(Coming up - Bloodshed in Aviation sector .....Financial Express Article)
Against the backdrop of soaring fuel prices and capacity reduction in the aviation sector, financial planners and analysts foresee the second quarter of FY09 to be weak. The reasons cited range from high fuel costs to soaring lease rentals in the face of capacity reduction. According to experts, the sector is likely to post losses to the tune of $2 billion for fiscal of 2008-09 .
Gaurang Shah, Geojit Financial Services, said, “The high rate of inflation and low consumer confidence will adversely impact air travel which is already down by 15% in June and July. Secondly, the 3% rise in aviation turbine fuel and high interest rates on lease rentals will eat into the bottom line of all airlines.” Shah added that aviation sector stocks would under perform in the short-term. “Still it is unclear where crude price will go up further,” he added.
R Sreesankar, head, research, IL&FS Investsmart, added, “On one hand, you have costs going up and on the other, you have occupancy levels plummeting — all set to drive the sector into losses.” He added that fixed costs like parking and landing charges remained the same even with lesser capacity and is out of the airlines’ hands.
Another analyst from a Mumbai-based broking firm added, “Airlines have already started working on a stronger business model and balance sheets, to withstand the cyclical downturn.” Without naming any airline, the analyst informed that the airlines have started focusing more on recruiting domestic pilots rather than expats. There is also a possibility of airlines not renewing contracts of existing expat pilots who have salaries that are almost double of their Indian counterparts. The focus is also shifting to expand cargo operations to save bottom lines.
“Airlines are studying various international and domestic routes to enhance cargo operations. Each airline has set a target of generating at least 15% of their revenues from this venture,” he said.
The analyst added that low-cost carriers and their full-service cousins have already started downsizing the number of staff in various categories. “The airlines are planning to bring down their overall employee-strength by nearly 30%,” he said
Tuesday, August 5, 2008
Monday, August 4, 2008
WTO - Why Chinda said no to US (Farm Subsidy Case)
Business week explains the rationale behind the tussle in Chinda and US over Farm Subsidies at WTO
It's not often that China and India find themselves on the same side. They're the world's most populous countries and have two of the fastest-growing economies, but one is ruled by a communist regime, the other by an unruly coalition government. They don't see eye to eye about relations with the U.S. China has been a longtime supporter of Pakistan, India's bitter rival. And Indians look enviously at China's manufacturing strength, while Chinese want to replicate India's IT services success.
Following the collapse of the latest global trade talks, though, the two Asian giants find themselves in the same boat. The negotiations over the World Trade Organization's Doha Round of trade liberalization came to an inglorious halt July 29 amid disagreements about agricultural subsidies. The U.S. blames what it sees as intransigence on the part of India and China. Other nations are scolding New Delhi and Beijing, too. For instance, rather than concentrating on helping to address global concerns, India and China "focused too much on their own interests," Japan's Chief Cabinet Secretary Nobutaka Machimura told a news conference on July 30.
Rural Unrest Threatens India and China
The criticism may sting, but the two Asian giants aren't likely to succumb to overseas pressure. Both countries enjoy high economic growth, thanks to overseas demand for their manufacturing and outsourcing services. At the same time, Indian and Chinese leaders also have to worry about economic hardship in the countryside, where hundreds of millions of farmers have struggled to compete against imports from the U.S. and other countries.
China, for instance, has been trying to alleviate pain in the countryside for several years. The economy in the country's well-off coastal provinces has boomed, leaving behind rural areas home to some 500 million people. When it comes to competing against American agribusiness, "Chinese household farmers are very weak," says Wang Yong, associate professor and director of Peking University's Center for International Political Economy in Beijing.
Certainly, Chinese farmers are not able to supply all of the country's needs. Imports of soybeans, a staple of the Chinese diet, surged 53% last year, to $11.5 billion, according to statistics from China's Agriculture Ministry. Total agricultural imports for 2007 amounted to $41 billion, a 28% increase over the previous year. While Beijing has taken some measures to ease the burden on local farmers by reducing taxes, the imbalance still worries leaders such as President Hu Jintao and Premier Wen Jiabao, who have talked frequently about the need to boost development in rural areas. "The government faces very serious pressure from farmers," says Wang.
