United Airlines Chairman James Goodwin says that his airline "will perish sometime next year" if his company's finances don't get turned around in a hurry, according to a story in Air Transport World Online, which is a reliable industry source. There is, however, a way that United and the other airlines can save themselves.
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Over the past seven years, the major airlines have screwed the travel agent industry, the airline industry's sales team, over and over again. As a result, their sales force has stopped selling their product. Now, without the sales that had been generated by travel agents, the airlines are panicking over a lack of customers.
When I became a travel agent in 1993, airlines paid us a commission of 10% of the price of the airline tickets that we sold. That was a reasonable, albeit modest, return on the efforts that we made and the expenses that we incurred for the privilege of generating huge profits for the airlines.
Then, the airlines decided to get clever. They felt that we would still do the same amount of work, and generate the same amount of business, even if they shafted us by cutting our pay by 20%, so they cut our commissions to 8%.
Our expenses remained the same. Only our revenue decreased.
Most travel agencies have a cost factor of about 7.5% of ticket revenue. With a commission of 10%, our profit was about 2.5% of sales. (10% commission minus costs of 7.5% equaled a 2.5% profit.) When the 8% commission was instituted, our profits dropped to just 0.5% of sales, so the 20% reduction in commissions (from 10% to 8%) really amounted to an 80% reduction in profits (from 2.5% to 0.5%). The airlines' attitude towards travel agents was, however, "Screw them. Let them make their money on the other things they sell, like car rentals, hotels, cruises and tours."
Then, the airlines cut commissions to 5%, which meant that travel agencies were, in effect, subsidizing the airlines on just about any ticket that sold for under $1,000. Still, the airlines' attitude was, "Screw them. Let their profits on other services offset their losses on the sale of airline tickets." Eventually, most travel agencies implemented service charges, or fees, of about $15 dollars per ticket, to offset the losses incurred by selling tickets, but most customers were unwilling to pay a travel agency $215 for a ticket that they could get directly from the airlines for $200.
This year, airlines went one step further. They capped commissions at $10 for a one-way ticket and $20 for a round trip ticket. That meant that, even if we sold a ticket for two or three thousand dollars, we got less money in commission than if we were waiting on tables at a nice restaurant where the tab came to 60 or 70 bucks. Keep in mind, too, that we have to pay all of our expenses out of that ten or twenty dollar "gratuity" from the airlines.
As a result, travel agents have said, "Screw them." Most travel agents have either stopped selling airline tickets or have left the business, entirely. Personally, I can't remember the last time I sold a United Airlines ticket, but I sell lots of Apple Vacations tours. Apple pays fair commissions and is thriving because of it. They bucked the industry trend. They chose to continue paying travel agents fairly, even when conservative management types at the airlines thought that vendors could make more money by stealing commissions out of the pockets of their sales team. In addition, Apple doesn't undercut travel agents by selling direct to customers. Apple Vacations are only available through legitimate, bona fide travel agencies like the Rob Sherman Travel Agency.
On Monday of this week, I attended the Apple Vacations "Winter Sun" trade show for travel agents. I've never seen a more enthusiastic large group of people in my life. The positive attitude, there, was like being in Soldier Field in 1985 during a Bears game or like being in the United Center in the 1990's when Michael Jordan played here. Not only does Apple Vacations do a terrific job for vacationers, they also do right by their sales team, the travel agent community.
In contrast, I'd rather spend an hour in a dentist's chair than spend an hour selling tickets for the airlines. The dentist treats me with respect, kindness and compassion, and since I floss my teeth every day (as well as brush), going to the dentist doesn't hurt any more, like it did when I was a child. In fact, sitting in a dentist's chair, even when he or especially when his young and pretty dental assistant is working on me, is definitely more comfortable than a comparable amount of time crammed into a seat on a United airplane, where the space between rows seems to be only slightly greater than the thickness of a sheet of paper.
If the job of a travel agent was simply to be an order taker, the airlines, and even Apple Vacations, wouldn't need us at all. It could all be done via the internet or over the phone to the airlines or Apple. However, as the airlines have found out the hard way, and as Apple has always known, we aren't just order takers. We're out there marketing their products. We find customers. We advertise the product. We develop business. We create business through our extensive product knowledge and our effective marketing skills. Then, for Apple but no longer for the airlines, we close sales.
