AAI asks Transportation Department to investigate airline cap on travel commissions

Nov 16 1998
Testimony and Interventions

The Honorable Rodney E. SlaterSecretary of TransportationU.S. Department of Transportation400 Seventh Street, SWWashington, DC 20590

Dear Mr. Secretary:

United Airlines on November 12 announced that it will impose a cap of $100 on commissions paid to travel agents for international flights. In the normal course of events, an individual company has the right to determine, on its own, questions of how it will sell its products, including the terms under which it will deal with agents. Recent history suggests, however, that the other major airlines may quickly follow United’s lead. Given the potential harm to consumers, this is a matter that deserves careful consideration before it is accepted as a fait accompli.

The American Antitrust Institute (AAI), an independent public interest organization dedicated to enhancing the goals and institutions of antitrust, urges the Department to make an expedited analysis of the following consumer protection and antitrust issues raised by United’s announcement:

 

  1. If, as alleged by the agents, the consumer will be forced to purchase reservations directly from the airlines or through the Internet, will these alternatives provide adequate information to consumers?
  1. Airlines offer reservations at a wide variety of prices, routes, and terms for any given travel objective. Traditionally, travel agents have often helped their customers understand their various options and make the most appropriate selection. In the absence of traditional travel agents, what institutions will help consumers select among travel options?
  2. What portion of consumer purchases today comes through the Internet? If this proportion is small, how rapidly would it increase in the absence of traditional travel agents? Are there significant classes of consumers who will not be able to utilize the Internet to obtain comparative travel information?
  3. What leverage would the airlines have over Internet sellers who desire to provide a full array of comparative information to consumers? (We call your attention in this regard to an article in the Washington Post, November 15, 1998, "The E-Travel Revolution Is Over," by Craig Stoltz.)
  4. What proportion of consumers will select less optimal options than would have otherwise occurred? How much money will this shift from consumers to air carriers as a result of increased non-optimal selections?
  5. Would it be reasonable for agents to charge a service fee, in lieu of reduced commission revenue, in that they would no longer appear to be price competitive with the airlines?

 

  1. If the role of travel agents is severely reduced or eliminated, what effects will this have on competition between major carriers and smaller carriers or market entrants?
  1. Will increased information imperfections cause consumers to rely more on the major carriers and the computer reservation systems they dominate?
  2. What impact would this have on the costs (especially the advertising costs) of smaller rivals and prospective new entrants, as they attempt to reach out to prospective customers without the presence of traditional travel agents?

If upon expedited analysis, D.O.T. determines that industry-wide adoption of the new cap would likely have a negative impact on consumers or will further concentrate the air transportation market, AAI urges that D.O.T. use its authority to restrain the other major carriers from following United’s lead. In the event that the nation’s other dominant carriers act in a manner similar to United before D.O.T. completes its initial analysis, we urge you to investigate whether this reflects a coordinated effort to restrain trade, either through explicit or implicit agreement or through facilitating practices (practices that facilitate collusion or make collusion more likely or harder to detect).

Sincerely,

Albert A. Foer

President