Indian Farm Subsidies: A Political Crutch
The pressure is even more acute for the Indian government. While Beijing's leaders have to worry about potential unrest in the countryside, officials in New Delhi have to confront a genuine rural revolt. The Naxalites, a violent Maoist insurgent movement based in rural
The government has other reasons to be concerned about unhappy farmers. For India's Congress-led coalition, farm subsidies remain a crucial electoral crutch. Nearly 70% of the population lives in the countryside and the vast majority of Indians derive their income directly or indirectly from farming, even though agriculture makes up less than a fifth of India's almost trillion-dollar economy. "If the government were to agree to something which will kill our agricultural sector, then their political futures will be finished," says MS Swaminathan, the director of India's National Commision on Farmers, who led the country's green revolution in the 1970s. "Already, agriculture has been neglected in India, and that affects about 700 million people.
In the past decade, as India has embraced reforms that have opened up and revitalized most of the developed sectors, agricultural growth has lagged, even as the rest of the economy grew by 8%-10%. On Indian cotton farms, for instance, the cost of reduced subsidies in the form of government price controls has already had disastrous effects. Unable to compete internationally on the cotton market, cotton farmers in central India, the second-biggest cotton producer after China, have spent a decade falling deeper into debt. According to government estimates, more than 160,000 farmers have killed themselves because of those debts. That's prompted the government to announce a $15 billion loan waiver for farmers in its current budget.
Inflation Is Also a Factor
Part of the reason for India's firm stand on protection for its farm sector is the crippling food-price inflation the country is facing. The cost of basic cereals, beans, and lentils has risen 25% in the past three years.
Maintaining some kind of stability in its agricultural sector is key to helping tame the nearly 11% annual inflation rate that threatens not only the current government, but also decades of meager income and nutritional gains among India's poor, says Karkade Nagraj, an agricultural expert at the Madras Institute for Development Studies. "You can't isolate what happens to Indian farmers because of WTO policies from what is happening in the world economy," he says. "With the crisis on the financial market, a huge amount of money moves to the commodity markets, leading to a commodity bubble. In a condition such as that, if you open up agriculture, then the farmers could gain, but that's not going to sustain anything for a long while."
Preoccupied with their own rural problems, Chinese and Indian policymakers have little sympathy for the U.S. and other countries that subsidize farmers. The Americans, Europeans, and Japanese are "asking weaker countries to dismantle their own protection measures without doing the same in their own countries," says Shi Yinhong, a professor of international relations at People's University in Beijing. "It's a double standard."
India, China Seem Unlikely to Back Down
The misunderstanding can go both ways, though, as people in China and India have inflated ideas about what sacrifices foreign governments can ask of their farmers. "People in developing countries don't fully understand the difficulties of advanced countries," Shi says. "They think rich countries have much more leeway to make [concessions] themselves."
And with the global economy hit by the American downturn, the credit squeeze, and high prices for oil, steel, and food, says Shi, governments on both sides of the debate are worried about risking any bold moves. That means it's even less likely India and China will back down in the current trade dispute.
Sunday, August 3, 2008
Will commission cuts kill the small travel agent ?
Will commission cuts kill the small travel agent ?
When an industry’s’ revenue base vanishes, its time to collapse or transform. The new no- commission world had been on its way since 1995 when airlines first started cutting down on the fee they paid to travel agents to sell their tickets in US. It would be a fallacy to say that the agents didn’t saw it coming. Agents will have to now change from being commission dependent retail clerks into service focused professionals with knowledge that leisure and business travelers are willing to pay for. Without doubt small store front travel agents will be the most affected. Large agencies and consolidators rebate commissions to their corporate customers and have been acting on a fee-for- service basis for years. In an era which used to exist, travel agents were extremely useful because they had information systems, means and expertise which allowed them to easily track all the different airlines. Airlines used travel agents to hold leisure travelers hands as the airlines pushed to expand their customer base. The airlines used the travel agents to widen the customer base for airline products and now when the airline travel market has finally matured and evolved, airline no longer feel the need to pay travel agents to bring in the first time fliers.
