“We love you and we’re here for you!” shouted Ray Redlich, director of operations management at Delta Air Lines, as he closed his lunchtime address to travel agents at Delta Vacations University in Minneapolis this past weekend.
He had spent the previous hour sharing information with the agents about Delta’s new initiatives, routes, destinations, aircraft and seat designs, plotting out the future for decades ahead. And then, he closed the show with a declaration of devotion. Delta loves travel agents.
Delta Air Lines has come a long way since 1995, when it was the first airline to put a cap on travel agent commissions. With that policy change, instead of paying a straight 10 percent commission on any domestic flight booked, travel agents’ commission maxed out at $50 for a domestic roundtrip ticket or $25 for domestic one-way.
Many agents feared it was the first step in a progression of airlines squeezing travel agent commissions into smaller and smaller amounts. And they were right. The airlines had discovered the internet. They had begun the process of disintermediation.
They were phasing out travel agents. The caps were the first step. That was followed by a progression of further cuts, painting agents further and further into a corner. It was a signal to travel agents that they would have to find a new way to make a living.
At that time, travel agents were selling 85 percent of airline tickets. But, with the appearance of the internet, the possibility for airlines to reach their customers directly was within their grasp, and they began to move in that direction.
I remember the first time I walked into a travel agency and discovered that they could book an airline ticket for me right there and not even charge for the service. It was an amazing convenience for customers. For the airlines, it created branch offices in every city across the country. The travel agent distribution system was essential for the airlines to reach into all corners of the country to build their market.
Travel agents were indispensable in building the passenger airline business during the post-World War II era. Then, suddenly in 1995, the airlines were showing signs that the party was over.
The airlines had problems of their own. The domestic airlines had lost $14 billion since 1988 and were struggling for survival and viability. They were desperate to cut costs, and they were paying travel agents $7.5 billion a year, as much as they were paying for fuel.
But, whatever the justifications, for travel agents it was a death blow, a knife in the back. Suddenly the bottom dropped out of their businesses. Over the next few years, as other domestic airlines matched Delta’s commission caps, followed by cuts in the percentages of commission and cuts in what kinds of sales were commissionable, the carnage in the retail travel industry was ravaging. It was a major housecleaning. Thousands of agencies closed.
However, the need for travel counseling did not go away, so a new crop of travel agents sprang up to take the place the place of the ones who had folded. The newcomers had never experienced the glory days of easy airline commissions and hardly knew what they had missed. They had to find new ways to do business, and they did. And, so did the airlines.
A new perspective
Now, looking back through the wrong end of a telescope, Delta’s move appears not like the end of a relationship, but as the painful first cuts in what would become a major industry restructuring. The relationship between airlines and retail travel agents has changed radically. And, it appears that the relationship, and the industry, are doing remarkably well.
I saw a glimpse of that relationship at work when I attended the Delta Vacations University event in Minneapolis over the weekend. The progression through which airlines bypassed travel agents and connected directly with their customers, was not the end of a relationship. It was a stage along the way in an evolving relationship.
Now, instead of paying a standard commission on every airline ticket sale, the airlines partner with travel agents in different ways. Probably the most significant way is through the airlines’ vacation packaging operations, such as Delta Air Lines’ packaging unit Delta Vacations.
The airline-agent relationship evolved from being a passive one in which travel agents earned straight commissions on all flights, to a more active relationship in which the airlines cultivate more in-depth, participatory relationships with select agents who are good producers.
The wholesale component
Wholesalers, the middle men between the airlines and the retail travel agents, have been a vital part of the structural evolution of the travel industry, too. As the airline industry evolved through deregulation in the 1970s, it became clear to some that operating an airline in highly competitive markets, with the major logistical challenges of moving masses of people and heavy equipment from point to point, required a very different skill set from that of marketing vacations to the public.
The airlines needed to market leisure travel to the public to help keep its airplanes as full as possible, but the work of marketing leisure travel was a job that was remote from operating an airline. The airlines struggled with it. Wholesale vacation packagers, most of which evolved from travel agencies that started selling vacation packages, were much better suited to that kind of work.
Wholesalers such as the Mark Travel Corporation and Certified Vacations convinced some of the airlines in the 1970s that they could manage the airlines’ vacation packaging operations better than the airlines could themselves, and ultimately make the airlines more money than if the airlines took on that role for themselves.
One of the wholesalers that rose to the top of the pack as an airline branded vacation packager was MLT Vacations. It started as Main Line Travel, a travel agency founded in 1969. Main Line Travel started selling vacation packages to Las Vegas and became so successful at it that it started selling the packages to other retailers, becoming a wholesaler.
Main Line Travel as a wholesaler was renamed MLT Vacations and got so good at what it did that, in 1985, it was purchased by Northwest Airlines and became the airline’s in-house vacation packaging unit. The company continued to build its skills for the next two decades, and in 2008, when Northwest merged with Delta, MLT became part of Delta Air Lines and was dubbed Delta Vacations.
So, now Delta has the best of both worlds. It has its own in-house wholesale unit that has really mastered the leisure travel business through decades of experience and building institutional knowledge with many employees who have stayed with the business for decades. That brings us back to Delta Vacations University, an annual event through which the airline invests in educating travel agents and building its partnerships with them to the benefit of both sides of the equation.
Back in 1995, who’da thunk it?