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Travel agents fight fee cut
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August 28, 2001: 1:39 p.m. ET
Agencies to close briefly Thursday to protest airlines' latest commission cut
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Travel agents are preparing to close their offices for two hours Thursday and ask the U.S. Justice Department for antitrust immunity in response to the move by most major U.S. airlines to further cut their commissions.
AMR Corp., the largest airline company and owner of both American Airlines and Trans World Airlines, started the latest round of commission cuts when it announced earlier this month it is lowering the top commission it will pay on a round-trip domestic ticket to $20 from $50. The 5 percent commission stays the same, but any ticket that costs more than $400 means a cut in the amount paid by the airline.
Since AMR's announcement, all the nation's major airlines other than discount carrier Southwest Airlines have followed suit. The latest were Continental Airlines and America West Airlines, which announced cuts Monday evening. Air Canada also matched the cuts Monday as well.
The cuts generally were cheered by airline analysts, who say any savings are needed as the carriers face nearly $2 billion in cumulative losses this year due to falling business travel and fares, coupled with rising labor costs and high fuel prices.
"Any amount of savings at this point is desperately needed by the airlines," said Ray Neidl, analyst with ABN Amro. "With the tremendous pressures on airlines, this is one of few areas where they can actually reduce costs. With online purchasing of tickets, more and more channels are becoming available for consumers. If travel agents go out of business, it'll make the system more efficient. It's a hard statement to make, but it's true."
Jim Higgins, analysts with Credit Suisse First Boston, said the commission cuts are going to make only a marginal change in profits, about $100 million a year in the case of AMR, which he said is not enough to change the earnings, or loss, per share forecast for any of the major carriers by itself. But he agrees with Neidl that the move makes sense for carriers.
"It's a technological inevitability," he said. "This is not the first shot in this battle. But it's something they need to do to control cost of distribution."
But the travel agents say they are providing knowledge and services to consumers that their customers still want, and that the consumers will be hurt if they have to charge a fee for every airline ticket handled, rather than have the airlines pay their costs.
"We feel we're entitled to be compensated for our services," said Richard Copland, CEO of the American Society of Travel Agents. "They've basically declared war on us. They're using their market power to drive compensation to travel agents well below agency costs."
Copland said 80 percent of tickets still are purchased through agents, a figure Higgins estimates is closer to 70 percent due to the growth of online purchases.
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They're closing right and left. The key is partly to be the last man standing.
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Kimberly Jones
Owner, Impact Travel
-- commenting on the squeeze on travel agents caused by airline commission cuts. |
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Copland said his group is about to ask the Justice Department for a business review letter to clear travel agents to work together to try to negotiate commissions with the airlines. He said if they're unsuccessful, they'll push for legislation to change the antitrust law to allow those negotiations.
The group also is asking members to close for two hours from 1:00 p.m. to 3:00 p.m. ET Thursday to drive home to customers the risk to travel agents from the latest commission cuts.
Kimberly Jones is one of those agents who will be participating. While she said she'll keep her office open, she won't write tickets or make reservations during those two hours as a protest.
Jones co-owns Impact Travel in Munster, Ind., with her mother, who started the agency with her father 31 years ago. She said she has weathered the commission cuts so far and expects to weather this cut, as she estimates only 5 to 10 percent of the tickets she writes are above the $400 base fare affected by the new cap.
"It is just one more nip and tuck [by] the airlines," she said. "My concern is they want to move to not pay travel agents anything. I have no doubt in my mind."
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But Jones said she's been able to survive without layoffs, imposing a $9 booking fee on some tickets and becoming more focused on travel packages for leisure travelers.
"We've lost some customers who say they can book themselves," she said. "But a lot of people are not proficient with Internet. For the most part our customers have been real loyal. You have to have the expertise and knowledge to give people a reason to come to you."
She's also benefited from absorbing three other agencies in her area that were not able to survive the cuts.
"They're closing right and left," she said. "The key is partly to be the last man standing."
Many travel agents have agreements under which corporate clients pay the agent and the agent refunds any commissions received from the airline, said Steve Cosgrove, owner of Dynamic Travel & Cruises in Southlake, Texas, near Dallas. Cosgrove said that in those cases the airlines' commission cut will be felt by the customers, not the agents.
He also said that the commission caps give those business customers greater incentive to have their travel agents scramble to find the lowest fares online or from consolidators, who control blocks of discounted tickets, rather than using the computerized reservation systems to book flights. The CRS was the only way that agents could be paid a commission for their work.
"The CRS is still an avenue to look at for the agency, but now it's only one channel," said Cosgrove. "What airlines don't seem to realize is they're losing control of 70 percent of sales they used to be able to control. Now you've got a sales force out there hunting down the cheapest thing they can." 
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