Field notes · 11 May 2026

The Commission Economy

Travel pricing is a layered revenue system in which each layer is individually rational and the whole is opaque by design.

When you book a holiday, you pay one number.

Behind that number is a chain of payments: commissions, overrides, markups, referral fees, and volume bonuses, flowing between the hotel, the airline, the activity operator, the visa agent, the insurance company, the B2B aggregator, the DMC, the retail operator, and sometimes two or three intermediaries you have never heard of.

None of these flows appear on your invoice. Most are confidential by contract. All of them shape what you are sold, how it is sold to you, and whether what you are sold is in your interest.

This is the predictable outcome of any industry where the buyer does not know what the seller paid for what they are selling. Understanding it does not require cynicism. It requires a clear-eyed look at how incentives work.

The Underlying Pattern Is About Distribution

The mechanics described here are not unique to holidays. The same dynamics shape Amazon (seller advertising fees, Buy Box ranking), Zomato (restaurant promotions and ranking commissions), Policybazaar (insurance distribution overrides), and most consumer marketplaces where the underlying product is heterogeneous and the customer cannot easily compare prices across sellers.

Travel is unusual in one specific way. The product is more bundled than in adjacent categories, and that bundling is what allows each layer of margin to remain invisible. A package holiday hides ten transactions inside one invoice. Once you see this, the rest of what follows becomes less about travel and more about an economic pattern that travel happens to express in an extreme form.

The Airline Lesson

To understand the commission economy in travel, start with airlines. They invented it, and they show how it changes form rather than disappearing.

For most of the twentieth century, airlines paid retail travel agents 10% of every ticket sold. The system was simple. Agents distributed, airlines paid for distribution, and the customer got a booking channel. Airlines started cutting commissions in the late 1990s. By 2002, most major US carriers had reduced base commissions to zero. Other markets followed. The internet made direct booking viable, and airlines decided they did not need to pay for distribution they could now do themselves.

The intuitive reading is that commissions died. What actually happened was that commissions changed form.

Skyscanner, MakeMyTrip, Kayak, Booking Holdings, and Expedia did not eliminate the distribution layer that airlines had tried to bypass. They reconstituted it, with new economics, less visible to the consumer, and often more expensive in aggregate than the old retail commission structure. Search engine fees, meta-search auction costs, OTA markups, and credit card processing have replaced the 10% agent commission. Most airlines now spend more on distribution per ticket than they did before.

Distribution rent does not disappear. It changes form, and the new form is usually harder to see.

That matters for what follows. When you read about hotel commissions or activity margins, the question is what shape they will take next, rather than whether they will go away.

Hotel Commissions: Where the Layers Stack

Hotels are where the commission economy becomes most consequential. Hotels are usually the largest single cost in a package, and the commission structure is the most layered.

A travel operator can earn money on the same hotel booking through three distinct mechanisms.

The net rate markup. The operator buys a room at a wholesale net rate, negotiated directly with the hotel or sourced through a B2B aggregator, and sells it at a marked-up price inside the package. The difference is gross margin.

The hotel commission. Many hotels, particularly independent properties and smaller chains, pay 10 to 15% commission to operators who send them bookings, paid after checkout. This is separate from the net rate arrangement. An operator with both a net rate and a commission deal on the same hotel earns margin twice on the same booking.

The volume override. Large operators who commit volume to a hotel or chain negotiate enhanced commission rates that kick in above a threshold. An operator who commits 500 room nights a year might earn standard commission on the first 300 and an enhanced rate on the next 200. The override is confidential, invisible at the per-booking level, and creates a strong pull toward concentrating bookings at override partners.

The override is the most distorting layer in the structure. It shapes which hotels get recommended in which destinations.

The distortion is rarely the kind that produces obviously bad recommendations. Operators do not usually steer customers from a good hotel to a clearly worse one, because that destroys repeat business and review velocity. The distortion is subtler. It lives in the gap between the override hotel and the slightly better hotel that does not pay an override.

Two 4-star hotels in Florence, both well reviewed, both reasonably located, similar net rates. One pays the operator a 5% override on aggregate volume. The other does not. The operator's recommendation flows toward the first, not because the second is worse, but because the first is paying for the recommendation. The customer ends up at a hotel that is good. They never know they could have been at one slightly better.

Multiply that across thousands of bookings and hundreds of destinations. The cumulative effect on customer experience is a steady, invisible degradation of how good the trip could have been.

