Travelocity tacks $10 fee on Northwest/KLM tickets
(IDG) -- One day after Northwest Airlines and KLM Royal Dutch Airlines dropped their commissions on air tickets sold online, Internet travel agency Travelocity.com Inc. began charging a $10 fee on all Northwest/KLM tickets for travel in the U.S. and Canada. The fee went into effect Thursday.
In a tersely worded announcement Wednesday, the airlines publicized the change in policy, reversing the $10 ticket commissions previously paid for each online ticket sale.
A Northwest spokeswoman at the company's Minneapolis headquarters Friday declined to comment on the move. But Al Comeaux, a spokesman for Fort Worth, Texas-based Travelocity, criticized the move and said his company will now pass on the fee to customers seeking tickets on Northwest or KLM flights.
"It's really puzzling to us because it's an uneconomic thing for Northwest to do," Comeaux said. If customers buy their tickets from traditional travel agencies, the airlines pay higher commissions of $20 to $25 per ticket, he said. The cost of the ticket sale is even greater if customers use the airlines' own Web sites.
"Doing this at $10, we cost less than they cost," Comeaux said.
No other airlines have announced cuts for their online ticket sale commissions.
In a statement, Travelocity President and CEO Terrell Jones said his company is "surprised that Northwest and KLM would put themselves at a competitive disadvantage by forcing us to charge a service fee that we must now pass on to consumers."
Travelocity has sold more than 13 million airline tickets and has registered over 25 million members, according to the company.
Analysts said the commission cut wasn't unexpected and comes as airlines continue efforts to trim costs.
"The bottom line is that the airlines are making a move to attract more customers to their independent Web sites," said Krista Pappas, an analyst at Gomez Advisors Inc. in Waltham, Mass. Other airlines will probably follow, she said.
"I think it's a wise move that Travelocity imposed the $10 fee immediately" so it can experiment and gauge customer reaction, Pappas said.
For Travelocity, commissions from all airline tickets provide about 25% of the company's revenue, she said. Northwest and KLM hold a 15% share of the airline travel market. Because sites like Travelocity rely on multiple revenue streams, the impact of the lost commissions can be minimized, Pappas said.
Kate Rice, an analyst at PhoCus Wright Inc. in Sherman, Conn., said the airlines can take such unilateral actions because the industry has been booming and airlines are still filling their planes.
"The airlines want to make money and a great way is to cut costs," Rice said. "It goes straight to the bottom line."
Even so, Richard Copland, president of the American Society of Travel Agents in Alexandria, Va., criticized the cutback, calling it a "classic example of two airlines getting together and making an agreement on price," which he called a violation of antitrust laws.
"The government is allowing these [airlines], through their money and their power, to get together and form cartels," Copland said.
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