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Delta ends agent payments
No. 3 U.S. airline says losses, rise of Internet sales make commissions no longer possible.
March 15, 2002: 8:16 AM EST
By Chris Isidore, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Delta Air Lines no longer will pay travel agent commissions, a move to stem losses that the airline admits will shift costs to some customers.

The decision, effective immediately, was announced by the Atlanta-based carrier Thursday evening. It is the ultimate step in a trend of declining commissions paid by airlines that has been building for a number of years. Delta reported paying agent commissions of $540 million in 2001, down from $661 million. That 18.3 percent decline was slightly greater than the 17.2 percent fall in passenger revenue.

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Other airlines did not immediately follow Delta's announcement, but generally carriers have matched one another in past cuts of agent commissions. Commissions generally equaled about 5 percent of a ticket's value, although last summer most carriers placed a $20 cap on the amount of commission it would pay on any individual ticket.

Delta, the nation's third-largest carrier, said the current economic crisis in the airline industry in the wake of the Sept. 11 attack left it no choice but to eliminate commissions for tickets sold in the United States and Canada.

"In this extremely difficult financial environment, the company must pursue all opportunities to reduce costs, including the cost of distributing Delta tickets," the airline said.

"Technology has fundamentally changed airline ticket distribution practices," Delta said. "The rapid growth of electronic ticketing and the Internet allows customers to shop for, buy and receive Delta tickets on their own terms. The cost of distribution through electronic channels is much lower than traditional means. This new market reality is forcing both Delta and travel agents to adapt."

Travel agents traditionally used commissions paid by the carriers to sell tickets at no additional cost for customers. But the airline pointed out that many travel agents already are charging service fees in addition to ticket costs.

"Some customers clearly prefer to arrange travel through a travel agent because of the unique expertise they provide," the airline said. "Because customers are willing to pay for that expertise, travel agents will continue to thrive in the marketplace."

Not surprisingly, travel agents' trade organization immediately criticized Delta's move.

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"Delta is completely shifting all distribution costs onto the consumer," Richard Copland, CEO of the American Society of Travel Agents, said. "Consumers in the South are just beginning to understand what a true monopoly is. Clearly, Delta is using its monopoly power to unfair advantage."

The travel agent groups called for an immediate halt to the sale of travel agency transaction data to the airlines by the global distribution systems, saying the airlines no longer had a right to that information if they are no longer going to pay commissions.

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Shares of Delta (DAL: Research, Estimates) lost 42 cents to $35.33 in trading Thursday.  graphic