If 1994 was the year of testing the waters on big industry changes
like reducing agency airline commissions and moving toward “agent free”
bookings and “ticketless” travel, 1995 amplified basically everything.
The bad news for our march through 40 years of Business Travel
News’ history is that we are missing literally every print issue for 1995. I
can only blame the unceremonious, pandemic-driven flight from our previous New
York City offices for the gap in our archives. (Don’t worry, we have a new
location now, close to Grand Central Station). I’ll also warn you that wherever
those 1995 issues have gone, 1996 issues are likely with them.
While I can’t provide the monthly play-by-play for 1995, I
do have something of a BTN cheat sheet that provides perspective and analysis on
that year. It’s the 1996 BTN Business Travel Survey, an annual recap issue that
greatly expanded under newly minted chief editor David Meyer in 1994 and 1995.
So my hat tip to him for providing a consolidated window into this pivotal year
in business travel industry history.
My contribution this week will be to provide the TLDR
version of that issue, so my thanks and apologies to the original bylined
reporters who clearly put a lot of energy and dedication into their work. My
abridged work won’t measure up.
Some of those names are still at it today, including Mr.
Meyer and Mary Ann McNulty, both still with BTN, and Jay Campbell, who got his
start in business travel reporting in 1995 as BTN’s airline editor, before founding
(and selling) The Beat, which is now
in the BTN portfolio, and moving on to establish The Company Dime, one of BTN’s
competitors today.
The following critical events, trends and analyses sample liberally
from their work and the work of several other reporters who contributed to 1996
Business Travel Survey. I’ve supplemented with my own research to fill in some
gaps in information that may have been front of mind for those reading the
survey issue at the close of 1995, but weren’t for me as I turned the pages this
week.
Ticketless Travel
Southwest Airlines launched e-tickets in late January
1995. It was the first salvo across the bow after the airline endured aggressive
tactics from CRS providers the previous year to edge the low-cost carrier out
of traditional distribution channels. At first, Southwest delivered specialized
PCs and ticket printers to agency partners, but six months later it rolled out
the industry’s most aggressive push for ticketless travel, which allowed
customers to call the airline or their agency to make a booking and then use a
confirmation number at the airport to retrieve a boarding pass.
In truth, a small regional airline ValuJet had blazed the e-ticket
travel trail two years earlier. United tested the technology on its United
Shuttle, which mainly ran in California to compete with Southwest routes, in
late 1994. But Southwest spread eticket ambitions beyond regional travel and across
its full system in its first go, successfully engaging with legacy carriers—often
in their own backyards. The impact of Southwest’s move was undeniable.
By April, Continental launched ticketless travel across 50
percent of its domestic system, but it would take the airline a couple of years
before pushing etickets across its entire system. United pushed etickets beyond
its shuttle product by fall 1995 to all its domestic routes. It would take
until 1999 to complete the international rollout. American and Northwest were a
step behind their competitors, but both rolled out e-tickets in test markets in
1996. Delta finally introduced e-tickets in August 1997.
Commissions Crater, Fees Fire Up
Delta had other things on its mind. It was all about commissions,
baby, and how to reduce the costs of selling tickets. In a rinse-and-repeat
moment from the previous fall when it reduced international ticket commissions to
8 percent from 10 percent, Delta was the first mover on Feb. 9, 1995 to place
an outright cap on commissions for sales of domestic airfares. Agents railed at
the new limits, which kept the 10 percent commission in place, but capped the
roundtrip commission at $50 and the one-way commission at $25. That meant any
roundtrip sold for more than $500 or any one way sold for more than $250 would pay
the agent the max, but it would end up being a lower commission rate.
American and Northwest followed the next day. By Feb. 15,
Continental, United and USAir had joined the commissions cutting club. TWA
somewhat reluctantly joined, as well.
This hit for agencies looked like it would apply to about 20
percent of the tickets being written at the time, and came after a general fall
in airfares over the previous two years by about 10 percent on average. The new
afront added insult to injury on the agent side but would prove a key foothold
for airlines in their climb back to financial health, which was on a promising
trajectory in 1995 after several years of losses.
The American Society of Travel Agents filed an antitrust lawsuit
with the Department of Justice accusing the airlines of collusion. TWA backed
out of the commissions reduction, returning agencies to a 10 percent scheme.
Onlookers read the move as an effort to shift market share for an airline that
was in the weeds financially. It didn’t work—and we’ll find out more about that
airline’s struggles in upcoming “episodes” of BTN’s 40 years in history.
In the meantime, the U.S. Department of Justice stated it “would
not permit any agreement requiring the lifting of the caps. And the court
expressed its unwillingness to “direct the future commission policies of the
airlines.” ASTA settled the matter for $86 million. The capping and cutting eventually would
escalate to total commission elimination, but that would take years.
