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All hands on deck!

A shot has decidedly been fired across the bow of the ship of the travel agency community. While details are still slow in coming out, our “partner”, United Airlines, has taken the lead in a move that has been anticipated by many, including me, for quite some time. United has advised that some “select” agencies will no longer be allowed to accept credit cards on behalf of United. This move is a clear indication of the future of the industry, a clear affront to the consumers and is nothing more than a masked fare increase, and a pretty good sign that the airlines (United in particular) are in dire straits.

While ASTA has mounted an aggressive attack on Capitol Hill, travel agencies cannot sit idly by and wait to see what comes next. More likely than not, you did not receive the memo, so this may not affect you just yet. But you can be sure that this position has sent a very strong signal to the other airlines who are watching this very carefully. There are several critical issues involved here.

Agency Issues

  • Quite frankly, most agencies cannot afford to assume an additional 2% to 4% (or more) to sell a product where we already are not earning any money.
  • Agencies have typically been a high credit risk. They typically do not have much equity since the industry margin is 10% and historically, the transactions have been processed by the vendors. When commissions were eliminated and fees entered the scene, it was very difficult to obtain a merchant account where your average daily volume exceeded $1000. In addition, if you are able to get an account to handle the volume, you may be subject to a hold on your funds for up to 90 days.
  • Accounting will be a nightmare and the agencies that received the memo will likely not make the July 20, 2009 date. Transactions for United will need to be processed completely differently.
  • The issue of debit memos was not addressed. Will United still be allowed to issue debit memos for perceived infractions?
  • Host agencies may quickly become a thing of the past—or prohibitively expensive. While travel agencies operate on a small margin, host agencies tend to operate on a slimmer one and are unable to absorb the additional cost. On the plus side, MLMs may also become a thing of the past as well since so little of their income comes from travel, they will not be able to support the additional fees.

Consumer Issues

  • The consumer, under the new program, will have no recourse against United. By processing the transaction, the contract is between the agency and the consumer—not the airline. So when a client denies a charge, the agency will be debited even though it may be because United failed to provide a service. Any service issues now must involve the agency.
  • The client has no more consumer protection. If United goes belly up (wishful thinking), the airline owes the client nothing. They may owe the agency something, but that does not help the end user. Quite honestly, if a carrier went bankrupt and there was a rush of charge denials, it could literally put thousands of agencies out of business in short order.

The Solutions

There is not one easy solution. Clients are married to their points and most corporate travelers double dip on airline points (for the coveted elite status) by paying with credit cards. Clients are not going to embrace paying an agency with a check or cash—besides it is a bad business practice. In a similar vein, shifting to another carrier may not always be possible; but if there ever was a time to demonstrate the ability to move market share, this is it.

United has indicated that the agencies involved at this point are not the heavy hitters. This is most likely a test to see if they can get away with it. And others are watching. Agencies need to assume that this will not stop with United nor will it stop with a handful of agents. For those who lived through the elimination of commission, you know what the future holds.

So, how do you move forward from here? Contact your current merchant provider and find out what their restrictions would be. Be sure to let them know your estimated United volume as well as potentially all of your air volume. If they are unable to accommodate you, contact your bank, and then finally shop around for merchant accounts.

Assume that the cost of processing the transaction will be placed on you and begin to rework your business plan. It does not need to be put into action just yet; but have it at the ready for when you need it. Look at your current fee structure and decide how to best revise it. Do you want to utilize a flat fee, percentage, or a combination?

Keep in mind that the airlines are not the only ones that are incurring the merchant fees. Plenty of other suppliers have seen the airlines survive when commissions were eliminated, and you can be sure they are watching to see if the agency community is willing and able to absorb yet another cost for someone else’s business.

This is still very early and there are many questions still to be answered. But make no mistake, this is indeed a shot fired directly at the travel agencies. Gerald Arpy (American CEO) and Richard Anderson (Delta CEO) in April stated, very publicly, that they see a future when agents will pay them to sell their product.  As a matter of fact, it was reported on June 22, 2009 that Arpey still held his beliefs. Do you think it was a coincidence that United’s letter was mailed the following day? The future is now, and we had best be prepared!

  10 thoughts on “All hands on deck!

  1. Murray H says:

    Airlines can do what they like. What they seem to forget is that travel agents are skilled retailers. At present they choose to retail travel. They do not have to retail travel – they can retail anything they please – and being on balance small, can adapt very quickly. So, the concept that someone will pay someone to be able to retail their (indeed, any) product is not exactly the thinking of the sharpest tool in the shed.

    If airlines do not wish to have an agency network (on or offline) to flog their product by all means say so and one can go off and do something else. I have. You see, airlines really are very stupid. Firstly, they cannot grasp the concept that if one cannot make money flying from A to B, do not fly from A to B. Secondly, they assume that there is a multitude of egits out there who will want to flog a product which a) you have to pay for the privilege of selling b) Has a very high entry costs to start selling and c) In any event, has a low margin. Agents do not owe airlines a living. Best t’were they should remember that.

