While Delta's move to cut front-end commissions on
international flights for U.S. agencies is not as extreme as the airline
commission cuts of the 1990s, it could be the beginning of more incremental
cuts from carriers going forward.
Delta declined to comment on the move, but a Valerie Wilson
Travel executive said she believed the cut was enacted throughout North
America, and some routes saw a commission cut as large as 50%. Travel Weekly
sister publication the Beat, citing multiple agency sources, said it extends to
large agencies like Travel Leaders, Frosch and Valerie Wilson.
Last week, industry analysts said the cut could be the first
of many if other airlines follow suit and implement similar measures.
"Maybe I'm naive, but I do think a lot of the big
chunks have already been taken out of the hides of the agency community, both
corporate and leisure," said Jack Mannix, founder of Jack E. Mannix &
Associates. "That could be famous last words, but ... I think we'll
continue to see a lot of these kinds of things happen, even if they're
relatively incremental in terms of impact. They're going to be beneficial for
Whether other airlines follow depends on Delta's
success, according to Henry Harteveldt, founder of Atmosphere Research Group.
"Commission cuts are something that, frankly, airlines
love to do because it's an easy way to cut money," he said.
If other carriers do not notice "meaningful"
revenue shift from Delta to their own coffers, they will likely cut their
commissions, as well, Harteveldt said. But the economy and the larger business
environment as a whole will also factor into what other carriers will do.
"I think that if we see a meaningful falloff in demand
because, for whatever reason, businesses begin to cut back on their travel
spend, or if airlines hike fares because of fuel increases and they see demand
slack off as a result, they may feel that commission cuts would be
counterproductive," he said.
Delta's cut will have its greatest impact on agencies that
sell a sizeable amount of front-of-the-plane seats, mainly corporate and luxury
agencies, according to Robert Joselyn, president and CEO of the Joselyn
"It's significant in terms of a financial hit that is
going to happen to those agencies," he said.
Joselyn said he believes the strong economy has left
airlines less reliant on agents to fill seats.
He posited that the cut could be an attempt on Delta's part
to eliminate paying commissions to smaller agencies that don't sell many
international tickets, while making deals to compensate larger agencies in some
other form on the back end.
"I believe in the raw economics of this one,"
Joselyn said. "Why would you pay somebody an incentive to put more people
on your plane versus somebody else's plane, both that were full to start with?"
Mannix said the exact impact of the cut will vary from
seller to seller, but he also hypothesized that it's likely that top sellers
will come to different agreements with Delta to mitigate the effects of the
cut, perhaps in the form of a bonus or something similar.
The executive from Valerie Wilson said the agency's
independent contractors could look to other airlines and their joint ventures
for international bookings.
"I hope after they see there is probably a shift in
share from us and other companies that they'll come back to us to have a
conversation," the executive said.
Harteveldt said shifting share will likely be a common
response from agencies, but they could face difficulties from clients who have
a corporate contract with Delta, for example, or if an individual traveler has
a preference for the airline based on loyalty programs.
Mannix agreed that many agencies will likely attempt to
shift share to other carriers. However, he remained fairly certain that other
carriers will follow Delta's lead in commission cuts.
"They'll wait and see, after the dust settles, how
things shake out and so on," he said, "but I would be surprised if
most of the other major [carriers] didn't follow suit."