Having stated my case above I do want to now set some clear expectations.

In this guide you will learn how to squeeze out every last dollar of margin from selling an airline ticket and adding to your bottom line. The processes described are not rocket science but a scientific and business focused approach that should be incorporated into each travel agency business in an ongoing manner anyway. You may already be doing some or more of these steps, but this paper will put them all into a repeatable and manageable process which will make you more money with every ticket you sell.

Some of these steps are easy and some need work. How much margin you pull out from your air business is finally up to you but with this guide we want to aim towards increasing your air margins to 3% or more on existing sales. All this with zero investment and zero cost increases. I have seen results that have been twice or thrice as much or exponentially more, but those cases are of Airline Metrics’ clients with whom I have confidentiality agreements. So I cannot reveal their names here publicly. However, the process and pathway to those riches are exactly the same as covered in this guide. If you are able to use this guide to generate the results desired, please do let me know. That would be the best reward for me to hear that we have had a positive impact on your business and your life.

All the tools used in this guide from spreadsheets to diagrams can be downloaded from our website for free on www.airlinemetrics.com/agencytools so please do visit our site for that.

Regardless of your role within the business you operate in, you can showcase a direct impact onto what is generally regarded as a low margin business – air revenue.

If you are the owner or shareholder or a C-level executive – there is obviously a direct impact for you. Your legend will also grow and you will be known as a magician or wizard.

If you are an executive within the business who brings forward these structured methods to increase profits – you know where your next promotion is coming from and also all the bling it’s going to bring with it. Or if you are just doing it from the good of your heart you will be lighting a real evangelical fire within the business to do better.

You bring in the money – you shape what you get from it – it is that simple. Flexible work days? Higher bonus? New car? Expensive Dinners? – Negotiate what you want because as the famous line from Jerry McGuire goes “Show me the money!”

It is also true that success begets success. It sets up the pathway to a more successful future by enabling you to focus on issues that are of real interest to you and will make a definite impact on the business’ future.

There are generally only two ways to grow profit as you know. Grow sales (profitably) or cut costs. Let’s then list down some challenges in growing profit and see if one or any of the statements apply to you:

• The market-share your business currently holds is the best you can have given your position in the market. It is unlikely you can increase your sales dramatically based on current market conditions.
• The airline deals negotiated with all the major carriers in the markets are at the best possible incentives you can get. There is no more to get.
• With competition in the market you can only charge a limited amount of service fees.Increasing fees is not really an option.
• Costs have been cut to the fullest extent possible and there is no more scope for any further cuts.

So how will any of the above allow us to increase our margins?

Well, the travel industry is unique; where suppliers also pay you money on your sales. So that’s where we are going to focus for now in this guide. And hold that thought where you say refer to point two above. We will address it in due course.

The scope of this guide is limited to airline suppliers only but if you can use some of the tactics towards your other suppliers – go for it. More the merrier when it comes to margins.

Now in addition to the above, let’s identify some more challenges we may be facing.

Let’s look at the one true margin earner for many travel agencies, including consolidators. Their true bread and butter – Backend Incentive Contracts also known as PLBs (Productivity Linked Bonuses) in some markets. These incentive contracts are lucrative when you hit the targets and get paid and very painful when you miss them. Do you remember the feeling when you missed any one of them?

So how can we get on top of this challenge and never miss these targets? To do so first we have to clearly identify and state the problem. After that we can look at solutions.

So what challenges do back end incentive or PLB contracts pose? We can state them in seven broad categories:

There are many other issues with PLBs and incentive contracts but the seven above probably capture the majority of issues faced. Those were just problems related to back-end incentive/PLB targets. We do have other challenges that we face. Let’s state those too:

• No commission from airlines with whom we do not have target-based contracts.
• Sales made which are excluded from commissions or incentives.
• Challenges relating to accessing timely data consistently.
• Having access to highly trained and knowledgeable analysts who can advise the business with regards to opportunities, risks and threats.
• Timely information related to change in market conditions e.g. change in capacity by airlines or changes in destination volumes.

We can significantly add many more items to this list but I think this provides a good enough problem statement to focus on. At this stage all we are trying to do is define the problem. Almost all businesses are aware of these at some level or other but have not really sat down and defined them in great detail.

The issue with not recognising and formally stating these problems are, they do not get the level of visibility they should. We are all guilty of chasing sales and new accounts and new contracts while not really focusing on optimising what we have. Do not worry as you are not the only one. The entire ecosystem of 99% of businesses are in this boat. But there are some dire consequences of not having concrete solutions towards dealing with them though.

So do you now agree? Profit is King!

Have you ever heard people within our industry saying – “there is no money in air”?

Or are you one of those people who believe no margins exist in the airline business?