Activities: The Real Asymmetry

Activity spend is the fastest-growing line in modern packages. From the operator's perspective, it is the most margin-rich category.

The visible part of the story is the markup. The gap between B2B activity prices and retail prices is 30 to 50%. An operator sourcing a Vatican Museums skip-the-line tour at 28 euros and including it in a package priced at 50 euros equivalent earns 44% gross margin on that line, better than the 20 to 30% typical on hotel markups.

The deeper part of the story is that activities are the highest information asymmetry node in the entire travel stack. The customer can price-check a hotel across five sites in two minutes. They cannot price-check a wine tour with the same precision, because the products are not standardised. A "private wine tour in Burgundy" can mean a half-day with a master sommelier or three rushed tastings with a guide who has done this twice before. The price varies by 4x. The descriptions read identically.

Hotels have ratings, photos, location data, and chain branding to anchor comparison. Activities have a paragraph of marketing copy, and that is the entire information set the customer is working with.

This is what makes activity commissions different from hotel commissions. Hotel distortion happens in the small gap between two roughly comparable options. Activity distortion happens in a fog where the customer cannot meaningfully compare anything. The operator's recommendation is the entire input.

Most operators handle this responsibly. The activity partners they build commission relationships with are often the better operators, because better operators are the ones who can sustain a long-term commercial relationship without producing complaints. The financial incentive and the quality incentive usually point the same way.

The risk lives in the cases where they diverge, and in the fact that the operator never has to confront the divergence. Nobody is auditing whether the recommended cooking class is the best one in Florence. The customer ate well, the operator earned 35% margin, and everyone moved on.

Insurance: The Filler Product

Travel insurance is the quietest line in a holiday package, and the most direct conflict between operator and customer interests.

Travel insurance is sold almost universally as part of packaged holidays. The customer is told it is included, that they should add it, or that the visa application requires it. The premium is bundled into the package price or quoted as an add-on. The operator typically earns 20 to 30% on every policy. On a 5,000 rupee policy for a couple on a two-week Europe trip, that is 2,000 to 3,000 rupees per booking.

The number is not large in absolute terms. The reason it matters is what insurance represents inside the operator's P&L.

Insurance is the perfect filler revenue product. It carries high margin, low operational effort, and low complaint volume, because customers rarely claim and almost never claim against the operator. It is one of the few line items in a holiday package that costs the operator nothing to deliver and that the customer has almost no leverage to negotiate.

That is why operators push it. The commission helps, but the deeper reason is that insurance is the easiest margin in the entire stack. It is what makes a thin-margin package profitable.

Travel insurance is genuinely important. The medical emergency in Europe that turns a holiday into a 20 lakh rupee crisis is a real risk, and a good policy is worth every rupee. The customer who buys insurance through their operator, however, is not receiving independent advice about which policy fits them best. They are receiving a recommendation from someone whose P&L depends on a yes.

Visa: Where Operational Alignment Breaks at the Sales Layer

Visa processing is the line where operator incentives and customer needs come closest to alignment. Schengen visas require documentation, application management, consulate liaison, and a level of bureaucratic patience the average traveller does not have. Operators who handle this well earn their 15 to 20% markup on visa service fees fairly. The customer is glad to pay it.

An earlier version of this argument was too generous. The alignment is real in the operational layer. It breaks down in the sales layer.

Sales-side misalignment shows up when operators overpromise approval to close a booking on an application with visible weakness, when they rush applications to convert before the customer reconsiders, and when they fail to flag financial profile risks early enough to manage expectations honestly.

The right operator conversation identifies risk upfront, manages the application accordingly, and sets accurate expectations on approval probability. The wrong conversation tells the customer their visa will be approved and then deals with the rejection later. The first costs a booking. The second costs a customer relationship. The industry trains for the first and tolerates the second.

Accumulation and Opacity

Each commission structure described above is individually defensible. Operators need to make money. Intermediaries earn their place by providing real services. Commission is a legitimate mechanism for paying for distribution.

The problem is what happens when the layers stack.

An operator earning a net rate markup on hotels, an override commission from their preferred hotel group, a direct commission from activity partners, and an insurance margin on every policy is earning revenue from four directions on a single 5 lakh rupee booking. The customer sees one price. They have no visibility into how that price was structured, or which choices the operator made on their behalf were influenced by financial incentive rather than pure curation.

