Last week, the six largest U.S. airlines, including Twin Cities-based Northwest Airlines, decided to stop paying most commissions to travel agents who sell their tickets. Airline industry analysts say the commissions are an unnecessary expense at a time when carriers are struggling to restore their financial health following Sept. 11. But the decision to end commissions has major implications for travel agencies throughout the nation. Minnesota travel agents say the airlines' decision is forcing them to revamp their businesses, and to charge consumers higher fees for booking airline tickets.
The airlines' decision to end commissions was not a surprise to travel agents. Airlines had progressively lowered the payments starting in 1995.
But Gail Hanson, owner of the Travel Company in Minneapolis, says he was still shocked. The decision to end commissions will wipe out a good portion of his revenues.
"We knew it was coming. We were running the numbers for a month. I actually had a staff meeting two weeks ago and I said, 'OK, in a week we're going to be at zero (commissions).' Unfortunately, I was right," says Hanson. "It almost feels like - when you have a loved one that's near death and you know it, but when it happens it still hurts."
Eighty percent of Hanson's customers were businesses that booked airline tickets. He charged them a fee, but he also took in a commission from the airline, up to $20 on each ticket he sold. That money, and a significant portion of the Travel Company's revenues, has simply disappeared.
Without those commissions, Hanson is looking to raise fees and cut costs. Many travel agencies, large and small, are going through the same process.
Take for instance, Village Travel in St. Paul. Owner Terry Zatz says 30 percent of his company's profits came from airline commissions. To cope with the airlines' decision, he's raising his fees. He hopes that won't scare away too many clients.
But it's either that or cut costs, and he says he cut all he could after the attacks of Sept. 11 drastically reduced demand for travel.
"I don't think I can scale down anymore. I need the people I have," says Zatz. "I have the good agents. I've cut all extra frills we used to have."
What bothers Zatz is that the airlines are cutting into his profits, while just a couple months ago they benefited from a multi-billion dollar government bailout.
"So I'm wondering, what are they doing with the money? Today we notice that fares actually went up. I don't think they're passing it through to the consumer," says Zatz.
Northwest Airlines declined to comment.
Even with government help, Northwest and the other major airlines have lost hundreds of millions of dollars since Sep. 11, as costs rose and revenues dropped.
Todd Wind, a Minneapolis attorney who represents travel agencies, says several smaller firms have had to shut their doors, and others are selling out to larger agencies.
"Smaller agencies that were heavily reliant on domestic air travel in particular - those are the agencies that have either decided to sell the agency or close the agency," says Wind.
Many agencies still in business are looking to make strategic shifts, including Sheree Powers, who owns the Travel by Nelson in Woodbury. Powers says 13 percent of her revenues came from airline commissions.
She says she'll focus less on selling airline tickets, and more on areas where she can charge a healthy premium - like planning travel packages or booking cruises.
"Cruises are really taking off. Whether we wanted to shift or not, we did automatically - it just went that way," says Powers. "And that's a great market to get into. I always said if I could have a cruise-only agency I would."
Powers says travel agencies like hers - now more than ever - need to prove their value to clients.
"We have many clients that come in and say, 'I went on a dot-com, I booked a morning flight and I meant to book P.M. What can I do?' Well you're stuck - you can't call a dot-com. So we're still of value to the clients, we just have to make sure that they know that," Powers says.
According to the Airlines Reporting Corp., which tracks travel agency sales, the number of travel agencies has shrunk in the past six years by 21 percent, as the airlines have cut their commissions.
Now that number appears likely to dwindle even more, especially if a large number of consumers choose not to pay higher fees, and book their tickets themselves.