Airlines are a strange business. Every other industry in the world pays commissions to salespeople. Car salesmen make a commission. Insurance saleswomen make a commission. Drug salespeople make commissions. Baseball agents make commissions. But travel agents make no commission from airlines for tickets they sell.
Even with this jaw-dropping reality — having thousands of folk paying rent and utility bills, studying about destinations and airline rules and working long hours for nothing to sell their product — isn’t enough for airlines. They actually want travel agents and thus passengers to pay for the right to purchase their airline tickets.
The current chapter in this airline executive fantasy is the move by United Airlines to force a small group of travel agents to pay all credit card fees when passengers book flights on United. Then the agents are expected to send United cash for the airfare. In other words, the travel agents are expected to pay 3 to 5 percent for the privilege of selling tickets for United.
That’s a sweet deal for the airlines and not so good for travel agents and consumers.
The American Society of Travel Agents (ASTA) has been fighting this move in Congress. They have painted this as unfair to consumers who will have their credit card protections eroded, enroute changes to itineraries complicated and will see their prices increase when the credit card fees are added to United’s base airfares.
If United Airlines gets away with this “test,” the other airlines are sure to follow. They have said as much in interviews.
Still, several airline CEOs in April waxed philosophic on shifting distribution costs to the intermediaries that sell their products.
Though he noted, “maybe I’m dreaming here,” American CEO Gerard Arpey envisioned a future “where those folks who are the intermediary between us and our customer have to pay for access to our product rather than us paying them to distribute our product.” Arpey called that shift a “long-term vision,” rather than a near-term reality. Delta CEO Richard Anderson said, “Over time, the industry has to evolve to the model of other industries, where people pay us for our content rather than us paying them to take our content.”
Clearly, top airline CEOs are hallucinating. I’m trying to think of an industry that forces merchants to take their content with no remuneration for the merchant. A world where, let’s say, General Mills tells Wal-Mart that they can buy Cheerios for $3 a box, but that they have to sell it for only $3. They are not allowed to mark it up.
Wal-Mart, obviously, would do without Cheerios. Wal-Mart makes its money by purchasing items for $3 and then selling them for $6. The difference between the wholesale price and the retail price pays for store rent, shopping carts, employee salaries, shelves, refrigerators and utilities.
Heck, an airline ticket, once purchased, doesn’t even really belong to the passenger. The airline keeps control of what they “sold.” The traveler can not sell it, refund it, give it away or even give it back to the airline.
Now, if the airlines are suggesting that travel brokers and individuals be permitted to purchase airline tickets and resell them at any price, I’ll help them fight for that. Just like Delta CEO Richard Anderson opines, I would love the airline world to evolve to the model of other industries. A model that Sears has with Whirlpool, Wal-Mart has with Hershey’s, Safeway has with Kraft, and Coca Cola has with 7-Eleven would certainly free up the economics of airline ticket sales.
Dick, careful what you wish for. I wonder, could it come true?
Naw. Now, I’m the one who is dreaming.
{ 2 trackbacks }
{ 18 comments… read them below or add one }
Sometimes if you hold your position well enough, and if you are an elite enough flier, you can get a fee waived. I have done this with utilities – I refuse to pay them money just so I can pay them money. I tell them I am purchasing a premium package that will give them more than enough over the next year, they can eat the setup/connect/etc fee. I am not giving you money just so I can give you money. I have never tried it with airlines because I don’t know of what they have that I can’t live without, but if it gets to that point, and I am flying first class or mega elite, and they want to keep it that way, they can eat a BS purchasing fee. Or I fly with someone else.
An unsold box of Cheerios doesn’t go into the trash when the store closes at night, unlike an unsold airline seat that is useless after the plane departs.
You state ‘I’m trying to think of an industry that forces merchants to take their content with no remuneration for the merchant’. What you are talking about is the liquor industry in Utah.
Restaurants are required to buy liquor from the state, and must resell it for the same price they buy it for. For this privilege, they also pay for an annual license and have to pick up the liquor themselves from state warehouses.
Bruce, while it is true that once the door on the plane closes, the airline can’t sell that seat, again, you overlooking the fact that the airlines, especially the legacy carriers, overbook their flights routinely and by as much as 50% on some routes. Also, keep in mind that the many of the domestic carriers are requiring passengers to cancel their nonrefundable tickets prior to departure if they wish to keep any of the value of that ticket. This allows the airline to resale that seat, yet again. Lastly, the airlines have a pricing scheme that punishes the business traveler. As an example, if a traveler is flying between two cities on a regular basis, he is not permitted to purchase a series of roundtrips that get him the weekend stay fares, even if he is flying all the segments. No other industry that I can think of tells it’s customers what they can and cannot do with the product once they purchase it.
Rick, that used to be the case but now, restaurants are permitted to mark up their wines, etc., or most of them are doing so illegally because I can buy a bottle of Kendall Jackson for $18.95 in the UABC liquor store and when I go out to dinner, it will run me between $25.00 and $50.00 a bottle.
One more thing that I didn’t think of when writing the article: When the airlines overbook, they sell seats that they don’t even have! Phantom sales. I’d love Maytag to approach Sears about that kind of contract.
Then agents should just not sell seats on UA.
John, when someone cancels a seat an hour (or more) before departure, that seat cannot be resold. The seat on the aircraft will be filled if there is someone there to use it, as it would have been if the person canceled or not.
Someone changing late (as many people do) has actually PREVENTED the airline from selling that seat. That is like buying a carton of milk, waiting until the day of “expiration” and then returning it to the store. This is one reason why airlines overbook.