But the internet has changed all that, not only has it given the airlines a platform to display and sell their tickets and ancillary services, it has also introduced another segments of travel agents – online portals. The portals are bigger threat than commission cuts and direct selling by airlines. Independent travelers can now compare airline deals on these portals and club with attractive hotels, car rentals, package deals. The deals are getting bigger and better on portals as most of them are backed by venture capitalists and corporate with deep pockets. Using back ward integration the portals using their money power are getting better deals by bulk purchasing on airline seats and hotel rooms. They even offer hefty cash back schemes with credit card companies.
The travel agency business model needs to be redrawn, reshaped and remodeled to fit the new realities. Just as we have seen the demise of general medical practitioners, we have to evolve ourselves to be more specific and specialized travel agents. The survivors of this blood bath would be the ones who have figured out their market and their expertise. Travel agents need to provide inside information that the travelers can’t get off web sites easily. Add an incremental value to the final product/ service which the passenger is willing to pay for.
Final Word – The agents that survive the current shakeout period will be smarter and will probably do more business because they’ll have fewer competitors.
(Watch out for next travel agency blog - “How to survive the shakeout and emerge a smarter travel agent”)
When an industry’s’ revenue base vanishes, its time to collapse or transform. The new no- commission world had been on its way since 1995 when airlines first started cutting down on the fee they paid to travel agents to sell their tickets in US. It would be a fallacy to say that the agents didn’t saw it coming. Agents will have to now change from being commission dependent retail clerks into service focused professionals with knowledge that leisure and business travelers are willing to pay for. Without doubt small store front travel agents will be the most affected. Large agencies and consolidators rebate commissions to their corporate customers and have been acting on a fee-for- service basis for years. In an era which used to exist, travel agents were extremely useful because they had information systems, means and expertise which allowed them to easily track all the different airlines. Airlines used travel agents to hold leisure travelers hands as the airlines pushed to expand their customer base. The airlines used the travel agents to widen the customer base for airline products and now when the airline travel market has finally matured and evolved, airline no longer feel the need to pay travel agents to bring in the first time fliers.
But the internet has changed all that, not only has it given the airlines a platform to display and sell their tickets and ancillary services, it has also introduced another segments of travel agents – online portals. The portals are bigger threat than commission cuts and direct selling by airlines. Independent travelers can now compare airline deals on these portals and club with attractive hotels, car rentals, package deals. The deals are getting bigger and better on portals as most of them are backed by venture capitalists and corporate with deep pockets. Using back ward integration the portals using their money power are getting better deals by bulk purchasing on airline seats and hotel rooms. They even offer hefty cash back schemes with credit card companies.
The travel agency business model needs to be redrawn, reshaped and remodeled to fit the new realities. Just as we have seen the demise of general medical practitioners, we have to evolve ourselves to be more specific and specialized travel agents. The survivors of this blood bath would be the ones who have figured out their market and their expertise. Travel agents need to provide inside information that the travelers can’t get off web sites easily. Add an incremental value to the final product/ service which the passenger is willing to pay for.
Final Word – The agents that survive the current shakeout period will be smarter and will probably do more business because they’ll have fewer competitors.
(Watch out for next travel agency blog - “How to survive the shakeout and emerge a smarter travel agent”)
Friday, August 1, 2008
Horse sense
(Satire on Horse Trading...)
I WANT to buy some good Horse”, he said, stroking his bushy beard. I welcomed the elderly gentleman, though it was past midnight. Why not, if I could make an extra buck in the dark!
“Any special qualities you are looking for?” I asked politely. “Well, yes. I want slow, weak doddering ones, not the strong racing types you know…”
He smiled tenderly at my bewildered face and explained: “They don’t have to do anything; in fact they should be incapable of anything worthwhile. The more useless, the better. They should be just alive so that they can be counted in my shed. That’s all, my dear!”
“What will you do with them, respected sir?” I ventured.
“My boy”, he said in kindly tones,” My rivals in the trade claim they own more horses that I do. I must outwit them with numbers”. He further explained that lame horses were easier to hold—good horses could be stolen or they could bolt away to greener pastures. It’s just a matter of numbers.
“Are you deeply into horse-trading of some kind, respected Sir?”
“God, no”, he felt offended,” it is a bad word these days. But we are traders all right-especially in the power sector; Horse is our trade mark—you know the word Horsepower.
