EC Fines BA For Agent Incentives
<B> EC Fines BA For Agent Incentives</B>
By Amon Cohen
Travel managers on fee-based agency agreements in Europe could well see their revenues reduced after a controversial decision by the European Commission to ban certain types of airline sales incentives. The Commission has fined British Airways 6.8 million euros for what it regards as abuse of a dominant position in the United Kingdom. If the decision stands, dominant airlines are likely to have to revise many agency sales agreements in their home markets.
In the case of BA, all its existing agreements with agents will be scrapped. It has served notice to all U.K. agents that these will cease Aug. 28.
"We are disappointed with the judgment and don't agree with it, but we will use this opportunity to start with a clean sheet of paper,'' said U.K. and Ireland head of sales Tiffany Hall, who said the appeal process could take several years.
BA said the Commission had made no decision concerning corporate discounts.
Following a complaint dating back to 1994 from Virgin Atlantic, the Commission has seen fit to punish BA for negotiating incremental override agreements that incentivize agents to produce higher volumes than during the previous sales period. "This makes the travel agents loyal to BA, discouraging them from selling travel agency services to other airlines that wish to compete against BA," said the Commission.
Virgin Atlantic chairman Richard Branson claimed the decision will "lead to lower fares for both leisure and business travelers as Virgin is given the chance to compete with BA on a route-by-route basis." However, travel agents are not so sure. "They could become much more expensive," said Eric Brannan, managing director of BTI UK, Nordic and Russia. "For customers on a fee basis, we pass all our overrides on to them and many of those will now be ended."
BA, appealing the decision, said "our commission arrangements for travel agents are similar to those run by most major airlines in Europe and across the world." It is pressing the Commission to drop its ruling or take similar punitive measures against all other EU airlines with market dominance.
Other carriers can expect to hear from the Commission soon. "The Commission will indeed take all measures necessary to ensure that the principles in this decision are applied to other airlines in equivalent situations," it stated.
Despite contesting the ruling, BA has cooperated with the Commission in drawing up a set of principles governing commission payments. These allow an airline to reward an agency for increasing its value to the carrier and for reducing BA's distribution costs, but forbid rewards based on exceeding sales made in a preceding period.
Carlson Wagonlit Travel executive vice president for operations and regions Richard Lovell said: "The Commission doesn't like airlines giving overall incentives in the markets they dominate, but they can do it in other countries. It does not prevent an airline doing a route deal where it is not dominant. However, the implications may not be as big as it might at first seem. We have seen a strong move away from annual, volume-based overrides to more tactical route deals. This will not have a big effect on large corporate clients with large multinational travel management companies, but it could affect smaller agents still on commission and rebate. This is their core income."
Indeed, the decision might speed up the march toward lower commissions. "I wouldn't be at all surprised to see 5 percent in the near future," Lovell said.
Meanwhile, Virgin has a similar lawsuit pending in New York, charging that British Airways has exploited its monopoly power at Heathrow to induce travel agents and corporate customers to enter sales agreements that foreclosed competition from Virgin (<I>BTN</I>, March 8, 1999).