Airline Slump Is Bad Trip for Travel Agents : Transportation: Tough times have carriers wooing agents with one hand, while taking perks and clients from them with the other.
In their quest for greater sales, the airlines are simultaneously courting and trampling on the nation’s travel agents.
With the travel industry in a recession, airlines are trying to get travel agents to sell harder by offering them such rewards as free tickets and cash bonuses.
But the same recessionary forces are driving airlines to take steps that antagonize agents. To reduce expenses, airlines are dropping agencies from programs that pay bonus commissions, known as “overrides.”
What’s more, in an ambitious effort to grab a bigger slice of the corporate travel market, airlines have started selling discount tickets directly to large companies, sometimes cutting the travel agent out of the deal.
“It is a tough time right now,” said Ray C. Emmons, president of McDonnell Douglas Travel Corp. in Huntington Beach. “The airlines are trying to pick up more business--any way they can.”
The airlines’ schizophrenia comes as the industry is recovering from one of its worst financial periods ever. The industry lost a record $2 billion for the first three months of the year, as economic concerns and war-related terrorism fears brought air travel to a standstill.
The outlook for the all-important summer travel season isn’t much better. Air travel fell just over 4% in April, according to industry figures. Sensing a continued slump, airlines are taking steps to lure vacationers. Northwest Airlines slashed excursion fares 17%, triggering a summer fare war. Southwest Airlines, a no-frills carrier, went a step further with a kids-fly-free summertime promotion.
Since they sell 85% of airline tickets, travel agents play a big role in steering people to an airline. But most tickets are sold by a fraction of the 36,000 or so travel agencies in the nation; airlines pay most attention to the 8,000 largest agencies that generate three-quarters of ticket sales.
That leaves small agencies feeling left out--especially at a time when cash-starved airlines are trying to spend less on sales efforts. Ellen Shapiro said airline sales representatives rarely drop by her Los Angeles agency; she hasn’t seen a United Airlines sales rep in two years. At a trade show in March, a British Airways salesman asked her advice. “I nearly fell over,” she said.
Other travel agents are being cut out entirely. Northwest stopped paying override commissions to 800 “under-performing” agencies. The move didn’t represent a changed attitude toward travel agents but was “part of overall belt-tightening,” said Ray Foss, a Northwest marketing vice president.
Northwest is among airlines that are trying to build market share by selling tickets directly to large corporations. Northwest said it expanded its 250-member sales force by 5% this year, specifically to bring in new corporate business.
Airlines typically offer discounts between 20% and 50% off regular coach fare in return for most of a corporation’s travel business. The discounts result from confidential negotiations between airlines and companies; airlines rarely discuss them openly.
“It is all very hush-hush,” said Steve Ballinger, managing editor of Travel Management Daily.
Nonetheless, the practice--nonexistent a few years ago--is growing. “The airlines are saying, ‘Bring us a deal, and we’ll look at it,’ ” said Harold Seligman, a Stamford, Conn., travel consultant. Seligman said airlines are especially willing to deal in highly competitive markets, such as between Los Angeles and New York.
Foss said Northwest involves travel agents in “corporate fare” negotiations and lets agents earn commissions by issuing discount tickets, but not every airline does so. Ballinger said some airlines sell the tickets in bulk directly to the corporate customer, a practice that eliminates the travel agent as middleman.
One Southern California travel agent complained that American Airlines recently “stole” two large clients, an oil company and a computer company. “It’s frustrating, because the airline won’t let us quote the lower fare,” said the travel agent, who requested anonymity.
American Airlines refused to comment. “We view how we handle our sales strategy as competitive information,” spokesman Marty Heires said.
At the same time, airlines are taking steps to strengthen their ties to travel agencies, especially those that do a big-volume business. It isn’t unusual for airlines to offer travel agents incentives to sell tickets; travel agencies normally get sales commissions and bonuses. But with sales in the dumps, airlines--particularly those in poor financial shape--are sweetening the incentives.
Two airlines in bankruptcy protection, for example, are offering agents free or almost-free tickets. Midway Airlines is giving travel agents price breaks of up to 90% in return for selling tickets. Continental Airlines is rewarding East Coast agents with free tickets in return for promoting its new service from New York’s LaGuardia Airport.
MGM Grand Air is offering agents tickets at 85% discounts from regular coach fares.
Continental Marketing Vice President Bob Lepisto said free tickets give travel agents a chance to evaluate Continental. “They can sell tickets with more confidence if they experience the service.”
Besides offering rewards, the industry is trying to strengthen its relationship with travel agents by organizing “advisory councils.” United Airlines, for example, recently flew 12 travel agents to Chicago to discuss ways to improve the airline. Continental has advisory committees in 100 cities nationwide.
“We were pleased with the input,” said Chris Bowers, vice president and general sales manager for United. Not all the comments were laudatory; agents complained that United was slow to respond to customer problems, such as refund requests. Said Bowers, “There were no shy folks.”
Airline Expenses: Commissions paid to travel agents are a significant expense incurred by major airlines. The following shows commissions in the fourth quarter of 1990 as compared to other expenses incurred. Percentage of major expenses Labor: 34.34% Fuel/oil: 24.76% Maintenance: 11.84% Commissions: 10.74% Rentals: 7.80% Food: 3.74% Interest: 2.76% Advertising: 2.14% Landing fees: 1.88%
What They Pay
Commissions in thousands of dollars.
United Airlines $434,098 Northwest 275,636 American Airlines 248,797 Delta Air Lines 211,446 Continental Airlines 126,612 USAir 108,509
Source: Aviation Daily
Mixed Message
In an effort to get the most from travel agents, airlines are: * Offering cash bonuses and free tickets to agents who increase sales.
* Arming agents with summertime discounts that they can use to help lure more passengers onto planes.
But at the same time, some airlines are looking to reduce commission expenses by: * Selling discounted tickets directly to large business customers.
* Dropping some agencies from plans that pay bonus commissions for high-volume extra sales in addition to regular ticket commissions.
