Is it time to review overrides?

TOUGH economic times
have many South
African retail travel
agencies discounting their
service fees on the ‘front
end’, while relying on
override commissions at
the ‘back end’ to keep them
afloat – a risky business
model, some say, as
there is growing pressure
on preferred suppliers’
agreements.
Geraldine Boshoff,
marketing manager of
Sure Travel, says the travel
business is changing and
the current business model
will undoubtedly change as
well. “Suppliers are looking
to decrease their distribution
cost and at the same time
they want to encourage the
retail travel industry to sell
their product.”
Geraldine adds that the
override model has proved
to be the most effective
for both the supplier and
the travel agent so far as
it combines the need for
an incentive with the need
of the supplier to keep the
distribution costs down
or at least in line with the
required volumes of sales.
She explains that if volume
targets are not met, the
agency that relies too heavily
on overrides will find itself
out of pocket. “In the event
that the model changes or
targets are not met, this
can be disastrous to the
cash flow of any agency.
Consortiums in general are
heavily reliant on it as it
forms a large percentage of
their income.”
Jonathan Gerber, director
of TAG, says overrides are
still prevalent globally and
are here to stay. He says
service fees are just part
of the answer in what is a
complex business model in
which overrides also have
their place. “I wish the
industry would stop treating
overrides like a secret or
a dirty word. Overrides are
here to stay and while they
may well vary over time,
it is a trusted and proven
business model.”
Rod Rutter, ceo XL
Travel, agrees, saying travel
agents create much-needed
volume and market share
for suppliers. “Suppliers
won’t risk cutting their
income stream from travel
agencies,” he says, adding
that he is not against
service fees as an additional
income for travel agencies.
“Agencies must take
charge of their own
financial future and not
place it in the hands of
a disinterested group of
shareholders,” says Nolan
Burris, president of Future
Proof Travel Solutions, based
in Canada. Nolan has done
consulting work with South
African companies such as
Uniglobe, Sure Travel and
Harvey World Travel.
“As long as commission
is your primary source of
revenue, you are placing
your entire wellbeing in the
hands of a third party that
may or may not have your
best interests at heart.
We know from experience
that these purse strings
can tighten with little or no
notice. It’s happened before,
and will again. Fees allow
you to gain some degree
of control over your own
destiny,” he says.
Nolan says, to succeed,
fees cannot be merely for
bookings. Agents have
to give their customers
something worth paying for
and this takes planning,
preparation, and marketing.
In some cases, it might
require entirely reinventing
the business, he says.
“Consumers see bookings
as the least valuable part
of the travel equation.
Professional fees are for
advice, guidance, support
before/during/after the trip,
connections with suppliers,
ongoing training, advocacy if
something should go wrong,
and more.”
Nolan says US agencies
have taken professional fees
to the next level by creating
a new category of agency.
“Many call them boutique
or concierge agencies. Their
numbers are growing fast.
They are all about extreme
service and advice. Their
fees generally start at
US$250 (R2 918) and go
as high as US$3 000
(R35 025).”
Marta Gaughen, vp of
Bronwell Travel in the US,
says the agency expects
consultants to have their
service fees as one of the
top three revenue sources.
“We began charging fees
for our services back
when the airlines stopped
commissions. At that time
the airlines were providing
us with almost 75% of our
income. We have turned
that around and now we no
longer rely on any outside
source of revenue, although
we happily accept it.