Travel agent base commissions on
airline tickets were capped in 1995 and eliminated in 2002. Today,
airlines as a group face significant financial challenges. Is there
a causal relationship between the decline and fall of base
commissions and poor financial performance by airlines?
As any reader of
Travel Weeklys Opinions pages knows, some travel agents who write
letters to the editor are convinced there is.
I recently received
a question on the subject from Dick Doherty, president of Crystal
Lake Travel Agency in Crystal Lake, Ill. He wrote, Were the
airlines losing less money per year when they were paying agents
commissions, or more per year ... not paying
commissions?
The inclusion of
per year in the question makes it tough to answer because there is
no simple per-year number. Airline profitability (and loss) is
extremely volatile from one year to the next. But here are some
ways one could try to answer.
It is a fact that
the airlines are not losing as much money today as they did during
the last full year that base commissions were paid. However, the
last full year base commissions were paid was 2001. That was not,
as you may recall, a typical year.
After 9/11, load
factors plunged. The 2001 collective net operating loss of $11.8
billion was, by far, the greatest in commercial aviation since
records have been kept (up to that point, the worst year had been
1992, when $1.8 billion was lost). The most recent year for which
numbers are supplied by the Air Transportation Association is 2003,
during which the ATA estimates a $2.8 billion loss
occurred.
Another way to
approach the question would be to try to make sense of some
multiyear trends. If you exclude the highly unusual year of 2001,
in the six years before commissions were eliminated, airlines
reported the six most profitable years in their history. From 1995
through 2000, they collectively earned $81 billion. In the years
following the abolition of base commissions (also excluding 2001),
they have suffered their worst financial losses ever, losing $7.7
billion in just two years.
That might sound
supportive of positions taken by letter-writing travel agents. But
they might not like some of the same numbers presented in this
equally factual manner: From 1995 through 2000, the first six years
after commission caps were instituted, airlines enjoyed
record-breaking profitability. By contrast, during the six years
preceding commission caps, when airlines were paying full base
commission, they endured three years of losses and had a cumulative
profit of only $6.87 billion.
There are other
factors one could consider when pondering linkage between travel
agent commissions and airline profitability. For instance, many of
the (successful) low-cost carriers have never paid commissions. And
the last legacy carrier to pay base commissions, TWA, did not
survive.
Reading the last
two paragraphs, one might be tempted to conclude that the
degradation and elimination of base commissions correlates with
record airline profits and the reduction of record losses. But I
wouldnt be quick to go there, either, in part because some airlines
are beginning to act as if they sense they may have been a bit
hasty in eliminating base commissions altogether. They have, in
fact, paid commissions to some consortia and other agency
groups.
In all honesty, if one were
looking for causes that affect the financial performance of
airlines, it would be useful to first plot the state of the
economy, the price of jet fuel, terrorism and (on the bright side)
innovative management with airline performance. Then try to factor
in the impact of commissions.
All that said,
Travel Weekly still welcomes agents to express their feelings
toward the airlines in a letter to the editor. And -- it never
hurts to ask -- for airline execs to write and tell us about their
feelings towards travel agents as well.