THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, February 18, 1995 TAG: 9502180555
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY MYLENE MANGALINDAN, STAFF WRITER
LENGTH: Medium: 94 lines
Eloise Myers doesn't want to cut her already slim staff of four, nor does she want to charge customers more. But the owner of Moore Travel Inc. in Wards Corner may not have a choice.
``We've already done that,'' she said. ``I think most travel agents have been cutting back.''
Last week, almost all the major carriers followed Delta Airlines' decision to restrict travel agents' commission for issuing airline tickets. Travel agents, who issue tickets for free to customers, normally receive 10 percent of the price of the ticket as their compensation for issuing it.
Carriers decided to restrict commissions to travel agents to $25 for a one-way ticket and $50 for any round-trip ticket more than $500. But they would pay the same 10 percent base commission for any ticket less than $500.
The cutbacks affect about 150 agencies located in Hampton Roads, said Myers, who doubles as president of the Virginia subchapter of the American Society of Travel Agents, a national trade association.
Agencies must find some way to absorb the cost, either by cutting staff or passing along the cost of doing business to customers by charging service fees, a recommendation Delta made in its announcement. Their other option is to fight back.
Travel Network Ltd. filed a class-action lawsuit against American Airlines, Continental, Delta, Northwest, United and USAir in Minneapolis federal court on Tuesday. And American Society of Travel Agents, an industry trade group that represents more than half of the nation's travel agencies, is meeting in emergency sessions this weekend todevise a strategy to combat recent carriers' actions.
In the meantime, local agents have taken a reactive approach.
``It is bad news, I tell you. At this point, for Travel Designers Inc., we're in a wait-and-see mode,'' said Elizabeth Psimas, owner of the Portsmouth agency.
If travel agencies start charging clients for issuing tickets, customers can go directly to the airlines themselves, bypassing the entire agency.
But two huge national agencies, Carlson Wagonlit Travel and American Express, already have set a precedent by announcing that they would start charging service fees to customers.
Kevin McElroy, vice president of CI Travel, the largest travel agency in the area with 28 local offices, estimates that one-fifth of his firm's tickets will be affected, reducing income by 7.5 percent. The firm's average commission of 10 percent would drop to only 9.25 percent, he said, because it generates so much volume.
``We operate on pretty slim margins,'' McElroy said. ``For a typical travel agency, that could wipe out any profitability they might have. For CI, it will provide us with a margin that's unacceptable.''
Standard profit margins in the travel industry are close to 1 percent, he said.
``This is really going to hurt some of the small agencies that are operating on a 1 percent profit margin or less if they continue operations in the same way they have in the past,'' he said.
``I think we're all very upset because it really cuts into our business,'' Myers said. ``Approximately 20 percent of our commissions would be lost. I did a check using 1994 as a basis to see how this would affect our bottom line, and it would be a loss of 19.67 percent of our commissions, which is a sizable amount for a small agency to lose.''
Large national agencies like American Express can weather these new restrictions better because they have ``override'' commissions that they receive for the volume of business they direct to particular carriers, Myers said. Small agencies don't generate enough volume to participate in these types of programs.
Most travel agents claim that their commission won't even cover the cost of issuing the ticket, which ranges from $27 to $33, said Carol Horner, who owns the Kempsville office of Travel Agents International.
``People don't buy high-priced tickets,'' Horner said. ``They usually wait for a discount or fare sale. When we have high-priced tickets, that's where we made up the difference.''
Psimas of Travel Designers Inc. estimates the loss of potential revenue to be comparable to the pay for one employee in her six-person agency.
``In 1994, we earned a profit,'' she said. ``That would turn into $25,000 loss'' under the new commission restriction, which affects 50 percent of her revenue.
She plans to evaluate charging clients for services like sending tickets by express mail, reissues, refunds or other services beyond simply issuing airline tickets. Because the commission cap does not affect leisure travel packages, Psimas may concentrate more on leisure travel and less on corporate accounts, she said.
``We're going to have to get leaner and meaner, I guess, and more service oriented,'' she said. ILLUSTRATION: PAUL AIKEN/Staff
Eloise Myers
Moore Travel Inc.
by CNB