I nodded and guided him into my underground stables. The underground bit thrilled him. It matched his midnight visit. The elderly gentleman was impressed with my collection of horses. He examined them carefully and chose a few dark ones explaining “they are easier to hide till the display time comes.” He pointed at a few white ones and asked;” can you get them painted black, my friend? I don’t want them to catch my rival’s eyes easily.
Horses can be lured out of the stables with greener grass! Times are bad, you know. Ha, ha!”
“But respected Sir”, I protested.’ I am not into the business of painting horses.”
“Doesn’t matter, my boy”. In that case can you get them tainted that’s the least you could do.”
“But Sir”, I protested again, “they are already tainted! That’s why I am selling them so cheap, and keeping them safely here, underground”.
I narrated how these horses ate up fodder in other houses stealthily, how some of them kicked to death small animals witnessing their crimes etc.
“Great!” the gentleman’s belly shook with laughter. “I see, they can’t run away easily. But I hope that at the time of counting, hey won’t cross over to my rival side”.
“No respected sir”, I assured him solemnly, “we have damaged their vital organs adequately to suit leading buyers like you. They can’t even move on their own! We have taken other precautions too. We follow the principles of Horse-trading in our great Country very, very strictly!”
He was satisfied.
I WANT to buy some good Horse”, he said, stroking his bushy beard. I welcomed the elderly gentleman, though it was past midnight. Why not, if I could make an extra buck in the dark!
“Any special qualities you are looking for?” I asked politely. “Well, yes. I want slow, weak doddering ones, not the strong racing types you know…”
He smiled tenderly at my bewildered face and explained: “They don’t have to do anything; in fact they should be incapable of anything worthwhile. The more useless, the better. They should be just alive so that they can be counted in my shed. That’s all, my dear!”
“What will you do with them, respected sir?” I ventured.
“My boy”, he said in kindly tones,” My rivals in the trade claim they own more horses that I do. I must outwit them with numbers”. He further explained that lame horses were easier to hold—good horses could be stolen or they could bolt away to greener pastures. It’s just a matter of numbers.
“Are you deeply into horse-trading of some kind, respected Sir?”
“God, no”, he felt offended,” it is a bad word these days. But we are traders all right-especially in the power sector; Horse is our trade mark—you know the word Horsepower.
I nodded and guided him into my underground stables. The underground bit thrilled him. It matched his midnight visit. The elderly gentleman was impressed with my collection of horses. He examined them carefully and chose a few dark ones explaining “they are easier to hide till the display time comes.” He pointed at a few white ones and asked;” can you get them painted black, my friend? I don’t want them to catch my rival’s eyes easily.
Horses can be lured out of the stables with greener grass! Times are bad, you know. Ha, ha!”
“But respected Sir”, I protested.’ I am not into the business of painting horses.”
“Doesn’t matter, my boy”. In that case can you get them tainted that’s the least you could do.”
“But Sir”, I protested again, “they are already tainted! That’s why I am selling them so cheap, and keeping them safely here, underground”.
I narrated how these horses ate up fodder in other houses stealthily, how some of them kicked to death small animals witnessing their crimes etc.
“Great!” the gentleman’s belly shook with laughter. “I see, they can’t run away easily. But I hope that at the time of counting, hey won’t cross over to my rival side”.
“No respected sir”, I assured him solemnly, “we have damaged their vital organs adequately to suit leading buyers like you. They can’t even move on their own! We have taken other precautions too. We follow the principles of Horse-trading in our great Country very, very strictly!”
He was satisfied.
Wednesday, July 30, 2008
Application form to be filled fro contesting Indian Elections
Application Form To Be Filled For Contesting Indian Elections
----------------------------------------------------------------------
1. Name of Candidate : _______________________
2. Present Address
(i) Name of Jail : _______________________
(ii) Cell Number : _______________________
3. Political Party : _______________________
(List ONLY the Last Five parties in the Chronological (Order)
4. Sex: [ ]
A - Male
B - Female
C - Mayawati
5. Nationality: [ ]
A - Italian
B - Indian
6. Reasons for leaving last party (circle one or more)
A - Defected
B - Expelled
C - Bought out
D - None of above
E - All of above
7. Reasons for contesting elections (circle one or more)
A - To make money
B - To escape court trial
C - To grossly misuse power
D - To serve the public
E - I have no clue (if you choose "D, attach Certificate of Sanity from a Recognized Government Psychiatrist)
8. How many years of public service experience do you possess?
A - 1-2 yrs
B - 2-6yrs
C - 6-15yrs
D - 15+yrs
9. Give details of any criminal cases pending against you (Use as many Additional Sheets as you want)
10. How many years have you spent in Jail? [ ] (Do not confuse with question
A - 1-2 years
B - 2-6 years
C - 6-15 years
D - 15+years
11. Are you involved in any financial scams? [ ]
A - Why not
B - Of Course
C - Definitely
D - I deny it all
E - I see a foreign hand.
