Travel-agent anger against the nation's major airlines spread Wednesday, with one large travel company suing to block the carriers from capping commissions and the industry's largest trade group also threatening to go to court.
In recent days, the nation's six largest airlines all agreed to eliminate the agents' traditional 10% commission and replace it with a $50 cap on round-trip domestic flights. Agents around the country, infuriated that the moves may drive many of them out of business, have been organizing emergency meetings to block the actions.
One major agency, Travel Network Ltd., a 350-office franchiser based in Englewood Cliffs, N.J., became the first major travel firm to legally challenge the caps. In a complaint filed in federal court, the agency charged that the airlines broke antitrust and price-fixing laws in capping the commissions.
The airlines took the moves in an effort to cut costs and shore up their profits at a time when the industry is struggling to cope with fare wars and recover from the devastating recession of the early 1990s.
The American Society of Travel Agents, an association representing 25,000 agents nationwide, said it will meet this weekend to decide what action to take in light of airlines' decision. Among the possibilities are its own antitrust lawsuit, according to a spokesman.
The association estimates the commission caps could put 50,000 of the nation's 250,000 airline agents out of work. "We are going to fight for our survival," spokesman Steve Loucks vowed. "We feel the airlines have really miscalculated this."
Travel Network filed its lawsuit in Minneapolis, home to Northwest Airlines. The suit also names Delta, Continental, American, USAir and United as defendants and is likely be amended to include Trans World Airlines, which Wednesday joined the other carriers in limiting commissions. The lawsuit asks for an injunction to immediately halt the new policy.
"Cost cutting must be accomplished by an airline to survive," said Bill Berry, spokesman for Atlanta-based Delta, which was the first big airline to cap the agents' payments. "From our standpoint, this lawsuit does not have any merit."
The airlines' moves would be particularly damaging for medium-sized and large travel agencies that handle expensive travel accounts for large corporations. Business travelers, who often ride planes on a moment's notice and demand first-class service, pay the highest fares. Their tickets often cost several hundred dollars for a single flight, generating sizable commission income for travel agencies, contrasted with more cost-conscious leisure fliers.
But large corporate customers also typically benefit from exclusive arrangements with agencies giving them rebates of up to 6% because their business is so valuable. As a result, some large agencies are now telling customers that such rebate programs will be canceled.
Associated Travel Management in Santa Ana has temporarily halted the commission rebates it pays to clients who book more than $1 million worth of travel a year. "It has turned our business upside down," President Thom Nulty said of the lowered commissions.
Travel agencies indicated they might begin charging fees for services that had been free to customers, such as low-priced ticket booking or seat assignment changes.
"We're having to roll them out a lot faster than expected," said Melissa Abernathy, spokeswoman for American Express Travel Services in New York. The company launched a test of charging for certain airline ticketing services in December.
Others say these kinds of fees have been expected for some time. "We thought this change would take a couple of years," said Travis Tanner, co-president of Carlson Wagonlit Travel in Minneapolis, with 4,000 locations worldwide. The airlines' policy change "speeded up everything."
Tanner said the decision could result in an industrywide 2% increase in travel costs for companies. Many companies have few other choices for booking travel than to use agents.
Several travel specialists for major Southern California companies said it was too soon will see costs go up.
It is yet to be seen whether airlines and large travel agencies can renegotiate contracts in such a way that could limit the potential fallout for airline customers, experts say.
"We are waiting to see the proposals that the airlines come forward with," said Harold Seligman, president of Management Alternatives Inc. in Stamford, Conn., a corporate adviser on business travel. "I haven't gotten off the phone in three days."
Because big agencies can rework their deals with the airlines, they may be better protected from the policy change fallout than the mom-and-pop agencies that make up so much of the travel agency industry--and often service small and medium-sized companies.
"It's a crisis," said Chris DeRose, owner of American Pride and Compass Travel in Orange. She said that layoffs are inevitable and that customers will probably be charged additional fees.
The Associated Press contributed to this story.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
After Delta Airlines announced a cap on commissions paid to travel agents for domestic ticket sales last week, six other major airlines followed suit. Details on the cap:
One way: Domestic tickets with base fare higher than $250 will pay a maximum $25 commission.
Round trip: Domestic tickets with base fare higher than $500 will pay a maximum $50 commission.
No impact: Lower-priced domestic tickets and all international tickets will pay the same 8% to 10% commission.
Domestic Sales Dominate
Domestic ticket sales make up the bulk of travel agent commissions. Commissions paid by airlines to U.S. travel agents for domestic and international flights, in billions of dollars:
Travel agents sell about 80% of the tickets for major carriers. The remainder are sold by airlines and travel clubs. Millions of tickets sold by U.S. travel agents:
Source: Times reports, Airline Reporting Corp.; Researched by JANICE L. JONES / Los Angeles Times