Question

Case Study

Airline Commission Cap

Travel agents have begun legal action and public campaigns to combat several airlines’ decisions to lower commissions for writing tickets and have warned of higher ticket cost if other airlines follow.

Most U.S airlines have lowered the commission rate on tickets for domestic flights to a $20 cap for round-trip fare. International commission also fell and vary from airline to airline.

As consumers begin to balk at rising ticket prices and Wall Street presses for continued earnings growth, airlines must cut cost by turning to their second largest expense, the $12 billion spent annually for cost such as travel agents’ commissions. It has become clear that airlines can do nothing but fuel prices and can do very little, if anything, about labour cost. The only area that airlines management has any power over is the area of distinction express.

American Express Corporate Service Agencies, which book mostly business travelers, warned if the airline follow suit, some travel agencies will go out of business. That would send more business to airline reservation agents’ who do not offer the lowest available fares from all carriers, or could result in travel agents passing costs along to consumers.

The American Society of Travel Agents, which represent 20,000 agents, and the Association of Retail Travel Agents, a trade group that represents 4,000 travel agents, have announced they will seek U.S congressional approval to allow small, “business size” travel agents to bargain collectively with the major airlines and to steer customers to “friendly” airlines when negotiation fails. The association believe that the cut in commission in less than 3 years is a “slap in the face”.

After the introduction of the initial cap of $25 for one way domestic tickets and $50 for round trip tickets, many agents complained caps would eliminate jobs and reduce earnings.

Discussion Question

1. If you owned a travel agency, what would your reaction to the reduced commission cap be?10mks

2. What Opinions would you consider? 10 mks

Answer 1

Ans: Reaction to the reduced commission cap be:

The foremost purpose following the decline while the commission provided through trip brokers signifies the abrupt rebate against the payment about air booking including the influx from Internet-based reservation methods. Also, several nonskeds comprehensive are acquiring failures including each of them remain below surpassing urgency to lower wages. There is no probability that touring companies' disposition remains responsible to seize the nonskeds to maintain a huge touring company share for lengthy. At most, all will stimulate the method of conclusion of any of the airlines that continue previously acquiring massive damages.

Opinions that I would consider will concentrate on the following:

• Overcome its individual charge so that all instructions however become a rationally enough boundary approaching gains about commission gained.
• Recover more reliable assistance to tourists so that personages take more interest in more extra customers to perform trade including them. That determination repeatedly increases its acquisition.
• Implement supplementary valuable, trip relevant help to its customers, also accredit them toward the corresponding. That will further supplement their trade capacity including gain.