12. What is your Annual Corruption Income? [ ]
A - 100-500 Crores
B - 500-1000 Crores
C - Overflow... (Convert all your $ earning from Hawala etc to Rupees)
13. Do you have any developmental plans for India in mind? [ ]
A - No
B - No
C - No
D - No
14. Describe your achievements in space provided: [_________]
Thumb Impression of candidate (Not that of the person who filled the form)
----------------------------------------------------------------------
1. Name of Candidate : _______________________
2. Present Address
(i) Name of Jail : _______________________
(ii) Cell Number : _______________________
3. Political Party : _______________________
(List ONLY the Last Five parties in the Chronological (Order)
4. Sex: [ ]
A - Male
B - Female
C - Mayawati
5. Nationality: [ ]
A - Italian
B - Indian
6. Reasons for leaving last party (circle one or more)
A - Defected
B - Expelled
C - Bought out
D - None of above
E - All of above
7. Reasons for contesting elections (circle one or more)
A - To make money
B - To escape court trial
C - To grossly misuse power
D - To serve the public
E - I have no clue (if you choose "D, attach Certificate of Sanity from a Recognized Government Psychiatrist)
8. How many years of public service experience do you possess?
A - 1-2 yrs
B - 2-6yrs
C - 6-15yrs
D - 15+yrs
9. Give details of any criminal cases pending against you (Use as many Additional Sheets as you want)
10. How many years have you spent in Jail? [ ] (Do not confuse with question
A - 1-2 years
B - 2-6 years
C - 6-15 years
D - 15+years
11. Are you involved in any financial scams? [ ]
A - Why not
B - Of Course
C - Definitely
D - I deny it all
E - I see a foreign hand.
12. What is your Annual Corruption Income? [ ]
A - 100-500 Crores
B - 500-1000 Crores
C - Overflow... (Convert all your $ earning from Hawala etc to Rupees)
13. Do you have any developmental plans for India in mind? [ ]
A - No
B - No
C - No
D - No
14. Describe your achievements in space provided: [_________]
Thumb Impression of candidate (Not that of the person who filled the form)
Tuesday, July 29, 2008
Sparking Red Wine in a Plastic Bottle or a Pouch
Little birdie told me that some environmentalists in west are creating a hue and cry over the use of glass bottles for wine and liquor packaging. They say these bottles are heavier than plastic bottles and more energy is consumed to transport heavier bottles. They advocate that glass bottles used in wine packaging are not environment friendly, rather they contibute to excesss usage of energy. They have gone on record to propose the use of plastic bottles and pouches for wine and liquor packaging. The wine packaging industry has already started replacing the wodden corks used in champagne and some wine bottles with normal caps.
Its hard to imagine red wine in a plastic bottle or our your premium scotch in a silver pouch. The environmentalists the adverse effects of plastic bottles and pouches on wine and liquor guzzlers in regions like Punjab. A group of friends will sit together in a local "Ahata" to cut a pouch rather than a bottle. People will reserve liquor pouches in the hood of their cars than the bottles, worse still what happens to our drawing rooms bars. Hard to imagine how will a Jack Daniel plastic bottle look like or will Johnnie Walk with the pouches.
There are other bigger and more grave issues concerning our environment and there are a trillion ways how we can save energy , but please spare the bottles, we Punjabi can't really live without our daily dose of "Daru ki batli".
