present to clients and prospects;
- Spend more time with your family.
For too long, travel agents’ business growth has been hamstrung by the cyclical problem of selling and then waiting to be paid commissions fairly earned. It’s challenging enough that travel agents have to compete against the Internet marketplace. It’s high time for a change that benefits all parties, and it’s time for travel agents to gain a level playing field from technology, too. That time is now.
Irving Betesh is the founder of IBC Private, a travel agency and advisory service focused on luxury travel and personal concierge services, and co-founder of SION, an intuitive commission management solution for travel agents that lives in the cloud (SaaS). SION provides a simpler way for agents to track and manage their commissions. SION has been accepted to the Virtuoso Incubator for travel technology and the Amadeus for startups programs. SION and it’s free beta trial sign-up can be found at https://sioncentral.com. Irving can be contacted at ib@sioncentral.com.
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