Paul Ruden
After 1978, when the U.S. airline industry underwent deregulation, the government also deregulated the process by which airlines had collectively set the commissions they paid travel agents, introducing competition into the commission marketplace. As a result, airline commissions rose rapidly, and 10% commissions became the market base rate. Paul Ruden, ASTA's senior vice president for legal and industry affairs, talked to Travel Weekly's Kate Rice about how airlines upended that model 20 years ago this month and its impact on travel agencies.
Q: How long did airlines pay 10% commissions, and how did they end it?
A: That was in the late '70s and early '80s, and that continued until 1995, by which time there was a lot of unhappiness in the airline industry. They [airlines] were expressing it openly. Travel agents, for example, were getting paid the same 10% on first-class tickets that cost thousands of dollars as on regular tickets and doing the same amount of work. As is well known, Delta announced unexpectedly one bright day that effective immediately, they were capping commissions at $50. Within five days, the other carriers matched them.
Q: What happened next?
A: Needless to say, there was much, much unhappiness in the land. This led to an antitrust case in which ASTA was a plaintiff. All of the cases were consolidated and eventually settled. The figure was $86 million, and the money was paid under a formula that was based on each agent's reported sales on the carriers who were defendants in the lawsuit.
Q: How did agents react to the cuts?
A: They had choices. They could stop selling air, which some agents did. They could get out of the business altogether. Some agents did that. Or they could start charging consumers for their services. A lot of agents did that. ASTA published manuals, we had precursors of webinars, I went on the road and taught classes, and we used our website to show agents that it was not only possible to charge fees but necessary. ... Agents went from a business model based on earning a percentage of the sale price and being subject to the ups and downs of pricing to a business model where they charge the customer, the end user, for helping them figure out what plane to fly on, what flight to take and what fare to pay for, and that's where we are today. I am told that agents who do sell air and who have gotten the right clientele are doing better than they ever did by charging a fee for the valuable services they provide. Not everyone is willing to pay a fee, and that is OK; the market has segmented itself.
Q: What has all of this meant for the industry?
A: It's made better businesspeople out of the survivors. Agents who are in business now understand what it takes to be successful. ... They're more adaptable, more flexible. And we're seeing a lot of people coming back from the Internet. We've seen a lot of anecdotal data from agents who said customers are coming back and saying, "I've had enough of that." This is not to say that the online travel agencies are going to die, but the traditional travel agent has a role to play. And the [traditional agency] market has diversified; it is significantly less homogeneous. In pre-commission-cap days, agencies more or less looked alike. Today there are lots of travel agents with different specializations. And there has been a lot of consolidation, with many fewer agencies, but the average size of a travel agency has grown very significantly.