If you’ve been selling travel for a few years and if you sell package holidays, you have seen your commission levels drop significantly in recent years.
Today, agents generally earn just 5% to 8% selling packages, down from 15% or higher in the good old days. Not to mention marketing overrides – remember them?
Why have these commissions dropped? Well, the most likely reason is that tour operators have become more successful at selling a percentage of their inventory direct to the consumer via their websites.
But that’s not the only reason. Tour operators face rising costs just like any business today. So over the past decade they have looked for strategies to reduce costs. Distribution (that’s you!) represented a high cost and thus became an obvious target.
As one tour operator put it, “[cutting] distribution costs remain an opportunity for tour operators, depending on how successful they are at selling their product through direct channels.”
Initially, the tour operators tried a two-tiered model, paying agents 15% for advance bookings and 8% for bookings departing last minute. Well, that didn’t last long. Today, agents earn between 5% and 8%, with some earning up to 10% for certain products in certain markets.
Overrides not so readily on offer
Also cut back are those marketing overrides to host agencies, which at one point pushed commissions up to 18% and even as high as 20% to selected top performers. So your host agency has to work a lot harder to get marketing and volume overrides than in the past.
Now tour operators might pay another 1% or 2% if you’re lucky. This has a direct impact on what your host agency can afford to do for you.
It’s gotta come from somewhere…
In the absence of marketing overrides, some host agencies and consortia head offices now keep a point or two of commissions, to fund all their marketing and other initiatives for their agencies, so that agents are earning less than the tour operator actually pays.
“Head offices used to be funded by the overrides, but now that those have largely disappeared or been significantly reduced, some head offices are instructing tour operators to pay a point or two directly to them off the base commission,” said one tour operator who asked not to be named.
But remember, the money is going towards marketing and other services that you need to run your business.
Prices are up, but . . .
Selling prices on package holidays were up slightly this past winter over the previous winter. But even that is misleading as it is largely due to the drop in the value of the Canadian dollar against the U.S. dollar.
Average selling prices last winter for package holidays to Mexico and the Caribbean varied from about $1,150 to $1,500 per person, up by about $40 to $70 over the previous winter.
Meanwhile, this past summer, there was a price war in some markets with some destination packages selling for less than $100, per person, plus taxes and fees. That’s not good for anyone.
Book early this winter!
You can expect prices for this winter’s packages to rise due to the strengthening of other markets like the U.S. and Europe, which is increasing demand for popular destinations such as Cancun and the Mayan Riviera, Punta Cana and Jamaica.
The good news? Canadian tour operators are competing with resurging markets for rooms, and that will push up prices and thus increase travel agent commissions. The bad news is, they will be competing for rooms and that may mean certain hotels are not available for your clients. A solid reason to book early this year!