Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, March 29, 1995 TAG: 9503290090
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
SOURCE: The New York Times
DATELINE: NEW YORK LENGTH: Medium
In early February, in a bid to cut costs, the airline industry imposed a maximum commission of $50 on a round-trip domestic ticket. But some carriers - including Delta Air Lines, the pioneer of the limit on travel agent fees - now are offering new back-door financial incentives that reward bigger agencies for exceeding sales goals.
These moves mean some airlines effectively are giving back some of the money they said they would save when they announced the caps. Prior to the cap, airlines generally paid travel agents a 10 percent commission on the price of tickets.
``Continental wants all of your high-yield business - and we'll pay you for it!'' reads a flyer that Continental Airlines sent recently to about one out of 10 of its travel agents. Continental, in outlining its new ``Fast Cash'' program, offered a $50 ``bonus payment,'' in addition to existing incentive programs, for costlier round-trip tickets on transcontinental flights.
Similarly, travel agents said sales representatives from Delta had visited them recently with new contracts that offer extra payments for swinging business the airline's way.
Given the fiercely competitive nature of the business, other airlines probably will follow the lead of Continental and Delta. Except for Continental, the largest airlines declined to comment on whether such incentive programs were in place or were under consideration.
There are many implications of this new wrinkle in the way airlines compensate travel agents.
Perhaps the biggest losers will be smaller travel agencies, which often lack the volume of business to win extra payments. And some travel agents warn that the new incentives, if they spread, may force them to act against their customers' best interests by steering them to a certain airline.
``People trust travel agents, and travel agents can influence some people's choices,'' said Blake Fleetwood, president of Planetarium, an agency in Manhattan affiliated with American Express.
Some travel agents, including Fleetwood, had predicted that the airlines would have trouble making the cap stick. History was certainly on their side. In 1983, for example, Delta, Eastern and United refused to go along when American Airlines and Trans World Airlines lowered their commission rates.
To the extent the cost-savings that airlines had expected shrink, the latest moves could affect the stocks of some carriers. The stocks of several airlines jumped several points last month after they announced in rapid succession that they would follow Delta's lead in capping commissions for domestic tickets.
``This was viewed as a fundamental change in the industry,'' said Julius Maldutis, an airline analyst at Salomon Brothers. But now that at least some of those touted savings are going to be returned to travel agents, it ``is going to cause investors to pause and rethink their exuberance,'' he added.
by CNB