Virgin Australia adjusts travel agency bonuses amid industry-wide cost-cutting

Company News

by Peter Milios

Virgin Australia is restructuring its volume bonuses for travel agencies as part of a broader strategy to tighten costs within the airline industry. Despite the belt-tightening, sources indicate that some agencies could see an increase in their funds.

The changes were initially flagged by Field Research in an industry note this week, suggesting potential impacts on companies such as Corporate Travel Management and the corporate travel division of Flight Centre Group.

Virgin Australia confirmed the changes to The Australian Financial Review, stating, “We have made some recent changes to our agency commercial framework.” The airline explained that the goal is to “bring equitable incentive payments across all sectors of the industry,” ensuring fair compensation for travel agencies based on the segments they serve.

Travel agencies typically earn volume bonuses, known as override arrangements, from airlines by exceeding certain sales targets. However, many airlines have been reducing these incentive payments. For instance, in 2021, Qantas reduced the front-end commissions paid to travel agents on international tickets from 5 percent to 1 percent. Virgin Australia has not disclosed the specifics of its latest changes to volume bonuses.

Flight Centre declined to comment on individual client arrangements. The company's financial reports do not detail overrides as a portion of its $2.28 billion global revenue last year, nor the share attributable to Virgin Australia. However, the reports did note that air margins had decreased, primarily due to “front-end commission changes in [Australia and New Zealand] at the start of the year and fewer strategic and volume-based incentive agreements with airlines globally,” compounded by limited sales opportunities during the pandemic.

Corporate Travel Management has been contacted for comment. According to its most recent full-year accounts, of the $157.8 million revenue from customers in Australia-New Zealand, $4.8 million was from “volume-based incentive revenue.”

This adjustment by Virgin Australia follows a broader trend in the airline industry to reevaluate and often reduce the financial incentives offered to travel agencies. This trend reflects ongoing efforts to manage costs and navigate the challenges presented by the global travel market.

Peter Milios

Peter Milios is a recent graduate from the University of Technology - majoring in Finance and Accounting. Peter is currently working under equity research analyst Di Brookman for Corporate Connect Research.

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