Travel Weekly Digital Edition - 50th Anniversary Edition

RETAILING

Continued from Page 49

There were no standard tickets or central settlement procedures. Agents knew all the air fares in their markets, and commissions were set by govern-ment-approved airline agreements.

Agents also put clients on ships, which were transportation, and some sold a lot of bus tickets — buses, not motorcoaches. Retailers booked all these things by telephone.

In less than 25 years, all that changed. The need clause went away (1959), standard airline tickets and a central reporting system were rolled out (1964), CRTs came to agency desktops (1976), airline deregulation became law (1978), and fixed commissions ended (1980).

Certain of these events — elimination of the need clause, deregulation and an open commission environment — fueled a huge growth in agency numbers. These were the days when airlines competed to raise pay, not the reverse.

Events fed on each other: Carriers needed agents when, after deregulation, the number of airlines proliferated and they competed based on price. The madly competitive environment fostered more, and more complicated, fares. The GDSs made complex fare structures possible; such fares made GDS market penetration essential.

In addition, corporations and the government turned to agents because managing their travel spending had become so complicated.

The buyer’s increased need for help when shopping for air changed the nature of the agency, too.

Air came to account for a large majority of the average agency’s sales, and agency workplaces were peopled with computer experts and, dare we say it, order takers, diminishing the value of the true consultant.

Now comes the next transformation of the agency business, triggered by airline commission cuts (1995-2002) and the Internet (you choose the date).

These fostered further agency consolidation, creating some very large businesses, especially on the corporate side. Leisure agencies renewed their focus on consultancy and specialty niches, and service fees became a way of life for all agencies.

Online agencies were born and blossomed, sometimes becoming huge businesses themselves. Countless others also shunned the brick-and-mortar setup and took their businesses home.

So, the true travel agent story is nuanced. ARC agency counts are down but the number of travel sellers is an uncertain thing. The dollar value of agen-cy-booked travel was an estimated $254.5 billion in 2006, a number that has risen even as agents have lost or pushed air tickets off their shelves. In 1995, air accounted for 61% of agency sales; in 2006, it was 27%.

Broadly speaking, agents do two things: manage travel purchasing and sell the wild, weird, wonderful world. They weren’t airline specialists in 1958, and they aren’t now. _— _Nadine _Godwin

Travel agency locations (1958-2007)

35,000

28,000

Agency locations

21,000

14,000

7,000

0 1958

2007

1958 through 1964: The statistics include Canadian locations because Canada was part of the settlement system at the time.

1965: First year for which ARC has location counts for U.S. agencies only. Canada left the settlement system in 1980.

1982 and 1996: In 2007, ARC locations dropped to fewer than in 1982, after having reached their peak in 1996.

Sales settled through ATC/ARC (1965-2007)

100

Sales ($ Billions)

80

60

40

20

0 1965*

2007

*Earliest year for which ARC has these statistics

Source: ARC

Deregulating agents

The term “travel agents” didn’t appear in the Airline Deregulation Act, but that didn’t stop deregulation from hitting the agency industry like a freight train.

The airline industry’s all-powerful regulator, the Civil Aeronautics Board, had the power to grant antitrust immunity to airline activities that were deemed to be in the public interest, such as setting international fare levels, managing travel agency appointment and settlement systems and fixing commission rates.

Deregulation began to upset this applecart even before the law was passed when an IATA agreement governing travel agent commissions came before the CAB. IATA’s commis-

sion agreement became a test case of market forces. Why, the CAB asked, should travel agent commissions be a fixed percentage set by agreement among the airlines?

The CAB decided that they should not and decreed a permanent free-for-all for international commission rates in 1978, even before the passage of the Airline Deregulation Act.

Move importantly, the CAB decided to come back to the topic as it pertained to domestic transportation, and it ordered its staff to lay the groundwork for an investigation of the domestic airline agreements governing travel agents, which were administered by a division of the Air Transport Association called the Air Traffic Conference.

Thus began what the Board euphoniously called: “An investigation into the competitive marketing of air transporta-

t ion,” or the Competitive Marketing Investigation f or short.

T he CMI involved an army of lawyers, wit-n esses, testimony, statistical reports and leg al briefs and 57 days of hearings before a n administrative law judge. Nearly two years after the case began, he recom-m ended continued antitrust immunity f or the ATC’s agency programs. The CAB r eversed him 18 months after that, in

December 1982, ordering an end to antitrust immunity.

Critics simultaneously attacked the decision in Congress and in the courts, but without success. In the waning months of 1984, the last efforts to overturn the CAB decision died away on Capitol Hill. The case dragged on in the U.S. Court of Appeals, which affirmed the decision in March 1985, three months after the CAB itself ceased to exist.

There is no short version of the CMI story. Suffice it to say the decision ripped up the ATC agreements that governed the domestic airlines’ travel agency system and led to the creation of ARC.

If there was one key word that is indelibly associated with the CMI, it’s the word that the CAB chose to describe what it viewed as the most noxious aspect of the old ATC. That word was exclusivity.

Until that time, the airline members of the ATC agreed among themselves that they would not do business with, or compensate, travel agents who did not have ATC accreditation. If you were an aspiring travel agent, you had to get ATC approval. Without antitrust immunity, that would be restraint of trade. When the CAB withdrew antitrust immunity, exclusivity went away, and a good deal more besides.