To charge or not to charge: three agency owners sound off on service fees

This article first appeared in the October issue of PAX magazine. Click here to access the full magazine!

Are service fees a necessity in today’s travel industry? For many agents and agencies, that is the question.

Amongst the travel trade, one of the most polarizing topics is the issue of service fees.

While some agents are fine with charging for their time, others may hesitate, fearful that price-minded clients may simply opt for a cheaper alternative, be it another travel professional or an online booking engine.

But as the industry evolves, will agents be able to hold out on service fees for much longer?

History lessons

Several years ago, there was a time when Canadian tour operators paid an average 15 per cent commission to agents booking their itineraries.

However, as direct sales by tour operators to consumers increased – and online booking became the norm for many travellers – that rate dropped to the average eight per cent currently paid to agents. Enter the service fee, a surcharge for travel bookings introduced as a way of making up that shortfall.

Considering that current commission rate, coupled with the amount of time and effort invested by travel agents in their clients, the opinions of some of Canada’s major host agencies on service fees may hardly seem surprising.

Fees are nothing new for Transat Distribution Canada, says TDC’s General Manager Louise Fecteau, adding that agents working in TDC storefronts prominently display their service rates for clients.

“We call them ‘professional fees’ as opposed to service fees and I think it’s important to put the right label on it,” Fecteau says. “It’s just normal that as a professional, that you charge a fee for the advice, knowledge and assistance, for saving time with their internet research and validation.”

Flemming Friisdahl, founder of The Travel Agent Next Door, tells PAX that currently, fees charged by TTAND agents range from a $25 to $100 charge for non-commissionable bookings (such as air-only) to a quoting fee of between $100 to $150, which is then deducted from the final package price.

“It’s a way of securing the client so you don’t go through all of the work, only to have the customer go online and piece it together themselves after getting the knowledge from a travel professional,” he says. “It’s not over the top but something to show some sort of commitment from the customer.”

“If there’s no commission on the file, I think they should always charge a fee, because their time is worth it,” Friisdahl continues. “Everyone charges, whether it’s a doctor or a lawyer or whoever; why should travel professionals not be charging that?”

Gregory Luciani, president & CEO of TravelOnly, explains that while fees at the host agency are not mandatory, agents are “strongly encouraged” to charge clients for their time. Similar to TTAND, TravelOnly has a set of fee guidelines depending on the service provided.

“At this stage of the game – with some suppliers limiting their commissions – you have no choice to charge the fee, or you won’t be able to provide the level of service that the client is looking for,” Luciani tells PAX.

“If you’re competing against the same suppliers for the same clients, you can’t compete on price,” Luciani continues. “It comes down to the level of service at the end of the day. For example, a bride booking with you may be a handful and the amount of back and forth with the group can be a daunting task. We want our associates who are doing the work to be fairly compensated.”

Here's what customers are saying

While it’s true that there are always going to be budget-conscious travellers looking for the best deal, the three agency representatives tell PAX that the fears of some agents have in regards to service fees are greatly exaggerated.

“Some of the agents have told me that brand-new clients can be a little reluctant to pay a fee, because they think that the agent might not know what they’re talking about,” Friisdahl says. “But if you have a client who is very serious about buying travel, they won’t care because they know they’ll get their money back through reduced pricing.

“If you’re just starting to implement service fees with your clients,” Luciani adds, “there’s this great fear that there’s going to be this mass exodus of clients. But that’s not the case; time and again, we’ve seen that the service fee doesn’t scare the customer away…There’s of course people who would balk at service fees, but it’s a very small percentage. That customer would leave regardless – and they would leave because you’re $10 more expensive than a competitor. Those aren’t the type of clients we want.”

Fecteau says: “We still have some clients leaving, but that’s OK – we don’t need them. It comes down to how the agent positions those fees: if they can clearly express to the client the service that they’re getting, the clients are usually happy to pay the service fees.”

Overcoming reluctance

Among travel agents’ biggest impediments to implementing service fees can be the agents themselves, specifically a reluctance to promote their own worth to clients.

“I often believe it’s a lack of being able to explain it to their customers and when you explain something,” Friisdahl says, “there’s always two ways of doing it: either the client will not feel it’s justified or they’ll realize the value they’re going to get.”

“That’s something that’s hard to teach because you can’t read it off of a sheet of paper to someone. A lot of it comes down to self-assessed value.”

Adds Luciani:

“If anything, it (the service fee) gives you another reason to tell them about why you’re different and better; your fee is just another tool to let the customer know about that. We call it a ‘commitment to service’ fee. Most clients understand that if they’re looking for a certain level of service, there’s going to be a cost for it.”

Other times, competition plays a role. Although fees are technically mandatory for both storefront and home-based TDC agents, Fecteau explains that the latter group is sometimes reluctant to charge clients in a bid to remain competitive with other host agencies.

“In some regions, we’ve found that no one is charging a fee,” she explains. “We’re doing some tests in these regions where we reduce the service fee, but we ensure that everyone is charging the same amount. When it becomes a habit, we can build it up and increase the fee a little bit.

“It’s what makes the difference between an order-taker and a professional. If you don’t have the knowledge, it’s very hard to justify the fee. But as a professional, no one should be shy about charging that fee.”

The future of fees

Will agent fees become the rule rather than the exception? Luciani believes it will depend largely on whether suppliers will continue to compete with agents through direct sales while simultaneously chipping away at commissions.

“We’d have no choice but to increase fees to stay profitable, to sustain service and deliver for our customers,” he says. “Any supplier that thinks agent commission is expendable or a good line item to cut in a budget, what they realize pretty quickly is that once you cut commissions to zero, you’ll see both a backlash in the industry and the cost of customer service balloon internally, because the cost has just been shifted.”

“A healthy retail environment is good for the supplier,” he continues. “It takes pressure off of their frontline staff, sets expectations when the customer gets on board or is travelling with them and it creates another level of customer service post-travel as well, which the suppliers simply can’t do… it’s impossible to have relationships with all of the customers and that’s what builds loyalty, not rewards programs – which most people are unhappy about anyway.”

Friisdahl adds that the standardization of service fees will also be determined by whether or not the Canadian travel agent community can unite under a national professional designation similar to real estate agents or accountants. However, given the fact that travel is regulated provincially rather than federally, he remains skeptical as to whether that future will come to pass.

“In Alberta, for example, someone can plant a stake on their front lawn and say they’re a travel agent,” Friisdahl says. “Until we can stop or at least control that type of thing, the professional agents will have to work hard to show why they’re professionals, while those who don’t know anything make the pros look bad. That’s a big problem and it’s why we end up at the lowest common denominator.

“Until travel agents are more united in what they charge, it’s hard to do that. I’d love to see that but I don’t ever see it happening, as it’s a provincially-regulated industry.”

While the number of agents charging fees may increase, will the rates themselves do the same? For Fecteau, a measured response is the proper course of action.

“There needs to be a limit on what you charge, with value compared to service in mind,” she says. “We need to be careful with that; in the past, fees (at TDC) may have increased too quickly year-over-year, but we need to stay competitive.

“I don’t intend to increase those service fees too quickly; on the contrary, the goal should be to adapt to every market.”

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