Caught between a rock and a hard place

New Mexico Business Journal, June, 1998 by Nancy Foley

The airlines have cut their commissions. Travelers are bypassing them and making arrangements on the Internet. Travel agencies are being squeezed like never before.

The sky is falling. Or SO travel agencies might have thought last fall when airlines cut commissions on domestic tickets by 20 percent. That cut was the second half of a double whammy: In 1995, the airlines capped travel agents' ticket commissions at $50 - a cap that remains in place along with the commission cut.

"Travel agencies' commissions are the airlines' third largest cost," says Dr. Eddie Dry, director of the Tourism Management Program at UNM's Anderson Schools of Management. "It runs into hundreds of millions of dollars every quarter." So when the airlines took steps to maximize profits, commissions were a natural target. And the airline industry is currently booming. Ditto the travel industry. But travel agencies - for whom airline ticket commissions are the mainstay of a business with typically a 1 percent profit - are struggling. One thousand of them went out of business last year. Many others are having to rethink their business to survive.

"Travel agencies have always given a free service to the people who buy their products," says Dry. "It began with Thomas Cook in England, who started the first travel agency. And for 128 years they have never charged customers for their services. The people who pay for travel agencies have been the suppliers - hotels, restaurants, the airlines."

But no longer. Travel agents are now - often for the first time - asking customers to ante up for the services they. provide.

"When the caps hit in 1995," says Marc Calderwood, president of Rio Grande Travel, "we instituted a more stringent fee program to all of our walk-ins - not to corporate or cruises, but to those who weren't already current customers. We charged $10 per ticket, and that worked fairly well. But when this last commission cut hit, it was fees across the board to everybody."

Myrna Landt of Alpine Travel in Los Alamos chose not to add fees onto tickets, even after the 20 percent commission cut. "But we do now have a service fee for things that routinely we don't get paid for," she says. "If anybody wants a copy of a ticket that they've received, we charge a fee for that, just like the banks charge a fee of a copy of a check. Also for changes and refunds - things like that."

Cathryn Fletcher of All-Ways Traveling, Inc. in Albuquerque now charges a fee to research and plan a trip: "If they book, half of it is put toward their trip. If they don't go, I keep the whole thing. What it does is it keeps the people out who are calling every agency in town and wasting our time to research it." Fletcher also adds a fee onto the price of each airline ticket: "People have been willing to pay fees from the very beginning," she says. "I didn't lose anybody."

But adding fees doesn't completely offset the losses. "In three years," says Calderwood, "we've lost 40 percent of our commission income because we do so many tickets." And if the airlines continue paring away. at commissions - something many in the industry view as inevitable - agencies will find it harder to survive. So Rio Grande Travel is also working on cutting its overhead: "My intention is to cut this office in half," says Calderwood, "and all my agents will be working at home. You have to cut the cost of things - as well as selling other items."

And selling other items is part of Rio Grande Travel's master plan to survive and prosper. Walk into their Travel Market and Cruise Center and you can now pick up luggage, travel guides, maps, and travel hair dryers. "I go into places all the time that offer products because they're impulse items," says Calderwood. "There's no reason why travel agencies shouldn't do that either - except for the fact that we have this mentality that all we can do is sell airline tickets."

And commission cuts aren't the only reason to diversify, Travel agents currently process about 70 percent of all airline tickets, but Internet and direct phone sales are skimming off that business. "Even my husband does his travel on Southwest through the Internet," says Landt, "because he gets double [frequent flyer] miles."

But what Landt's husband doesn't get on the Internet is a service that agencies have long offered: unbiased pricing and personal follow-up service. Travel agents can find the lowest possible ticket price in the nation, while individual airlines only otter the lowest fare on their own routes. And if your time is valuable, they argue, you're better off letting them to do the work rather than spending an hour on the Internet or the telephone checking fares for each individual airline. "Fares change 200,000 times a day, domestically," says Calderwood. "That's why you need an agency. The airlines aren't going to call you back if they lower a fare.The reason travel agencies will survive is we will be able to charge for service versus information. And we can provide more information."