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Airline Mismanagement

The recent announcements by major US carriers that they have stopped paying commission to travel agencies has generally been seen as an airline vs agency issue.

But maybe there is another issue as well, one with ugly overtones for the future competitive health of the entire airline industry.

 
 
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Airline vs Airline

Part 2 of a series about Travel Agents

The major airlines hate 'rogue airlines' even more than they hate travel agents!

Some commentators believe that by abandoning the Saturday night stay requirement, America West has now become a 'rogue airline' and is attracting the ire of the major carriers.

Support rogue airlines!  Fly America West if you have the opportunity.

Part 2 of a 5 part series - click for Parts  One  Two  Three  Four  Five

 

 

You might think that when the major airlines zeroed the commission they pay to travel agencies, they were simply trying to squeeze out travel agencies.

That may well be part of their strategy.

But read now about another target of their new zero commission policy - other, smaller, airlines (which are usually the ones with the best discount fares and service)!

 

Squeezing out the Smaller Airlines

What do big airlines hate more than anything else in the world?  You might think the answer is 'passengers'!  Or, in view of their chronic losses, perhaps the answer is profit!  Some of you will probably suggest that the airlines hate travel agents more than anything else.

Let me suggest another answer to you :  The thing big airlines hate, more than anything else in the world, is competition from new upstart small airlines.  They hate competition from any airline that doesn't 'play by the rules'.  Rules such as outrageous fares if you don't stay over a Saturday night; a growing and ridiculous spread between the prices charged for the exact same seat depending on if the airline thinks you're a deep-pocketed business traveler or a miserly vacationer; rules that all but imply that the airline can treat you as poorly as it likes and if you as much as complain about it, then you'll risk being banned for life from the doubtful privilege of flying them again!

What Happens if an Airline Breaks the Unwritten Rules?

Here are two examples.

America West is struggling to maintain viable profitability.  It decided to drop the requirement to stay over a Saturday night to qualify for its cheaper fares - this being, of course, one of the key founding 'rules' of the major airlines' fare structures.  Its fares for such itineraries are now only one third to one quarter of the fares charged by the major carriers!!! Guess what happened?  In what USA Today described as being 'thrown out of the club for breaking the rules' Continental 'coincidentally' announced, two days later, that it was ending its eight year code-sharing, lounge-sharing, and frequent flier associations with America West! America West is now looking for another major airline partner to ally with (and do you want to guess at how successful it will be?).

Another interesting thing happened to America West just yesterday.  Orbitz - the website jointly owned by several of the major zero commission carriers - suddenly started charging a $5 fee on any America West tickets it sells.  Why do you think they started doing that?

JetBlue is an example of a new carrier that is doing all the right things perfectly (and breaking all the big carriers' rules in the process!).  It recently started operating coast to coast service from Oakland and Long Beach airports.  Guess what.  All of a sudden, American Airlines suddenly starts offering the same service on the same routes.  And Long Beach airport, long the 'ugly stepchild' of the LA airports, is now inundated with too many requests from carriers for slots.  Is this just a coincidence, or has JetBlue now appeared on the 'big guys' radar screens and are they trying to squash it?

We can all of us name any number of new discount carriers that have started business, first servicing second level city pairs with discounted flights - routes that other airlines have ignored or offered only vastly overpriced service on, only to have the big guys suddenly descend upon them, and match them, flight for flight and fare for fare until the new carrier is bled dry and disappears.  And what happens next?  Do airfares stay low?  Of course they don't!  After the new airline has been killed off, the established airlines then 'punish' us, their customers, with a return back to high fares and fewer flights.

But what has this got to do with paying travel agents no commission?

Travel agents give all airlines a level playing field.  Every airline, big or small, has equal access, through the travel agent's computer, to the travel agent's clients.