We don't do that any more for the airlines because they thought we loved our jobs so much, we would do it for free. They thought that we loved our jobs so much that we would even pay for the privilege of selling their product.
Wrong!
If United and the other airlines want to generate the additional business that is necessary for their very survival, then they should immediately apologize to the travel agent community for taking us for granted, for screwing us out of literally billions of dollars of our commissions, and then restore our commissions to an uncapped 10%. Then, maybe, just maybe, we might look kindly on their bleak, self-inflicted financial predicament and begin to sell their product, again. Maybe. An introductory rate of 12%, 15% or even 20% commission, now through the end of the year, would be a nice way to kick-start a restoration of our mostly terminated relationship.
Otherwise, screw them. They screwed us, and then, on top of that, they got Congress to give them 15 billion travel agent and travel agency customer tax dollars, money that we had sent to Washington to be spent for public purposes, not to be spent on bailing out the holders of airline industry common stock.
Pay us and we may decide to resume selling your product. Don't pay us and we won't. Remember, at 10% commission, every time the airlines pay us a hundred dollars, they're making $900. Every time they pay us nothing, or offer to pay us scratch, they make nothing. With that in mind, Liberal News and Commentary offers to pay anybody who reads this article one hundred thousand dollars per year for the rest of your life. All you have to do to get that money from me is bring in to this site one million dollars per year in advertising revenue. That's a good deal for you, but it's also a good deal for me, because I get to keep the other $900,000.
The same principle applies to the airlines. If and when the airlines decide to pay travel agents the uncapped 10% commission that we earn and are entitled to for the sales that we generate, the work that we do and the expenses that we incur for the purpose of generating those sales for the airlines, that's when the airlines will resume hauling in the hundreds of millions of dollars of annual profits that they could be making, if only they weren't trying to be so clever, by keeping all the profits for themselves, that they end up making nothing.
In addition to screwing travel agents for profit, the airlines have been screwing their passengers for profit. No wonder people aren't flying United any more. Passengers are tired of hurting so badly by the time the flight ends from being crammed between narrow rows of seats. They're tired of paying eight times the cost of a seat when they have to make a reservation without an advance purchase or Saturday night stay-over. They're tired of exorbitant change fees.
End the practice of cramming rows of seats so close together that passengers are actually in pain by the time the flight hurts. Passengers don't want to hurt, anymore, and they're not willing to fly, anymore, if it means leaving the airplane in pain.
End the practice of screwing last minute travelers by charging them eight times the cost of an advance-purchase, Saturday night stay-over seat. Passengers aren't willing to pay that, anymore. Charge a fair price for your seats and maybe people will start buying them again.
End the practice of charging exorbitant hundred-dollar change fees. When potential passengers consider how much it is going to cost if they need to make a change, many are saying, "Screw it, let's drive," or "Screw it, let's not even bother going." This is particularly true when four or five people are traveling in a group, such as a family. Airlines see this as a great way to scam a profit, but the result is that they are actually losing money because of it. Since people are no longer willing to go along with that policy, you end up with a situation where, instead of the airlines making some money by flying full seats, the airlines are losing lots of money because they are flying empty seats.
With inflated prices for last-minute tickets, the cramped rows of seats, the outrageous change fees, the lack of effective security at the airports and the airlines' refusal to let passengers get the best fares through their travel agents, many passengers have decided that it's just not worth the hassle of dealing with the airlines.
End the conservative management gimmicks. End the corporate tricks.
Pay us, and fix those other problems, and you'll begin making money again. Don't pay us and don't fix those other problems and you'll go broke. Passengers are no longer willing to be abused by you, and travel agents aren't not going to sell your product if you don't pay us.
If we don't generate sales for you, you're not going to have enough business to survive.
Pay us or die.
Rob Sherman P. O. Box
7410
Buffalo Grove, IL 60089-7410
A post office box is used
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the street address uses a curb mail box,
which is not secure.
Telephone: (847) 870-0700
Fax: (847) 870-1156
E-mail: rob followed by the at symbol followed by robsherman dot com