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4 Airlines Agree to Settle Antitrust Suit

Courts: American, United, Delta and Northwest will pay $72 million. Travel agents had accused them of conspiring to cap commissions.

September 04, 1996|From Times Staff and Wire Reports

Major U.S. airlines agreed Tuesday to settle an antitrust lawsuit with the nation's travel agents, ending a dispute in which the agents accused the carriers of conspiring to cap commissions on tickets.

Details of the proposed settlement were not disclosed, pending a hearing in U.S. District Court in Minneapolis on Thursday, according to the American Society of Travel Agents, an industry association in Alexandria, Va.

But according to a statement released by AMR Corp.'s American Airlines, UAL Corp.'s United Airlines, Delta Air Lines Inc. and Northwest Airlines Corp., the carriers will pay a total of $72 million.

In agreeing to settle the case, each of the four airlines denied any wrongdoing and said they decided to settle the litigation solely to avoid the uncertainty, expense and diversion of management time and effort associated with a protracted trial.

The settlement agreement came as the trial was set to begin this week in Minneapolis. Analysts said the travel agents would have had a difficult time proving that the airlines colluded on capping their commissions.

"Travel agents are in a dying industry," said Mark Ray, who manages John Hancock Financial Services' $2-billion transportation bond portfolio. "Technology is making them obsolete. The settlements are kind of like severance pay."

Continental Airlines Inc. settled over the weekend, agreeing to pay travel agents $5 million, including legal fees. A settlement has also apparently been reached with USAir Inc. Trans World Airlines Inc. rescinded the commissions cap in a settlement with the agents in August 1995.

Kevin Murphy, an analyst at Morgan Stanley & Co. in New York, said he doesn't expect airline earnings to be hurt significantly by the settlement.

The lawsuit was filed last year on behalf of 33,000 agents who claimed a decision by airlines to limit commissions on domestic flights to $25 on one-way tickets worth $250 to $500 and $50 on round trips worth $500 or more cost them hundreds of millions of dollars. Previously, agents received a commission of 10% of the price of a ticket for U.S. travel.

Jeanne Epping, chief executive and president of the travel agents group, said she is pleased with the proposed settlement.

"We now look forward to once again moving the entire travel industry forward with normalized relations with the five carriers," Epping said in a statement.

Airline representatives said skyrocketing commission costs forced the airlines to implement the caps.

"Before the caps, commissions were the fastest-rising cost in the airline industry," said Dave Swierenga, chief economist at the Air Transport Assn., which represents airlines. They are still the industry's third-largest expense, he said.

In 1978--the year the airline industry was deregulated--commissions to travel agents totaled $894 million, or 4.2% of the industry's total operating expenses, Swierenga said. By 1993, commissions had soared to $7.5 billion, or 11.3% of operating expenses.

They have fallen dramatically since the caps were imposed. In 1995, total commissions to travel agents fell 23% to $5.8 billion, or 8.7% of operating expenses.

Agents say the caps could put many of them out of business. The lawsuit asked a federal judge to repeal the caps and make the airlines pay triple the amount lost to agents since the caps were imposed in February 1995. Total damages could have exceeded $200 million, according to some estimates.

Swierenga said the high commission costs contributed to the airline industry's financial distress in the late 1980s and early '90s.

"A lot of travel agents are screaming about these caps," Swierenga said. "But in 1993, when we saw two major carriers--Eastern Air Lines and Pan Am--go out of business, there weren't any agents screaming then."

The trial was to be heard by U.S. District Judge James Rosenbaum in Minneapolis.

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