Local travel agencies are decrying new commission cuts by several major airlines while trying to keep their businesses profitable.
This month, United Airlines informed agents it would reduce the commission percentage it pays them from 8 percent to 5 percent, with a $50 maximum for domestic travel and a $100 cap for international flights.
Since then, major carriers such as Continental Airlines, American Airlines and Delta Airlines have followed suit, and others are expected to do so as well.
Some agencies are declaring it’s time to throw in the towel, said Barbara Jenkins-Lee, who owns and runs Rancho Del Mar Travel.
“It’s just awful,” said Jenkins-Lee, who is also president of the local chapter of the American Society of Travel Agents. “There’s just no way that San Diego travel agencies are going to be able to make it.”
She’s heard from owners of small agencies who are considering selling their businesses or simply closing their doors.
Jan Schultz, president and CEO of Balboa Travel, one of the county’s largest locally based travel companies, has also heard from agencies in similar plights.
$100 Million In Sales
Owners of at least three agencies have called Schultz to inquire if Balboa would want to buy them. The agencies each had sales of $7 million to $10 million last year, he said.
Balboa had sales of $100 million last year, Schultz said, and he’s still determining how the commission cuts will affect the company.
“It’s a difficult business,” he said. “It’s not like normal business mistakes where maybe a competitor is doing better than you are, maybe you’re not marketing right and you take a loss and it’s your own fault.
“I’ve never seen an industry like this, where a supplier and vendors can turn around, take joint action, and essentially cost you lots of money overnight.”
He was in the theme park and hospitality business before entering the travel industry in recent years.
Last November, commission cuts dropped average commissions from 10 percent to 8 percent. An exception from the major airlines to cut the commissions was Southwest Airlines, which told agents that its commission rate would remain at 10 percent until the year 2000, Jenkins-Lee said.
Last November’s cut hit Balboa Travel hard, Schultz said. “It cost us a million dollars overnight , and this is not a large-margin business,” he said.
The company had to lay off a good number of employees and place a freeze on raises, Schultz said.
This time around, although the fees cuts were more unexpected, the company’s in a better position to handle it, he said.
“Yeah, we’ve got to do things right,” he said. “Yeah, we’ve got to continue to monitor our expenses. We’ve got to become even more aggressive in our sales effort.”
Charging service fees, or increasing the fees they currently charge, is another way agents might cope with the lowered commissions, predicted Jenkins-Lee, who’s owned her agency since starting it in 1977.
She plans to keep her Del Mar-based agency open. Located in an upscale area, it sells a lot of tours and cruises, which still pay profitable commissions, she said.
Others are starting to charge service fees on the airline tickets they process, or increase their current service fees.
Schultz said that the new cuts would prompt his company to discuss fees with some of their corporate clients, whether initiating fees or increasing the fees they charge, he said.
Mostly He’s Upset
At Berry’s World of Travel, owner Bill Berry is deciding whether he has to begin charging service fees. Mostly, he’s upset.
“The basic problem is this: If what we do is worth, say, 10 percent, then that’s what we should be paid,” Berry said. “On the other hand, if what we do is only worth 8 percent, they shouldn’t pay us 10 percent. But when (the airlines) lower it to 5 percent, they’re saying ‘That’s all you’re worth.’
“In essence, we’re stuck with it because we have no access to any kind of action. They’re paying us less because they can, not because we’re worth less to them.”
Many agents want to take action on the airlines’ latest move, but antitrust laws prevent them from planning or discussing a joint reaction, Jenkins-Lee said.