[Congressional Record Volume 141, Number 65 (Friday, April 7, 1995)]
[Extensions of Remarks]
[Page E840]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                              JOB CREATORS

                                 ______


                         HON. MICHAEL P. FORBES

                              of new york

                    in the house of representatives

                         Thursday, April 6, 1995
  Mr. FORBES. Mr. Speaker. We in Congress are obligated to protect the 
interests of our small businessmen and women. These job creators make 
enormous contributions to the local economy on Eastern Long Island. As 
a Member of Congress, I will always champion the cause of small 
business.
  The recent cap levied on travel agency commissions could devastate 
small business. Most travel agencies are small businesses and a 
significant source of employment and tax revenues for our area. I am 
concerned about the outrageous action taken against the travel 
industry. Moreover, the impact on consumers will be harmful.
  I have set up a meeting with Anne Bingaman, Deputy Attorney General 
for Antitrust, to express my outrage and request that the Justice 
Department take a more active role in investigating this situation. I 
will be very involved in fighting to restore fairness to the travel 
agents.
  Following is a recent article that ran in the New York Times, 
describing this problem:
                [From the New York Times, Mar. 29, 1995]

         Some Airlines Break Ranks Over Fees Paid Travel Agents

                            (By Adam Bryant)

       Several airlines, following in their long tradition of 
     breaking collective decisions, are already starting to chip 
     away at the industry's recent move to cap commissions for 
     travel agents.
       In early February, in a bid to cut costs, the airline 
     industry imposed a maximum commission of $50 on a round-trip 
     domestic ticket. But some carriers--including Delta Air 
     Lines, the pioneer of the limit on travel agent fees--are now 
     offering new backdoor financial incentives that reward bigger 
     agencies for exceeding sales goals. These moves mean some 
     airlines are effectively giving back some of the money they 
     said they would save when they announced the caps. Before the 
     cap, airlines generally paid travel agents a 10 percent 
     commission on the price of ticket.
       ``Continental wants all of your high-yield business--and 
     we'll pay you for it!'' reads a flier that Continental 
     Airlines sent recently to only about one out of 10 of its 
     travel agents. Continental, in outlining its new ``Fast 
     Cash'' program, offered a $50 ``bonus payment,'' in addition 
     to existing incentive programs, for costlier round-trip 
     tickets on transcontinental flights.
       Similarly, travel agents said sales representatives from 
     Delta had visited them recently with new contracts that 
     offered extra payments for swinging business the airline's 
     way.
       Given the fiercely competitive nature of the business, 
     other airlines will probably follow the lead of Continental 
     and Delta. Except for Continental, the largest airlines 
     declined to comment yesterday on whether such incentive 
     programs were in place or were under consideration.
       There are many implications of this new wrinkle in the way 
     airlines compensate travel agents.
       Perhaps the biggest losers will be smaller travel agencies, 
     which often lack the volume of business to win extra 
     payments. And some travel agents warn that the new 
     incentives, if they spread, may force them to act against 
     their customers' best interests by steering them to a certain 
     airline. ``People trust travel agents, and travel agents can 
     influence some people's choices,'' said Blake Fleetwood, 
     president of Planetarium, an agency in Manhattan affiliated 
     with American Express.
       Some travel agents, including Mr. Fleetwood, had predicted 
     that the airlines would have trouble making the cap stick. 
     History was certainly on their side. In 1983, for example, 
     Delta, Eastern and United refused to go along when American 
     Airlines and Trans World Airlines lowered their commission 
     rates.
       To the extent the cost savings that airlines had expected 
     shrink, the latest moves could affect the stocks of a number 
     of carriers. The stocks of several airlines jumped several 
     points last month after they announced in rapid succession 
     that they would follow Delta's lead in capping commissions 
     for domestic tickets.
       ``This was viewed as a fundamental change in the 
     industry,'' said Julius Maldutis, an airline analyst at 
     Salomon Brothers. But now that at least some of those touted 
     savings are going to be returned to travel agents, it ``is 
     going to cause investors to pause and rethink their 
     exuberance,'' he added.
       The American Society of Travel Agents said that such 
     incentives would hurt smaller agencies the most because they 
     were not being given the opportunity to make up the revenue 
     they expected to lose because of the commission caps. The new 
     caps angered thousands of agents who said the cuts would 
     devastate their industry.
       ``It does appear that the airlines were essentially winking 
     at some of the larger travel agent partners when they made 
     their original announcement,'' said Steve D. Loucks, a 
     spokesman for the travel agents' trade group. ``The playing 
     field is far from being level.''
       The Justice Department signaled its concern about such 
     incentive programs in late 1993 when it announced that it was 
     investigating Delta's deals with travel agents in Salt Lake 
     City and the effect of those deals on a smaller competitor, 
     Morris Air. That investigation has since been dropped, but 
     the department said yesterday that it was continuing to 
     investigate the possibility of socalled exclusionary 
     practices, like extra commission incentives, by airlines that 
     dominate certain cities.
       Airlines have had difficulty making other industry-leading 
     initiatives stick. The main reason is that every extra 
     fraction of market share is so important to each airline that 
     they often break away from the pack in the hope that they 
     will gain a competitive advantage. That is one reason why 
     America West and Southwest Airlines still offer travel agents 
     a 10 percent commission.
       American Airlines learned this lesson in 1992 when it tried 
     to establish a new, simplified fare structure that it called 
     Value Pricing. Many airlines immediately followed, but others 
     did not, and the new system crumbled.
       The fallout of the effort, however, offers a parallel to 
     the current capping of commissions. The simplified fare 
     structure from 1992 wiped out the earlier deals for 
     discounted tickets that big corporations had made with 
     airlines. Corporations insisted on restoring some kind of 
     discount, but the break with the past gave the airlines an 
     opportunity to negotiate new pacts.
       Similarly, many large travel agencies have complained to 
     some airlines after the recent capping of commissions that 
     they need a way to make up the reduced revenue while others 
     began charging fees to ticket purchasers to make up some of 
     the loss. An executive at one major carrier, who asked not to 
     identified, said his airline was negotiating new contracts 
     with those agencies whose support it needed the most.
     

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