What is a referral travel agent?

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Most of the “become a travel agent today!” deals you see advertised involve becoming a “referral agent.” The companies offering these deals may say you’ll be an “associate agent” or and “independent agent” or something else, but you’ll be a referral agent nonetheless. That means that your job is simply to refer potential customers to the sponsoring agency — get them to call a toll-free number where the agency’s “inside agents” will take care of closing the sale and handle the booking details. In exchange for providing this service, you receive a portion of the commission earned by the agency.

So far, there’s is nothing new or controversial in this. It’s called “bird-dogging” and has been going on in the travel industry for decades. What’s new and controversial is the aggressive packaging and marketing of the concept that has occurred in recent years.

To complicate things a bit, there are two basic types of referral agent programs. One incorporates a multi-level marketing (MLM) component, whereby you not only receive compensation for signing up new agents but participate in the commissions generated through their activities as well. To some observers this looks uncomfortably like a pyramid scheme. Consequently, agencies in this category have been attacked on legal grounds. Some have been outlawed in several states. Others have gone out of business as a result of the legal actions taken against them, only to resurface after modifying their programs. Not surprisingly, they have been attacked vigorously by travel agents and the travel trade press. In short, they have been unstable.

Referral agencies of this sort are becoming increasingly rare. For one thing, MLM programs require hefty margins and the 10% commission on a lot of travel products is wafer thin, especially when you are trying to divvy it up for a downline.

If you do encounter a referral agency using this business model, I would recommend extreme caution.

Non-MLM Referral Agencies

Another type of referral agency has been more successful than the MLMers, at least in gaining the grudging respect of the travel industry. These agencies are multi-level to the extent that they pay a bounty or referral fee if you sign up new agents, but they don’t have any of those complicated formulas that promise that you’ll earn income though a “downline” of the agents you’ve signed up. They, too, have been controversial, although they have actually managed to get some good notices from the travel trade press if not from the rank and file travel agent. These are the kinds of agencies I will talk about here.

How they work

Referral agencies have remarkable similarities. It’s almost as if they all worked off the same business and marketing plans. Here are some of the hallmarks of a referral agency:

A $495 sign-up fee. Most, maybe all, referral agencies will charge you $495 to become one of their agents. If they charged $500 or more, they would trigger much stricter regulatory oversight, a fact that raises eyebrows among more cynical observers. In addition, you will probably have to pay an annual fee of $99, $149, or more.

A photo ID card. A big part of the marketing lure is the photo ID card they issue to their agents. This card, you are told, will unlock the door to discounts and privileges available only to travel agents. This is why referral agencies are called “card mills” (the term is an insult) by many professional travel agents. Critics also point out that these ID cards are very often confusingly similar to IATAN cards.

A bounty on new agents. Referral agencies are constantly looking for more agents. They will pay you anywhere from $75 to $200 for each new one you recruit.

“Selling” travel. Most referral agencies encourage you to talk up the joys of travel in general, talk up their agency in particular, and pass out to all and sundry a business card (which usually costs you extra) with their 800 number. The card contains your “PIN number,” a unique identifier that assures you get your commission. One of the most attractive aspects of this deal is that once a customer has your PIN attached to his or her name, you receive a cut of all that person’s travel in perpetuity.

No commissions on airline tickets. (Or a least very low commissions.)This is not too surprising since the airlines have stopped paying base commissions to travel agencies.

Fixed commissions on everything else. Most referral agencies “assume” that the commission is always 10% and pay you a portion of that commission (typically half ) on everything other than air. In fact, the agency may be earning a commission as high as 17% from some suppliers. In this case, the referring agent gets 5%, while the agency itself gets 12%.

Agent-only discounts. Most referral agencies offer special in-house deals to their own agents. These are deals you purchase through the agency, as opposed to deals you request from a supplier using your ID card.

Is it a good deal?

Viewed strictly as a way to make money by selling travel, the answer is probably no. First of all, you’re not “selling travel” precisely. As I just explained, you are referring business to inside agents who do the actual selling. That’s one reason why the commissions never exceed 50% of a fixed 10% commission. If you are looking to roll up your sleeves and do the same job as a “traditional” travel agent, this deal is clearly not for you. On the other hand, a five percent commission for simply referring a customer is not a bad deal at all. And that appeals to a great many people.

Figures released by the major referral agencies suggest that the average referral agent is only referring about $5,000 in business a year (most of it their own, presumably), so none of them would appear to be getting rich. Of course, some referral agents no doubt refer far more business and do fairly well.

I suspect, however, that few people join these agencies to get rich. Even the management of referral agencies will admit, off the record, that none of their agents is making a living doing this. The few who join wanting to be full- or even part-time travel agents no doubt soon realize their mistake and seek out the more businesslike deals available to home-based travel agents, which I describe elsewhere on this site and cover in depth in my home study course.

Most people who sign up do so for the benefits — real, imagined, or a bit of both. A salesperson for one referral agency said that “most of our members pay for the card in one weekend just with the hotel discounts.” (Assuming a three-day stay and a 50% discount, that suggests these people are used to paying $330 a night for a hotel room!)