Friday, July 25, 2008
The hullabaloo about Zero % Agency Commission
(Sum's take on reduction in agency commission to zero by international and domestic airlines in India)
TAAI invites its delegates and members to London, UK to discuss, evaluate and formulate policies for the zero agency commission era confronting the travel industry this November in their annual convention. There are over 2000 IATA agents and about 14000 non-IATA agents in India. A sector which till last year was booming being part of the sunrise sector of the economy is under a direct threat of being washed away or being ruined by a Tsunami of zero commission structure being implemented by the airlines. It employs a large chuck of people requiring medium to low levels of entry level education standards and promotes entrepreneurship by means of its 14000 non IATA agent network, bulk of which are small and medium enterprises managed and run by individuals in every nook and corner of the country. The employment potential of the industry is unmatched in terms of providing solutions for disguised unemployment, self employment and proves as a catalyst for generating employment in other sectors like transport, tour operators, hotel industry, tourism industry etc.
Of late the industry is under a threat (at least a perceived threat) of being subdued by the zero commission structure being implemented by the airlines. The succession to zero % commission is a part of structured reduction in commission by international and domestic airlines over a period of last 8 year from 9 % to 7 % and then to the current commission structure of 5 %. The commission was reduced to 5 % a couple of years back and an understanding was reached by the airlines with the trade associations to reduce it to zero by 2009. Bulk of the travel agents at the time of reduction in commission to 5 % failed to realize the threat of a future 0 % commission regime and failed to change their business models. The worst affected are the ones who are now searching for an alternate business plan when they are almost amidst the storm. I perceive it as an opportunity and not as a threat and I strongly believe that some sound planning renewed business plans and cost effective professional service travel agents will continue to rule the roost.
Let’s conduct a SWOT of the Travel Industry at the crucial juncture of this commission alteration:
Strengths
1. The main strength of travel trade is that even today the online travel market and online airline websites accounts for less than 5-8 % of the total ticket sales in India.
2. The Indian passengers continuance to depend on traditional travel agents is a big plus for this industry
3. The credit sales of airline products still holds good with the traditional travel agents (by traditional travel agents I mean the one’s with indigenous ownership and office based offline sale of products/ services)
4. Passengers in India depend on a travel agent to get his expert advice for arranging his travel.
5. India is a country where visa services and other ancillary services is a big market. Normally a passenger depends on a travel agent to arrange a visa besides tickets and other formalities. India is unlike western countries where visa is not required for most of the countries.
6. Credit card and Internet density is still low in semi urban and rural areas and areas like Punjab, which account for 40 % of traffic at Delhi airport holds the key for travel trade.
7. The travel agent’s bargaining power with the airlines still remains strong as bulk of the business is still generated through travel agents.
Weaknesses
1. The trade bodies like TAAI, TAFI and IAAI and not integrated and not very strong at the national level. They are divided amidst politics and often fail to present a united front for key and common issues. Some trade bodies are also accused of playing at the hands of the airlines. Most of these bodies are centralized with low levels of decentralization.
2. The industry is still in an unorganized stage which poses problems of faulty business models and low levels of professionalism
3. Failure of the industry to keep pace with the times and develop alternate business plans
4. Most of the IATA agents in India are ticketing agents and their failure to serve a range of other services is posing a risk to their survival
5. The non-IATA agent base of 14000 agents is totally unorganized and not regulated and their role in the entire industry is still unknown. They threaten the survival of the registered agents.
6. Low levels of trained professionals and lack of professionalism is hurting the industry
7. High degree of competition in the absence of any entry or regulatory barriers is creating excess capacity in the industry. Margins too have shrunk due to competition.
8. Mushrooming of unscrupulous and fraudulent people who are cheating people on the pretext of illegal immigration and human trafficking are giving a bad name to the industry and hurting the overall confidence level of people on traditional travel agents.
Opportunities
1. The opportunities lie in getting organized and creating core competencies by economies of scale and reducing costs.
2. With the advent of E-Ticketing there is an opportunity to rework staff requirements and reduce costs in staffing.
3. Reduction of commission to zero will introduce the concept of transaction fees which will find favor among the corporate clients
4. There is an opportunity in creating an effective and successful business model based on transparency in earnings and reduced costs of operation.
5. There is plenty of scope for consolidation in the market. In the event of zero commission structure airlines may introduce bulk buying of seats wherein big consolidators and consortiums will benefit. Also overriding commissions like PLB and Boarding Incentives will be increasingly used by airlines to market their products.
6. There is a big opportunity in promoting, selling and functioning as a travel agent by introducing all other ancillary services like hotel reservations, cruises, insurance, visa, destination counseling, event management, MICE etc in the product portfolio.
