Delta ending routine travel agent payments

Others also may stop ticket commissions

agencies assail move

March 15, 2002|By BLOOMBERG NEWS

ATLANTA - Delta Air Lines Inc., the third-largest U.S. carrier, said yesterday that it will eliminate routine commissions paid to travel agents for tickets sold in the United States and Canada to reduce costs.

The airline is starting the policy after financial losses triggered by the recession and the Sept. 11 terrorist attacks, and because of increasing sales through the Internet, which is a cheaper way to sell tickets. Delta said in a statement that it will still pay individually negotiated commissions to some agents.

Travel agents have fought commission reductions and staged a nationwide protest last year. Agencies have started charging fees for services to make up for lost revenue from carriers. Other airlines may follow, analysts said.

"This is one more tear in the evisceration of travel agents, and I don't know how many more tears agencies can take," said Ken Smith, chief executive officer of the Boston-based travel agency Travel Depot Inc. "They're ruining a distribution model."

"There's always the risk of an initial backlash against Delta, but we're expecting other airlines to follow," said Deutsche Banc Alex. Brown analyst Susan Donofrio, who has a "strong buy" rating on Delta and doesn't own the stock.

The nine largest U.S. airlines paid about $3.4 billion in commissions last year, mostly for U.S. travel, Donofrio said. Delta, which had a loss of $1.22 billion last year, paid $540 million in commissions, down 18 percent from $661 million in 2000.

Delta shares fell 42 cents to $35.33. The Atlanta-based company's stock has climbed 21 percent this year.

U.S. carriers sell as much as 80 percent of their tickets through travel agents, including some online, agents estimate, but the percentage has been decreasing. The airlines are increasingly selling tickets through their own Web sites and those they jointly created, including Orbitz.com.

Eliminating the commissions may cost airlines an important source of ticket sales, ABN Amro analyst Ray Neidl said. "The travel agent is still an important distributor of tickets," he said.

American Airlines and Continental Airlines Inc. declined to comment on Delta's move. Alaska Air Group Inc. and America West Holdings Corp. said they are studying the change.

Delta said the policy won't affect commissions paid to travel agents outside the United States and Canada.

Travel Depot's Smith said he will direct customers that aren't major Delta frequent-flier members to other airlines to protest the change.

"With no incentive for an agent to sell a ticket, why would I sell for them?" Smith said.

Smith said about 50 percent of his revenue comes from fees he charges customers, compared to none a year ago. The agency also conducts half its business over the Internet. Airlines pay agents the 5 percent commission on Internet sales from a member-only Web site and nothing for tickets sold through nonmember Web sites.

Major carriers have reduced the commissions for years and lowered the 5 percent maximum commission in August to $20 from $50 on round-trip travel in the United States and Canada. Airlines trimmed commissions to 8 percent from 10 percent in 1997, and to 5 percent in 1999.

Rapid growth of electronic ticketing and customers' desire to shop for tickets on the Internet let Delta shift more sales to less expensive electronic distribution, the company said.

"In this extremely difficult financial environment, the company must pursue all opportunities to reduce costs, including the cost of distributing Delta tickets," the company said.

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