Another reason, Charlie, is that people (mainly through travel agents) book reservations that they never actually purchase tickets for. That is like theft.
Customers demand low-cost tickets, and then demand the ability to change them. This is why there are change fees on low-cost tickets. With low fares, airlines must fill their planes, and if you can change low-fare tickets indiscriminately, this could create even worse problems in the industry.
Push the industry to change to an event pricing model. You buy your ticket (like to a sporting event or concert) and you either use it or you don’t. If you don’t use it, it has zero value. Then airlines would have no need to overbook flights.
I doubt customers will be advocating for that.
Charlie Leocha September 5, 2009 at 10:17 am
One more thing that I didn’t think of when writing the article: When the airlines overbook, they sell seats that they don’t even have! Phantom sales. I’d love Maytag to approach Sears about that kind of contract.
====================================================
Here’s a NEW FEE for the industry. You HOLD a seat for travel and you dont use it. The flight goes out with that empty seat. That’s LOST REVENUE, and should be recovered by a fee of say…..$50 dollars. That would STOP useless bookings by PASSENGERS.
Frank that fee does exist for agents. if we are holding space and it doesn’t get canceled or ticketed before flight time, we get fined.
Also, if you purchase a nonrefundable ticket and don’t use it, you pay a fee (fine?) to reuse the fare. If you don’t use the fare at all, the airline has the money, so what have they lost? Therefore, that seat will often be sold twice.
Bodega September 5, 2009 at 11:43 pm
Frank that fee does exist for agents.
======================================
The key word here is AGENTS. How many people book flights themselves online through travel sites or the airline’s own website?
————————————————————
Bodega said: If you don’t use the fare at all, the airline has the money, so what have they lost? Therefore, that seat will often be sold twice.
====================================================
That seat sold twice can also have the opposite effect. The person holds a seat on the first plane, changes plans, and the seat may go out empty. Sure, you pay a change fee, but now that person requires a SECOND SEAT.
Really, airlines can do fine without travel agents. So why should they pay travel agents? If the customer thinks they need a travel agent, let them pay for it.
To Carrie who says that travel agents should just not sell UA. What happens when all the airlines “follow suit?” Then travel agents have no airline tickets to sell! Then the airlines get their wish which is what they have been aiming at since they first started eliminating commissions for travel agents – all the travel agencies go out of business. Then the airlines have complete control which is what they want. This is scary!
On another note: The airline industry is the only industry which charges its BEST customers the MOST money. The best customers for the airlines are the business travelers. John.M already mentioned that airlines do not allow business travelers to take advantage of roundtrip tickets which include weekend stays. The airlines also charge their highest prices for tickets bought within 7 days of travel. Many business travelers find that they need to travel to a meeting next week on the Thursday before (for instance). Hence the highest price ticket must be purchased. I can’t think of any other industry which penalizes its best customers. You may say that the airlines reward their frequent flyers, but those who are business travelers have paid a premium for those almost worthless frequent flyer miles.
On another note: The airline industry is the only industry which charges its BEST customers the MOST money. The best customers for the airlines are the business travelers. John.M already mentioned that airlines do not allow business travelers to take advantage of roundtrip tickets which include weekend stays. The airlines also charge their highest prices for tickets bought within 7 days of travel.
====================================================
Of course they do. Those seats that the airline HOLDS until the last minute may end up going out empty. A great risk to the airline, not to mention LOST revenue. You dont think the airlines couldnt sell all thier seats, say, two months out? Sure, they could. Business travelers are paying for the right to walk onto the aircraft at the last minute. Those business travelers are also frequent flyers who get preboarding, upgrades to first class and business seats, how about access to an airport lounge, priority in waitlisting, priority in checked luggage, increased mileage accumulation, so in other words, you get BENEFITS by being a frequent flyer in an airline’s program.
Worthless miles? Really? Then, why are there MILLIONS who collect them?
Bob’s comment is not a surprising one, but it is one that is typical of today’s consumer. The airlines would love for you to just go to them for a ticket. On their website, you have to book what they show you. How do you know there aren’t other flight available? You currently don’t pay a fee, but do you think that will stay that way? What a great revenue source for them if they could cut out the travel agencies. Wanna bet a credit card fee would be added, too. Want to use an AX card or Discover card or that credit card that gets you mileage? That will cost you double in fees!
BTW, online agencies also get fined so many don’t allow you to hold a reservation. We also all get fined if we don’t clean up a PNR when a schedule change come through. We have become a revenue source for the airlnes over and above the sale of a ticket.
Frank, a lot of those unused tickets never get used. Some tickets have a $200 change and cancel fee. When we do the exchange, we collect that fee and keep NOTHING. The airline gets that for doing what? In the winter, on an international fare to Europe, the fees can be more that the original fare. Did you know the taxes are refundable on a canceled nonrefundable ticket? Do they tell you that online?
Do people still use travel agents??? I agree with Bob B. if you cant use the Internet and don’t know how to do your own research (thanks for the info, Bodega!) , you SHOULD have to pay a travel agent. Sounds like a dying profession, though. With and all these fees and fines you are subjected to, I have to wonder what makes the job worth it.
These days per the post, every person is a travel expert until they get burned. I encourage every traveler to book their own air since we have to charge a service fee to cover our cost. Many so-called travel experts such as Kweed may find that the professional travel agent can find lower rates on tour packages to top resorts plus have the contacts with the tour company and resorts to resolve problems if they should occur.
there is a real easy way to avoid this problem, do what i do……….don’t fly..