Delta Eliminates Base Commissions

Delta Air Lines today announced it eliminated base commissions paid to travel agencies in the United States, Canada, Puerto Rico and the U.S. Virgin Islands for all domestic and international tickets. The carrier "will continue to pay individually negotiated incentive commissions to select agents," but said the difficult environment prompted it to "pursue all opportunities to reduce costs, including the cost of distributing Delta tickets." It added that cheaper, electronic distribution channels have created a "new market reality forcing both Delta and travel agents to adapt."

"The elimination of published base commissions at Delta removes one of the last vestiges of a commission program developed in a regulated environment," Delta said, adding that its "pay-for-performance program will reward key travel agencies that achieve superior sales results for Delta."

"Those agencies performing and making the market share will do well in terms of overrides," said Danny Hood, president of WorldTravel BTI. However, he noted that zero commissions translates to a price increase passed on to agency clients and that some corporations will be hurt. "Fees could go up $10 or $20," he said, "and it will be interesting to see if Orbitz, Travelocity and Expedia raise fees."

Smaller corporations and others on commission-plus programs account for 16 percent of WorldTravel BTI's business, but most of the company's client base "had already been de-risked."

Meanwhile, the hit to the WorldTravel BTI P&L, Hood said, could be around 5 percent of profits, but the agency prepared for this development in its budgeting. His concern is for smaller agencies and their cash flow.

Harold Stevens, president of New York-based Stevens Travel Management, a super regional agency that has many of its clients on a partial transaction fee basis, said, "commissions are the blood in the veins of travel agencies. Without blood, you can't stand up, you can't pay your bills and you can't stay in business."

Stevens said that although base commissions do account for a very significant portion of the revenue his management company receives, he expected to make up for the loss by renegotiating commission-based agreements, raising management fees where necessary and creating new sources of revenue by expanding his company's services. He also said the airlines will "continue to take care of agencies who move market share."

"Plainly put," he said, "this is a time for guts. The airlines are thinning the herd of agencies."

Andy Menkes, president of Princeton, N.J.-based Partnership Travel Consulting, said the commission move may raise travel managers' esteem in the eyes of senior management by giving managers the opportunity to prove their worth on a "level playing field."

"For the first time," Menkes said, "the concept of service fees, transaction fees and any other metric that is a compensation for services provided will be better understood by the travelers all the way up to the CFO."

The Business Travel Coalition, an advocacy group for corporate travel buyers, threw its support behind Delta's move, saying that an industrywide match "will reduce costs considerably for the industry, and further establish that the travel agent is working for the airline customer, not the airline." However, BTC added that in the short term, zero commissions "will represent a fare increase for business travelers on the order of some $400 million," though carriers "likely will be forced to give up those savings to lure business travelers back."

Including the American Airlines-led cap last summer, Delta's move is the sixth base commission reduction since it began the process seven years ago.

At press time, no other major carriers had matched Delta's move, though Hood predicted most majors would by Monday.

Finding a positive note, Hood quipped, "The good news is that this is the last time we have to go through this drill."