Q: A potential buyer of my agency thinks I must be wrong when I say that an airline can "lift its plate" (i.e., terminate our ability to issue tickets on that airline) at any time for any reason or for no reason. The potential buyer said our agency has so many commission and override contracts as well as the ARC and Iatan agreements that surely some of these provide for long-term, noncancellable relationships, like GDS contracts, franchise agreements or office leases. Who is right?A:
You are. The travel agency-airline relationship is unusual because of the absence of any contractual commitment by airlines to continue to do business with any agency.
This kind of at-will relationship is typical of employment relationships. In the absence of a contract provision to the contrary, either the employer or the employee can terminate at any time for any reason or no reason at all. In contrast, in most major business-to-business relationships, there is a contract for a term of years, and neither side can terminate unless the other party breaches the contract or commits another act that the contract expressly provides as grounds for termination. A GDS contract is an example: neither side can walk away from the typical three- or five-year term.
Here are some specific examples of the at-will nature of the agency-airline relationship. Although the ARC Agent Reporting Agreement does not allow ARC itself to terminate at will, it provides that "Carrier may terminate Agent's appointment at any time with written notice."
If an airline terminates, there is no right to a hearing, arbitration, mediation or appeal; nor is there even a right to find out the reason or even whether there is one. Agencies must rely on the goodwill, or inertia, of each carrier to continue to be able to issue tickets.
What about commission and override agreements? Most agencies have no such agreements; in general, only large agencies have airline commission and override deals.
For large agencies, the at-will nature of the relationship is still present, although it is often expressed in lengthy legalese buried in the back of the agreement.
Although each carrier's agreement is different, here are a few examples: an American Airlines commission agreement, which also covers British Airways, states, "Each Carrier may terminate its participation in whole or in part for its convenience without cause or penalty..." If a carrier terminates the commission agreement, it may then terminate its appointment of the agency without cause or penalty.
Agencies fare no better with foreign carriers. A Lufthansa commission agreement provides "LH, the Participating Carriers and the Agency reserve the right to terminate this Agreement with or without cause upon seven (7) days prior written notice to Agent."
Even when an agreement offers some protection, the slightest error can lead to loss of your plate. As AA states in its Addendum to the Governing Travel Agency Agreements for ARC Accredited Agents, "If Agent ... is otherwise in violation of the Rules American has issued for travel agents, American may...immediately suspend, limit or terminate the Agency Location or Agent's Appointment upon notice to Agent."
My point is not that the agency business is always hanging by a thread, as it certainly isn't. After all, carriers rarely exercise their termination rights without any justification.
My point is that, in any dispute or negotiation, a major carrier always has tremendous leverage over you, because the carrier can threaten you with loss of the carrier's plate if you do not toe the line.