Arnie WeissmannTravel 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.


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