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Citing the growing adoption of the Web for travel reservations, several airlines last week eliminated travel-agency commissions to make online ticketing more attractive.
The move underscores the impact E-commerce can have on traditional business models. The airlines have been slowly cutting commissions for years. But Delta Air Lines Inc. dealt what may be the final blow to travel agencies--and gave a huge vote of confidence to the future of online commerce--when it became the first to eliminate commissions for tickets sold in the United States and Canada. America West, American, American Trans Air, Continental, Northwest, United, and US Airways followed.
The change will severely affect travel agencies. About half of their revenue comes from airline commissions, says the American Society of Travel Agents, which represents 24,000 travel agencies. The airlines will negotiate performance-based commissions with high-volume travel agencies, but smaller agencies are out of luck. They'll have to offer value-added services such as specialized vacation packages to justify the fees they'll need to impose on customers.
The troubled airlines have no choice but to look for cost-cutting measures. They pay travel agencies up to $25 per ticket in commission and distribution costs. The Web provides a low-cost way for airlines to sell tickets because there are no call-center, travel agency, or printing costs. About a quarter of American's bookings come from the Web. American's site averages 750,000 visitors and 15,000 to 20,000 reservations a day. "We're growing at about 90% year over year," says Scott Hyden, managing director of product management for American Airlines Interactive Marketing. Sales from all online channels total $2 billion.
The airlines will negotiate payments to high-volume travel sites such as Expedia and Travelocity. But these sites are facing pressure from the airlines' own Web sites. All the major airlines are upgrading their Web sites to be more customer friendly, something they need to do to drive more travelers to the Web.