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Introduction.

AN HISTORICAL PERSPECTIVE: THEN AND NOW

To understand and appreciate the importance of tourism on a global scale, you should be familiar with some of the key events that have shaped the airline and travel agency industry. Who was the first airline passenger? Why was the retail travel agency community considered a "closed shop" in the past? What series of events in the 1980s and 1990s changed dramatically how airlines and travel agencies conduct business today? Let's start with the very first commercial airlines and their passengers.

Those Daring Young Men in Their Flying Machines

Who was the very first airline passenger, and when did it happen? The first passenger air service began in 1910 when dirigibles operated between several major cities in Germany. Dirigibles are also called blimps, zeppelins, or air ships. Dirigibles are things of the past. The only ones we see today are the Goodyear blimps drifting over the sites of the Super Bowl and World Series.

In the United States, the U.S. Postal Service began the nation's first scheduled air service. During those early years it carried just the mail, not passengers. By the mid-1920s, it operated regularly scheduled coast-to-coast air mail flights. Only a few brave travelers decided to use flight as a form of transport during the earliest years of aviation.

In 1926, an enterprising and daring businessman decided to hitch a ride from Los Angeles, California, to Salt Lake City, Utah. He sat on a pile of air mail with the wind in his face in an open cockpit of a Douglas biplane. The airline was Western Air Express, which later changed its name to Western Airlines. In fact, Western Airlines (which has since merged with Delta Air lines) along with United Airlines and Trans World Airlines are considered to be the oldest passenger carriers in the United States.

Commercial aviation started getting serious in 1926 when the U.S. Air Commerce Act established federal agencies to develop airports, radio navigation systems, and other commercial air services. The United States and many European governments began regulating passenger air travel by developing extensive airline routes with combined mail, freight, and passenger service to dependencies and foreign countries around the world.

Pre-World War II: Significant Years of Growth

Many significant advances in aviation science and technology occurred between 1919 and the outbreak of World War II in 1939. Research in such areas as weather forecasting, navigation equipment, and aerodynamics (the science of air motion and movement through space) resulted in vast improvements in aircraft durability and safety.

During the prewar years, research in aviation continued at a fast pace. It was at this time that intercontinental air transportation became firmly established. In 1937, the flying boats of Imperial Airways (which became BOAC and today is called British Airways) and Pan American were crossing the North Atlantic on experimental flights. Likewise, in 1937 Imperial and Pan Am, through a combined effort, launched the first commercial air service between New York and Bermuda. By the end of the 1930s, Trans World Airlines had several giant four-motored passenger planes called stratoliners in service.

Although a small number of people traveled by air for business or leisure trips, by the end of the 1930s it was becoming clear that air travel was no passing fancy. However, few realized what a dramatic impact air travel would have on tourism and the role of the travel agent.

During World War II further development of aircraft was greatly accelerated. Toward the end of the war in 1945, airplane production attained an all-time high. Larger and faster planes with pressurized cabins were made available to airlines. Improved airport facilities followed suit. Civilian aircraft orders increased significantly, and international services resumed once again. Domestic airlines established new passenger- and cargo-carrying records by the end of the 1940s.

1958: Out with the Old, In with the New

While commercial aviation was going through its dramatic growth, the railroads and ocean liners still remained the primary modes of long-distance travel. The benchmark year that changed all that was 1958, when commercial jet aircraft were introduced.

The jet age became a reality on the morning of October 4, 1958, when a Comet IV, carrying fifty-two passengers, took off from Idlewild Airport (now John F. Kennedy Airport) in New York for a fast six-hour, twelve-minute flight to London. On the same day, another Comet took off from London to New York with a full load of passengers-the jet age became a reality.

Although introduced in 1958, it was not until the 1960s that the full impact of jet aircraft such as Boeing 707s and Douglas DC-8s was felt. These commercial jet aircraft revolutionized the entire U.S. travel industry with their speed and passenger capacity. Suddenly, American travelers could travel outside the United States in a matter of hours. The blossoming of the travel industry was at hand.

1970s: The Biggest and Fastest

The decade of the 1970s introduced the biggest and fastest in jet travel. The year 1970 heralded the largest commercial aircraft in history. The aircraft is the Boeing 747 and was nicknamed the jumbo jet because it is capable of carrying more than 400 people. The air craft is characterized by a pronounced hump on its top front, which houses an upper deck of passenger seats and lounge space. Today the 747 jumbo is still in service, carrying passengers and cargo to every corner of the globe.