This myth is so entrenched that some agents have even stopped looking or trying to earn any margin on air sales.

I can assure you that nothing can be further from the truth. Especially if you have the scale and turnover to attract direct incentive contracts from airlines.

So how did this myth perpetuate?

We all know airlines cut commissions significantly from the standard IATA norms of 5% on domestic to 10% on international after deregulation of the industry.

That led them down to zero commission levels in most markets. And by that a wide array of the travel agent population stopped getting up-front commissions.

But when we talk about income from airlines that was only one aspect. What did go up were other forms of incentives. First and foremost were the PLB or back-end incentives. They have not dropped off at all over the decades and the more the competition the higher they are. In addition, other forms of remuneration kicked in like marketing funds. And don’t forget the FOC tickets and joint promotions where the airline would share the marketing spend with you if you can outlay your plans to them. And other promotions that you see from time to time.

Let’s reframe the “no money in air” statement with some facts.

“In the past year, TCW Group, an asset management firm with $217 billion under management, has joined earlier investor Morgan Stanley Private Credit and Equity in financially supporting the expansion of Mondee. On Tuesday, Mondee said it had used some of this money to acquire, for an undisclosed price, CTS (Cosmopolitan Travel Service), a 50-year-old airfare wholesaler based in Detroit.

This year, the combined Mondee group will generate about $3.5 billion in gross bookings for airfares, said Mondee CEO Prasad Gundumogula. The deal makes Mondee, based in Foster City, California, the largest airfare consolidator group in North America.”

As reported in Skift – Feb 11/2020

This was just as the pandemic hit but the fact is no one would invest in a business whose sole focus is airline consolidation if the myth was true. So how does the statement “there is no money in air” stack up especially for the Mondee group with USD 3.5 billion in air turnover?

The reality is more along the lines of “there is no easy money in air”. That statement is more reflective on how much effort you put in will generate a better margin. It may seem very hard, but I assure you it is not. With our seven-step guide you can setup a process that generates these profits on an ongoing basis. We also share all worksheets and documents you may need to set out on the path to profitability for free on www.airlinemetrics.com/agencytools. For us if the industry is profitable, it is like good karma – at some point it will flow back to us and hopefully some of you will become Airline Metrics’ clients.

The moral of the story – if anything it is “Sell high”. 😊 CTS nailed the timing on that one – I have no idea how. But well done to Michalis and his team.

The aviation and travel industry was changing even before COVID impacted. Obviously that has shifted the sands big time but we can be sure more changes are coming. There are some immediate threats as well as opportunities that are looming.

The COVID situation is still fluid and some countries have bounded ahead with their vaccination programs while others have faltered or fallen behind. We are still looking at an uncertain market recovery for the next couple of years. Those countries with large domestic markets were deemed luckier ones early on but that was disproved in countries like India or Australia with lockdowns ongoing. So the fact is that some of these challenges will continue.

None of these are going to alter some of the changes that are coming any way – NDC is one example. Another one that has arisen is that some airlines have started cutting up-front base commissions even on international travel to zero. This will likely spread.

There are also the GDS charges levied by airlines on some agents (not all are being treated the same) if they do not book direct. Case in point was Lufthansa but others have happily followed suit.

The government responses to opening borders has been shambolic to say the least. Well into the second year of the pandemic and there seem to be no standards agreed globally on what constitutes a “vaccine passport” or the support for these. Some airlines and countries have adapted and used IATA’s versions and others seem to have just ignored it completely.

For businesses that have not built enough of a profit or cash buffer the consequences are certainly dire like this one:

Administrators have been called in following the collapse of London-based flight consolidator Emerald Global and are working to realise the sale of several of the business’ asset. Emerald Global was founded in 1980 and was a family-owned business that specialised in providing tailormade independent travel opportunities and group holidays around the world. The company sold flights on behalf of 75 airlines and ran a direct-to-consumer business based around a flagship store in Baker Street. These risks will also continue post COVID however there are also opportunities that arise that we can take advantage of. Historically as we know travel demand is always repressed. Air travel has defied the odds repeatedly. 9/11, SARS, the Global Financial Crisis all deemed as the “death blow” to travel seemed to fade in context when viewed with a wider lens. Undoubtedly COVID has been the one in a 100-year event to completely demolish the market. But let us look at this graph below that showcases demand for air travel from the 1945 to mid-2021.

So what are your projections for air travel for the next few years. Here are IATAs projections as of May/2021.

The prediction IATA is making is that air travel will surpass 2019 peak in 2023 already. That is not a very long period of time by which to recover after such a market shock. It is however an opportunity for those who survive this crisis. A bit of winner takes all is going to happen if these projections are realised.

