TWA's break from other US majors in capping travel agent commissions may not unravel the cost-cutting initiative, but it will certainly benefit the struggling carrier.
The move has locked TWA into an almost guaranteed revenue windfall and has removed it from a class-action lawsuit filed against the commission-capping airlines by the American Society of Travel Agents (Asta).
The St Louis-based carrier has announced what it terms a 'business agreement' with several unidentified parties representing travel agent interests who approached the airline in April. The deal involves TWA rescinding commission caps, which went into effect at the beginning of April, and going back to an across-the-board 10 per cent rate on all fares.
In return, TWA has obtained a guarantee that between 1 May and 30 September revenue from travel agent sales will increase by at least 10 per cent over the same period last year. If this target is not met, TWA can reimpose caps without fear of litigation. 'Instead of us taking unilateral action, we are sharing the risk,' says TWA, which refuses to give any estimates of increased revenue.
The unilateral action initiated by Delta Air Lines in February limited agent commissions to $50 on roundtrip fares above $500. Most majors, including American, Northwest, United, USAir, Continental and Alaska, followed suit, resulting in a legal challenge alleging collusion.
But TWA will avoid the lawsuit. 'We would not have agreed to the business deal if we were not removed [from the class action],' it says.
Asta officials have predicted since the caps were announced that airlines would break ranks. In many ways TWA, which is still working on its refinancing package and is far from profitable, seems the obvious, and perhaps only, carrier likely to do so.
Cost-cutting programmes at the other airlines that imposed the cap have quickly become beholden to caps as a primary source of savings. Delta, in particular, is depending on the caps to produce up to a quarter of the $400 million in annual savings from its marketing efforts as part of its 'Leadership 7.5' savings plan.
Also, TWA, with a relatively small domestic market share, can gain the promised 10 per cent revenue increase more easily. Representatives of the other carriers vehemently opposed the deal in the federal court, which had yet to approve the removal of TWA from the defence roster.
The deal will not solve TWA's financial problems altogether, but those airlines that did not impose the cap appear to have made some gains. In April, America West's load factor hit a high of 72.4 per cent, up 2.3 points over April 1994. 'I think we have seen some benefit,' the carrier says.
Source: Airline Business