If 1970 introduced the largest commercial jet, the year 1976 introduced the fastest commercial jet in history. That was the year when the Anglo-French Concorde, a supersonic jet, entered passenger service. This supersonic transport is often called the SST for short. The Concorde or SST flies at almost twice the speed of sound at approximately 1,400 mph. A conventional jet travels at approximately 600 mph. The Concorde flies at an altitude of 60,000 feet, almost twice as high as a standard jet. At that altitude Concorde passengers can look out their tiny windows and see the curvature of the earth! Today, the Concorde is operated by Air France and British Airways on selected routes across the Atlantic and in charter (for private hire) service.

WHO'S RULING THE ROOST?

The federal government through the Civil Aeronautics Board (CAB) regulated commercial aviation through the mid-1970s. The primary goals of the CAB were to promote commercial air travel and protect the interests of air passengers. To this end the CAB approved practically every aspect of an airline's operation, including new air routes and the establishment of ticket prices.

Another government body, the Federal Aviation Administration (FAA), handled matters related to airline maintenance and safety. The FAA certified new aircraft for airworthiness, licensed pilots, and enforced reporting procedures. Today, the FAA still handles all aspects related to airline safety and maintenance, in addition to administering the U.S. air traffic control system.

One more organization, nongovernmental in nature, completed this regulatory structure: the Air Traffic Conference (ATC). In 1948, the Civil Aeronautics Board approved the major U.S. carriers to work together through the ATC. The ATC handled important issues among its member airlines such as establishing procedures to transfer baggage and make reservations among different carriers.

The ATC also regulated the airline and travel agency partnership. Along with its international counterpart called the International Air Transport Association (IATA), the ATC governed not only how much money travel agencies could earn from ticket sales but also whether new travel agencies could be appointed or approved to sell airline tickets to the general public.

A Closed Shop Opens Its Doors

The advent of the jet age was surely a breakthrough, but a less known and perhaps a more important event for the travel agency business took place in 1960 when the CAB eliminated the "need" clause from ATC and IATA approval agency regulations.

Prior to the 1960s, new travel agencies were accredited by these conferences only if the applicant could show a "need" for an agency in a particular city or area. The "need" clause restricted the number of travel agencies that could conduct business where other established agencies were located. The already-established agencies claimed that they were providing the necessary service where the new agency wanted to operate.

This action is referred to as "closed shop" because new travel agencies were often shut out or closed out from opening a retail establishment in a particular area. The few thousand agencies that had won appointments preferred this "closed shop" approach, urging the airlines to restrict further entry.

The need clause became history in 1960 when a travel agent in Long Island, New York, challenged the "need" clause. After lengthy deliberation, the CAB decided that the clause was illegal. A major factor in this decision was the perception that the travel agency community was too much like an exclusive club in which newcomers were kept out and competition stifled.

Throughout the 1950s and 1960s, the commercial airlines considered travel agencies to be a limited distribution channel for their products and services. They sought to confine them to selling leisure travel. The commission that agencies could earn on commercial sales was 5 percent at that time. Agencies could earn a higher commission for those air tickets used in conjunction with a land tour, thus making it a "leisure" sale.

At that time, agencies knew that air travel was going to surpass--in a big way--the traditional sources of revenue from nonair sources such as steamship and railroad travel. z Recognizing that they would become more dependent on the airlines, travel agencies stepped up their attack on the airline regulatory groups. Their efforts led to an increase in the airline commission from 5 percent to 7 percent and in the early 1970s to 10 percent. This meant that the agency earned a standard 10 percent of the price of the airline ticket (before tax). A ticket that cost $800 before taxes earned an $80 commission for the agency.

A BRAVE NEW WORLD: DEREGULATION

Until 1978, the federal government through the CAB and the ATC, a nongovernmental airline group, controlled all U.S. airline transportation. Because of this highly regulated structure, there was little or no competition among commercial airlines. The CAB restricted the number of airlines that were allowed to fly certain routes. Most important, when the CAB approved a particular type of airfare, it was approved for all airlines. The ATC controlled interairline issues as well as how travel agencies could conduct business in many regards.

This all changed in 1978 when President Carter signed the Airline Deregulation Act. The act scheduled the total demise or "sunset" of the CAB for January 1, 1985. Between 1978 and 1985, the CAB assisted in the transition process.

Deregulation allowed airlines the opportunity to govern all aspects of their commercial dealings. They now could establish their own routes and airfares to effectively compete for more passengers.

Also, the fixed travel agency commission soon became history. By 1980, commissions were open, allowing each airline to decide its own compensation policies.

Travelers have benefited from deregulation because of the greater number of lower discount fares available. This has certainly enabled more people to use air transportation than ever before. Competition among airlines became intense. Deregulation permitted hundreds of new airlines to start up the business of transporting passengers to just about anywhere they wanted to go at any time.

