Delta cuts commissions to travel agents

Summary:Delta Air Lines ceases paying commissions to travel agents, a move that will further erode an important source of revenue for some online travel agencies.

Delta Air Lines has ceased paying commissions to travel agents, a move that will further erode an important source of revenue for some online travel agencies.

Delta said it will no longer pay "base commissions" to travel agents for tickets sold in the United States (including Puerto Rico and the U.S. Virgin Islands) and Canada, effective immediately.

A base commission is the percentage Delta paid to travel agents for selling Delta fares. Delta paid online travel sites $10 per ticket and $20 to brick-and-mortar travel agencies.

Delta's move follows those of Continental Airlines and Northwest Airlines, which stopped paying commissions to Web travel agencies last year.

Forrester Research analyst Henry Harteveldt says the airlines are responding to the economic pressures that all airlines have faced since last year, when the nation's economic slump prompted travelers to stay home. The Sept. 11 terrorist attacks have only intensified the need for the airlines to find places to cut costs.

"Last year, (Delta) faced the most serious financial and operating challenges in its more than 70 years of operations," Delta said in a statement. "Delta reported a...net loss of $1 billion for the full year 2001.

"In this extremely difficult financial environment, the company must pursue all opportunities to reduce costs, including the cost of distributing Delta tickets."

The move is a blow to smaller online travel sites, but Harteveldt said that the larger players are in a position to negotiate new deals with Delta. Soon after Continental and Northwest cut their commissions, Expedia and Travelocity struck deals with the airlines to get paid on a performance basis or to buy tickets in bulk in what is referred to as the "merchant model."

For example, Bellevue, WA.-based Expedia and other travel sites negotiate with airlines or hotels to get rights to sell a large number of fares in exchange for a discounted price. The travel site is then free to charge the public what it wants to and set its own profit margin.

"We don't expect it to have a material impact on our business," Expedia spokeswoman Suzy LeVine said. "We're working with several airlines to finalize agreements through which we will continue to be compensated for the value we provided."

Travelocity executives were unavailable for comment.

"Expedia and Travelocity are probably sitting down negotiating new deals with Delta as we speak," Harteveldt said. "What's certain is that Expedia and Travelocity will find ways to make money selling airfare even if your corner travel agent can't."

Delta said as much in its press release.

"While Delta is eliminating published base commissions, it will continue to pay individually negotiated incentive commissions to select agents."

Forrester Research analyst Henry Harteveldt said Delta is responding to the economic pressures that all the airlines have faced since before the Sept. 11 terrorist attacks.

Topics: Travel Tech

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