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Sky Caps : Travel Agents Incensed at Moves to Cut Commissions

February 11, 1995|JAMES F. PELTZ and STUART SILVERSTEIN | TIMES STAFF WRITERS

The assault on the nation's travel agencies intensified Friday when two more big airlines, American and Northwest, joined Delta in imposing caps on the commissions paid to agents for domestic tickets.

The agencies were outraged, and some said the limited payments will push many of the nation's 45,000 agencies out of business. "I don't think I've been more scared in my (24) years in the travel business," said Daniel J. Marinoff, owner of LTS Travel Service in Culver City.

The airlines said the caps, which replace the agents' conventional 10% commissions, are needed to contain costs at a time when widespread low fares are pinching airline earnings.

"The airlines are signaling very clearly that travel agency commissions, as we've known them in the past, are going to change," said Travis Tanner, chief executive of Minneapolis-based Carlson Wagonlit Travel, the world's second-largest network of travel agencies.

"It's essential that we bring these costs down," said Barry Kotar, Northwest Airlines' general sales manager. But the move is risky because travel agents typically write about 80% of the tickets for the major carriers.

Even so, the caps were cheered on Wall Street. Airline stocks soared, with Delta, AMR Corp. (American's parent) and UAL Corp. (United's parent) all surging at least $3 a share Friday on expectations of higher profits.

"This is a significant cost savings for the industry" that could total several hundred million dollars, said Paul Karos, airline analyst for CS First Boston.

The three airlines will pay a maximum $50 commission for a round-trip base fare of more than $500, and $25 for a one-way ticket with a base fare in excess of $250. Thus, an agent writing a $1,200 ticket would get the maximum $50, rather than the $120 it would have been paid under the old 10% commission.

"If all of the airlines do it, I'll have no choice" but to accept the lower fees, said Pat McEwan, owner of Four Sisters Travel in Fullerton. For now, "I will do everything I can to turn each client off of those airlines" that cap commissions, she said.

United, the nation's biggest carrier in terms of passenger volume, has not decided whether to impose a cap. But it typically matches any competitive move taken by its archrival, American.

"This is going to be a significant (financial) hit for us," said Jim Roberts, president of Uniglobe Regency Travel in Ontario. "The action by Delta alone was enough to drive some agencies out of business."

Delta, the nation's third-largest carrier, Thursday became the first to limit commissions on domestic tickets. Last fall, it cut its commissions on international flights to 8% from 10%.

Though Delta said its domestic cap will apply to only about 20% of the tickets written by its travel agents, the move was considered daring. The action might have backfired if no other major carriers followed suit and agents steered customers away from Delta.

But less than 24 hours after the announcement, American and Northwest said they would impose the same terms, effective Feb. 27.

Indeed, there is speculation that the airlines' payment caps will lead many agencies to try to charge the public "transaction fees" of $10 to $50 per ticket to recoup the lost revenue.

"If we don't start charging fees or otherwise pass along costs to the consumer, you'd have chaos," said Tanner of Carlson Wagonlit.

But LTS Travel's Marinoff said such a move "will not work" because it would prompt many more consumers to call airlines directly for tickets to save money.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Ticket Makers

Limits on commissions generated by travel agent ticket sales have many agencies worried about their financial futures. The following is a look at the state of travel agencies:

GROWTH INDUSTRY

The number of travel agencies nationwide has increased over the past five years, contributing to a $10-billion jump in agency sales:

Travel Agency Sales (in billions)

1994: $57.7

Average Weekly Sales Per Agency

1994: $34,093

Authorized Agencies in U.S.

1994: 45,275

TICKETS TO RIDE

Travel agents sell the lion's share of all domestic air travel tickets.

Sold by agents: 83%

Sold by airlines and travel clubs: 17%

AIRLINE STOCKS SOAR

Investors cheered the move by airlines to cap commissions, bidding up stock prices of domestic airlines in expectation of higher profits.

Change Friday from Percent Airline close Thursday change UAL (United) $97.00 +$5.25 +5.7% American $60.25 +$3.00 +5.2% Delta $56.75 +$4.00 +7.6% Northwest $21.00 +$1.90 +9.8%

Sources: American Society of Travel Agents; Bloomberg Business News; Researched by JENNIFER OLDHAM / Los Angeles Times

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