This is the architectural feature of the system. It is designed so that no single actor inside it ever looks expensive. Each margin layer is a few percentage points. Each is justified locally. The cumulative effect is a price that is 40 to 60% above the cost of the underlying components, and the customer cannot point to any one party and say "you are the reason this is expensive". The total system is expensive even though no individual node is, and that is what makes it stable.

Why This Has Not Been Disrupted

An inefficient system persists in a category with this much consumer attention and this much capital because every party in the chain has an interest in keeping it the way it is.

Suppliers do not want price visibility, because their wholesale rates are below their published rates and exposing the gap weakens their direct-channel pricing power. Operators do not want margin compression, because their business model assumes opacity. Aggregators do not want disintermediation, because their value depends on being the layer between supply and demand. Customers, in aggregate, do not demand transparency loudly enough to force it. They want a final price they consider fair and an experience they consider good, with someone to call if something goes wrong. They do not want a margin breakdown.

This is the equilibrium. It holds because every participant who could move it has more to lose than to gain by moving. The category has not been disrupted because the people inside it correctly understand that disruption would cost them more than the inefficiency does.

This is also why the disruption attempts that periodically appear, whether zero-commission platforms, transparent-pricing operators, or fee-only advisors, have remained niche. They are failing because the system is not waiting to be rescued from itself.

What Transparency Actually Achieves

Earlier drafts of this argument were more optimistic about transparency as a competitive lever. The realistic version is narrower.

A handful of luxury travel companies have moved to fee-based models. The customer pays a flat planning fee. The operator returns all commissions and net rate markups to the customer. The relationship is purely advisory. This is the model that independent financial advisors moved to when commission-based financial advice was regulated out of existence in the UK and Australia.

The fee-based model works in luxury and in high-trust niches, wherever the customer is sophisticated enough to value structural alignment over headline price. It does not work in the mass market, and it probably never will. Mass-market customers optimise for final price rather than structural alignment. Excessive transparency tends to produce choice paralysis rather than confidence. Most people do not want to audit their holiday. They want to trust someone and go.

Transparency is therefore a niche differentiator. The operators who succeed with it will be small, premium, and built around a specific customer who values knowing how they are being charged. The mass market will continue to buy bundled packages with embedded margin, and operators competing in that segment will continue to make money the way the system has always made money.

What Could Break the Commission Economy

Three forces could change the equilibrium.

The first is standardisation. If activity products become comparable in the way hotel products are, with consistent ratings, structured descriptions, and normalised pricing, the information asymmetry that protects activity margin collapses. Some of this is already happening. GetYourGuide, Klook, and Viator are doing for activities what Booking did for hotels.

The second is supply consolidation. As large hotel chains grow direct-booking share and direct loyalty membership, their willingness to fund operator overrides declines. Marriott Bonvoy, Hilton Honors, and IHG One Rewards are the chain's bid to disintermediate operators in the same way airlines disintermediated retail agents in 2002.

The third is consumer tooling. AI-driven trip planning, comparison and review aggregation, and price-history tracking will, over time, narrow the gap between what the customer can verify and what the operator knows. The shift is real, and it is slow.

Working against these forces is the structural fact that travel products remain heterogeneous, locally specific, and operationally complex. A wine tour in Tuscany cannot be standardised the way a flight from London to Paris can. A custom 14-day itinerary across four countries is not a commodity, and it is unlikely to become one. The commission economy survives in the parts of travel that resist standardisation, and that is most of travel.

The right expectation is that commissions compress in the categories where they can be exposed, and persist in the categories where they cannot.

The Real Story

Travel pricing is a layered revenue system in which each participant extracts value in ways that are individually rational and collectively opaque. The system persists because no participant who could disrupt it has a reason to. Customers pay one number. Inside that number, ten people are paid in ten different ways, none of them visible.

The traveller who has read this knows the hotel recommendation might carry an override, the insurance recommendation carries a margin, the activity portfolio is partly curated by commission availability, and that "your visa will be approved" sometimes means "I want this booking to close".

This knowledge makes them informed rather than adversarial. An informed customer asks better questions, and better questions are what eventually raise the standard of the industry.

The operators who fear an informed customer are the ones whose recommendations should be questioned first. The operators who welcome an informed customer are the ones who have priced their integrity correctly. Over a long enough horizon, the second group wins, because the customers who learn to ask the right questions stop buying from anyone else.