Northwest Caps Online Commissions

<H1> Northwest Caps Online Commissions</H1> By Cheryl Rosen

<I>Minneapolis </I>- Northwest and KLM Royal Dutch Airlines have taken another stab at changing the travel distribution system-and, many say, a stab at the hearts of travel agents as well-with a joint announcement that they will pay only 5 percent commission for reservations made over the Internet or other online booking systems.

Starting Aug. 1, commissions for online bookings also will be capped at $25 for round-trip domestic travel and $40 for international travel, with a $5 minimum commission paid on all tickets.

Initial press reports that the online commission cap will not apply to corporate bookings were "a bit premature," said Al Lenza, Northwest managing director of distribution planning. "If it's a self-service, Web-based individual booking, where the agency has a limited role in the booking process after the fact, our intent is that those bookings will be under the 5 percent umbrella."

Despite Northwest's protestations, it appears the airline made its announcement without realizing how ready the corporate market is to begin using Internet solutions, and how large an impact the cap could have on travel buyers with fee-based agency agreements.

Lenza said Northwest will soon provide additional clarification as to how the cap will apply to corporate bookings.

Meanwhile, the carriers also will automatically cancel reservations that are not booked after 24 hours, make credit-card verification mandatory and add other auditing procedures. Among them are new indicators in the ticketing data that will show the source of each ticket as independent pseudo-city codes, allowing the airline to easily track which tickets come through consumer-oriented online services like Travelocity or Internet Travel Network, as well as which come over private corporate intranet sites.

"We are establishing the rules of the game here for a new medium," Lenza explained.

The response from those who disagree about precisely what those rules should be was swift. Within the week, the United States Travel Agency Registry and the Association of Retail Travel Agents filed a joint letter of complaint with the Department of Transportation, asking it to "enjoin Northwest and KLM from imposing commission policy changes" because it is a threat to the competitive market.

But in the corporate arena, serener thoughts prevailed. "Any agencies that are sitting back and waiting for the airlines to take care of them are in big trouble," said Travis Tanner, travel group president at Carlson Wagonlit Travel in Minneapolis.

"For us, a change in commissions is a cost to pass along to the customer, because they are the ones getting the commission back," he said. "I think our customers should be the ones who benefit from the reduction in cost from using online systems-and they are going to push for a piece of it just as the airlines are going to push for a piece of it."

Lenza said that the timing of the airline's announcement-within a week of Microsoft's entry into the online travel market and its offer of reduced-rate commissions (see story, Page 1)-was "absolutely, purely coincidental." And Microsoft's lead travel products manager, Rich Barton, said the commission cut "is absolutely not because of Microsoft."

Lenza did acknowledge that "to the extent that Microsoft is part of what we see as a growing medium, it affected the decision." But the real point of the changes, he maintained, was to reduce the unacceptable 50-percent no-show factor in online bookings. Northwest attributes the high rate to travelers making their bookings online, but then going to an agency to pick up the ticket.

After monitoring the growth in ticketing and in no-shows through online booking systems, "we felt we were increasingly at risk in this medium," Lenza said. "In addition, we believed it was proper to differentiate full-service versus self-service; if the customer does a good degree of the work, we felt it appropriate to lower the commission."

Lenza said that the percentage of tickets booked online remains less than 1 percent of Northwest's total. But, he acknowledged, on Northwest's annual volume of $6 to $7 billion, a single percentage point still equals double-digit millions of volume-a "not unsubstantial" figure.

Some in the corporate market shared Tanner's resignation to the online commission cap.

Harold Seligman, chairman of Stamford, Conn.-based Management Alternatives Inc., called the move "the latest in a number of small steps the airlines have taken to get closer to their customers, not to the agency."

"It was inevitable," he said. "As technology advances and you make your own booking and use an electronic ticket, there's a diminishing role for the agency. The airlines are saying they can reduce involvement of the agency and still meet the needs of their customers through technology. Corporations will increasingly deal directly with the airlines-and net fares will again reduce the involvement of the agency."

In the end, Seligman said, the changes will be good for travel managers. "It will take us back to 1978, when their role didn't depend on intermediaries-when travel managers had their own relationships with suppliers, and they dealt direct."

"The carriers are calling the agencies' role into question in the most crude and blunt way," said consultant Tom Wilkinson, president of Travel Management Group in Alexandria, Va. "It highlights how aggressively they are looking at distribution."

Lexington, Mass., airline consultant Bob Moss said he is "supportive" of Northwest's actions. "One of the things that has always driven the carriers nuts is that people make a reservation and then trot down to the agency to pick up the ticket," he said. "They felt that if they did all the work-if they brought in the customer and made the booking-and the agency only did the ticketing, the agency shouldn't get the full 10 percent. That's one of the reasons they've invested in electronic ticketing."

But Charles Roumas, marketing and planning vice president at super-regional agency TravelOne in Mt. Laurel, N.J., was distressed about the $40 cap on international tickets.

"The industry is nowhere near ready to accept an international commission cap right now," he said. "Despite all the restructuring that's been going between us and our customers since the last commission cap, the trend this summer seems to be back toward expecting the travel office to operate as a profit center. It's very obvious that our corporate customers are looking at how hard we were affected by the cap, and at whether some of the burden shouldn't be shifted back to us."

A spokesman at USAir said the carrier is "studying" the caps for online bookings. The other major airlines declined comment.