Looked at that way, becoming a referral agent is somewhat akin to joining a travel club — except it costs $495 instead of $50 or $60 the first year and $99 or $150 a year thereafter instead of the same $50 or $60. So the question then becomes, just how good are those discounts?

Let’s start with air fare. First of all, don’t expect to wave your referral agent ID at an airline reservationist and get a discount. Travel agents do get discounts from the airlines (rarely these days) but there’s a lot of paperwork involved, a higher standard of proof (in terms of establishing that you are, indeed, a travel agent), and restrictions on travel dates. Even then, the travel agent flying on a reduced fare is subject to being bumped if the flight fills up. A lot of travel agents, in fact, think these discounts are more trouble than they’re worth.

What you might get from an airline with your ID card is a complimentary upgrade to first or business class on a flight for which you hold a paid-for coach ticket. You show your ID card to the gate agent and ask if there are any “courtesy upgrades” available.

I know it can be done because I’ve done it myself, although only with smaller, foreign-flag airlines. I seriously doubt that these days you’ll have much luck with domestic U.S. carriers.

Now as you might expect, this is the sort of thing that gets “real” travel agents especially hot under the collar. Because they complained so loudly, the airlines (the domestic ones at least) have been getting a lot savvier about travel agent ID cards. Most of them have declared that they will only accept the IATAN card as proof that the holder is a travel agent.

(IATAN is the International Airlines Travel Agent Network, an accrediting organization. Its procedures, while subject to potential abuse, tend to assure that the holders of its cards are actually employed in the travel agency business.)

Because of the furor over this ploy, the referral agencies are very careful about how they position this benefit. Still, the anecdotal evidence is that it can be pulled off, by some people some of the time.

Is It Ethical?

For some people, this “travel agent ID” ploy can raise ethical questions. Others claim that using a referral agency ID in this fashion is technically illegal, although I can’t imagine an airline pressing charges. At most, you can expect to be humiliated when a knowledgeable gate agent turns you down and gives you a piece of his or her mind. Still, a business class seat can be mighty tempting. My guess is that this potential benefit lures a lot of referral agents.

Also, the end of base commissions on airline tickets for travel agencies has made the referral agencies less attractive. Time was when you could book your air travel through a referral agency and get a modest discount. If you flew a lot, those discounts could add up. No more.

Yes, you can get discounts on hotel rates and rental cars by flashing your referral agent ID, but these discounts are not really “travel agent discounts” like the ones extended to holders of the IATAN card. Rather, they are similar in nature to discounts given to travel club members. In some case, however, the hotel discounts are real and very attractive. You have to know the “going rate” to know how good a particular discount actually is.

The “for our agents only” deals on cruises, hotel packages, and the like are something else again. Some of these can be quite attractive. Typically they are for mid-market products in destinations most popular with the masses of American tourists — Florida, Colorado, Las Vegas, Hawaii, Mexico, and the Caribbean. You are unlikely to find any deals on luxury properties (like hotels on Venice’s Grand Canal) or niche products (like trekking in the Himalayas). You are more likely to find cruise deals on Carnival than on Seabourne (although I’ve seen some very attractive offers).

Still, I must caution that these “agents-only” discounts may often be no better than you can get by joining a travel club for a lot less money.

Pluses and Minuses

One of the major problems with referral agencies, in my opinion, is that their infrastructure sometimes has trouble keeping up with their marketing. In other words, they sign up so many agents that they have trouble answering the flood of phone calls that results. This can be particularly embarrassing when you have handed out a business card to a friend who calls you a week later to complain that “that number you gave me is always busy.” Long waits on hold and unmet promises to return calls are other problems.

The agencies are aware of these problems and seem to make a good faith effort to solve them. Once you get through to the agency, the inside agents all seem to be well-trained, efficient, and reasonably accomplished at searching out the best fare. If you have a straightforward ticketing request, you are likely to get good service. At least that has been my experience in researching these agencies.

Finally, it must be said that for some people there is the thrill that they are “beating the system” even if, in their heart of hearts, they know they’re not really. Clearly these deals appeal to a great many people.

Becoming a referral agent will make the most sense if:

You travel a lot. Those hotel discounts do add up, although it may take you more than a weekend to recoup your investment.

You are an upscale traveler. If you are used to staying in $300-a-night hotels, the discounts may be attractive — if and when you get them. And if you regularly travel overseas in coach class, getting an upgrade on a single trip could make this deal worthwhile to you.

You are willing to sign up a few new agents. If this is the sort of thing you’re good at, you can actually make some money. Just be prepared for some negative blow-back when people to whom you have sold a card find that they get less than they anticipated.

You are bold enough to try for the free upgrade every time you fly. If you are successful, you may find your investment paying for itself very quickly.

My recommendation

So do I recommend that you become a referral agent? Well, frankly, no. It is so easy to become a real home-based travel agent and get great deals on cruises and tours AND make some serious money, that becoming a referral agent makes less and less sense.

Of course, you may not want to become a full-fledged home-based travel agent. In that case, the referral agencies might look like a good deal to you. So why not give them a try? You have nothing to lose but your hard-earned cash and, who knows?, it might work out for you.

To learn more about becoming a real home-based travel agent, CLICK HERE.

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