Court ban on airline transaction fee will erode margins for Online travel agents like Cleartrip & Yatra.com

Travel agents, including online travel agents such as Cleartrip or Yatra and MakeMyTrip, were in for a rude shock as the Supreme Court has banned collection of transaction fee on airline tickets.OTA

The court, on Wednesday said that airlines should not levy any transaction fee from passengers. The bench, comprising of Justice DK Jain and Madan B Lokur said that the transaction fee shall not be collected from passengers in any form or under any other name.

Earlier in December, the Directorate General of Civil Aviation (DGCA) had directed airlines not to charge transaction fee from passengers but had failed to implement the directive.

The ruling comes at a time when many online travel agents are looking to tap into the fast growing online ticketing business in India. According to estimates, the Indian travel industry is set to grow 13 % to $23 billion in 2012. It already accounts for the largest chunk of e-commerce which happens in India.

How will this impact OTAs?

Airlines began pushing for online ticket sales to cut down on their sales and distribution costs. They also cut down on agent commissions after which the practice of charging a transaction fee came into being. Companies began charging a transaction fee ranging form Rs 200 – Rs 6500 per ticket depending on the type of tickets being sold, after they abolished commission paid out for agents. Margins on online ticketing will fall further with this ruling. According to some estimates, margins are expected to fall by 3-4 %. The travel agents association has plans to appeal against the judgement.

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