Commissionless model 'must not be allowed to succeed'

By Graeme Kennedy

Friday 8th November 2002

Australasia's biggest travel group Flight Centre has warned Air New Zealand its policy not to pay agent commissions will damage the carrier financially as it fights back to profitability.

Despite the carrier's first-quarter $30.4 million profit before tax and unusuals and a forecast $200 million full-year result, Flight Centre founder and managing director Graham Turner said any airline that refused to pay for distribution would be hurt as would any company in any industry.

"What gets rewarded gets done in any business situation," Mr Turner said. "We like Air New Zealand and their product and get on well with them but they are not paying enough to get the business.

"Air New Zealand might get around $50 million of our business because they have the capacity but for $10 million in commissions they might get another $250 million. We are not deliberately refusing to sell Air New Zealand but they are not paying for distribution so it doesn't happen.

"The commissionless model will never work for mainstream airlines and the industry has got to ensure it doesn't succeed, although it is working for some of the low-cost start-up carriers."

Qantas and Virgin Blue both paid commissions while Air New Zealand stopped the payments to cut costs as it persuaded passengers to book its lowest fares directly online for its new domestic Express product launched a week ago.

Meanwhile, Mr Turner said there were still many opportunities to expand his $A4.3 billion turnover, 1000-outlet company worldwide and in New Zealand where Flight Centre opened its 83rd shop inside Middlemore Hospital last month.

The business has in the past five years opened agencies at unusual off-street locations with high foot traffic including Auckland International Airport and three Warehouse stores. Middlemore Hospital employs 5000 people and the new outlet will serve staff, patients and visitors for travel needs.

Flight Centre last week bought the George Seymour travel college which is New Zealand's biggest travel and tourism training organisation, with campuses in Auckland, Hamilton, Wellington and Christchurch.

"We have a lot of training expertise in Flight Centre so it is a good fit and gives us access to potential staff," Mr Turner said. "We will develop it as a system that works and is profitable and might in the future take the success of this model to Australia."

Mr Turner opened his first Flight Centre in Sydney in 1981 after running Top Deck Tours bus holidays from the UK throughout Europe and started in New Zealand in 1984. Other offices are in South Africa, Canada, the UK and US.

He bought the Australia and New Zealand licence for global corporate travel company TQ3 last year to expand Flight Centre's business sector, which had focused on the SME market with its in-house brand Corporate Traveller. Corporate work now accounts for around $A1 billion of total turnover.

"We are aiming at 15-20% growth a year and have averaged 25% in the past 10 years," Mr Turner said. "But this is not just a numbers game but a geographical one we haven't touched the sides in the UK or North America yet and our potential for growth in the next 10 or 20 years is unlimited.

"We have not reached saturation in Australia or New Zealand yet there is plenty of room to grow here."

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