Last week, Northwest Airlines announced that it would impose a surcharge to travel agencies booking their fares for U.S. domestic flights over the Global Distribution System…
Last week, Northwest Airlines announced that it would impose a surcharge to travel agencies booking their fares for U.S. domestic flights over the Global Distribution System (GDS). ACTA strongly believes that the market will see this tactic for what it is: a badly camouflaged effort by the carrier to pass on the cost of its expensive business model to travel agencies and ultimately to consumers rather than a strategy to become more competitive.
Northwest has been able to keep low cost carriers at bay in its own hub markets by adopting predatory fares and scheduling. Those practices have their limits, however, and Northwest has come up with the idea that surcharges could be passed on to travel agencies and to consumers without labeling them as fare increases.
In a desperate attempt to match low-cost carrier fares, Northwest is actually forcing consumers to book online through its Web site or charge them a penalty for booking by phone, in person at the airport, or through their travel agent. Since the airline appears incapable of, or unwilling to change its own cost structure, it passes on the weight of its inefficiencies to consumers in an attempt to remain competitive. It is interesting to note that Northwest could have taken this step under the old CRS rules in the U.S. and in Canada and that the liberalization of these rules, as advocated earlier this year by ACTA, did not pave the way to such unwarranted practices.
As far as the repercussions of this measure in the Canadian market, ACTA is of the view that Northwest’s decision may contravene the spirit, if not, the letter of the Passenger Sales Agency Agreement (PSAA), the IATA contract that governs the relationship between IATA carriers and travel agencies. Nowhere in the PSAA is there a provision for carriers to actually charge agencies for booking their fares. ACTA is, therefore, reviewing the PSAA in more detail and assessing its options regarding a possible challenge on that basis.
In terms of specific impacts on Canadian agencies, only those larger agencies with a substantive book of business in the U.S. domestic market with Northwest will feel the pressure; they may have to renegotiate their contract with the airline in order to avoid passing the surcharge to consumers. Smaller agencies will always have the option to redirect their business to other airlines. It is worth noting that a charge of $9.50 represents 25 % of the average agency`s revenue on an airline ticket and that this cannot be simply absorbed.
Another noteworthy aspect of the airline’s initiative is that the settlement of this “surcharge” is to be processed outside IATA’s Billing and Settlement Plan (BSP). Not only will this process be onerous but the legitimacy of this charge is highly questionable and very likely challengeable. ACTA continues to believe that the market forces will prevail and that the carrier will either maintain this measure at its own expense or will be pressured to adjust its course of action. As regards the risk that other airlines may follow suit, ACTA will remain vigilant, however remote this possibility is. Given the challenges thrown at Northwest by GDS providers in the form of formal lawsuits, the overwhelming opposition raised by the travel agency community, and the very real impact on consumer choice and cost, it would appear that this initiative may very well be contained to one carrier and not be copied by its competitors.
Travel agents continue to be an efficient and effective means of distribution for airlines. Carriers realize that moves such as those made by Northwest, even if they are ultimately found to be legal, are not in their best interests. Carriers that pursue short-term benefits at the expense of a long-term perspective do themselves no favors. Doing across-the-board harm to travel agents and their clients is in no carrier’s best interests.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