  2. Lucy Hirleman CTC says:

    We’re an agency that started charging fees way before the airlines started their “agency” stupidity in the mid-nineties. I have a merchant account and between ARC and my merchant account I have NEVER had a chargeback. That’s over 22 years of no chargebacks. Not one. And I’m not about to jeopardize that for many reasons but the most glaring is I will not assume responsibility for fools that have NEVER figured out how to operate a successful business. Just think for a minute….your client is standing at the gate and the flight is oversold and the airline says what……..? Oh we’re sorry, call your agent, they processed your credit card. Or your client is at the gate and they make an announcement that there’s a mechanical or bad weather or anything. Do you want to be left holding that bag? I won’t be holding that bag because I will either STOP selling that particular airline or I, if it’s absolutely necessary, will do it on the airline’s website and charge a fee. Fortunately for us, we’re in an “airport” area that we don’t need UA as things are pretty competative in the NY area. If this processes the same as the commission fiasco did the only good news will be saying bye bye to ARC. Hopefully agents have smartened up or will let history teach them a lesson. They will then be able to figure out what is best for their bottom line.

  3. John Frenaye says:

    Exactly Lucy! Thanks for commenting!

    John

  4. John, you are the only one who has not been afraid to spell out what more than likely will occur. That’s what the agents/owners need to hear instead of being made to believe that this is something that, too, will pass. It’s not going away. Those who read this article will be informed and need to think seriously about their future. Certainly, they should begin to wein themselves off their dependency on their GDS and start shifting their skills to making the ticketing functionality either a task for the client or, if they prefer, a convenience that they perform as part of their trip preparation process. The smartest thing the travel planner could do is book that air reservation directly on the airline site and not on a Travelocity, Orbitz etc., site.
    The shakeout from the 1993 commission cuts is still not over and won’t be for a while yet. But it’s easy to see the changes occuring. ARC now has a non-ARC status. Unheard of 15 years ago! IATA still hasn’t quite figured out how or who to address these changes to. And recently I saw an article that ASTA, the association who, for many, many years was supposed to be the advocate for all agencies now is holding a seminar to train agencies, wanting to sell or thinking of buying the troubled agencies, on the most effective ways to take. Of course, there is a $250 charge for non-ASTA member agencies.

    Bravo John. Leaders lead. Others ‘lead’ you to believe!

  5. Jami Sales says:

    A red flag to all of my fellow leisure only agency owners. Make no mistake: this is our problem, too.
    John did his usual fine job in this analysis, and we must not overlook his comment that other airlines are watching this closely. I suggest that we remember that all suppliers are watching this, and the cruise lines and tour operators are just as surely considering their options as well.
    It behooves every single agency in the industry to do three things: support the organizations that are stepping up on our behalf, move market share away from UA in any way you can, and be proactive with your top suppliers. Tell your suppliers about the level of resistance they can expect from your agency should any such actions be levied against your company’s operating procedures. Write to the national sales manager of your top five suppliers today, and get your position stated.
    As an industry, we met the elimination of airline commissions with inadequate resistance. Let’s learn from that mistake. This challenge requires us all to step up to the plate, and to do so now.

  6. We had a shot across our bow years ago, with the commission-stops, and we couldn’t do a thing about it. We “met the elimination of airline commissions with inadequate resistance” because there was nothing we could do. If, as an agency, you voiced your opinion, the airlines pulled your plates. Remember the story about the agency that put the toilet in their display window with the Delta model flying into it? Plates pulled. What about the agency that booked 300 seats on a Delta flight to block it all up? We all applauded, but the plates were pulled anyway.

    It seems we’re always at the airlines’ mercy. What is it that we can do? Organize a boycott? A sit-in? A march on Washington? A fast? It all seems so feasible, but the fact is, we’re all afraid. Until we’re not afraid anymore, until the airlines realize that we don’t CARE if they pull our plates, we’ll be cowering at their feet.

    We all have to get off our butts and actually spring into action. Willingly getting rid of our ticket printers won’t do it. We’ll just tell clients to book air themselves, and you know what? They’ll come out ahead, and they’ll have won again.

    Personally, I think I’ll start a group on Facebook. May as well use that social networking function in OUR best interest. Of course, UA may disable my account…

  7. Susan says:

    This move by United is attacking the consumer as well as travel agents.

    I’m writing to Congress and local newspapers to do whatever I can.

    The airlines are trying to eliminate any kind of customer service.

  8. All of these comments are right on and we can expect the cruise lines to join the fracas shortly. When asked how did RCCL Chairman Richard Faineplan to fill the new “OASIS” on a regular basis, he replied: “we owe it to our shareholders to investigate alternative methods of distribution.” With 6,500 beds to fill every seven days on “OASIS” alone, it behooves Faine to examine every possible distribution source. Too, you can do the math easily on this: with 6,500 beds at an average sales figure of, say, $1,500 that totals $8,400,000 and an average commission of 10% that figure is $840,000 every week. That a huge incentive to risk “going it alone” without agency support. But it could also buy a lot of advertiising, be used for further on board incentives or reduce the cruise ticket price to be more competitive. Think it over. Agents MUST develop and impliment consultaton fees, service fees and more. We are a valid source of information and services. There is a price for that. Recognize it and charge it.

  9. Natalie Smith says:

    I try to sell packages as much as possible and avoid doing air only. When I do, I charge fees for my service and am all for boycotting the airlines that try to pass cost on to the agency, but who is left to promote? United via credit card fees, American and Delta via GDS costs. And if you are in a market like Chicago, Dallas, Atlanta, or Denver where UA, AA, or DL are the big dogs and maybe the only ones that offer nonstops, what is left? Southwest doesn’t fly everywhere and everyone else is connecting. Am I supposed to sell a CO connection flight over a nonstop UA or AA, and why would my client want to do that?

    The point is, there is nothing left to do but make the public, and hopefully the lawmakers aware of the repercussions. This is bad news for everyone but the airlines who continue to manage their business poorly and expect everyone else to absorb the costs.

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