Top airlines fear crack-down on agents’ incentives

Date: 23/04/1998

By Chris Johnstone

MAJOR airlines are facing up to the prospect that the European Commission may demand radical changes to their marketing policies.

Fears of a Commission crackdown have intensified after competition officials widened their attack on British Airways' methods of attracting passengers.

The Commission has sent a supplementary statement of objections to BA, accusing the airline of exacerbating its alleged abuse of a dominant position with a new incentive scheme for travel agents. BA has been given a month to respond to competition officials' concerns.

The new incentive scheme imposed on travel agents forces them to sell more of the airline's tickets to earn the same commission as before. Travel industry experts say similar incentives have been introduced by most European airlines, suggesting that a Commission demand for BA to abandon the scheme would force other carriers to follow suit.

"There are similarities and differences between ours and BA's scheme," said a high-level employee of another major European airline. "It is no secret that the Commission is already looking at incentive schemes for travel agents as part of its review of transatlantic airline alliances."

BA chief executive Robert Ayling recently said that he would expect the Commission to take action against other airlines as well if it decided to outlaw his company's scheme. "If there is an issue here and there is a call for change, then it should be on an industry basis," he said.

BA's performance-related system, introduced at the start of the year, is a two-pronged bid to force travel agents to sell more of its tickets at the expense of rivals.

The first part of the squeeze cuts basic commissions to 7% from 9% on international tickets and from 9% to 7.5% on domestic ones. To earn these reduced commissions, travel agents must significantly boost year-on-year sales. To qualify for any payments at all, agents must reach a target of 95% of sales made in the same month of the previous year.

Once the incentive scheme kicks in, it makes heavy demands on the agents. Every additional 1% of international tickets and 3% of domestic tickets sold above the required levels bring an extra 0.1% commission.

In this way, travel agents must increase sales of international tickets by 20% to earn 2% more commission, thereby redressing the loss from the initial cut in bonus payments, and they must continue to boost their performance in each successive year.

Commission sources say that while such a system might be admissible for companies with a small share of the market, it threatens to damage competition when used by big players such as BA on their home ground.

The second statement of objections adds to an ongoing Commission investigation into complaints by Richard Branson's Virgin Atlantic airline that BA was abusing the offer of discount tickets to travel agents to force them to sell its services exclusively.

Virgin said its rival offered cut-price tickets on European services if travel agents sold transatlantic flights heavily, and claimed this had a serious impact on Virgin's business.