It started in March when Delta cut travel agency commissions for tickets sold in the U.S., Canada, Puerto Rico, and the U.S. Virgin Islands. By the end of the month, American, Continental, Northwest, United, US Airways, America West, and Air Canada had matched Delta's move. While airlines no longer are commenting on the issue, at the time Delta CEO Leo Mullin told USA Today they did it for a simple reason: “There's too much capacity and not enough passengers.” The airline industry, already ailing prior to September 11, has lost billions of dollars in the last nine months.
“Everyone knew this was coming — we just didn't know it was coming quite this soon,” says Shaun Pirrera, director of client services with Travel Technology Group in Chicago, a full-service housing, registration, and travel firm forand trade shows. “They've been cutting and capping commissions for seven years,” says William Maloney, executive vice president and CEO of the American Society of Travel Agents (ASTA), Alexandria, Va. “It's no surprise, but the timing couldn't have been worse in terms of rebuilding our businesses and working together to rebuild our industry from the disastrous effects of September 11.”
The move, according to the Alexandria, Va.-based National Business Travel Association, changes the foundation of all travel purchasing by forcing organizations to revisit agency agreements and renegotiate with carriers. The possible upside? “Ideally, by eliminating the cost of paying agency commissions, airlines…will be able to offer reductions in business fares,” says Marianne McInerney, NBTA's executive director. (At press time, she had announced her resignation to pursue other interests.)
Initial reactions from meeting planners and travel agents weren't so positive: “I'm sure prices are not going down in response to the commission savings,” one planner for a large national association said shortly after the cuts were announced. “The fares will stay the same, but now people will have a hefty service charge on top of it,” forecast a travel agent who has many tight-budgeted association clients.
But as of April, at least one airline says it has adjusted its pricing in response: According to George Coyle, product manager, group and meeting travel with Dallas-based American Airlines, “Our zone fares have been reduced, and that's an action that will certainly benefit association planners.”
It appears that planners will have no such luck with agency fee hikes. “I was just getting ready to sign awith an agency, and they told me their transaction fee would now double,” says Cathy Mason, director of meetings and conventions with the American Academy of Physical Medicine and Rehabilitation in Orlando, Fla. And that's a cause for concern, both for internal staff travel — the fee alone for sending 20 staffers to a conference could be $1,000 or more — and for using an agency for attendee-negotiated rates.
As Cathy Scheck, senior director, meetings and marketing, with The Endocrine Society in Bethesda, Md., says, “We try to consolidate our committee and speaker travel through one agency. Now that travel agencies are passing along an additional fee to the society to make up for their lost commission, we need to revisit our travel policies and allow people to book reservations independently.”
That's exactly what travel agencies are afraid of. “Most of my groups are very price-conscious,” says Connie Nix, group meeting specialist with Piedmont Travel in Greenville, S.C. “We have had to raise our service fees quite a bit to offset the lost revenue, and I'm afraid it will drive a lot of these people away.”
And when customers are driven away, agencies themselves may be in jeopardy. While larger agencies can push preferred carriers with which they have market-share — driven, back-end deals to help keep their costs and fees down, smaller agencies — and even larger agencies whose client base was heavily weighted toward some of the more beleaguered industry segments, such as high-tech companies — may have less to fall back on. At press time, at least one long-established corporate agency was about to close its doors due to the falloff of corporate business.
Consolidation may accelerate due to the impact of the commission cuts on agency bottom lines, says ASTA's Maloney, “but you also may get new entrants who see new opportunities. Travel agencies now aren't like the old general practitioners. They specialize in corporate business, or meetings, or church and civic groups.” He adds that even with seven years of increasing cutbacks and commission caps, travel agencies still control 75 percent of the airline revenue booked today, 95 percent of cruises, and over half of all hotel and car rentals.
Particularly well-situated to ride out the storm may be hybrid agencies that offer group housing, meeting registration, and even meeting planning, in addition to traditional travel arrangements. “Group housing is the core of our business, so we haven't been as affected as pure corporate travel agencies,” says Heidi Quandt, senior vice president of marketing and sales services with Travel Technology Group.
ONLINE BOOKING, HERE WE COME
Another thing the commission elimination will do is drive the adoption of online air booking even more rapidly. “One of our biggest concerns is that this is forcing people to go directly to the airlines or go online,” says Quandt. “Technology's our middle name, and we have software available for attendees who want to go online, but we still have a significant amount of people who want the human touch, who want to be able to pick up a phone and make reservations.” And this isn't just wishful thinking; it's based on her company's research. Surveys have shown “time and time again, absolutely without a doubt, clients want to speak with the agent they've been working with for years.”
But that doesn't mean the firm isn't thinking ahead. The commission cuts “actually opened a door for us,” she says. “Travel Technology already provides an online airline booking engine for the housing part of the business, and now it's about to unveil a similar online service for its association/corporate travel clients.” These clients want their employees to book travel online with one vendor as a way to control and manage those expenses, Quandt says. Her firm is one of several housing/travel companies that will offer online air booking for clients as well as attendees.
But these companies may find themselves competing directly with the airlines. “The airlines' zeroing out their commissions to travel agencies is a solid reflection of how important online booking has become to airlines. Southwest was the first to get deeply into it; now everyone does it,” says Mark Burton, PhD, director of the Center for Business and Economic Research at Marshall University, Huntington, W. Va.
