<H1> Majors Settle Cap Suit</H1>By Jay Campbell<H3> Buyers Seek To Recoup Share Of Meager Spoils Won By Agencies</H3><I>Minneapolis </I>- The travel industry is buzzing over last week's surprise settlement of the commission cap lawsuit, which if approved will preserve the cap and free the airlines to make additional commission changes.
The $86.5 million total settlement includes fees for counsel, with the remaining money to be distributed to 33,000 agencies based on a sliding scale vis-à-vis air sales. U.S. District Court Judge James Rosenbaum, who is presiding over the case here, last week gave preliminary approval to the settlement and said that exact amounts will be determined over the next few weeks and final approval given on Nov. 15.
The short-term question for corporate buyers, particularly those on a fee-based agency contract that passes through all revenues, is whether they will receive any of the settlement money-in effect a final rebate check. Continental will pay $5 million, USAir $9.5 million, Delta $20 million and American, Northwest and United will award $52 million to the American Society of Travel Agents, the Association of Retail Travel Agents and 20 additional travel agency plaintiffs.
"From my understanding, the lawyers' fees will amount to $19 million," said Ivan Michael Schaffer, CEO of Woodside Travel Services. He said his member agencies would not get very much and that even American Express will likely get less than $3 million. Still, he said, corporate accounts would "be legitimate in asking for a piece."
John Smith, vice president of Tower Travel Management, said his agency already has been asked by one corporate customer whether the award would be passed on. "They said 'you lowered my rebate based on the cap-do I get some of the settlement?' We'll happily pay them," he said.
"My contention is that it's the customers who bought the settlement," said Robert Langsfeld, principal associate at Incline Village, Nev.-based Langsfeld, Fazio and Associates.
"Depending on their contractual terms, a lot of corporate buyers need to understand that this is their money," he said. Langsfeld admitted that for most companies, it wouldn't be much money. But for mega corporate buyers like Hewlett-Packard or Siemens, he said, it could be substantial.
In prepared statements, the airlines said that while they deny all claims of antitrust violations, they settled to avoid the risks and costs of trial. While the likelihood of the carriers losing was slim unless the agents had some unknown hard evidence, few dispute that a jury trial is risky and the potential costs of legal services high.
ASTA claimed that it amassed 250 depositions from witnesses and examined nearly one million documents, including telephone and travel records, and expense accounts, of airline executives.
"I doubt we'll ever know what evidence the agents might have had," said Steven Schoen, CEO of The Global Group, based in Burke, Va. "But it's absurd that a company can't decide how to distribute, whom to distribute through and how much to pay them."
According to Shaeffer, "if there was a smoking gun, ASTA's lawyers wouldn't have settled. I never felt there was collusion-it was a weak argument. Still if this is all it costs to change the commission structure, then it's worth it every time."
"I can understand why they settled," said Langsfeld. "Once you go to trial, you become subject to the emotional impressions of the jury. This is not an issue of fact or fiction for the carriers, it's an issue of exposure. And besides, it's small change for big gain."
Big gain is right. American said it will save $90 million on commissions this year. Northwest last year said it would save $55 million a year. With that kind of savings available, the major long-term question is whether the airlines will implement additional commission reductions. Widespread speculation that the litigation is the reason the domestic carriers have not capped international commissions suggests they could do so. The two major Canadian airlines rescinded their transborder cap due to take effect Sept. 1 (BTN, Aug. 19) because the U.S. airlines didn't match, presumably because of the pending trial.
According to Robert Moss, president of Lexington, Mass.-based consultancy Travel Intelligence, "There is little doubt in my mind that they will continue to cut base commissions. Whether it's via a capping mechanism will depend on every airline's pricing structure, share of high-yield business travelers, etc.
"This can only strengthen the hand of those inside the airlines who view travel agencies as nothing but a cost that should be reduced further," Moss added. "The airlines have now lost their fear of travel agencies, and every airline knows this is true of other airlines as well."
Even so, Glenn Engel, an airline industry analyst for Goldman Sachs, doesn't think the carriers have any interest in implementing another cap as they seek to further reduce distribution costs.
"I don't think this litigation has been restraining the airlines in any way and I doubt you'll see more direct attacks on commissions," he said. "They wouldn't have done it anyway, regardless of the trial."
One thing the carriers would certainly have to consider before attempting to restructure commissions further is their damaged relationship with most travel agents, which could be at least partially repaired by this settlement.
The settlement and subsequent cancelation of the trial came as an anticlimax after litigation hung over the industry's collective head for nearly 17 months. During that time, some airlines avoided travel agency events, such as the ASTA conference, and were not allowed to talk to agents about commissions.
"This whole episode served to poison relations between the airlines and the agencies," said Moss. "It has certainly worsened relations between the two and they are now less dependent on each other. The settlement will leave a bitter taste."
Some expressed a sense of relief in the anticipation of relations between the carriers and agencies returning to normal (whatever that means). "Now we can move on and continue to develop new business with the travel agents unimpeded by worrying about commission issues," said David Hilfman, Continental's staff vice president of sales. "The bottom line is that communication will be greatly improved."
Of course, the checks that agents will get-a minuscule percentage of what they've lost-will hardly be enough to help them and their corporate clients to forget the hardships of the past year, but at least litigation is no longer pitting airlines and agents against one another.