Travel Agent Cap Flap: Consumers, Get Ready for More Changes
(August 2001)
On August 30, 2001, the American Society of Travel Agents
(ASTA), which represents approximately 15,000 U.S. travel
agencies (about half of the nation's total), has authorized agencies
to participate in "Nationwide Day of Awareness" by closing their
offices from 1 p.m. to 3 p.m. in protest of airline commission
cuts.
According to Richard Copland, ASTA's president, "The
purpose of this action is to raise awareness of the airlines'
attempt to deprive consumers of their preferred method of purchasing
air transportation." This cause is an indication that the travel
industry is again shifting focus, which means that more changes are
ahead for the consumer.
The Incredible Shrinking
Commission
This action was spurred when American Airlines
and TWA announced they would impose a further cap on travel agent
commissions, reducing the airlines' previously imposed cap from $50
to $20 on a round-trip domestic ticket. As a competitive response,
United, Delta, Northwest, US Airways, America West, Continental, and
American Trans Air (ATA) soon followed with their own cap
reductions.
Southwest, Alaska Airlines, and National Airlines
have said they will not match—at least for now. Low-fare carriers
like Southwest, which sell fewer tickets above the cap-affected
range, have less incentive to match the cut. "National Airlines will
continue with the commission structure that it has followed from its
inception in support of travel agents and the valuable service they
provide the public," says Michael Conway, National's Chairman and
CEO. An Alaska Airlines representative stated, "We don't think the
effect on the bottom line is worth it at this point."
Agents
cite that the reason for the cutbacks has to do with reduced
competition among airlines. According to ASTA, a single carrier
dominates approximately 70 percent of all city pairs (the departure
and arrival cities on an itinerary). Without a lot of competition,
airlines feel they no longer need agents.
ASTA's Copland
believes American's move is a result of its merger with TWA. He
says:
"This action is evidence of things to come as the U.S.
airline industry becomes more and more of an unchecked,
anti-consumer cartel. American is paying for the merger by blatantly
transferring their costs to the traveler."
Nonetheless, while
ASTA maintains that the merger is the catalyst for cuts, many feel
the Internet has played a more significant role.
Web of
Change
Airlines are urging their customers to buy online,
and are offering incentives for doing so. Recently, several airlines
offered an extra 20 percent discount for booking through their
website. Most airlines also lure customers to their websites with
Internet-only discounts and bonus miles. The strategy appears to be
working, as consumers spend approximately $14 billion buying tickets
online. According to PhoCusWright, a travel industry consulting
firm, Internet sales amount to 14 percent of total air travel
spending—up from nine percent last year.
Although airlines
are conveying a message that booking online makes the customer's job
easier with all their new online booking tools, they may in effect
be striving to eliminate the commission structure entirely. After
all, airlines can reap major financial savings every time someone
utilizes a website to book, check flights, or redeem frequent flier
awards, which reduces the amount of calls to reservations
centers.
Affect on Consumers
The move to cut
commissions started in 1995 when Delta Airlines put a $50 cap on its
10 percent commissions. Two years later, the airlines cut the
commission rate to eight percent, and then in 1998,they instituted a
first-ever $100 commission cap on international tickets. In 1999,
the airlines cut domestic and international commissions to five
percent. Ever since, hoards of travel agencies have gone out of
business.
To compensate for lost commissions, ninety percent
of agencies now charge fees for services, especially to provide
airline tickets. "The problem with the airlines is they cannot
control their own profitability, and there is no way I was going to
let them control my profitability," says Lucy Hirleman, CTC and
President of Berkshire Travel in Newfoundland, NJ. Like many
agencies, Hirleman has shifted business away from air to other more
lucrative venues such as cruise vacations and tour packages.
So how do the changes affect consumers? "The affect on the
consumer is less choice," says Hirleman. She adds, "As more agencies
close, people will have fewer choices because they are losing an
unbiased source of information on what the best airline choices are.
Basically, the consumer is going to do a lot more work to find a
decent fare."
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