<FONT SIZE="+3"><B>Dividing The Spoils</B>
<I>Corp. Agencies Lobby To Recoup Lost Commissions As Settlement Nears</I>
By Jay Campbell
With the date set for final approval of the commission cap litigation settlement less than two weeks away, travel agencies around the nation are positioning themselves in what has turned out to be a heated debate over how the $60-odd million 'after-lawyer' award from the airlines will be divided.
Some corporate travel agencies are lobbying for the method of funds distribution to hinge on actual commissions lost, an option chosen by only 8.3 percent of American Society of Travel Agents membership in a poll recently submitted to the presiding judge, James Rosenbaum.
According to the poll, the top choice for the method of distribution among ASTA member agencies is to have the money divided equally among approximately 24,000 agency firms. Over 40 percent of the membership picked that option, followed by 30 percent choosing the tentatively proposed plan already before the judge, which would allocate funds based on share of domestic ARC sales (<I>BTN</I>, Sept. 9).
But according to the corporate agencies, these and other potential options would penalize them and their corporate customers, who stand to receive some of the money.
"Since the commission cap limitations have only impacted one-way and round-trip tickets over $250 and $500 respectively, distribution of the settlement should logically be allocated proportionally to agencies based on demonstrable loss of income," said a position paper written by Corp-Net, a consortium representing 37 agencies whose volume drawn from corporate accounts is 78 percent of total sales. "To simply allocate agencies a share of the settlement based on sales volume or net worth would be unjust and misdirected."
Although some in the industry have suggested that in light of what was lost, the money is insignificant, larger agencies disagree. If, for example, the money is divided evenly, all agencies would get about $2,600. But if it is allocated according to loss, bigger agencies like American Express will pocket millions.
The Corp-Net paper, submitted to the agencies' lawyers, illustrates that corporate agencies were hit harder proportionally by the cap than leisure ones, at least according to statistics offered by one member agency who wished to remain anonymous. The agency's numbers indicate that while 90 percent of its sales come from commercial travel, that portion of its sales represents 96 percent of its loss due to the commission caps.
Furthermore, more than 75 percent of the losses due to the commission cap were for corporate travel, and the loss rate from its corporate business was three times as high as the loss rate from its leisure business.
Minneapolis-based Northwestern Business Travel argued in objections submitted to Judge Rosenbaum that the proposed settlement-with a distribution formula based on ARC sales-does not meet all three criteria the judge must legally satisfy in his approval: fairness, adequacy and reasonableness.
Comparing two hypothetical travel agencies, A and B, where A writes 10 tickets at $100 each and B issues one ticket at $1,000, Northwestern argued that the proposal is " 'unfair' because it would provide travel agency A with an undeserved windfall and would deprive travel agency B of anything but a mere token, and 'unreasonable' because the formula would provide no logical connection whatsoever between the loss and recovery."
That's an extreme example, but Northwestern points out that while its average domestic ticket price was $517 in 1995, the average ticket price for all agencies "appears to be about $325 at the present time." Northwestern estimated that as a result of the cap, it lost $5 million, or about 20 percent of what would have been its domestic commissions at the pre-cap level.
ASTA has taken no official stance, but it did say the methods advocated by these corporate agencies would be too expensive to administer, estimating the tally at $2 million because each agency would have to be audited.
"We don't believe ARC could get past all the programming difficulties," said Paul Ruden, ASTA's senior vice president of legal and industry affairs. "The basis for our estimate was that we went to a firm with experience in evaluating class-action claims, and their assumption was that each of the 23,500 travel agencies would have to submit ARC reports, which cost money."
Northwestern and Corp-Net illustrated three possible solutions that they said would be much cheaper. Corp-Net would have the airlines facilitate the settlement based on commissions data derived from their own revenue accounting systems. Northwestern said ARC maintains appropriate records on commissions, or, as an alternative, private companies such as Columbus, Ohio-based Automated Commission Technologies can offer services that would produce the appropriate figures.
Northwestern argued that although it believes there are cheaper alternatives, Judge Rosenbaum should change the formula anyway because he must meet the three standards, none of which is "cheap" versus "expensive."
"If a formula is fair but expensive, the court is required to approve it over an unfair one," said Northwestern.
As to what actually will happen when the judge makes his Nov. 15 ruling, not all sources were willing to speculate. According to attorney Mark Pestronk, who is representing Northwestern, the chances the judge will do something to help the corporate agencies are "less than 50 percent."
"He'll do it based on airline sales," said travel agency attorney Jeffrey Miller. "It's a practical matter, and that's the simplest possible way."
David Murphy, president of Corp-Net, said it is the ASTA lawyers who will likely have the most influence on the settlement formula in the end.
But ASTA's lead attorney in the case, Nicolas Chimicles, who was vocal in publicizing his reaching the settlement, refused to make a statement about the case, saying he would comment in two weeks.