Recession-hit US Airlines Set to Lose $2.5 Billion as AA Caps Commissions

[The Guvnor]

From atwonline.com

US airlines could save $365 million from new agency cap in 2002
Dateline: Tuesday August 21, 2001

American Airlines' decision to cap travel agent commissions for US domestic point-of-sale tickets at $10 one-way/$20 roundtrip (ATWOnline, Aug. 20) could save the airline industry $365 million on a pre-tax basis next year should the cap be matched by other carriers.

That estimate was provided by Salomon Smith Barney analyst Brian Harris. Previously, US point-of-sale commissions were capped at $25/$50. The caps will have less impact in 2001 given that the year is nearly two-thirds over.

Meanwhile, yield and revenue data continue to show an industry in decline. Domestic unit revenues--excluding Southwest--fell 12.3% in July compared to July 2000 to 9.21¢ per ASM while yield declined 9.2% year-over-year to 12.09¢ per RPM. On a stage-length-adjusted basis the decline in RASM was 11.9% and the drop in yield was 8.8%, according to SSMB.

The disappointing yield news caused Goldman Sachs analyst Glenn Engel to estimate the industry may lose more than $2.5 billion this year on a pre-tax basis.

[ 21 August 2001: Message edited by: The Guvnor ]

[Notso Fantastic]

What's your point? Presumably it is all the fault of the (overpaid) pilots. Whatever their results, it is better than your failed attempts!
There is an occasion coming up! Your 2,500th. boring -all the fault of pilots- post approaches! As it is summer, will you be putting a barbeque on?

[Strangely Brown]

This has been a long time coming for U.S. carriers and is following on from the example set by British Airways and Lufthansa 2 years ago.
It is however a balancing act and a tough decision to take. Unless other carriers follow suit immediately, American Airlines are in danger of alienating themselves from the travel industry who will do everything they can to switch sell to other carriers.
Consequently the other carriers will rub their hands together (like British Midland) as agents will actively push pax onto competitors.
In the UK, 80% of sales for British Airways are (were) made by the travel industry. Although there are immediate cost savings through lower commission levels there is a great danger of considerably lower yields.
BA and others have generally only cut commission in their own markets where they are strongest - i.e a French agent would earn considerably more commission for a BA sale than a UK agent. This has caused uproar and UK agents as a whole now have an anti BA stance.

[GlueBall]

With the continued worldwide proliferation of the internet, Travel Agencies are dying a slow death.
Travellers are well to do to access airline websites and take advantage of unpublished daily internet sales. Tickets purchased instantly over the internet usually are further discounted. :cool:

[Strangely Brown]

To say the Travel Industry is dying a slow death is total garbage. They have to slim down and become more efficient like any other industry. Can you imagine a busy executive who needs to do a 7 sector itinerary and book 5 hotels and car hire making his reservation over the internet. Not only will he (or his secretary) spend hours of valuable time, hows he going to pay?. Use a credit card for payment to multiple suppliers. His accounts department would go nuts.
What happens when he wants a refund ? What happens when he wants to change the reservation? The internet may suit certain travellers but certainly not everyone. It will operate as a supplier alongside the travel industry but wont replace it whilst there is still a need for people to talk to each other.

[The Guvnor]

Strangely Brown - you're right in that travel agencies are refocussing their attentions away from being agents of the airlines to being agents of the client. In the States, where commission capping has been around for over five years, travellers will be charged a fee for their services - the same as any other professional, such as a doctor, dentist, accountant or lawyer. In addition, agencies are becoming much more specialised and making better use of the internet themselves.

The internet is effective really only for simple travel transactions and of course for the low cost airlines such as FR, GO, EZY, etc where they have non-refundable and non-interlinable fares.

If I want to do a complex round the world ticket, for example, I'll go either to a specialist agency or to the airline office - I'd never think of doing it online!

To say that the internet will kill off travel agents is the same as saying teleconferencing will kill off air travel - it just isn't going to happen!

[RRAAMJET]

Interesting post, Guv.

Strangely Brown, I presume you have some close tie with travel agents....As the Guv pointed out, there has been a massive boom in internet sales in the US. AMR sold off it's share of SABRE primarily because they "dips't into the future" and concluded that internet sales were going to be the way ahead. Since then, AA has taken a tough line with agents. As the Guv said, they won't dissapear, but they will have to refocus their business strategies. And you just can't ignore AAdvantage Customers - they want their brand loyalty miles and won't go on a different carrier just because their agent is having a tizz.