Do travel agencies know how lucky they are to access previously "Web
only" fares? Just ask American Airlines, which last Wednesday made
such fares available to any bonafide travel agency with its EveryFare program.
Last Wednesday, American Airlines introduced its EveryFare program
to all U.S. travel agencies, thus enabling agency access to discounted "Web
only" fares. The agencies will be able to book these tickets directly
through their traditional Global Distribution System (GDS) in exchange
for picking up some of the tab on the fees that the airlines pay to these
GDSs. These fees, which have been increasing for years, are a major expense
that the airlines are desperately trying to minimize (leading to the
creation of Orbitz). In EveryFare, American will require participating
agencies to pay them the amount that the GDS bills the airlines. Initially,
American will rebate much of this fee, or approximately $4 per flight
segment, but the amount will decline over the period of the lengthy contract,
which is valid until 2007.
Although Web fare access through Sabre, Worldspan, Galileo and Amadeus
is something that the travel agency community has been asking for for
a long time in order to compete with various Web sites, this program
is anything but a panacea for them. One of the more unusual provisions
of the contract requires travel agencies to reimburse American for ALL
bookings on the airline, whether or not Web fares were used. It is unclear
at this time how much "easy" revenue American can expect to see from
this provision, but Web fares generally represent a small (under 10%)
piece of all airline bookings.
Can Corporate Agencies Say "No?"
EveryFare does not benefit the average leisure agency, although
it will benefit the large corporate agencies, and the customers they
serve (TQ3 Maritz is the first EveryFare customer). This move
is not likely to change the distribution makeup of airline ticket sales.
If anything, it might move some business off the Internet, BACK to the
GDS from errant corporate travelers who have booked "out of policy" for
better deals. When considered in conjunction with the Web fare agreements
several airlines have with Expedia and Travelocity, this means the airlines
still need help from both traditional and online travel agencies
to help them gain market share. Travel agencies still transact about
75% of all U.S. airline sales.
Web-only fares and the perception of overall lower online airfares have
been one of the key drivers of Internet adoption of airline ticket sales.
Coupled with service fees charged by most leisure or corporate-oriented
travel agencies, and a significant lack of faith by travelers in the
ability of travel agents to find "the lowest" fare, Internet distribution
of airline tickets has skyrocketed. According to recent Phocuswright
research, online airline sales are expected to increase 90% in 2002 over
2000 (that's amid a decline in overall airline sales of 23%).
With this boom in online airline ticketing, more than 15% of full service
travel agencies have gone out of business in the last year. With the
fallout from Sept. 11 and the state of the U.S. economy, corporate travel
managers have been besieged from their companies' travelers and from
their senior management about access to lower Web fares.
Between A Rock and A Hard Place
Even though the terms of the contract American is offering travel agencies
are strict and not particularly pro-agent, expect many corporate agencies
to agree to their terms to placate their customer base. Corporate travel
managers will demand their agencies have the capability to book such
fares because they no longer want their travelers booking outside of
corporate guidelines. Savings can be significant: according to AA.com,
a Web fare on a last minute transcontinental route could save as much
as 10% (or $200) on a $2,000 fare.
By booking through the "sanctioned" channel, company travel departments
will be able to both manage their airline partner relationships as well
as keep track of where all employees are when they are traveling -- a
huge concern in today's environment.
Corporate agencies should be able to agree to terms with their clients
and American Airlines whereby some of the airline's charges are absorbed
by either higher transaction fees billed to their clients and/or higher
incentive commissions paid by American. Assuming the agency still passes
on some, if not all, of the cost to their clients, most corporate travel
managers will agree to paying a slightly higher transaction fee while
obtaining the lower Web fares.
No Rock. No Hard Place
It is doubtful that most brick-and-mortar leisure agencies, due to anti-agent
feeling of this initiative, will have much interest in EveryFare.
They will continue to focus on selling travel packages and cruises --
and to keep their distance from the companies they used to call their
partners. And the large leisure agencies will still have the clout to
negotiate special rates with the airlines, so they can still gain access
to Web fares via their own deals.
Leisure Exceptions
Unlike traditional leisure agencies, companies such as Expedia and Travelocity
have had access to Web fares for months. What makes these companies non-traditional,
however, is not only the fact that their business is conducted primarily
online -- but that they have the clout to move market share on the leisure
side. This is something that traditional leisure agencies overall have
not been able to do successfully and one of the main reasons for the
success of their online brethren.
Creative solutions to reducing distribution costs for the airlines are
paramount, but such decisions by the airlines are not well thought out.
While this experiment will probably work well with corporate agencies
and placate corporate travel managers and their senior management, it
will likely backfire in the larger and more price sensitive leisure segment.
Already ASTA president and chief executive, Richard Copland said: "It
[EveryFare] appears to give travel agencies access to American's
low Web fares in exchange for paying American's GDS costs, but it doesn't
actually assure that American will offer any Web fares to justify the
agency taking on those costs."
Once again, the average "Joe and Sally Vacation Traveler" will figure
out that it will probably be cheaper to purchase his or her ticket at
AA.com than to buy a Web fare through a travel agent with a service fee.
And if the agency wants to purchase a ticket at AA.com on behalf of its
clients, it is prohibited in doing so unless it agrees to EveryFare,
and the fees associated with the program. Of course, that would suit
American, which is intent to further alienate the existing leisure agency
distribution network and push even more business to its Web site.
Joshua Friedman, a travel industry marketing consultant, contributes
to Phocuswright's research and commentary. Over a 20-year career, he
has worked with industry leaders including Charles Schwab Travel, Seabourn
Cruise Line and as a market research analyst for IDC.
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