Cathay incentive scheme prompts ethical questions

PUBLISHED : Monday, 20 February, 2006, 12:00am
UPDATED : Monday, 20 February, 2006, 12:00am

It has often been a puzzle as to why, nine times out of 10, unless a specific airline is requested, I walk out of a local travel agent clasping a Cathay Pacific ticket. All airlines have incentive schemes for travel agents of course but these vary. In a nutshell, if Agent A sells enough tickets on one airline they get a 'bonus' from the carrier.

But it seems Cathay operates a rather singular system in its home market. In dealing with travel agents, our flagship carrier has three priority routes - Sydney, London and Los Angeles. If an agent doesn't meet the target set by Cathay on these routes, it will be penalised across the board, a leading travel company explained.

For example, the agent could excel in selling 20 other destinations in the Cathay network but they would still get a penalty deduction from their entire incentive payment if they don't meet their target for even one of those three destinations. The incentive/penalty is split into First/Business and Economy class for each route which means six potential penalties.

The targets are very aggressive, so many agents can meet them only by selling as many Cathay tickets as possible. This practice raises key issues, not least that in Europe and elsewhere this would be regarded as blatant abuse of a national carrier's dominant position. Since Hong Kong effectively has no anti-competition laws, it is not illegal here. But is it ethical?

British Airways states that in line with industry standard, it pays local travel agents 7 per cent commission. 'Clearly, our key route from Hong Kong is to London, so agents are incentivised on sales they make for us on this route,' the airline said. BA would not comment on other airlines.

So two questions were emailed to Cathay. Firstly, though not illegal here, was their incentive scheme ethical? And secondly, did the company think its practices would be regarded internationally as appropriate business conduct for a national carrier?

In response, Cathay seemed reluctant to address either issue. A spokeswoman merely replied that: 'Market competition among travel agents is very keen, so it is in their interests to offer customers the best deal.' Passengers have other sales channels, she added, including online portals.

'We would like to believe that passengers choose to fly with Cathay Pacific because of our award-winning product and services, convenient flight frequencies and extensive connectivity worldwide.'

No doubt, but that wasn't the question. A second email was dispatched, again asking for a comment on agent commissions. Back came the reply: 'My previous e-mail is the answer to your questions.' Indeed.

asia pacific bounces back

The Asia-Pacific travel industry put the shocks of the previous two years behind it in 2005, with record numbers of travel bookings, according to Singapore-based travel facilitator Abacus International.

Last year, there were more than 54.3 million bookings on the Abacus system, up 6 per cent on 2004 and 36 per cent on 2003. Total bookings showed healthy year-on-year upswings for all months except for February, following Lunar New Year.

'2005 was a robust year for the entire Asia-Pacific travel industry,' said Don Birch, president and chief executive of Abacus International. 'Although some regions saw tourism numbers dropping after the tsunami, most travellers opted to visit a different area of Asia Pacific in the meantime.'

no frills, no cheers

European low-cost carrier Ryanair may have grown to 40 million passengers in 20 years without an accident, but anyone who saw the British Channel 4 Dispatches documentary last week about the budget airline probably shuddered.

Though the footage shot by two undercover reporters posing as staff showed nothing specifically alarming, seeing crew with no time to clean vomit from seats between flights and falling asleep on duty did not inspire confidence.

Ryanair's typically impudent response was to raise two fingers to the programme and take full-page advertisements offering three million '#0 tickets - just pay taxes and charges'.

It's hard to disagree with industry magazine Flight International's call for Ryanair's operating model to undergo a full audit.