The Travel Adviser: The Lufthansa group tries to change the rules

The bottom line is that Lufthansa and Swiss are essentially telling travel agents to go out of business.

lufthansa 248 88  (photo credit: Courtesy)
lufthansa 248 88
(photo credit: Courtesy)
Four hundred travel agents, 50 travel wholesalers and 30 airlines converged recently on Eilat for the Israeli Travel Agents' Annual Convention. The 30 airlines - those that fly to Israel, those that want to fly to Israel and those that want you to fly them even though they have never set foot in the Holy Land - mingled with 50 wholesalers representing everything possible connected with travel. Be it rental car companies, computer systems representatives, travel insurance conglomerates or international hotel chains, they all spent three days trying to impress the Israel travel decision makers. Mix in some Knesset members and journalists, and you have a good picture of what I experienced. Bubbling throughout the conference was the Lufthansa Group's recent decision to cut the commission it pays to travel agents from 7 percent to zero. Owners of both Lufthansa and Swiss Airlines insisted that travel agents would nonetheless make more money. Their idea: We would encourage our customers to pay us the missing 7% and call it a "service" fee. My first complaint to the German carrier's CEO regards the way they've gone about doing this. If you don't want to pay Israeli travel agents anything, simply say so. Informing 400 travel agency owners that you're cutting their commission to zero is demeaning and hypocritical. "We want to pay you commission, but we value it at zero" is the underlying message. It would be better simply to set a net fare - the sum the airline wants to receive per ticket - and let the industry set whatever service fee it deems appropriate. It also rankles me that a German carrier is telling Israeli travel agents what they can earn. No other airline - not El Al, not Austrian Airlines - is cutting travel agents out of the equation. They continue to pay 7% to every travel agency. Lufthansa and Swiss Air are not merely waving the stick at Israeli travel agents but assiduously trying to woo the travel industry by offering to create service fees ranging from $25-$100 per flight on top of their airline prices. In other words, they want the flying public to pay the commission that the airlines used to pay us. They are not planning on reducing their airfares by the sums they're saving by avoiding paying travel agents. Instead, they want to join forces with the travel agents to raise fares through service fees. To this, the Association of Israeli Travel Agents has said no thanks. Its members will not be cajoled (to use a polite word) in this way to promote these carriers. We prefer to charge nominal service fees. The head of Swiss Airlines in Israel addressed the audience in a bid to explain the decision. It was quite apparent that his German bosses had made a unilateral decision to implement the new policy without waiting for the national carrier, El Al, to do so. The fact that implementation of this shift has been delayed to September 1 deepens the impression that the policymakers know they are going out on a limb. In fact, in almost every country where lowering commission has been considered, the move has been led by that country's national carrier. BA led the campaign in Great Britain; Iberia has raised the issue in Spain. Here, where El Al has close to a 40% market share, most of the foreign airlines have pledged not to lower commissions until or unless El Al does so. The Swiss call to open negotiations with the local travel executives now that the decision has been announced fell on deaf ears. That is something that should have been done before the dramatic announcement was announced by registered mail. Lufthansa further stunned the German and Austrian travel community by informing the convention that any reservations made through a travel agency for flights originating in Germany or Austria will incur a surcharge! This is something that even the low cost carriers haven't attempted. The bottom line is that Lufthansa and Swiss are essentially telling travel agents to go out of business and that all clients should reserve airline tickets directly on the airlines' Web sites. The not-so-subtle message is that Lufthansa feels strong enough to market its own product directly to the consumer. This is a route that hitherto has only been attempted by the low cost carriers. But both Southwest Airlines in the US and Ryan Air in Europe came to realize that utilizing the vast resources of travel agents could only bring about an increase in sales. Tickets for many of the low cost carriers can now be purchased through travel agents. Keep in mind the major advantage that booking airline travel through a travel agency offers over an airline Web site: Travel agencies can make reservations on a multitude of airlines, without requiring payment; airline Web sites don't take unpaid reservations - they just sell tickets. On the Swiss Web site, for instance, you cannot make a reservation. You must give your credit card information and pay right away. Not only does a travel agency not require the immediate purchase of a ticket, it also enables reservations to be made for wait-listed flights. Business clients and leisure travelers alike appreciate the ability to review their reservation before being forced to make a purchase. As has been the case in North America, I believe Israel, too, will go to net fares. I'm positive that El Al will begin talks with travel agencies later this year to explore this drastic step. In the US, more than 50% of travel agencies have gone out of business over the last 10 years, as more and more consumers became accustomed to purchasing tickets on-line. Those travel agencies that survived did so by focusing on providing top-rate service with unmatched expertise. How the Lufthansa Group's move will play out in Israel remains to be seen. The Association of Israeli Travel Agents has begun an organized campaign to boycott Lufthansa and Swiss Airlines. Its power of persuasion is still a force to be reckoned with. Mark Feldman is the CEO of Ziontours Jerusalem. For questions and comments e-mail him at [email protected]