Q: Approximately 20 more airlines, including all major U.S.
airlines except Southwest, have signed up to list their fares on
the joint Web site planned by Continental, Delta, Northwest and
United that will have Internet-only fares as well as hotel and car
rental specials.
What effect do you predict this Web site will have on the travel
agency business? How should agencies position themselves in CRS
negotiations in order to deal with the effects of the Web site?
A: Unless the Web site, which is scheduled to be available in
the second quarter of this year, is stopped by a lawsuit brought by
agencies or the government, it will certainly harm the agency
business, as it will offer in one convenient place many low rates
and fares that cannot be booked by travel agencies or are
noncommissionable.
The amount of business that will be lost will be proportionate
to the proliferation of Internet fares, the site's ease of use,
sponsors' marketing and the ability of travel agencies to offer any
value-added services that the site cannot.
With all of these variables, it is difficult to predict the
degree of erosion of travel agency business in the years ahead.
However, it is probably prudent for travel agencies to assume
the worst case, which, I believe, is a 50% loss of business to
Internet bypass by 2005, and to plan accordingly, starting now.
Fortunately, most travel agency expenses are not fixed, which
means that most expenses can be cut in proportion to loss of sales.
However, one agency liability that is fixed and merciless is the
agency's quota under its CRS contract.
Even if your agency is able to book on the new Web site on
behalf of clients, those bookings will not count toward your
quota.
Agencies need to negotiate quotas that are livable even with a
50% loss of business. This means that agencies need to know their
current productivity level per CRT or PC per month and then obtain
a quota no higher than 50% of their current productivity level.
There is often a trade-off between quotas and bonuses.
Therefore, in
the past, I have advocated signing up for the highest
comfortable quota in return for the best bonuses.
Now, however, many agencies will need to live with smaller bonus
programs in return for quotas that remain livable even when
bookings drop as much as in the worst case that I can foresee.
Mark Pestronk is a Fairfax, Va.-based attorney specializing
in travel law. He answers your questions in the Crossroads' Legal Issues Forum.