|Capped Commissions Cause Travelers' Unrest|
|Subject||Short-run and Long-run Equilibrium|
|Key Words||Commissions, Margins, Fees, Price, Costs|
Air fares are expected to rise indirectly as a result of the decision of the major airlines to impose a limit of $100 on travel agency commissions for booking international flights. Previously, travel agencies received 8 percent, which on higher fares came to more than $100. This change follows the recent cut in the commission from 10 to 8 percent, and the 1995 introduction of a cap of $50 on a round-trip domestic ticket.
As travel agencies find their margins squeezed, some are expected to go out of business while those that remain can be expected to increase fees for service. Currently, $10 to $15 is charged on average by 64 percent of members of the American Society of Travel Agents.
Leisure travelers will see the total price of purchasing a ticket rise. Business travelers will be hit most. Businesses -- which pay travel agents a management fee in return for refunds of the commissions -- will see their net costs increase. In the meantime, United Airlines expects to save approximately $100 million, while Delta Air Lines may save $40 to $45 million each year.
(Updated February 1, 1999)
|Source||Edwin McDowell, "An airline limit on travel agency fees for overseas flights may cost the flying public millions", The New York Times, November 25, 1998.|
Return to the Perfect Competition Index
©1998 South-Western College Publishing. All Rights Reserved webmaster | DISCLAIMER