Air Transport World

Airlines pondering future dealings with travel agents.

Airline marketing people are playing a high-stakes game with their travel agents. On the one hand, most of them swear with hands on hearts, undying support for the agency distribution system that accounts for 75-80% of the carriers' revenue. Travel agents obtain 63% of their revenue from airlines. The airlines' loyalty to agents includes lukewarm public support for the agents' proposed legislation that would continue their protection against all-out competition.

But then there is the other hand. A few industry executive are actually beginning to mention the unmentionable: That the costs of the agency distribution system are too high and that there are other ways of selling tickets in the computer age.

American Airlines has been most noticeable in signalling that distribution, as it is known today, is in for a change. Thomas Plaskett, senior VP-marketing of American, minced few words earlier this year in a speech before a group of airline investors sponsored by Lehman Brothers Kuhn Loeb. He estimated American's commission expense this year will be more than $300 million, equal to the cost of buying 15 McDonnell Douglas MD-80s. "Although we fully recognize the crucial role of the travel agency community . . . we nevertheless are deeply troubled by the alarming upward trend in commission expenses, especially when those expenses rise far faster that our own revenue production." (According to Travel Weekly, agent commissions increased 13% in 1983, while airline revenues went up 7% and other expenses 4-5%.) Needed change

"If the trend is not halted," Plaskett suggested, "travel agencies may become too expensive a form of distribution for the airlines, and carriers may begin looking for other more efficient ways of distributing their product."

Ultimately, Plaskett indicated that there is very little doubt about the need to change the current system. "I venture to say," he told investors, "that we are getting dangerously close to the point where that form of distribution (through agents) is not only the most expensive but also the one that has the greater risk of being displaced."

Plaskett, of course, was preaching to the choir. Wall Streeters have long felt that airlines shouldn't be paying commission fees in the first place. "The consumer (of the product) should pay the service charge to the middle man, not the producer," declares one analyst.

United Airlines started carriers down the road to an agency-based computer reservations system in the mid-1970s. American followed quickly. Both American and United made the agency system, and both could also break it when they feel it is strategically opportune. …

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