Ram Badrinathan, Senior Director, Research, PhoCusWright Inc, believes agents should use this opportunity to innovate.

The recent announcement by Indian domestic carriers reeling under huge losses to eliminate commissions altogether has signalled a wave of protests across the travel community in India.

It is a reminder of 2002 when United Airlines moved to eliminate commissions, resulting in a trade boycott that jammed the airline's contact centres. No other airline followed suit and United was forced to retract.

In India the airlines have united to eliminate commissions; since the airlines in India can't impact oil prices the focus has turned to distribution costs. I actually think this is positive for the travel industry value chain (and many parts of the world) where the focus has been to make a living on airline commissions for both international and domestic flights. But for a few travel agents in India—and this I believe is a universal structure—the focus to actually drive innovation in designing travel products and experiences has been limited.

In urban India—with its high real estate costs, increased wage inflation and staff attrition—the zero commission environment will force many of the high street travel agents to either think afresh their role in the travel value chain or shut down shop.

The United Kingdom is a market where many travel entrepreneurs don't even think about commissions as a revenue model. One online tour operator recently told us they rarely pay attention to commissions because they get net rates from suppliers, marked it up and sell it. The frame of reference was focused on designing holidays for the consumers rather than air tickets.

In fragmented travel retail environments like India one evolution could be that of the Flight Centre shop model where the high street travel agents align themselves with well capitalized travel brands—both Indian and global—in the commission free environment. The high street travel agents will benefit from the technology, process and marketing capabilities of the Pan Indian players. My view is that due to high costs of real estate in India, the retail outlets won't be owned by big brands and a franchisee model will make more sense.

So how will the scenario impact the online travel agencies in India? In the short term, it will be difficult since the majority of their revenues is driven by airline commissions. But the companies that have the cash to sustain for a six to eight month period will benefit in the mid-term and going forward. It is romantic to think that the high street travel agent can compete with an online travel agency in India.

The ability to fight scale, technology, innovation, marketing, execution, strong management and the force of the Internet is next to impossible in a deregulated travel market like India. There are some specific areas where high street will score: personalized service and payment fulfillment. There is a distinct possibility of a leading online travel agency developing the franchisee operations with the high street agents to form a win-win partnership.

Another upside is that the bickering with the online travel agencies and the airlines could result in both sides focusing on product ideas and development. It is a pity that in India we have yet to see any innovation by the airlines and online travel agencies working together in dynamic packaging, opaque product bundling, merchandising, destination marketing and data integration. PhoCusWright believes that in the past two years, India has seen the most innovation in the travel market in APAC, but dynamic packaging—at the scale which is required—has yet to happen.

The result could be all players focusing not on their business model, but increasing focus on customer expectations in travel experiences and new product ideas. That, ladies and gentlemen, is great news!

WIT stands for Web In Travel. It is Asia's leading travel distribution, marketing and technology conference to be held in Singapore, october 21-22, 2008.

Read more here: www.webintravel.com/programme.htm