7. Reduction in commission will serve as a deterrent for new entrants in the market and may even clean up the market with withdrawal of some players. This will check unscrupulous competition in the market and bring some order.
Threats
1. The biggest threat is from within the industry. The small and medium sized travel agencies face threat from online travel agencies and consolidators (both B2C and B2B) which are backed by venture capitalists and corporate houses and can go the extra mile by giving hefty discounts and undercutting fares to bring their brand value. They consider undercutting cost as a part of their investment.
2. The other big threat is from low margins by means of transaction fee, which will be implemented to replace the commission structure.
3. The real threat in zero commission eras comes from a situation wherein airline starts marketing the fares directly to the customer through their websites. In such a situation a ticket which cost “x” amount to the passenger on the airline website, will also cost the travel agent “X” amount. The travel agent will resultantly sell that ticket at x+ transaction fee, which will certainly be more than what the airline sells directly to the passenger. In such a situation there may be a temporary or permanent shift of passengers from the travel agents to the airlines.
4. With a global slowdown, high inflation and high interest rates the disposable income of people is low and this is adversely affecting the industry. Prolonged period of slow down might trigger panic in this industry which is witnessing a paradigm shift in terms if its revenue model.
Conclusion
The travel industry has hit an air pocket with global economic slow down and proposed reduction of agency commission to zero. From the airlines perspective, they need to work more closely with the agents than ever before and explain to them the rationale behind the reduction of commission; besides giving them confidence that travel agents remain the biggest distributions channel for the airline products. Travel agents need to reinvent their business models and besides looking at ancillary services they need to shun the image of being a ticketing agent. They need to take up the role of travel consultants and counselors. Using the technology to their advantage, agents need to reduce cost and develop an effective and cost effective model of doing business.
The actual impact of the reduction in commission on the travel industry will not be felt before the end of next fiscal during which the risk bearing capacity and patience of the travel industry will be put to test. Lets hope the churning of this industry brings out some “Amrit”.
TAAI invites its delegates and members to London, UK to discuss, evaluate and formulate policies for the zero agency commission era confronting the travel industry this November in their annual convention. There are over 2000 IATA agents and about 14000 non-IATA agents in India. A sector which till last year was booming being part of the sunrise sector of the economy is under a direct threat of being washed away or being ruined by a Tsunami of zero commission structure being implemented by the airlines. It employs a large chuck of people requiring medium to low levels of entry level education standards and promotes entrepreneurship by means of its 14000 non IATA agent network, bulk of which are small and medium enterprises managed and run by individuals in every nook and corner of the country. The employment potential of the industry is unmatched in terms of providing solutions for disguised unemployment, self employment and proves as a catalyst for generating employment in other sectors like transport, tour operators, hotel industry, tourism industry etc.
Of late the industry is under a threat (at least a perceived threat) of being subdued by the zero commission structure being implemented by the airlines. The succession to zero % commission is a part of structured reduction in commission by international and domestic airlines over a period of last 8 year from 9 % to 7 % and then to the current commission structure of 5 %. The commission was reduced to 5 % a couple of years back and an understanding was reached by the airlines with the trade associations to reduce it to zero by 2009. Bulk of the travel agents at the time of reduction in commission to 5 % failed to realize the threat of a future 0 % commission regime and failed to change their business models. The worst affected are the ones who are now searching for an alternate business plan when they are almost amidst the storm. I perceive it as an opportunity and not as a threat and I strongly believe that some sound planning renewed business plans and cost effective professional service travel agents will continue to rule the roost.
Let’s conduct a SWOT of the Travel Industry at the crucial juncture of this commission alteration:
Strengths
1. The main strength of travel trade is that even today the online travel market and online airline websites accounts for less than 5-8 % of the total ticket sales in India.
2. The Indian passengers continuance to depend on traditional travel agents is a big plus for this industry
3. The credit sales of airline products still holds good with the traditional travel agents (by traditional travel agents I mean the one’s with indigenous ownership and office based offline sale of products/ services)
4. Passengers in India depend on a travel agent to get his expert advice for arranging his travel.
5. India is a country where visa services and other ancillary services is a big market. Normally a passenger depends on a travel agent to arrange a visa besides tickets and other formalities. India is unlike western countries where visa is not required for most of the countries.
