The date passed me by so quickly yesterday that I had to be reminded of it by our CEO Mark Murphy. Twenty years ago on Feb. 9, 1995, Delta Air Lines capped base travel agent commissions at 5 percent (down from 10 percent), the first in a salvo of commission caps and cuts that ultimately led to the demise of base airline commissions across the industry.
I remember that time very well when I think back. It was a Thursday, which in those pre-Internet days was when we "closed" our news pages back at my old magazine. And we were heading toward our news "close" when the teletype (yes, we still had one) clattered away with Delta's announcement about the cap. We had only a couple of hours to write up what would become one of the most important news stories for travel agents and the travel industry in that decade.
The cap and subsequent elimination of base commissions led to a fundamental restructuring of the travel agency industry. Gone were the days of "easy" money where commissions could be earned with just a few key strokes on a computer.
[BLURB]...at the time many travel agencies got 80 percent of their business from airline sales. And why not? It was good money and it was relatively easy to get.[/BLURB]
Indeed, at the time many travel agencies got 80 percent of their business from airline sales. And why not? It was good money and it was relatively easy to get. And in those days consumers had little to no recourse when booking an airline seat except to go to their travel agents or directly to the airline.
But the commission caps ended up dramatically altering the distribution system. The agencies that had depended on airline business either had to adapt quickly or go out of business. The number of Airline Reporting Corp.-accredited locations began dropping dramatically. At their peak in 1995 they numbered at nearly 36,000. Today they number slightly less than 13,000 and will no doubt decrease. Indeed, the ARC numbers are no longer the main measure of the health of the travel agency business.
Travel agencies that were able to adapt and move to boost their cruise, tour, hotel and resort sales were able to survive. Those that didn't either were sold are consolidated in some way. But the airline commission caps and cuts didn't lead to the death of the agency business at all.
Instead, it created a plethora of new business models and also led to the growth of home-based agents and independent contractors. It also led to the development of an almost entirely new agency form-the pure host agency. These days pure hosts include some of the largest and most successful in the country.
Today I believe the travel agency business is the healthiest it has been in years. Agencies have found new life selling leisure travel and becoming true advisors and consultants to their customers. At the same time, they still sell airline tickets; they just don't get base commission. But they can make good money selling air!
I'm often fond of telling the story of travel agents to those who think they no longer exist or were eliminated by the commission caps and the rise of the Internet. Before 1978 and airline deregulation, many agencies were already advising their clients on every aspect of their travel. But then they went where the money was at the time- airline ticket sales. The airlines put a green screen box on their desks and paid them 10 percent base pay plus overrides for top sales.
Then, in 1995, the airlines pulled the rug out from underneath the distribution system. It was a rather brutal and ill-considered move given the efficiency of the system up until that point. At the same time, airlines did themselves in to some extent. They made their product even more a commodity than it already was - and the Internet only exacerbated that both with online travel agencies and direct business.
[BLURB]In a strange way, however, the airlines did travel agents a favor. Agents had to renew themselves, rediscover their entrepreneurial spirit and develop new business models to be successful again.[/BLURB]
In a strange way, however, the airlines did travel agents a favor. Agents had to renew themselves, rediscover their entrepreneurial spirit and develop new business models to be successful again. They have evolved to become specialists in particular types of travel and true advisors to their customers, not just order-takers. And the travel agency professions is now starting to attract the attention of younger people interested in a great career selling a product that everyone wants - travel.
Last year, when I was attending my usual schedule of travel agency group conferences, I was somewhat amused and also encouraged to see Delta well represented at a number of those meetings. It seems that Delta and other airlines have realized they need travel agents again. And they are paying commission to them to get that business, though not a blanket base 10 percent commission.
I find the whole history rather ironic, but encouraging. Travel agents do provide a necessary service to their customers-and the airlines once again seem to recognize that. It's almost as if 20 years passed in a quick moment, and now we're back to the future again!
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