Add to that the evolution of technology to increase productivity dramatically. These changes again will feed towards increasing efficiencies in the way businesses operate. One thing now proved is remote working and the “Work From Home” concept. With most employees continuing to be comfortable with this scenario this is likely to continue in probably a hybrid way with some days working from the office and others from home. Since we all adapted to this new reality fairly quickly, how do we empower our staff in this environment?
Look at the growth of SaaS (Software as a Service) tools in the tech space:

Source: Bessemer Venture Partners

These trends dictate that SaaS tools are ones you need to be planning to incorporate into your business if you haven’t done so already. They provide dramatic increases in productivity and efficiency. Not only that – the need to invest in costly IT projects and develop custom software are all being replaced by spending on the subscription-based model where you only pay for what and how much you need. The growth of SaaS means dramatic improvements in the business bottom line for those who take advantage of these opportunities.

To top it all off, traditionally incentives were growth-based usually on previous year’s performance and addition of new routes by airlines. In the new reality you now have to deal with the twin threats of loss of historic performance data on which the incentives were based and the imminently new methods that different airlines will introduce during and post the COVID crisis. So that then requires your business to have very flexible and rich data management tools to monitor, manage and adapt to whatever the new set of rules apply for reaching revenue targets. So are your systems ready for that?

So what is the magic bullet for these profits that we are talking about?

Well sorry, there is none. There is no single BIG switch that you throw and the money just starts flowing. It does not work that way. As with most things in life it is a series of small continuous steps that you need to take that will deliver the returns. It is like deciding to lose weight. First you need to commit to it then follow a dietary plan as well as an exercise regime. Both are important. And both are ongoing. You won’t see results overnight but slowly but surely as your body starts shaping the way you want it to and similarly these hidden profits will show themselves. At times we have taken the help of a personal trainer to guide and help us. (Think of Airline Metrics as the personal trainer for your business if you ever need one). But in the end, you have to put in the hard yards and keep the commitment going.

The analogy goes further. When you haven’t exercised for a long time and do so, you see some immediate results and then it tapers off for you to keep working on in the future. That is similar to what this guide will show you. Some quick results – our so-called sugar hits (lol) – and then some fundamental process changes you have to imbed in your business to ensure ongoing margin increases.

These small dials in your management cockpit as I like to think of them (as opposed to the big switch) elevate your business to automatically route the sales and profit to where it comes from.

Let’s relate it to your own experience. Have you ever had an airline incentive contract that was for say a period of one year? You don’t worry about it all year but when you come to the last quarter panic sets in and it is all about Sell! Sell! Sell!

Sounds familiar? How did it go? Did it work? How many times did that work? How many times did it fail? Are you better off ensuring you invest some time and effort once to setup a proper process and these targets will automatically fall in place?

These steps are not framed in jargon or require you to purchase the Airline Metrics solution. You can follow them yourself and build the model within your own business without the need for any assistance. If you want to do that faster and with greater efficiency, by all means please reach out to us. But the basics of what has to be executed remains the same.

I am sure as you scroll through the guide and see what the steps are – none of them will feel like they are breakthrough ideas. At some point you may have followed some or many of them in your business anyway. But the difference is when you engage in the process we have defined, do so collectively and with commitment. It sets up the basis for an ongoing higher level of return year on year. And that is how we get to that exponential margin increase.

So here are the seven steps:

Step 1: Create a Profit & Loss Report by airline

This sets up the entire framework to supercharge our air margins. A clear picture based on facts on which airlines are the most profitable and which are not. It provides us the guide map for all the actions that follow and questions we need to ask internally and externally.

Step 2: Contract Review and Negotiation Touch Points

Having a clear guide then starts the process of measurement of details at an individual airline level. We start by putting together elements of each contract we have signed or would need to sign and the key negotiation points we will need to prepare for to shift the balance in our favour.

Step 3: Keep or Cull

We reveal what cull means in more detail later. It does not mean stopping selling an airline altogether, however it is time now to make some decisions around how you approach you sales plan. Keep or Cull selling airlines which fit your sales framework.

Step 4: Setup your ticketing funnel

The next step is to optimise your ticketing funnel and having an automated process to ensure all your tickets are channelled correctly. There are more options here to identify opportunities you may have missed in the earlier steps to increase profits.

Step 5: Linking your customer sales to the airline strategy

Whilst some agents have more control and others less, there has to nonetheless be a concerted focus on selling your most profitable airlines. Doing so in incremental ways starts aligning your customer sales to airline profitability automatically and generates higher returns over a longer period of time.

Step 6: Setting up the reporting framework

For any process to be effective it has to be measured and reported upon regularly. You may need to nominate an internal product champion or take on the role yourself to ensure that this initiative is seen through till the end.