6. Credit card and Internet density is still low in semi urban and rural areas and areas like Punjab, which account for 40 % of traffic at Delhi airport holds the key for travel trade.
7. The travel agent’s bargaining power with the airlines still remains strong as bulk of the business is still generated through travel agents.
Weaknesses
1. The trade bodies like TAAI, TAFI and IAAI and not integrated and not very strong at the national level. They are divided amidst politics and often fail to present a united front for key and common issues. Some trade bodies are also accused of playing at the hands of the airlines. Most of these bodies are centralized with low levels of decentralization.
2. The industry is still in an unorganized stage which poses problems of faulty business models and low levels of professionalism
3. Failure of the industry to keep pace with the times and develop alternate business plans
4. Most of the IATA agents in India are ticketing agents and their failure to serve a range of other services is posing a risk to their survival
5. The non-IATA agent base of 14000 agents is totally unorganized and not regulated and their role in the entire industry is still unknown. They threaten the survival of the registered agents.
6. Low levels of trained professionals and lack of professionalism is hurting the industry
7. High degree of competition in the absence of any entry or regulatory barriers is creating excess capacity in the industry. Margins too have shrunk due to competition.
8. Mushrooming of unscrupulous and fraudulent people who are cheating people on the pretext of illegal immigration and human trafficking are giving a bad name to the industry and hurting the overall confidence level of people on traditional travel agents.
Opportunities
1. The opportunities lie in getting organized and creating core competencies by economies of scale and reducing costs.
2. With the advent of E-Ticketing there is an opportunity to rework staff requirements and reduce costs in staffing.
3. Reduction of commission to zero will introduce the concept of transaction fees which will find favor among the corporate clients
4. There is an opportunity in creating an effective and successful business model based on transparency in earnings and reduced costs of operation.
5. There is plenty of scope for consolidation in the market. In the event of zero commission structure airlines may introduce bulk buying of seats wherein big consolidators and consortiums will benefit. Also overriding commissions like PLB and Boarding Incentives will be increasingly used by airlines to market their products.
6. There is a big opportunity in promoting, selling and functioning as a travel agent by introducing all other ancillary services like hotel reservations, cruises, insurance, visa, destination counseling, event management, MICE etc in the product portfolio.
7. Reduction in commission will serve as a deterrent for new entrants in the market and may even clean up the market with withdrawal of some players. This will check unscrupulous competition in the market and bring some order.
Threats
1. The biggest threat is from within the industry. The small and medium sized travel agencies face threat from online travel agencies and consolidators (both B2C and B2B) which are backed by venture capitalists and corporate houses and can go the extra mile by giving hefty discounts and undercutting fares to bring their brand value. They consider undercutting cost as a part of their investment.
2. The other big threat is from low margins by means of transaction fee, which will be implemented to replace the commission structure.
3. The real threat in zero commission eras comes from a situation wherein airline starts marketing the fares directly to the customer through their websites. In such a situation a ticket which cost “x” amount to the passenger on the airline website, will also cost the travel agent “X” amount. The travel agent will resultantly sell that ticket at x+ transaction fee, which will certainly be more than what the airline sells directly to the passenger. In such a situation there may be a temporary or permanent shift of passengers from the travel agents to the airlines.
4. With a global slowdown, high inflation and high interest rates the disposable income of people is low and this is adversely affecting the industry. Prolonged period of slow down might trigger panic in this industry which is witnessing a paradigm shift in terms if its revenue model.
Conclusion
The travel industry has hit an air pocket with global economic slow down and proposed reduction of agency commission to zero. From the airlines perspective, they need to work more closely with the agents than ever before and explain to them the rationale behind the reduction of commission; besides giving them confidence that travel agents remain the biggest distributions channel for the airline products. Travel agents need to reinvent their business models and besides looking at ancillary services they need to shun the image of being a ticketing agent. They need to take up the role of travel consultants and counselors. Using the technology to their advantage, agents need to reduce cost and develop an effective and cost effective model of doing business.
The actual impact of the reduction in commission on the travel industry will not be felt before the end of next fiscal during which the risk bearing capacity and patience of the travel industry will be put to test. Lets hope the churning of this industry brings out some “Amrit”.
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