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TAANZ On Air NZ: Questions And Answers?

Questions And Answers?

Why are travel agents concerned about Air New Zealand’s announcements?

We welcome fare reductions for domestic consumers. The high level of cost of travel on Air New Zealand in the last two years has caused great concern amongst the travelling public. Fare reductions are essential to restore public confidence in Air New Zealand. For Air New Zealand to maintain a strong position in the New Zealand market the confidence of the travelling public is vital.

It is one thing, however, to give up non-essential extras like business class, meals and alcohol in exchange for lowers fares. It’s quite another to encourage the consumer to give up the essential service provided by travel agents and instead to book directly with Air New Zealand through their web site, with the promise of the cheapest fares in the market.

The decision to remove the agent’s commission is seen as an “unpartnership” act. This was tried by Ansett Australia in its last months, was a complete disaster and was reversed.

Aren’t these fare reductions a huge positive gesture to the consumer?

We need to be very careful in analysing these reductions. Firstly, Air New Zealand has been hiking its fares in the last two years, taking advantage of its dominance, making a reduction now look more impressive. Secondly, they have eliminated the agent’s commission in an apparent attempt to discourage the use of agents for domestic travel, thereby encouraging consumers to give up choice.

Is Air New Zealand trying to control the domestic market?

In a word, yes. Air New Zealand already has an 80% share of the domestic market. It is the dominant player and its strategy appears to be to keep other competitors out. Air New Zealand should regard its dominant position as a privilege and should be extremely careful that it does not exploit the goodwill of the New Zealand public. Attempting to diminish consumer choice on the domestic market is not behaviour that encourages goodwill.

What evidence is there of Air New Zealand inflating fares in the last 2 years?

While fare increases are obscured by special deals, loss leaders, etc, there is a clear pattern of fare hiking in the last two years, particularly aimed at the business traveller. These increases arise not only in base fares, but more particularly in access to fare classes and special deals. We have evidence of increases of around 30%, reaching as high as 70%.

Is TAANZ opposed to the use of the internet?

Absolutely not. If consumers want to use the internet and Air New Zealand wants to provide it, that’s fine. Many travel agents will offer these new internet fares. Consumers need to understand that deals available on the internet are not necessarily the best, nor are they the easiest to access.

Why is the internet not necessarily the cheapest and quickest way to book fares?

On the surface of it, the internet appears to be the cheapest method of booking travel. In fact, it is a cumbersome method of comparing fares between airlines or fare types (which reduces choice). Each fare type has conditions which are not easily accessed through the internet and which can confuse or mislead the consumer. Recent US research by Carlson Wagonlit on corporate travel shows that travel agents accessed the cheapest fare, in comparison to internet accessed fares, in 94% of cases. Less than 10% of bookings in the US are done through the internet despite enormous promotion of this medium.

Why should commissions continue?

An effective travel agency industry is fundamental to consumer choice. Air New Zealand is masking an attempt to diminish choice by announcing attractive fare reductions. It’s a classic giving with one hand and taking with the other. Removal of commissions appears designed to encourage consumers to airline controlled distribution outlets that will eventually reduce choice and make entry into the market by competing low cost carriers that much more difficult. Without a reasonable level of competition we can’t keep Air New Zealand honest.

Doesn’t the travel agent still get paid through the incentive scheme rather than commission?

A base commission covers the cost of transacting business on behalf of the airline. An incentive scheme is only paid if an agent achieves a target number of bookings with Air New Zealand.

Do you know that Air New Zealand have not reduced their margins?

Perhaps someone should ask Air New Zealand. Our estimates from the scant information Air New Zealand has released is that their margins have barely been touched, if at all. The consumer is paying either by giving up non-essential extras or by giving up choice through direct booking, and the agents will be subsidising the airline’s distribution costs.

What other action do you think Air NZ could have taken?

Airfares were always going to have to come down in the face of impending competition. Air New Zealand had no choice. If they had simply reduced fares by cutting out non-essential extras such as business class, meals and alcohol, that would have been a sound strategy. By eliminating commissions they have gone too far. This was the same mistake they made with Ansett Australia, who then had to backtrack. The New Zealand traveller is very wary of Air New Zealand exploiting its dominance.

Won’t the customer welcome fare reductions with open arms?

Of course. In fact the consumer can take the fare reductions and access the best deals by continuing to book travel through travel agents who are independent. What the consumer has to think about is retaining informed choice about airline options so that Air New Zealand is kept honest.

Will Air New Zealand extend this arrangement to Trans-Tasman and South Pacific routes?

Already Air New Zealand has extended Freedom, a low cost carrier, to Trans-Tasman routes. If this model is successful for Air New Zealand we would not be surprised to see it further extended.

Aren’t agents simply trying to protect their commission?

A vibrant and energetic agency industry affords the consumer protection against dominance in the airline industry. By removing commission Air New Zealand is telling the consumer that travel agents are a cost, not a benefit. We take strong exception to that. The benefit we offer is choice. Air New Zealand don’t want consumers to have choice, they want them to have Air New Zealand.

Does this mean that you will have to charge the consumer for your service?

The travel agent will increasingly become like a retailer. The skill of the agent is finding the best deal possible, including the agent’s costs. Often travel agents can find a better deal than consumers who deal directly with particular airlines, and this includes agency costs. As with any retailer cost structures are designed to suit customers.

Why are you so concerned about the loss of commission when you can do effective business anyway?

The loss of commission will have a major impact on our industry. It is designed to attract direct dealing with Air New Zealand and increase its dominance. This action will backfire on Air New Zealand because it will connect us more strongly than ever with the interests of the consumer. We are now seeing ourselves not just as agents of the consumer, but also their advocate.

Aren’t agents just middle-men?

In the past agents were the distribution outlets for airlines and a commission from the airlines met the cost. These costs included processing tickets, accepting payment and advising consumers. By selling direct, Air New Zealand is trying to steer consumers, uncritically, to its own products.

In recent years, the agent has slowly and surely moved from being a commission agent of the principal (that is, the airline) to the advocate of the consumer. The term middle-man is used to discredit a very important function on behalf of the consumer.

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