Delta's decision to impose a limit on agency commissions for domestic US flights was followed almost immediately by similar action by another six US majors, which no doubt were delighted that another carrier started the ball rolling.
The Atlanta-based carrier had already marked the card of the travel agency community late last year, when it dropped the commission on international full-fare tickets from 10 per cent to 8 per cent. Its domestic action involved imposing a $25 cap on commission paid on each one-way fare, and a $50 cap on return bookings. Most majors followed suit, and TWA cut its international commission rate from a bloated 16 per cent to 8 per cent.
It is easy to see why action was needed. Commissions are the third highest industry expense after labour and fuel, accounting for nearly 13 per cent of operating costs. This is the only major airline cost element which has risen consistently during the last five years, reaching $8.4 billion in 1993. In fact, airlines could be criticised for not taking action sooner, given the attention being paid to cost cutting in areas such as labour.
The trouble is that travel agents are rather important to airlines, for the simple reason that they account for 85 per cent of passenger revenues. Only Southwest has substantial ticket sales direct to the public, and even Southwest pays $132 million a year in commissions - 7.4 per cent of costs. Hitherto, airlines have shied away from biting the hands that feed them. Even now, their action carries considerable risk.
An alienated travel agency community could hurt airlines in several ways. The American Society of Travel Agents is talking about legal action against airlines and airline-owned computer reservations systems, and may make an anti-trust complaint. Annoyed agents can damage airlines by such tactics as placing phantom bookings. Demotivated agents may be less successful, and will certainly lose the incentive to sell high-value tickets. Corporations which enjoy discounts funded through agency commissions will suffer higher travel costs, and may cut back executive travel. And if agents try to bridge their revenue gap by imposing transaction fees on consumers, there could also be a drop in leisure oriented business.
The usual response to such comment is that the industry is moving towards direct selling through the ticketless travel concept, by which customers buy their tickets direct from the airline through telephone, fax or modem links or using smart cards. While this is undoubtedly the case, it is a longer term phenomenon. In the meantime, most airlines will continue to rely heavily on travel agents. In addition, direct selling comes at a price - airlines will have to invest in the technology and manpower needed to reach customers directly, mitigating some of the cost reductions arising from cutting commissions.
Clearly, agents ought to take their share of the painful restructuring in this business. It is in their long-term interest to maintain a positive working relationship with airlines, to their mutual benefit. Like middlemen in other industries, travel agents risk being pushed out by technological advances. Their only hope is to improve the value of the service they offer.
* The travel agent is not the only link in the airline distribution chain to come under attack recently. The arcane world of the CRS continues to attract controversy. The European Commission has received as many as 30 complaints about CRS charges and is reviewing its code of conduct for CRS operators, and a new Canadian code of conduct has come under fire.
These disputes cover complex issues involving CRS charging structures, participation by CRS owners in competing systems, and whether airlines should pay the CRS directly, as they do now, or whether agents should pay for CRS services and be reimbursed by airlines.
The number of CRS providers is dwindling rapidly through consolidation, and many cash-strapped airlines are unsure that they want to own CRS systems after all. It thus becomes even more important that CRS charging is fair and transparent. Robust codes of conduct represent the only way forward, but it would be better to have a single code covering all countries.
The number of CRS providers is dwindling rapidly through consolidation, and many cash-strapped airlines are unsure that they want to own CRS systems after all. It thus becomes even more important that CRS charging is fair and transparent. Robust codes of conduct represent the only way forward, but it would be better to have a single code covering all countries.
Source: Airline Business
