For years, travel agencies were members of the "something-for nothing" club. They found the best airline deal, booked it and then delivered the tickets. With airlines paying agents handsome commissions, the cost to the consumer was zilch.
But two years ago, in a dramatic move, the airlines capped travel agent commissions for domestic tickets. And recently, they took a 20 percent whack at commissions, prompting many agencies to charge a fee that amounts to an indirect increase in airfares.
"The customer is basically getting hit with a ticket price increase," said Dan Bohan, chief operating officer for Omega World Travel, based in Arlington, Va.
Without the fees, travel agents say, they can't survive the latest commission cut, to 8 percent from 10 percent. While some agencies imposed charges in 1995 after the airlines capped the commissions at $50 round trip and $25 one-way domestic, nearly all are expected to do so this time around.
"I think you're going to find more and more doing it," said Linda Maxwell, president of Destinations Inc. in Columbia, which recently began charging a $10 fee on every ticket.
An informal survey, she said, revealed that less than half of Maryland travel agencies already had fees in place before the latest commission cut, though a third of those were waiving them.
"That's not an option any more," Maxwell said. "Agencies who don't charge fees won't be here a year from now."
Since the commission cap was imposed 2 1/2 years ago, the number of small travel agencies has declined from 23,978 to 22,536, according to the American Society of Travel Agents.
While fees symbolize a new era in the travel industry, agents believe that most customers will be willing to pay rather than book their own tickets. In reality, however, passengers not only have the option of calling the airlines directly but also of booking on the Internet, where they can scan all the available fares.
"It's going to be a consumer re-education process," said Larry Swerdlin, owner of Burton Travel Service in Owings Mills. "They've been getting it free since Orville and Wilbur. Now, they're either going to have to make more calls and do more work, or pay the fees."
Despite the Internet, which accounts for roughly 1 percent of bookings, electronic ticketing and other high-tech efforts, travel agencies still issue about 80 percent of all U.S. airline tickets.
Increasingly, they have focused on cruises and tour packages, which still pay a 10 percent commission. But agents fear that the cost-cutting trend could spill over to the rest of travel industry. Already, some tour operators have begun subtracting airline fares before they pay commissions.
"Eventually, everybody will cut our commissions," said Gloria Frey, manager of Roland Park Travel.
Agencies say producing a ticket costs between $24 and $28, making anything under $300 a losing proposition. "If anyone wants an inexpensive ticket, we'll probably tell them to call the airline," Bohan said.
As a result, Baltimore area passengers, who have greater access to discount fares through low-cost carriers at BWI, could be hit proportionately harder by the fees.
Last week, Omega World Travel took the lead among big travel corporations, ordering its 200 agencies, including several in Maryland, to charge a $10 fee on all tickets under $300. Previously, the company had charged a $15 fee, but only on tickets under $200. The company said it also will require its agencies to impose the fee rather than making it optional.
"We felt somebody had to do something," Bohan said. "There's not really a lot of fat in the industry our people are already low paid. It's no question that this has to be done if we're going to stay viable in this world."
But Omega will be watching competitors such as American Express very closely. "We're kind of like the airlines," Bohan said. "If our competition doesn't follow suit, we will withdraw fees very quickly."
Indeed, American Express imposed a $25 fee on leisure tickets in 1995, following the airlines' imposition of the commission cap. When no one followed, the company lifted it nine months later.
That's not likely to happen with the latest cuts, industry observers say. American Express and other large corporations will probably impose new fees shortly.
After the cap was imposed in 1995, many companies entered management contracts with travel agencies, agreeing to pay them a flat fee to find the best fares and book their tickets. The agency, in turn, returned the airline commissions on every ticket to the company, which will now have to absorb the 20 percent cut.
"This latest move really delivers the pain to the corporate travel budget," said Christine Levite, a spokeswoman for American Express Travel Services. "What we're trying to do is advise clients on the best way to absorb this cost and find other ways to hold down travel costs, like using hotels and airlines with better deals." Some carriers, such as Southwest, TWA and Kiwi, did not cut their 10 percent commissions.
A majority of airline passengers are leisure travelers, but 60 percent of airline revenue comes from business travelers who pay top dollar because they often can't book far enough in advance to get the best fares.
The latest commission cut will cost corporations $500 million a year, American Express predicts. It comes at a time business fares have been rising significantly. Since January 1996, typical business fares have risen 34 percent, according to the American Express survey.
However, for airlines, it's a matter of controlling the most controllable costs. The airlines' distribution costs -- what it costs to sell tickets and get them to the passenger -- represent their third largest expense, behind labor and fuel. In 1993, airline commissions hit $7.3 million, 8 percent of their total costs, and more than double the amount in 1986.
Between 1990 and 1995, the U.S. airline industry lost $13 billion. While a robust economy and other factors have boosted profits to record levels during the past two years, a sudden shift in the economy or a rise in fuel costs could cause revenues to plummet.
The first big cut in commissions came in February 1995 when Delta Air Lines led a move to cap commissions at $50 on most round-trip domestic tickets. That meant that the commission on a $1,000 airline ticket, once $100, was cut in half.
Travel agents sued the airlines. Just as the case was about to go to trial last fall, the airlines settled for $60 million. Then, two weeks ago, United cut its fees to 8 percent from 10 percent, with American, Delta, Continental, Lufthansa, KLM, Northwest and US Airways following suit shortly.
In announcing the cut in September, United's chairman and chief executive, Gerald Greenwald, said cutting commissions "reflects our larger objective of keeping all of our costs under control." The fee cut, United said, will save the airline $80 million to $100 million a year.
Travel agents say they believe that the hassles of booking a ticket will convince consumers that the fee is a small price to pay.
"If consumers want knowledge and the ability to gather unbiased information, they should be willing to pay a few dollars for it," Frey said. "For people who think they can find the best deals, sitting on the phone, well, good luck."
Pub Date: 10/12/97