Travelocity strikes back as Northwest and KLM drop online ticket commissions

One day after Northwest Airlines Inc. and KLM Royal Dutch Airlines dropped their commissions on plane tickets sold online, Internet travel agency
  yesterday began charging a $10 fee on all Northwest and KLM tickets for travel in the U.S. and Canada.
In a tersely worded statement Wednesday, the airlines announced the change in policy, reversing the ticket commissions of up to $10 that they previously paid for each online ticket sale.
A Northwest spokeswoman at the company`s Minneapolis headquarters today declined to comment. 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, according to Comeaux. “Doing this at $10, we cost less than they cost,” he said.
No other airlines have announced cuts in their online ticket sale commissions. Nor has Expedia
, Travelocity`s chief rival in the online travel business, matched that company`s decision to slap a fee on sales of Northwest and KLM tickets.
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 more than 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.
Commissions from all airline tickets provide about 25% of Travelocity`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 PhoCusWright 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.”
But Richard Copland, president of the American Society of Travel Agents in Alexandria, Va., criticized the move by Northwest and KLM, which operate under an international alliance that frees them from collusion charges and other antitrust-related accusations.
Commission cutbacks such as the one announced by Northwest and KLM could hurt customer service for passengers trying to buy tickets, Copland claimed. “All of this is about [the airlines] making more money,” he said. “Airline service is an oxymoron.”