Commissions can corrupt. This is a key finding of a Queensland Government tourism inquiry that found “some distributors sell the product which pays the highest commission regardless of its relevance and suitability to specific visitors making the purchase” and canvassed possibility of introducing legislation to cap travel industry commission rates.
The ‘Review of Tour Desk Commissions’ by Tourism Services also revealed that some “operators complained they had lost control of the distribution of their products and of pricing their products. They seek to regain control of these functions.”
Operators also complain that high commissions (20% minimum) are reducing profitability and that distributors are sometimes making more out of a product than the actual supplier, a situation that has worsened in recent years.
“Continuing low profitability is reported by operators to have led to a lack of re-investment in product and staff, which has resulted in declining levels of product quality, service standards and visitor satisfaction.”
Of major concern was the lack of professionalism at the tour desks. “In many cases, local tour desks don’t appear to be professionally run and operators advise that they sell whatever product pays the highest commission, regardless of the suitability of these products to individual visitors.
“It appears that many local tour desks use itinerant staff without any real knowledge of the area or its products. Local advice received in a number of destinations was that backpackers are often used to staff tour desks in hostels in return for free accommodation.”
Other issues raised by report include operators feeling that they can’t afford to say “no” to powerful distributors that want higher commissions for fear of losing business. Meanwhile, some distributors regularly delay paying operators for products sold for between 90 to 120 days.
Meanwhile, the report questioned the benefit for operators of offering higher commissions to drive sales in times of low demand.
“Any competitive advantage of increased volumes of business from offering higher commissions is usually short-lived, as other competitors respond by matching higher commission payments.
“This often leads to entrenching higher commissions from operators over the longer term, without any compensating increases in business volumes for any one operator.”
The report also criticized the common travel industry practice of price parity, where a product costs the same across all sales channels, saying is it indefensible.
“Many of the current issues relating to tourism distribution stem from a situation where operators sell their own products directly to consumers, in addition to using distribution channels for sales of their products.
“There is often a conflict of interests as a result of this dual sales approach.
“Parity of pricing is long gone in most other industries. Almost all of the non-tourism purchases that consumers make daily have had dynamic pricing for many years.
“The retention of pricing parity for tourism products is no longer defensible or smart, in view of changing consumer attitudes.
“It has become a disincentive for operators to innovate with product offerings and pricing to the extent possible, including through online activities.”
The report said there were several possible options to address the issues raised above, including:
- Capping commission levels as happens in the real estate industry.
- Tour desk should be licensed.
- Distributors should declare commissions.
- Accreditation and codes of practice.
Further industry consultation is planned and the final version of the report due to be handed to the Queensland Government in August.
Please use this link to download a copy of the report.