Many upstart airlines such as People Express threw the industry into turmoil by offering bargain-basement fares. As a result, many of the major carriers lost money trying to compete at that level, leading some airlines to merge, while others fell by the wayside. Those that suffered bankruptcy either had their wings clipped forever, never to return, or merged with other airlines to become stronger competitors. Others, like Pan Am, reentered the industry as smaller and leaner operations.

In other respects, deregulation was not all that it was cracked up to be. The fierce competitive spirit among airlines led to a route grab that resembled the Gold Rush days of the old West! Airlines grabbed those routes with heavy passenger traffic. Because of the number of airlines flying these same routes, airfares plummeted to all-time lows.

However, not all passengers benefited from discounted fares. Passengers traveling on the less competitive routes or those that are monopolized by one or two carriers are still paying high-ticket prices in comparison. This discrepancy usually occurs over short commuter routes of 400 miles or less. It is not economically feasible for the major airlines to operate larger aircraft over these short routes. As a result, only the small commuter airlines share these markets. Because of the lack of competition, airfares between these cities remain high compared with other heavily traveled routes.

For example, the average round-trip fare between Boston and Albany, New York, is $400. Only two airlines fly this short route of 145 air miles. Compare this to an average round-trip fare of only $200 between Boston and Orlando, Florida, a route that is nearly nine times farther at 1,116 air miles. Why the discrepancy? Because more than seven different airlines compete on the Boston to Florida route.

ATC Thumbs Down; ARC Thumbs Up

Deregulation also resulted in a "kinder and gentler" approach to travel agency regulatory practices. The regulatory activities of the ATC and IATA were replaced with the Airlines Reporting Corporation (ARC) and the International Airlines Travel Agent Network (IATAN), respectively.

The ARC replaced the ATC and was formed to work closely with travel agency representatives. ARC consists of the majority of U.S. airline carriers, who are members on a voluntary basis. Today, this independent organization establishes procedures regarding the sale of airline tickets. It also supervises rules governing the approval of new travel agencies to sell air transportation on more than 100 domestic and international carriers that have given ARC their general concurrence.

The IATAN is a wholly owned subsidiary of IATA with voluntary membership among airlines and other travel suppliers. IATAN replaced the more restrictive IATA agency policies with practices more acceptable to the trade. However, agencies do not have to be endorsed by IATAN to secure appointments, sell airline tickets, or earn commissions from many international carriers. These considerations can be realized via appointment by ARC or directly from the international carrier. So why do agencies need IATAN endorsement? It may be important if the agency does a lot of business through one or more carriers that do not appoint agents through ARC; this is true for many carriers that serve countries in Africa.

To be endorsed by IATAN, travel agencies must meet certain financial, personnel, location, and ticket security requirements that are similar to those of ARC.

IATA still exists as a worldwide regulatory agency composed of the majority of international airline carriers. One of its main functions is to promote a standard and unified system of worldwide air travel by establishing routes and setting safety and service standards.

Today, the U.S. Department of Transportation (DOT) oversees, in a general sense, the airline industry in the United States. DOT still oversees aircraft safety, maintenance, and other related matters through the FAA. However, today airlines establish their own routes, airfares, and travel agency commission policy to compete effectively for more passengers.
Consider This ...

State Licensing

States have the authority to regulate or license the professions
and occupations practiced within its borders. It is the state's
responsibility to protect and ensure the safety, health, and
welfare of its residents. Currently there are nine states that
require some type of regulation or licensing of retail sellers of
travel. The nine states are: California, Hawaii, Illinois, Ohio,
Rhode Island, Washington, Iowa, Florida, and Oregon. The policies
and procedures differ from state to state. For specific
requirements contact each states' Attorney General's Office or
Department of Commerce.


From Pencils to Computers

At about the same time as all this was going on, travel agencies became increasingly aware that computers were needed to deal with the growing volume of airline business. Up until the mid-1970s, all business transactions in the travel agency were handled manually. All airline tickets were handwritten, all airline reservations were made over the telephone, all fares and related information were researched in huge and cumbersome printouts called tariffs. If you were in the paper or printing business, you made money; if you were in the travel agency business, it became increasingly clear that a lot of time was wasted doing these chores, and time was money!

The airline carriers, which had been computerized for decades, sought to create a joint computer reservations system (CRS) that would permit the travel agent to sell flights on any airline. By 1976 all efforts failed and they gave up the quest. They decided to handle it independently. Some airlines like United Airlines designed a computer reservations system separate from its own for travel agency use. This system was called Apollo. American Airlines followed quickly by extending its own internal system called Sabre.