Step 7: Rinse and Repeat

As with all initiatives the key to long term gains is repeating these steps and improving them with each iteration. The first time may feel it was a difficult exercise but that sets up the knowledge base and your IP. From here on each time it is redone, it gets easier and embeds itself as way of doing business.

Hopefully this guide has provided some clarity on how you can increase your margins on airline sales and has bust the myth of “There is no money in air”.

No doubt there are several things that need to be done to get this fine-tuned and working efficiently for you. I am guessing the various reactions that readers will have to this guide ranging from “I know all this” to “This is too hard and overwhelming”. Regardless of what you feel please do share your thoughts and comments with us below in the comments section.

We have seen the downside a one in a 100-year event can do to our industry. And the underlying importance of profitability and sales discipline must therefore be imbedded in our daily workings within the business. Nothing ventured nothing gained as they say.

If you feel this is hard work or overwhelming my suggestion is to break it down into smaller parts that can be actioned over time.

Let’s look at our Profit and Loss statement by airline. This is where we begin. Where can we get this information to start with? Even if it is the most basic sheet that is fine. Over time this sheet can become more sophisticated. Keep adding columns as you go and keep refining your measurement at the carrier level. Even if some elements are rough estimates, you can easily put in some formulas to guess what those income or costs may be. Looking at these numbers regularly also will trigger ideas and thoughts to improve internal or external business processes that has an impact on margins.

The agency business is a very thin margin business. Each fraction of a percentage margin increase is a direct impact on the bottom line and the higher the revenue the higher the return in actual value terms. Is this not worth therefore exploring further? Running it as a one-time project to set up the structure and ensuring changes are captured regularly will fine tune the methodology over a period of time. Look outside the organisation if you do not have any resources within to help. Setting a margin target is providing a collective aim to your team and the business. Why not aim for the stars and at least hit the moon?

One of the best ways to go about achieving this is to assign this as a project responsibility to one of your team members. And ofcourse holding them accountable to it by providing some incentive for them to do so. What does a 3% increase on your air margin mean to your bottom line. Even if you try your best maybe you only achieved a 0.50% increase. It may seem a small percentage but if your air turnover is $1 Billion annually then you just made $5,000,000 with no increase in your costs and no investment. If you were able to increase your margins to 3% extra that is a cool $30,000,000 added to your bottom line. Even if you turnover $100 million in air sales – this is a big number to add to your margins. So isn’t it worth aiming for?

As stated earlier we have free tools available on our website and we keep adding to these. You can download these anytime and there are no logins or email addresses to enter. We hope you keep visiting the site and using these tools.

Apart from the Airline Profit and Loss spreadsheet template we also have an Airline Performance Template. This template has a monthly revenue and income-based focus that helps you monitor sales and income for each airline you want to manage better. Using this template provides you your basis for the monthly Revenue Management meeting you should be having with your team members. Amending and adopting the template to your business will help you also have information handy at any point of time to negotiate with your airline partners. A report card on performance on an ongoing basis provides the basis for steering your agency through each business cycle with all relevant information on hand

There is also a ROI calculator. This is the high level one which you can use to input your total airline sales and estimate what each 0.01% increase in margins means to your bottom line.

If you have read this far, we would like to offer you our Strategic Plan service where our expert team will help put together the Airline Profit and Loss spreadsheet for you. This will be a collaborative effort but takes the pressure off you to have this analysis done by yourself. With regular meetings and data collation we can build the framework for you take advantage of and increase your margins on air sales.

In addition, to the airline profit and loss analysis we also have a look at your reporting framework and do a customer sales analysis that links your customer sales strategy to your airline strategy.

Airline Metrics itself is a comprehensive cloud-based solution to manage and optimise your sales framework. What you sell, how much you sell, who you sell to and what income you derive is available with just one or two clicks 24X7 on any device. Because ours is a SaaS solution there is also no investment required in hardware or software and zero data processing, saving you IT and analyst costs.

Modular pricing makes Airline Metrics very attractive cost wise, and we pride ourselves in the service we offer. It is the ongoing support of our fantastic clients that has helped us navigate the COVID crisis. We have worked hard during these times to introduce even more functionality and power to travel agents to change the dynamics of negotiation with airlines. With customers across multiple countries like Australia, Canada, USA, India, Hong Kong and many more we serve airline consolidators and wholesalers, TMCs, OTAs, buying groups, retail agents, Tour Operators and airlines themselves.

Our solution frees up your time by allowing you to access all sorts of complex data very easily in both a visual and report-based manner.

If you want to know more, please connect with us via www.airlinemetrics.com.

We of course would love to hear your feedback and comments about this guide or your thoughts about the industry. So please do get in touch with us – we would love to get to know you.