Will have incentives for 'select agents'
WASHINGTON -- The long-predicted but dreaded day of zero pay
arrived on March 14. The questions quickly became: Will other
airlines follow? What will it mean for agents? What, if anything,
can they do about it?
Delta said it will no longer pay base commissions for tickets
sold in the U.S. (including Puerto Rico and the U.S. Virgin
Islands) and Canada, effective immediately.
The airline said it will continue to pay individually negotiated
incentive commissions to select agents.
"Delta's pay-for-performance program will reward key travel
agencies who achieve superior sales results for Delta," the airline
said.
In making the change, Delta said it was eliminating "one of the
last vestiges of a commission program developed in a regulated
environment," under which agents had been paid a fixed rate
regardless of performance.
There were no immediate matches by other airlines, although
former agent Darryl Jenkins, director of the George Washington
University Aviation Institute, professed little doubt they would do
so.
"It's such a big cost-savings to the airlines," Jenkins said.
"If Delta has a 3%, 4% or 5% cost-savings over the others, the
others will follow en-masse."
A spokesman for American, the nation's largest carrier by
revenue passenger miles, said on March 14: "American's commission
structure remains unchanged." He would not comment further.
United, the second-largest carrier by revenue passenger miles,
declined comment.
In making the decision, Delta cited "the most serious financial
and operating challenges in its more than 70 years of
operations."
The airline noted that, excluding unusual items, it lost $486
million in the fourth quarter and $1 billion for all of last
year.
"In this extremely difficult financial environment, the company
must pursue all opportunities to reduce costs, including the cost
of distributing Delta tickets," the airline said.
Delta also cited the "rapid growth" of distribution via the
Internet, which it said has "fundamentally changed airline ticket
distribution practices."
"The cost of distribution through electronic channels is much
lower than traditional means," the airline said.
"This new market reality is forcing both Delta and travel agents
to adapt."
Even as it made the cut, the airline said agents "remain an
important part of Delta's sales network."
Delta contended agents "will continue to thrive in the
marketplace" without a base commission because some customers are
willing to pay for their expertise.
"Most travel agents are now charging service fees, marketing
specialized travel services, focusing on travel packages and
capitalizing on their own use of enhanced technology to increase
their profits," the airline said.
Jenkins said it hardly comes as a surprise, given the commission
cuts over the past few years, that zero pay was coming.
"We all knew this day would happen, didn't we?" he said. "We
just didn't know when."
In one sense, Jenkins said, he welcomes the change, because he
never has felt comfortable with an agent, in part, being the agent
of the airline instead of exclusively for their clients.
But Jenkins said he also is concerned, because "many travel
agents I fear have not prepared themselves for this day, and that I
hate to see."
He does not, however, foresee agent doom. "I think the agent who
is out there and has a real sense of purpose and is providing
valuable services will prosper."
Trade says ultimate cut hurts clients
By Michael Milligan
WASHINGTON -- Top officials at the two major travel agency
associations were disturbed, but not surprised, by Delta's
move.
ASTA president Richard Copland told Travel Weekly that Delta's
commission cut might ultimately turn travel agencies into
"dealerships."
In a subsequent statement, ASTA noted that Delta's move will
shift all distribution costs on to the consumer but said, "Travel
agents will survive this."
ASTA also expressed concern about CRS productivity clauses.
Delta is a partner in Worldspan, and ASTA will ask that
Worldspan agents be relieved from productivity obligations "if they
wish."
Copland also told Travel Weekly that the elimination of base
commissions "may very well raise the issue that I am no longer an
agent [of the airlines]. I was under the impression that an agent
was compensated by their employer.
"Once you don't pay me a commission, am I bound to the agent
agreement I signed with Delta? Do I have to have a bond for Delta?
Do I have to report the sale of my tickets through ARC? This gives
me, potentially, the right to negotiate."
Copland said it is conceivable that ASTA could negotiate with
the airlines on behalf of its members. "Certainly, this is going to
be explored," he said.
At ARTA, president John Hawks said, "The timing of this just
[stinks]. We just passed the six-month anniversary of Sept. 11.
Agents around the country are making bupkes, bent over backwards
servicing the airlines' customers," particularly after Sept.
11.
Hawks said Congress granted "$15 billion to the airlines and ...
they repay the small business agents who helped them by cutting
their payment completely."
Sandra Hughes, AAA's vice president, travel services, added,
"The fact that agents helped the airlines [with the aftermath of
Sept. 11], [makes] this really bad timing and a bad decision all
around.
"The consumer is the one who really loses," she said.
A zero-commission scenario was in the news briefly last year,
when Rosenbluth International distributed a white paper that
proposed airlines should eliminate commissions and replace them
with a transaction- or fulfillment-fee structure that conceivably
would differ from airline to airline.
So far, Delta has not mentioned a fulfillment fee.
"If they don't [add the fee], it won't be good for anybody,"
said Rosenbluth president Alex Wasilov, who wrote the white
paper.
"Everyone will have to increase their charge for fulfillment and
the airlines are going to underprice their distribution channel by
not charging it."