December 4 - The American Society of Travel Advisors (ASTA); The Need to Revise Timing of Agency Commission Payments, By Peter N. Lobasso, Senior Vice President & General Counsel:

 

To say that the unanticipated events of 2020 have caused disruption to travel advisors and the travel industry as a whole would, obviously, be an enormous understatement. Due to the practically universal dependence on commissions generated from the sale of travel, the near-total shutdown of travel worldwide as a result of the COVID-19 pandemic has, in particular, wrought an existential crisis on travel agencies of all sizes.

 

While the economic situation in the travel agency community continues to be dire as global travel remains at a small fraction of 2019 levels, there are some glimmers of hope. The U.S. Centers for Disease Control and Prevention (CDC) has recently lifted its longstanding “No Sail Order,” promising resumption of the cruise industry in the not-too-distant future. And encouraging news regarding several successful clinical trials of the long-awaited COVID-19 vaccine suggests that the worst days of this crisis may soon be behind us.

 

While the industry appears poised for recovery, the prospective optimism is tempered somewhat in recognition of the fact that full economic recovery of the travel agency industry will almost certainly lag the recovery of the travel industry as a whole by months, if not a year or more. Indeed, 62 percent of respondents to an ASTA survey earlier this year expected business income to lag the return of travel bookings by at least six months. This is because in many cases travel suppliers – hoteliers, cruise lines, tour operators, airlines, and the like – do not issue full commission payments to the booking agencies until their clients have actually completed their travel, meaning that a sale made today often generates no immediate income for the agency. Worse, should the previously booked client decide for whatever reason to not travel and elect to cancel the trip, in many cases the commission is lost entirely.

 

Admittedly, the system works passably well when the economy is strong, cancellations are few, and there is a steady ongoing demand for travel, as revenue generated from sales made months earlier will usually be sufficient to sustain the agency’s present operations. But when travel sold months or in some cases years earlier is canceled on an unprecedented scale, and new bookings grind to a halt, as happened in 2020, the shortcomings of the status quo become starkly evident.

 

Moreover, while new business and the revenue associated with it has come to a standstill, the work has not. Ironically, advisors have been busier than ever, working around the clock to accommodate clients whose plans were unexpectedly disrupted and, in many cases, needed assistance with itinerary changes or securing refunds from suppliers. This is the situation many of our members find themselves in – working harder than ever before but essentially without pay. Clearly, this is an untenable state of affairs for businesses in an industry struggling to survive.

 

While the practice of delaying payment of commissions until completion of travel is certainly not new, the current situation has shed new light on the intrinsic unfairness of the situation. Some suppliers may feel that it is necessary to protect themselves should a chargeback or other dispute with the traveler arise. However, the risk of such occurrences should be borne by the supplier and not the advisor who has already rendered the compensable service and has little if any control over his or her client’s conduct after the booking.

 

Moreover, regardless of whatever rationale suppliers may have historically relied upon to justify the practice, delaying payment of commissions runs counter to the centuries-old common law rule which provides that a commission is deemed earned when the agent provides the seller with a ready, willing and able buyer on the seller’s terms. If the industry followed this rule, one that has stood the test of time, advisors would stand to receive their commissions at the time of booking and regardless of what might happen thereafter.

 

For these reasons, and others, we call on all travel suppliers to review their existing agency commission structures and where necessary implement appropriate changes to more timely and fairly compensate advisors for the valuable services they render. While payment upon booking would be ideal, ASTA believes commissions ought to be (1) paid no later than fourteen days after the date of receipt of full payment from the traveler and (2) not subject to recall should travel be canceled for any reason not attributable to the acts or omissions of the advisor.

 

We express our sincere appreciation to those suppliers whose commission policies reflect this more equitable structure. And for those who do not, while we certainly acknowledge the impact of the pandemic on our supplier partners, we hope that our call will be viewed as an opportunity to work together to achieve a mutually beneficial new solution.

 

Adoption of a more equitable payment schedule by all suppliers will not only assist travel agencies to better weather the inevitable economic downturns of the future but will also help to ensure the viability of a distribution channel so critical to the suppliers’ own success. Indeed, taking this step will go a long way toward ensuring that this critical channel remains open and the traveling public continues to have access to the vitally important services advisors provide. Thankfully, a number of travel suppliers have come to that realization and have already taken steps to do just that. We applaud those efforts and encourage other industry leaders to follow suit without delay.

 

 

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