Air Canada Drops Tango Commission Citing 'Negative Returns'
AC has announced the elimination of the 7% at source ‘Cash Reward’ on Tango fares and reduced travel agent compensation on all other fare types, Domestic Flight Passes and Group bookings to 4%.
In one piece of good news, the carrier is now allowing agents to earn the 4% commission for Flex and higher fares on domestic travel bookings made via the GDS.
After largely turning away from the agent channel for several years, AC “reengaged” with agents in June, 2009, introducing commissions for Canadian agents booking Tango flights within Canada. At the time, business travel traffic was down and CEO Calin Rovinescu told analysts that the airline needed to find creative approaches to generate revenues.
“We have actively and purposely reengaged with the travel trade," Rovinescu said at the time.
The shift in approach was revealed yesterday in a call to Open Jaw from Vice President, Global Sales Duncan Bureau and other AC officials. The outspoken proponent of the agency distribution channel started out by stating that the 7% paid out at source on Tango fares has yielded ‘negative returns’ for the carrier over the last year.
“This decision was not taken lightly,” Bureau said. “We monitored the results for almost 12 months and it became crystal clear that we needed to focus our incentive programs that support higher yields and better margins. No business can run on negative returns.”
Bureau added: “It’s extremely disappointing, but we invested too much on Tango and it is not sustainable. We need agents to move more business from Tango to Flex and higher.”
Coming off the best full-year financial performance in its 77 year history, the commission cuts will likely come as a surprise to many travel retailers. But Bureau defended the decision, saying paying out on lower-margin fares was not paying off.
“We need travel agents to articulate the value proposition of Flex and above. We need to be able to rely on this valuable distribution channel to sell, promote and market our product. We have found that at source ticketing commission does not drive behaviour.”
Reinforcing that message, Burean said that the Accolades incentive program is being bolstered with additional dollars in return for more ‘quality bookings.’
The AC sales V.P. says the changes do not indicate a pulling away from the agent channel after the recent rapprochement. “Not at all. The trade is an important part of our distribution strategy. We have consistently been open and transparent. Sue Clements (Director, Agency Sales) and her team have had meetings with key partners before we made these decisions to get input and direction.”
Asked if he was concerned about losing market share to WS because of the commission reduction, Bureau said: “People have to manage their business in a way that supports their P&L. The bottom line is that a strong, healthy, Air Canada is in everyone’s benefit. No business in the world can fund a distribution channel with negative margins. We need to invest in moving traffic to higher margins.”