Arnie WeissmannWelcome back from your Fourth of July holiday. You watched fireworks. You overate. You got sunburned. You counted our nations blessings. You were on vacation, your heart light. But today, back to work. Your assignment: Figure out why the travel industry works so hard to restrict free enterprise.

Not the government, mind you, but the industry itself.

Though the principles of capitalism are not enshrined in our Constitution, that document gives us incredible latitude to experiment with business models and even, it turns out, work against our best long-term interests, if were so inclined.

The industry, in ways large and small, has embraced the opportunity to indulge in futile, if not self-defeating, activity.

The activity is inspired by fear. And the biggest perceived threat to both suppliers and small distributors is the emergence of large distributors.

Every time that mom-and-pop travel agents shop at Home Depot, they know the twin feelings of pleasure and guilt as they marvel at their savings and recognize that their shopping preferences helped put their former neighbor in the strip mall, the small hardware store, out of business.

Cruise executives and tour operators feel a bit of a chill as they walk the aisles. They look on the shelves and think about the paint manufacturers and toolmakers who were wrestled to the ground and told exactly how to package their products and how much they could charge for the honor of selling through Home Depot.

In travel, its the online intermediaries who are perceived to be the threat. Travel suppliers have come up with two main strategies to defend themselves against the rising power of large distributors, and small distributors have rushed to support them in their attempts.

The first strategy is the concept of the level playing field that restricts a distributors ability to lower prices. Not only is this anti-capitalist, its anti-Darwinian.

All distributors have not evolved equally. Some have figured out how to create efficiencies that others have not figured out, and hoped to enrich themselves by passing along some savings to consumers.

Under the banner of brand protection, some suppliers are saying, No, you may not give away your own money as an enticement for people to buy from you. That money once belonged to us. Passing along efficiencies will not be tolerated.

The other strategy to prevent consolidated power among distributors is to try to manipulate access to preferred pricing and override levels so that large distributors -- the ones that sell them the best -are not only not incented, theyre disadvantaged.

Princess Cruises, to its credit, has not issued level-playing-field rules, but has done something equally confounding -- it has taken away its best pricing, the iExcel rate, from its best producers, notable among them Travelocity, Expedia and National Leisure Group. (iExcel apparently is shorthand for I excel at not selling Princess cruises in high enough volume.)

Ironically, NLG can access iExcel rates for its wholly-owned home-agent brands, CruiseOne and Cruises Inc., but not for its higher volume brands.

Perhaps NLG, Travelocity and Expedia should rent studio apartments near their corporate headquarters, install a home agent in each and redirect all their Princess business to these subsidiaries.

All of these strategies are designed to fragment distribution. That may be a legitimate long-term goal, but if a by-product of the strategy is that market efficiencies must be suppressed, it will fail.

And the brand protection argument sounds logical at first, but doesnt really stand up to inspection. If a brand wants to maintain a certain price level in a marketplace where efficiencies bring prices down, the company can always just raise the price.

That is, of course, unless a competitor decides to leave the price for a similar product just where it is. Then youve got a competitive situation that brings to bear all the positive forces of capitalism, the ones that result in improved products, lower prices, and, in all likelihood, the expansion of the flow of dollars into the travel industry as a whole.


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