In March, US Airways jumped on the bandwagon with a new program that enables meeting attendees and other group travelers to book flights at the negotiated fares at its Web site. After the group rate is negotiated and the contract signed, the airline gives the planner a meeting code number. This code number can be made available to attendees. Travelers then can use the code to automatically receive the negotiated rate when they book the fare at the airline's Web site.
Other airlines are working on similar products, such as providing a hot link from the meeting sponsor's Web page that would bring them to a page on the airline's Web site where they can book directly, airline representatives said at a session at the January meeting of the Professional Conference Management Association. When attendees plug in the meeting-specific code, they will get a discount.
“An online product has always been in the forefront of our planning and development process,” says Bob McNally, general manager of meeting, association, and incentive sales with Delta Air Lines in Atlanta. “We continue to test our online programs to ensure we release the best possible software program for our association customers.”
TIME TO FLY SOLO?
But many planners aren't convinced the airlines can do the job as well as travel agents can. “We used to have two resources — the airline and the travel agency. If we have to rely solely on the airlines to track group usage, it may become more difficult. I worry about their ability to track our business volume accurately,” says Patty Quinlan, CMP, director, conventions and meetings, Product Marketing Association, Newark, Del. While she is concerned about increasing per-ticket costs for staff who continue to work with a travel agent, Quinlan says she thinks the time saved in not having to call the airlines or book online may be enough to justify paying agent fees.
Adds Carol Krugman, CMP, president/CEO of St. Petersburg, Fla.-based Krugman Group International, “Our travel agency of 12 years, Fredson Travel in Miami, is now charging $40 per transaction, and that's a bargain for what we and our clients receive from them.” She cites an example of 160 doctors from all over Latin America who had to be rebooked because the meeting site moved from Rio de Janeiro, Brazil, to Iguazu Falls, Argentina. “Without the travel agency's experience, expertise, and ability to source routes and flights quickly, we would all be lost. I can't imagine how long it would take for a nonprofessional to tackle this using the Internet or calling the six airlines that people will be flying.”
Then there's the study by airfare auditing and research firm Topaz International Ltd., Portland, Ore., which found that corporate travel agencies could get, on average, fares that are $170 less than those found on the Web, resulting in savings of more than 27 percent. How is this possible? The online fares tend to have many more restrictions than fares in the customer reservation service, and “often fall outside the parameters of corporate travel policy,” says Valerie Estep, Topaz's president.
Still, many association planners — and their meeting attendees — are looking at whether or not the service and the pricing expertise is worth the fee. If you do decide to go solo, Delta's McNally has some advice: “Know your association's value to your supplier partners, including previous years' flown revenue and passenger counts, the top originating cities of your members, and the policies that will reinforce the partnership with a preferred supplier.”
And Now for Something Different: AIR TRAVEL
Planners who haven't been scrutinizing their airlineas closely as those for hotels may be wise to take another look these days, says Jonathan Howe, president and senior and founding partner of Howe & Hutton, Ltd., in Chicago. “Even if you think you've seen the form before, read it carefully — especially the fine print,” he warns. “We're seeing dramatic changes from contract to contract.”
Cathy Mason, director of meetings and conventions with the American Academy of Physical Medicine and Rehabilitation in Orlando, Fla., is glad she did: “I saw a volume guarantee clause in a contract for the first time this year,” she reports. The clause said that her organization would guarantee a certain minimum number of passengers would fly to the meeting destination during the travel period. If the volume guarantee wasn't met, her organization would have to pay a specific dollar amount for each passenger below the guarantee minimum. Could that be attrition?
“If it looks like a duck and quacks like a duck, it probably is a duck,” says Tyra Hilliard, CMP, a meeting industry attorney with the Atlanta-area firm Sumner & Associates. It's not surprising to see them creeping into association contracts since “empty airline seats, like empty hotel rooms, represent profits that can't be recouped,” she says. With an estimated $7 billion loss last year, the airlines can't afford to lose a penny unnecessarily, which may be why attrition is “the big thing in the airline industry these days,” according to Howe.
“It's kind of a bogus thing to do,” Mason states. “The hotels are actually reserving those rooms for you. The airlines aren't holding the seats for you — they're just saying they'll give you a certain discounted fare if you book by a certain date.” Chris Zeller, vice president of sales and operations with On-Site Productions in Alexandria, Va., says, “I've never had to ‘pay’ the airlines. In the past, if I didn't reach my quota, it just meant I got fewer coupons for free tickets.”
So how much responsibility does the planner have to make the block? “No more and no less than he or she would in any other situation,” says Howe. “If I'm a corporation, I can control how many people fly to certain places at certain times. If I'm an association, I can't.” Fortunately, Mason found this clause to be highly negotiable: “I said, ‘Take it out,’ and they took it out.”
The Cost of Security
Increased security has caused long lines, and knowing how annoying the wait can be, airlines are trying to find ways to reduce the wait by providing a kiosk check-in service, and designating separate security check-in lines for passengers in preferred programs. Other tips for reducing heel-cooling time: Use curbside check-in and skycaps; use e-tickets; and contact the airlines to obtain access to a paging system that will provide updated flight and airport information.
All the new security measures don't come cheap: Security costs have skyrocketed from $75 million in 2001 to an estimated $400 million this year. Who pays? The traveling public, in the form of a $2.50 security fee on each ticket issued after February 1, 2002. The fee maxes out at $5 for a one-way ticket, $10 for a round-trip.