Anjana Chandramouly

Bangalore, Nov. 27

The Ministry of Civil Aviation has sought the Law Ministry's opinion on the ongoing tussle between foreign airlines and travel agents over payment of commission to the latter for their services. The decision to seek the Law Ministry's opinion was taken after a meeting of officials of the Directorate- General of Civil Aviation, foreign airline representatives and travel agents under the chairmanship of the Joint Secretary, Ministry of Civil Aviation, last week.

“The Ministry of Civil Aviation has sought the interpretation of law with reference to the tariff structure,” said Mr P. Sampath Kumar, National Managing Committee Member, Travel Agents Federation of India (TAFI).

“The agents' stand on the issue is very clear. The commission paid to agents cannot be deemed as a cost of distribution. It is a cost of sale,” he added.

A customer

“What we don't approve is the airline passing on the cost to the customer using agents as a medium for doing so,” said Mr Sampath Kumar. According to him, the agents carried out the work of “selling, handling, processing and servicing traffic on behalf of the carrier, and it was for this role that commission was being paid to him”.

However, Mr Axis Hilgers, Director – South Asia, Lufthansa German Airlines, said that the passenger is the customer of the travel agent, since he walks in to the travel agency to get some services and “so he has to pay for those services”.

He added that airlines will pay travel agents performance-based commission “if they have pushed our products further, brought us incremental revenue etc”.

Net-fare biz model

Mr Hilgers said that this model was working in most countries. The airlines also have a successful net-fare business model with about 75 per cent of tickets being sold through the model. “From November 1, 2008, most airlines use this model. And all travel agents working under this model are very happy,” he said.

There is a two-way payment structure for the travel agents in this model, explained Mr Hilgers. “Service charges from the customer for the services rendered and performance-based commission from the airline,” he said.

According to him, no travel agency had to face closure or defaults in the past one year since the new business model was adopted. In fact, “this model is stabilising the future for travel agents,” added Mr Hilgers.

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