ix months ago in this space, on the
sixth anniversary of Delta's infamous 1995 commission cap, we
suggested that it might be time for an inflation adjustment. The
$25/$50 cap on domestic airline tickets hadn't changed in six
years, but the equivalent purchasing power in current dollars was
inching closer to $30/$60. We thought we had a point.
And now that the country's business travelers have had their way
with the airlines by withholding their golden eggs, the airlines
are simultaneously cutting costs, wooing leisure travelers and
tinkering with the fare structure to get the suits and the
We thought this might be a good time for the airlines to do
something to get the travel agents back, but American Airlines
obviously doesn't think so and has reduced its maximum domestic
one-way commission payment by more than half, to $10.
You could chalk this up to airline cost-cutting if you want to, but
we don't believe this is about saving money anymore.
American's travel agent commission tab in the second quarter of
this year fell 4.8%, to $260 million. It was the only major cost
input on the carrier's public financial statement to show a
decline. Every other cost item increased. Wages alone were up 27%,
and total operating costs were up 41%, to $6.3 billion.
What American will save with this move is, in a word, peanuts.
At bottom, this looks to us like a marketing decision, not a
financial one. As a purely financial decision, it makes as much
sense as eating a pizza with chocolate cake for dessert and then
putting artificial sweetener in your iced tea.
There has been talk off and on about airline commissions going
to zero. Some agents have thought about that scenario, and some of
their views are reproduced elsewhere on this site.
If you haven't thought about the zero-commission scenario, now
might be a good time.