When 3% is more than 5% Hrush Dec 10, 2008

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There’s been a fair amount of blog chatter around last week’s standoff between airlines and travel agents, where agencies boycotted the sales of Jet and JetLite flights. The matter has since been resolved, but one of our favourite bloggers, Rajiv Dingra, over at WATBlog, is a little confused about airfare and commission structures, saying:

[airline] has taken a decision to part with a measly 3% as agents commission

We thought we’d help out by shedding some light on why that statement is erroneous. We’ll use a typical itinerary and fare to illustrate the difference between the previous commission structure (5%) and the newly announced structure (3%).

First, let’s take a look at the differences in the old and new structure:

• Old: 5% commission paid on the base fare
• New: 3% commission paid on the gross fare after deducting Rs. 225 PSF (Passenger Service Fee) charges

Here’s the itinerary and fare details:

• Flight: Jet Airways 9W-331
• Route: Mumbai-New Delhi
• Fare:
  • Base fare: Rs. 2,250
  • Taxes & fees: Rs. 3,138 (includes Rs. 225 PSF)

Now, let’s do the math to see how much the absolute agency commission earned is for the same fare under the old (5%) and new (3%) structures:

• Old: 5% of Rs. 2,250 = Rs. 113
• New: 3% of Rs. 5,163 (5,388-225) = Rs. 155

Sometimes 3% is more than 5%–it’s a mad, mad world.