That means that a brand new startup airline immediately gets the same equal access to all travel agent clients, just the same as the major airlines, with the need for massive advertising budgets and long operating histories.  Only a few years ago, travel agents sold almost 90% of all airline tickets in the US (and today in 2002 they still sell 70%) - travel agents were a key part of enabling new carriers to start selling their services.

Do you think the big airlines are happy seeing new startup carriers getting immediate equal access to 'their' markets?  No, of course they don't like this!

And now for a 'cunning plan'.  What is the best way to make it harder (almost impossible) for new startup carriers to immediately get the equal access (that they are legally entitled to and which they deserve) to 70% of the flying public?  Yes - kill off the travel agencies!  If there are no more travel agencies, then how will new airlines sell their tickets?  What use is a website or a toll-free number if no-one knows about it?  What use are they if no-one knows that your airline exists, or what flights it operates, and to where?

Without travel agencies to fairly offer and sell their flights, what is currently a very difficult task (starting a new airline) becomes, surely, almost an entirely impossible one!

Possible Proof I am Correct

I should state the obvious.  The preceding is entirely my personal opinion.  I might be dead wrong, overly paranoid, and unfairly attributing hidden motives to something that is just a simple straightforward decision.  And, of course, I offer any and all senior airline executives equal space to rebut my comments and to explain the situation from their perspective.

But, until such an unlikely event, here are several observations that, at least to me, seem to suggest that perhaps I'm not so far off-base.

If the major US airlines can't afford to pay commissions to travel agencies in the US, why are they still paying much higher commissions to travel agencies overseas than they formerly were paying to US agencies (hint - overseas they are the 'small guys' and need the help of travel agencies to encroach on the foreign carrier's home territories)?

Why are almost all the small airlines still paying commission to US travel agencies?  How can they afford this cost if the big airlines can't (hint - small airlines know the true value of travel agencies and are keen to see them remain in business)?

Why are almost all the overseas carriers still paying commission to US travel agencies?  How can they afford this cost if the US airlines they compete with can't (hint - overseas airlines also need US travel agencies to get their tickets sold)?

If the major US airlines can't afford to pay something under 5% commission to travel agencies, why are they still offering companies direct discounts of up to as much as 30% (and rumored up as high as 50% in some cases) (hint - zeroing out travel agency commissions is nothing to do with the < 5% cost of those commissions)?

Why are the major US airlines refusing to comment on or explain the financial rationale behind their claim that they can't afford to pay a maximum of $20 per ticket to US travel agencies, while some industry commentators believe that the cost to the airlines to sell direct is at least as high (or higher) than their cost of selling via travel agencies (hint - this is nothing to do with costs, this is all to do with controlling the distribution channel)?

Isn't this Anti-Competitive?  Shouldn't it be Illegal?

I'm not an attorney, and so I can't comment on this point.  I do know that there have been repeated attempts to bring anti-competition lawsuits against the airlines, but every one of them has failed, so that suggests one of two things to me - either, everything the airlines do is entirely legal, or else the laws are not well written and need to be changed!

More important than what I think is what you think.

If you don't think this is fair - if you think that squeezing travel agencies out of business might harm airline competition overall, thereby reducing your choices and increase your travel costs and inconvenience, talk to your Congressman and Senators about this and demand that they do something.

We need to protect a viable independent distribution system for airline tickets.  If this does not happen, we - the consumers - will all be the losers.

Read more in the rest of this series

In Part 1 we discuss how travel agents can help you better than supplier representatives can or will.

In Part 3 we talk about the bad reputation travel agents generally suffer from, and why some of it is fair, but much of it is very unfair.

In Part 4 we offer some solutions to the problems the travel agency industry is currently facing.

Part 5 represents a bringing together of both this article series and also the series on how to choose a travel agent and agency, and talks about ways in which you can now best use travel agency services.

 

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Originally published 5 April 2002, last update 19 Dec 2013

You may freely reproduce or distribute this article for noncommercial purposes as long as you give credit to me as original writer.

 
 
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