The use of computer reservations systems in the travel agency workplace grew rapidly in a relatively short period of time. The first CRS installations were in place by 1976; by 1981, 69 percent of agency locations had one or more systems; in 1985, CRS penetration had reached 90 percent. Currently, nearly 98 percent of all travel agencies have one or more computer reservations systems installed (Figure I-1).

Following are the four major computer reservations systems that operate primarily in the United States. All but one are owned by airline companies. SABRE, recently made into an independent company, was formerly owned by AMR, parent company of American Airlines.
CRS                Affiliation

* SABRE           Independent company (formerly owned
                  by American Airlines)

* Apollo          UAL Corp (parent company of United
                  Airlines)

* Worldspan       Owned jointly by Delta Air Lines,
                  Northwest Airlines, and Trans World Airlines

* SystemOne       Continental Airlines


Two other systems called Galileo (owned by UAL Corp) and Amadeus (owned jointly by several European carriers) operate, for the most part, abroad.

Introduction of airline computer technology into travel agencies certainly changed the way many of the first-generation agents had to do business. Many had to make the transition from handwriting airline tickets and doing most of their accounting out of cardboard boxes to relying on electronic technology to accomplish many tasks.

Agency Commissions in Peril

During the 1970s and 1980s, the standard agency commission on the sale of airline tickets was 10 percent. At this time airlines started looking seriously at ways to cut costs and increase profits. One possible solution was to lower travel agency commissions, and many of the major domestic carriers attempted to do so. However, in the absence of antitrust immunity, one airline could block such a move, and one did. Delta Air Lines stood firm on maintaining the 10 percent commission level, which forced others such as American and United to relinquish their efforts.

Delta's actions in favor of travel agents during the 1980s proved to be a major irony in future years. The travel agents' former "white knight," which saved them in the 1980s, became the "villain" a decade later. In the 1990s the airlines, with even more energy, started looking at ways to improve productivity and cut costs. They believed that new technologies and the Internet allowed travelers to book their travel directly and that travel agents had a less significant role as intermediaries. Once again, decreasing travel commissions became a viable and necessary cost-cutting measure.

In February 1995, Delta Air Lines led the charge by introducing the concept of the commission cap. This placed a ceiling on the amount that travel agencies could earn on the sale of a domestic airline ticket. Most of the other major carriers followed Delta's lead and invoked commission caps. Two years later in 1997, there was another round of agency commission cuts that further reduced commission levels and affected some international airlines as well.

Today, agency commissions on airline tickets are in a state of flux. Generally, most domestic airlines are allowing a 5 percent commission up to a cap of $25 for one-way tickets and $50 for round-trip tickets. International ticket commissions do vary from airline to airline. However, at the time of publication, the majority of international carriers pay 5 percent commission with a $50 cap for one-way tickets and a $100 cap for round-trip tickets. Again, agents are required to check the commission policy of each airline.

Travel Agents: Sink or Swim?

Many people who read about the commission caps and those who reported it in the trade press predicted the eventual demise of the travel agency industry. How can they survive with such drastic cuts in their compensation and with the incoming wave of direct bookings on the Internet and other cutting-edge technologies? The answer is that they have. Some travel agencies who were unable to conform have closed their doors but a lot fewer than predicted.

Airline sales are still the major source of travel agency revenues (Figure 1-2). However, most agencies that have survived have just changed the way they do business. Many have refocused their energies. Agencies are turning toward leisure products such as tours and cruises for which the traditional 10 percent and higher commissions still prevail. Others have focused on specialized sales such as group travel, business meetings and incentives, adventure travel and destinations. They are still selling airline tickets but have learned to rely on additional products and services for their clients.

So will travel agencies sink or swim? The answer is swim. The currents may have shifted in new directions, but enterprising agents are using the temporary setback of commissions caps and advanced computer technology to their advantage.
FIGURE 1-1

CRS market share among
U.S. travel agencies

Worldspan       23%
SystemOne       19%
Apollo          24%
Sabre           34%

Note: Table made from pie chart.

FIGURE 1-2

Car Rentals            8%
Airlines              56%
Cruises               18%
Hotels                10%
Miscellaneous          8%

Sources of travel agency
revenue (Source: U.S.
Travel Agency Survey,
Travel Weekly, 1998)

Note: Table made from pie chart.
COPYRIGHT 2001 Delmar Learning
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Copyright 2001 Gale, Cengage Learning. All rights reserved.

Article Details
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Author:Semer-Purzycki, Jeanne
Publication:A Practical Guide to Fares and Ticketing, 3rd ed.
Geographic Code:1USA
Date:Jan 1, 2001
Words:3655
Next Article:Chapter 1 Airline transportation 101.
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