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Executive Travel : Life Under Commission Caps : What's the Fallout for Business Travelers? Little to None

March 02, 1995|MICHAEL CONLON | REUTERS

The fight over commissions that has travel agents at war with the airlines may leave business travelers wondering what the fallout will be for them.

The answer? Little to none.

That's the consensus of a number of industry officials and experts who see the fight as a turning point for the travel industry, but one that in the end will have hardly any impact on corporate travelers.

At most, they predict a minor impact on travel budgets, since companies may have to shell out more money in fees to agents or travel management firms, and travelers may have fewer airlines from which to choose.

They may also find that their companies' preferred carriers have been dropped in favor of others.

The fight is further evidence of the fragile financial structure keeping the airline industry aloft and the pressure some carriers face from low-cost, no-frills competitors.

Major airlines such as Delta, American, United, Northwest and TWA recently said they were changing the way the industry has operated for years by imposing limits on how much they pay in commissions for ticket sales.

Instead of a flat 10%, they said, they will pay at most a $50 commission on round-trip domestic tickets and $25 for one-way tickets. That means an agent who once earned $100 for selling a $1,000 round-trip ticket will now get only $50.

The carriers say the change is necessary in their fight for survival.

Northwest, for instance, said its commission expenses have grown faster than revenue over the past six years and now amount to $530 million a year, or 11% of its domestic operating expenses.

Some small travel agents say the move will drive them out of business, and at least two suits have been filed against the airlines over the issue.

Larger travel management firms are less apocalyptic, with some saying the trend was already moving away from commissions in favor of fee-for-service arrangements for corporate customers.

"More than half our customers are on fee-based arrangements," said Bob Dirkes, a spokesman for IVI Business Travel International. "So the impact on our company may not be as big, but it's still a material impact for the revenue-sharing part of the company.

"It's going to affect the individual travelers inasmuch as it affects the corporate travel program they are part of," he said. "Individual travelers still have to get from point A to point B. What could change are the choices the corporation gives them.

"They may say they've changed their preferred carrier or they've changed their policy. 'Instead of a nonstop flight on this carrier, we want you to take another one because it stops over here or there and is cheaper,' " he said.

Art Dahl, president of Northwestern Travel Inc., a large Minneapolis-based firm, had this to say about the impact of the change on individual travelers:

"My suspicion is it probably won't have any impact in the short run. The cost of travel for corporations is going to go up modestly--2% or 2.5%--since they will pay a fee or get a reduced rebate from the agency. The traveler won't see that.

"In the long run, the traveler will see something, since airlines don't do a good job of keeping their hands on money. Ultimately, that means more price wars and cheaper prices. And business travelers do care about that, even if it's not their own money."

Ed Perkins, editor of the Consumer Reports Travel Letter, said the change "could affect travel budgets a little bit, but not big--maybe a couple of percentage points. It won't affect the individual business traveler."

Ralph Mannaker, president of USTravel, said travel management companies will analyze each account, checking on items such as average ticket price to determine if the accounts are profitable.

Some services--such as delivering a ticket to the office--may be cut in unprofitable circumstances, he said.

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