There was a shake-up in the travel industry when a prominent tour company went bust recently, causing 336 travellers to lose RM2.4mil. While travel agents claim slim profit margins and high overheads are to be blamed, the episode has prompted the Government and the industry to look at ways to protect travellers' interests.
TIMES have certainly changed for the travel industry. Gone are the days when anyone who wanted to travel or buy an airline ticket had to go through an agent. With the Internet, anyone can go online to book the best or cheapest options.
With low-cost carriers, however, many more are travelling and doing so frequently.
Contrary to public perception that the mark up for travel packages is high, industry players claim otherwise. According to them, agents generally make a gross profit of about 10% per person on a domestic tour package and 6% for overseas travel.
Malaysian Association of Tour and Travel Agencies (Matta) president Ngiam Foon, however, says agents generally make a net profit of about 1% to 1.5% per head from tour packages.
Travel agents in Malaysia generally have it tough trying to make ends meet, what more making a profit. Minus the overheads, advertisements and rental costs, and the travel agent is left without much to take home.
Due to the low margins, travel agents could easily run into cash flow problems, says Hwajing Travel & Tours Sdn Bhd managing director Kenny Cheong.
“Any event that affects the confidence of the public in travelling affects the industry and for the smaller operators, this will probably cause them to go into the red. A few lossmaking months and it would mean having to take out loans just to stay afloat.”
Cheong, whose company is one of the top agents for low-cost carrier AirAsia, says the Government must intervene to assist the industry by creating a special fund to help operators who may meet financial difficulties.
A check reveals that the local Reliance group reported a turnover of RM159mil in 2005 but only a net profit of RM4.4mil.
As for the now defunct Excellence Holidays – which went bust in May, causing 336 travellers to lose RM2.4mil in total – it netted a profit of a little more than RM400,000 with a reported RM74mil turnover in 2005. Cheong gives a simple example of a RM399, three-day-two-night package to Bali to explain how low margins could be.
“The hotel, breakfast and transfer already come to RM200. Assuming we take a 10% commission, which is only RM40, that leaves RM159 for the return flight.”
Both Ngiam and Cheong say the fundamental challenges in the last 10 years for tour and travel agents are a result of the Internet and technology explosion that has made it easier for airlines to reach customers directly.
“All this cut into what we did best, while the problem of thin profit margins versus rising overhead costs has made things worse,” adds Ngiam.
Travel giant Mayflower Travel Group general manager Chin Ten Hoy says the travel industry has always been very challenging but that it is also resilient.
Chin adds that dynamics in the Billing Settlement Plan (BSP), which allows travel agents to issue flight tickets while making sure airlines are paid, has also changed.
Ten years ago, repayment for tickets bought by agents had to be made in 30 days but now it has to be done within a week. Cheong says this means a company's cash flow had to be well organised.
Ngiam adds that travel search engines on the Internet have also allowed consumers the ability to plan their own holidays all from the comfort of their own home.
However, though the convenience is there for the consumer, he argues that travel agents provide more than just the tickets and accommodation.
“The value of an agent is clear when a traveller faces trouble on a holiday. If you are in trouble, you call us and we can handle it. We are also able to provide a more intimate knowledge of a particular destination.” As for how travel agents could best adapt with the changing industry landscape, Ngiam says embracing technology to make work processes more efficient and to specialise further was the way to go.
Travel agents will have an additional challenge when the zero-per cent commissions come into effect next year. This means airlines will no longer be giving agents incentives, or what is commonly known as commissions, Ngiam explains.
“Commissions have always been lumped into the tour package price so that the consumer doesn’t actually know what agents earn.
“But with zero-per cent commissions, it means the agents commission is removed from the tour package price and agents will now impose a service or consultancy fee.” Ngiam gives an example of a package costing RM1,000.
“Let’s say the commission now is RM50 and the tour package price is RM950. Right now this is only seen as RM1,000 to the consumer.
“When zero-per cent commissions kick in, two items will appear on the invoice – RM950 for the tour package and RM50 for the service fee.”
Ngiam says he hopes consumers will understand and not fuss over prices when the zero-per cent measure comes into effect – a step seen to make the industry more transparent.
Cheong, however, has been practising zeroper cent commissions for the last five years due to his company’s relationship with AirAsia.
“It is a good move and will be more transparent for travellers. However, what I am more concerned about is the protection of both travellers and travel agencies in light of how difficult it is to survive in this industry.”
As a result of the collapse of Excellence Holidays, the urgency in creating travel insurance packages with tour fare protection picked up drastically with two schemes launched in the same month while a third would be launched tomorrow.
Matta launched its own scheme on June 19 while AXA Affin General Insurance Bhd has been providing cover for loss of deposit or payment made to travel agencies from June 1 with its SmartTraveller policy (see accompanying chart).
Deputy Tourism Minister Datuk Donald Lim says the Government is studying if a longterm model like Hong Kong’s compensation fund could work here.
In Hong Kong, travellers pay an additional 0.3% of the value of the tour package. The money then goes into a fund that is managed by the private sector and the government to aid travellers should a travel agency go bust.
Tour fare protection in its current form means protecting the traveller against a licensed travel agency being declared insolvent or from absconding with the money.
Mayflower Travel Group brand & marketing senior manager Maurice Chiew feels it is definitely a good thing and would help increase the confidence of travellers once again.
The Tourism Ministry has in principle agreed to make it mandatory for all licensed travel agencies and operators to offer such insurance.
When asked during Matta's insurance scheme launch why it took so long for such protection to be created considering other countries already had it in one form or another, Ngiam says it was all about the cost of doing business.
“Had this protection been introduced earlier, people would have asked why the cost of doing business was being raised unnecessarily.
In fact, all the other countries who have protection for travellers had to go through the same lesson we did.”
Source : STAR
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