Aug. 24, 2001 – Moves in the last few days by all but one of the mainland airlines serving the Virgin Islands have drastically dropped the odds of travel agents throughout the country recommending the territory as a Caribbean visitor destination.
The reason is financial incentive, a compelling consideration for any business: There's up to five times as much money in it for them if they ticket clients to any Caribbean island but the U.S. Virgins and Puerto Rico.
Effective Aug. 18, American Airlines, which provides by far the largest airlift between the territory and the U.S. mainland, reduced the cap on commissions to travel agents for domestic flights to $20 for a round-trip ticket. Since 1997, the cap had been $50. The cap for international travel is $100.
Although the Virgin Islands is considered an international destination for air cargo purposes, the airlines classify it a domestic flight for passengers, even though passengers must go through U.S. Customs leaving the territory.
At 12:01 a.m. Thursday, Delta Air Lines and United Airlines, which also serve the territory, followed American's lead. And at 12:01 a.m Friday, U.S. Airways came aboard, along with Northwest, which does not serve the islands.
The only other major carrier providing scheduled service between the mainland and the territory is Continental. One local V.I. travel industry professional, who asked not to be identified, commented Friday, "It looks as if Continental hasn't joined in yet. But I'd bet you anything they will be there by a minute after midnight tonight."
The airlines' action is not a calculated move to reduce the number of travelers buying tickets to the Virgin Islands — a tiny proportion of their overall domestic passenger load. That, however, is likely to be the effect, V.I. travel professionals say.
"In the U.S., the most you can make now selling a ticket to the Virgin Islands is $20. But guess what? You can get up to $100 selling anywhere else in the Caribbean," Derryle Berger of St. Thomas-based Caribbean Travel Services said. "Figure it out."
Fran McCaw, comptroller at Southerland Travel Services on St. Croix, said, "It's a shame what it's going to do to the Virgin Islands. We're going to feel the impact as a destination where airfares for years have been high compared to the other Caribbean islands."
McCaw said the cap cut "came out of the blue" with no advance notice to agents.
V.I. relies on relationships with travel agents
Tourism Commissioner Pamela Richards wrote to American Airlines Caribbean region marketing executive G. Eric Knowles earlier this week saying the move "will be detrimental to the leisure travel agent industry and, as a result, may negatively impact the tourism industry" of the Virgin Islands.
"The territory relies on its long-standing, valuable relationships with the travel-agent community," she said. "Despite the fact that in the recent past, travel agents were often awarded with higher commissions when they booked non-U.S. Caribbean vacations, we have found that because of our quality product and the professionalism of the agents, the agents often still booked USVI trips for their clients."
Richards then cited national research findings that 51 percent of leisure travelers trust their travel agents to make recommendations and that although 46 percent find the Internet easier and faster than a travel agent, the majority of people still feel that using a travel agent is the most convenient way to arrange travel.
The financial incentive now for booking travel to a non-domestic Caribbean destination "may encourage agents to choose the destination that has the higher reward for the same amount of work," Richards said. "The USVI now is experiencing gains in visitor arrivals and we want to keep the momentum building. We believe that one of the best ways to achieve this is to further nurture, build and strengthen our relationships with the travel agent community."
Zero commission is coming
Berger, however, sees it as a done deal, and one that's not particularly surprising. "There's not much point in travel agents whining," she said. "This was inevitable. This is how the airlines are operating. The industry is moving toward a point where they are going to pay travel agents a zero commission and probably go to net fares, probably on a tiered structure, based on an agency's past performance."
The result, she said, will be "a free-for-all for agencies to price for themselves. Then it's going to be agencies putting other agencies out of business."
Berger said agents can't compete with Internet fares because the airlines "don't make them available to the travel agent. It's their game, it's their ball and it's their rules, and that's it."
She considers it "arrogant" of the airlines "that they're taking the right to choose their travel product away from the client. They're saying 'We want everybody to book on the Internet whether they have the inclination or the desire to do that or not.' And then guess what? The Internet fares are going to go up. Think about it."
She added, "Everybody knows they're going to zero commission. The question is whether they want to pay all agencies, or weed them down to the agencies they want to deal with. Even with net fares, they can play with us — give a slightly better rate to those they want."
Four years ago, the nation's airlines imposed the $50 cap on commissions for domestic travel. That replaced what had been a percentage basis for commissions: initially 9 percent for domestic travel versus 10 percent for international, and then 5 percent for all travel. At that point, many agents began charging a service fee, either a fixed amount or a percentage of the ticket price.
"Agencies have been surviving on service fees," Berger said. "If they go to zero commission, people are going to have to pay travel agents to sell them a ticket the way we pay lawyers — turn on the clock the minute you pick up the phone."
Some travel agents no longer book most tickets with the airlines personally. One of them is Carmen Douglas, the owner of International Travel Connections in Amsonia, Conn., an agency that specializes in Caribbean vacations and promotes that fact on the Internet. "For us the commission cap is not an issue," Douglas said. "We do minor sales that are not via Internet."
Money to mop up red ink
According to the Reuters news service, the reduced commission caps "are estimated to save the airlines up to $500 million a year, which would help mop up some of the red ink swamping beleaguered carriers this year."
The president of the American Society of Travel Agents charged Wednesday, however, that the action "is evidence of things to come as the U.S. airline industry becomes more and more of an unchecked, anti-consumer cartel."
The society announced on Thursday that it will seek federal permission to bargain collectively with the airlines, something that would currently violate anti-trust laws, Reuters reported Friday. ASTA "said the airlines were acting collectively" in reducing the commission caps and said this "supported their case for exemption from anti-trust rules," the Reuters report said.
Ironically, Berger said, airfares to the Virgin Islands have been lower this summer than in recent years. "Everything has been on sale for the V.I. since April," she said, with rates comparable to those to other Caribbean destinations. Most of the good deals are for travel no later than Nov. 14, she said.
