In perhaps the biggest blow to travel agents since the airlines were deregulated 24 years ago, Delta Air Lines said Thursday that it had stopped paying commissions to agents booking its domestic flights--and other airlines are expected to quickly follow suit.
Delta, citing its $1-billion loss last year and the growth of Internet ticketing sites, scrapped commissions for tickets sold in the U.S. and Canada. The nation's third-largest airline, Delta said it would keep paying commissions on tickets bought overseas and as incentive bonuses to select agencies.
"In this extremely difficult financial environment, the company must pursue all opportunities to reduce costs," said Delta, which last year paid $540 million in commissions, or 3.5% of its overall spending--about normal for the industry, which paid more than $3.5 billion in commissions last year.
Delta's action is the boldest move yet in the industry's seven-year effort to reduce ticket distribution costs. Most carriers, which once paid agents a percentage of the ticket price, now pay them only a maximum of $10 for a one-way domestic booking and $20 for a round trip.
The commission cuts have infuriated the travel-agent industry, led to lawsuits and public protests by agents nationwide, sharply thinned the industry's ranks and forced surviving agencies to charge their own fees for reservations. Well before the Sept. 11 terrorist attacks, hundreds of bricks-and-mortar travel agencies were closing every month. The industry's trade group, the American Society of Travel Agents, currently has 26,000 member firms.
"This is a sad, sad day," said Emma Johnson, an agent at Travel World in Tustin.
ASTA President Richard Copland called Delta's action "anti-consumer" because it will force travelers to pay agents higher fees for bookings. Despite the Internet's growing use as a reservations tool, about 75% of passengers still use agents, he said.
Higher agents' fees also mean businesses face "an increase in direct travel costs to their companies" at a time when business travelers already are complaining of higher fares, the National Business Travel Assn., a trade group, said in a statement. Delta's move "changes the foundation of all travel purchasing," it said.
Nonetheless, "I would suspect most [airlines] would" match Delta's commission ban soon, said Jon Ash, managing director of Global Aviation Associates, a Washington consulting firm.
"The [ticketing] environment is now so different," with the airlines increasingly relying on less costly means of booking passengers, namely Web sites run by the airlines themselves and by outside firms such as Orbitz and Hotwire, Ash said. Other major airlines, including AMR Corp.'s American and UAL Corp.'s United, said they were studying Delta's move or had no immediate comment.
A spot check Thursday showed the agencies' frustration depended mostly on their size. At Johnson's two-person shop in Tustin, there was talk of raising its transaction fee from the current $20 per ticket. And although Johnson vowed to avoid booking Delta flights as a protest, she admitted it would do no good once the other airlines end commissions too.
"There's really nothing we can do," she said. "Our fees are going to have to go up or we're going to have to close the door."
But at Montrose Travel, General Manager Rhonda Holguin said she expected that her firm's high volume would still be rewarded by Atlanta-based Delta. Montrose Travel has 138 agents and air travel accounts for about 65% of its business. "We knew this was coming," Holguin said. "We don't blame all of our problems on the airlines. We adapt."
Delta launched the trend toward lower commissions in early 1995, when it dropped the then-traditional 10% booking commission for domestic flights and capped how much it would pay agents. Other airlines followed and that cap was repeatedly lowered over the next several years.
The airlines' initial cuts were met with a class-action lawsuit by travel agents, which alleged that the airlines conspired by setting the caps at artificially low levels in violation of antitrust laws. Several big carriers, which denied any wrongdoing, paid a combined $87 million in 1996 to settle the claims.
Delta's stock closed Thursday at $35.33 a share, down 42 cents, on the New York Stock Exchange.