It only took the first cap to change the commercial
prospects for the agency community—especially for corporate travel agencies
where revenue sharing on commissions was baked into the dealmaking and often
supported the existence of corporate travel teams within their companies. Where
would the budget come from to pay for headcount anyway? Well, it came from a
share of those commissions and now that was slipping away.
So what was the alternative? Fees. But fees for what? The
answer was for technology and service. This was the beginning of a more modern
travel management company value proposition.
Here’s an excerpt from BTN reporter Stefani C. O’Connor:
When the domestic airlines capped commissions… the
conversion of agency deals from rebate-based arrangements to fee-based
transactions went from being a logical scenario to the order of the day. Those with
the firmest grasp on their costs were the most effective at re-defining their
customer relationships. Before the year was out, though, almost every agency
had convinced its clients that they would have to adapt to a new world order.
Indeed, the overwhelming majority of travel agencies in the Top 100 reported
major shifts of their business to fee-based arrangements, in some cases going
from 0 percent of air sales that were fee based in 1994 to 90 percent of such sales
in 1995.
By the end of [the year], most travel management companies had
completed renegotiating the majority of their existing corporate contracts to
cope with the new paradigm, although agency executives said much work still
remained.
The conversion to fees is only one element in a changing
distribution system that presents further deep challenges and opportunities to
travel agencies.
The most significant of the changes is the earnest race to
deliver fully automated booking and expense management reporting technology.
And again, as with the conversion to fees, where a travel management company
sits in terms of investment, comprehension of the marketplace and overall
vision determines whether its approach is opportunistic or nihilistic.
“The speed of change is so rapid now that you can make a
decision today and six months from now when you start implementing, a better
solution has come up,” said Jarvis Slade, vice president of business travel
marketing-corporate services for global market leader American Express.
Even for agencies with the wherewithal and intent to stake
a claim to the leading ledge, the prospect is nothing short of a crapshoot.
Airline Finances Ascend
The commissions move was part of what analysts called a more
mature industry that was finally coalescing after deregulation. And they were,
in the words of one airline executive, “acting like real compan[ies]” and that
meant controlling all their costs, not just some. Worldwide, the industry
clocked in $14 billion in revenue, according to the International Civil
Aviation Organization and, domestically, the picture looked even better with
passenger traffic reaching the highest levels since World War II and the 10
major carriers at the time reporting a net profit of $2.2 million, compared
with a net loss of $600 million in 1994. That included the five majors each
reporting the highest yearly operating profit in their histories.
The commission move initiated, as well, the more direct
negotiations with corporates for their business travel business, rather than
conducting those relationships through the travel management company and
sharing revenue. As such, it was a time of big transitions and good things were
happening for airlines.
Here's what Jay Campbell had to say about how they turned
things around in 1995:
Assuming strong passenger demand and a healthier worldwide
economy had a lot to do with this success, there are a few things the airlines
themselves were able to do that positively affected their profitability in
1995.
First, they resisted putting too many planes into service.
By canceling or delaying hundreds of aircraft orders, and better using those
they have, major U.S. airlines restricted capacity growth in 1995 to 1.4
percent. Compare that with a 2.8 percent growth in passenger traffic, and you
have higher load factors and better margins.
Many more airlines than ever before started code-sharing
agreements and other alliances adding revenue but costing relatively little.
Those carriers that weren’t teaming up did avoid killing each other with fare
wars, except in some markets. Average fares, according to the Air Transport
Association, increased 3.8 percent in the first 11 months of 1995. This was
largely due to Continental’s decision in 1994 to eliminate CALite, which was a
major factor in the combined 1994 net losses for Continental and USAir of $1.3
billion. The two carriers in 1995 made more than $340 million.
Cost-cutting, too, was a contributor to 1995 profits. Last
year, the cost per available seat mile for the 10 majors declined for the fourth
straight year. The carriers saved millions by trimming distribution, labor and
equipment costs, and by outsourcing non-core activities.
The airlines fared better operationally, saving money and
ensuring passenger loyalty. Delays of 15 minutes or more decreased by 7 percent
for the major carriers.
***
I hope this gives you a taste of 1995 this week. Thanks
again to BTN’s historic reporters, and we’ll keep the joy alive next week when
we look at 1996!
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Elizabeth West is the editorial director of the
BTN Group. She has reported on the business travel and meetings industries for
24 years. Beth was editor-in-chief of Meeting News from 2006 to 2008 and
director of content solutions for ProMedia Travel from 2008 to 2011, when
ProMedia was acquired by Northstar Travel Media and merged with BTN. She became
editor-in-chief of BTN in 2015 and editorial director of the BTN Group in
2019.
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