Op-Ed: Mulling Over Delta CEO Mullin's Words

Delta Air Lines CEO Leo Mullin was quoted in the press recently stating that online bookings cost the airline industry $6 per ticket, versus $27 for a traditional agency booking. This statement, made about three months after Mr. Mullin eliminated domestic agency commissions, is at best misleading and at worse a manipulative exercise in demagoguery.

Let's examine Mr. Mullin's own words. In a presentation before the Merrill Lynch Global Transportation Conference, Mr. Mullin stated that 10 percent of his airline's sales are through delta.com and that the "incremental distribution costs per ticket (for delta.com) run about $6 compared with $27 for traditional travel agencies." Mr. Mullin would have you believe that bookings through delta.com are a relative pittance compared with the exorbitant charges from traditional agencies.

When you break down the numbers, you realize that a travel booking includes a few basic costs. GDS booking fees are running about $4 per segment, with the average ticket running anywhere from 2.5 to four segments depending on whether the flight is for leisure or business. Delta says it pays agencies for performance. Overrides average less than 1 percent, and any override money the airline pays would likely correlate with "incremental" increases in volume or marketshare. The third major expense is the credit card merchant fee, which hovers at about 2 percent to 3 percent.

If a consumer books directly through delta.com, the credit card fees alone would add up to a minimum of $3. What about fulfillment costs and the cost to maintain the site?

Let's go back to Mr. Mullin's words again. He said domestic loads continue to climb, driven primarily by fare sale activity. He said traffic and revenue are returning, but revenue still lags. He also said the airline industry attempted to raise fares 17 times in a 30-day period, and they all failed.

Mr. Mullin, the airline industry has conditioned its best customers to hold their collective breath, with the guarantee that you will post a money losing fare sale on your own Web site. At one time, you paid travel agents based on a percentage of your revenue, now we only do what our customers ask!

Your words again said that business travel remains down 12 percent from a year ago in short-haul markets, while travel of more than 400 miles is down by 6 percent. Are travel agents responsible for that decline in traffic?

For the past seven years, Delta has led the airline industry's obsessive drive to remove travel management companies from the distribution chain, saying that the airline industry cannot bear the burden of paying for a service that adds no value. The airline industry has saved hundreds of millions of dollars in base commissions over the years, yet squandered billions of dollars in lost revenue.

Have fares gone up since base commissions were eliminated this year? Have your best customers come running straight into your arms? Are you ready to manage the data, reissue the tickets and track down the missing passengers during the next major disaster? How much incremental revenue will you save then? How much incremental revenue have you lost by your policies?

Is this any way to run an airline? Is this any way to run a business?

Tony Hughes is president and CEO of Radius, the global travel company based in Bethesda, Md.