Mark Pestronk
Mark Pestronk

Q: Our agency is opening a wholesale division that will reserve large blocks of airline seats and resort hotel rooms. We plan to sell our packages through travel agencies nationwide. I have a bunch of questions for you. First, do we need any licenses, registrations or other governmental permissions to operate as a wholesaler? Second, can we allow retailers to set their own prices for our packages? Conversely, if we want, can we dictate the prices at which retailers can sell our packages? If we pay commission, can we prohibit agencies from rebating their commissions, or is that price fixing? I assume that most clients will pay by credit card; if so, can we be the credit card merchant of a package that has been marked up by a retailer, or must the retailer be the merchant?

A: Wholesalers generally don't need any government permissions of any kind to sell through retail agencies in the U.S. If your agency is already registered under state Seller of Travel laws, you don't need any other registration to operate as a wholesaler.

The only exception is this: If, as part of your blocking of aircraft seats, you will be chartering aircraft, you will need to file a Public Charter prospectus with the DOT before you or your retailers can solicit or sell to purchasers. The prospectus certifies that you have in place an air charter contract, an escrow account for passenger deposits and a surety bond.

You can certainly allow retailers to set their own prices. For example, if your price is $1,000, you can allow the retailer to sell the package for $1,200, thus providing a 20% markup for the retailer. The retailer does not legally need to disclose which party is getting which money.

While it is customary for markup-able wholesale rates to be noncommissionable or "net," you can even offer a commission on the wholesale price in addition to the markup.

Conversely, as a supplier, you are in a position to dictate prices at which the retailers must sell, if you wish. You can fix the retail price at X dollars, you can prohibit markups and you can prohibit discounting, all without violating the law.

You can also prohibit rebating of commissions, which is a form of discounting. Not many wholesalers prohibit rebating, probably because such a rule is impossible to enforce.

Any principal that sells through its agent can fix the prices at which the agent sells for the principal. That activity is not illegal price fixing because the antitrust laws consider the principal and the agent to be just one unified party.

Incidentally, it does not matter whether you pay by commission or allow a markup. The form of the agent's compensation does not affect its agency status under antitrust laws. However, if the agency bought packages for its own account and assumed the risk that they could not be resold, the agency would no longer be your agent, and you probably could not legally fix resale prices.

Your company can be the credit card merchant for the payment collected by the retailer. You can then remit the markup or commission, or both, to the retailer. You could also deduct the credit card fees from payments to the retailer, as long as this procedure is authorized by your agreement.

I mention an agreement because a written agreement with each retailer is an absolute necessity. If you allow markups, then, among other useful clauses, the agreement must provide that, if you must provide a refund, the retailer must return its commission or markup to you.

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