Qantas commission cut announcement

The recent announcement by Qantas about cutting commissions on international flights has had as noticeable impact on the share prices of travel middlemen in Australia. But just how significant is this move?

It is possible that this is a temporary move by Qantas as it desperately struggles to contain costs under the current desperate circumstances, and that it will be forced to reverse this as we (eventually) emerge out of C19 and agents give preference to competing carriers.

On the other hand, it is possible that this is part of the trend, that was already in place pre-covid, of agents moving increasingly to a fee-for-service (merchant) model.

Any way you look at it, whether agent or merchant, commission or other fee, agents have survived because suppliers (including airlines) have benefitted from them. The incentive to use them, or not, will not change at a stroke of Alan Joyces pen.

But even if this does herald a permanent squeeze on agent fees, commissions can take many forms. For instance, they can occur upfront, or they can be volume based overrides. The bigger you are as an agent, the less a supplier can afford to ignore you.

This is where it gets interesting for FLT. In Australia & NZ, FLT had (pre C19) approximately 2x the TTV as Helloworld (HLO), almost 3x that of Webjet's (WEB) combined OTA & WebBeds business, almost 10x of Corporate Travel Management (CTD). So if volume-based revenues become predominant, it seems pretty clear to me who will be the main beneficiary - at least domestically. There's no doubt HLO's market share is substantial (at nearly half that of FLT's domestic ops). However, it's operating margin (to TTV) is substantially lower (though it seemed to have been making substantial progress in the 4 years leading up to C19). So if the new commission balance tips the scales further in favor of the largest player, it could makes HLO's ability to compete with FLT that little more precarious.

WEB & CTD may well keep doing ok as they have low fixed costs & healthier margins than HLO, but if volume based revenues become more significant, I cannot see why even they should not be at a relative disadvantage compared to FLT. They may continue to do well, or even thrive, but it seems rational to me that volume-based revenues will mean they do less well than they have to this point, or at the very least have a harder time gaining market share in future.