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Airline - travel agent relations: an evaluation of remuneration schemes Bricel, Robin John 1979

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AIB1INE - TRAVEL AGENT BELAllCSS: AN EVALUATION OF REMUNERATION SCHEMES  by  ROBIN JOHN ERICEL B-A., The U n i v e r s i t y of Washington, 1976  A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE  REQUIREMENTS FOE THE DEGREE OF MASTER OF SCIENCE in BUSINESS ADMINISTRATION  in THE '  FACULTY. OF GRADUATE STUDIES i n the Faculty of  Commerce and Business  Administration  We accept t h i s t h e s i s as conforming t o the r e q u i r e d standard  The  U n i v e r s i t y of B r i t i s h Columbia September, 1978 (_)  Robin John E t i c e l ,  1978  In p r e s e n t i n g t h i s  thesis  an advanced degree at the I  Library shall  f u r t h e r agree  for  fulfilment of  the requirements f o r  the U n i v e r s i t y of B r i t i s h Columbia,  make i t  freely available  that permission  for  I agree  r e f e r e n c e and  f o r e x t e n s i v e copying o f t h i s  that  study. thesis  s c h o l a r l y purposes may be granted by the Head of my Department or  by h i s of  in p a r t i a l  this  representatives. thesis  It  is understood that  f o r f i n a n c i a l gain s h a l l  copying or p u b l i c a t i o n  not be allowed without my  written permission.  Department of The  cowineace AM& &n*.we** ^WIIMIWITIOIJ /TRANSPORTATION  University of B r i t i s h  Columbia  2075 Wesbrook P l a c e V a n c o u v e r , Canada V6T 1W5  Date  ix  M»«. i < m  ii  Abstract travel  agents  provide  an  essential  range of a i r t r a v e l  marketing s e r v i c e s which r e s u l t i n l a r g e commission  expenses f o r  a i r c a r r i e r s . Commission expenses have r i s e n to such that  air  transport  analysts  sihether  cited  rising  noa  in  the-.-trave.Uinq  value f o r the commissions  extent  and o t h e r s i n Canada have openly  c r i t i c i z e d remuneration p o l i c i e s questioned  an  practice-  They  have  public' i s r e c e i v i n g a f u l l  which t r a v e l agents r e c e i v e ; they have  commission  expenses  as  evidence  of  economic  i n e f f i c i e n c y w i t h i n the a i r t r a v e l marketing system. The  role  which  the  travel  agent  plays  industry i s described taking i n t o consideration  i n the a i r l i n e travel  agents,  air carriers  and a i r passengers. E e l e v a n t background  related  the t r a v e l agent remuneration i s s u e i s presented by  to  information  d e s c r i b i n g i s s u e s a f f e c t i n g the a b i l i t y o f independent t c provide t r a v e l This  services.  thesis  approaches  the  travel  problem using p o l i c y a n a l y s i s t o s e l e c t which  will  objectives include  best used  service  satisfy in  the  a  select  such  a  agent  of  as  of  retaining  development"  objectives  l e v e l s to small  different such  as  user  providing  and  obvious "regional  adequate  industry  service  communities.  D e s c r i p t i o n of developments i n i s s u e areas i n c l u d i n g agent  agent  the "user  avoiding  groups  The  schemes  travel  o b j e c t i v e s such as implementing  of  scheme  objectives.  remuneration  pay" philosophy, p o l i t i c a l o b j e c t i v e s such as subsidization  remuneration  remuneration  list  evaluation  objectives  i m p a r t i a l i t y , economic  cross  agencies  entry  requirements,  competition  for  travel market  iii  segments and  the i n t r o d u c t i o n of e l e c t r o n i c r e s e r v a t i o n s  systems  to t r a v e l agents i s presented i n order t o t e t t e r understand l i k e l i h o o d of remuneration schemes a c h i e v i n g Three  basic  Both  regulated  objectives.  types of remuneration a l t e r n a t i v e s , net  uniform commission and and  incentive  commission  unregulated  are  incentive  commissions The  incentive  as the  travel  agent  alternative  remuneration  is  scheme.  selected The  of and  the  various  costs  of  full  remuneration l e v e l s are  involvement  in  the  are  optimal  of  this  achievement  o b j e c t i v e s . Under t h i s a l t e r n a t i v e , the regulatory  8 3  regulated  selection  a l t e r n a t i v e r e s u l t s i n a compromise between the  fare,  considered.  analyzed s i n c e t h e i r impacts vary s i g n i f i c a n t l y . commission  the  benefits  setting  of  assured-  T h e net f a r e remuneration a l t e r n a t i v e may be defined as a marketing scheme where t r a v e l agents r e c e i v e no commission on t i c k e t s a l e s i n s t e a d , a s e r v i c e fee i s charged. Under a uniform ccnmission : payment scheme, a l l t r a v e l agents r e c e i v e t i e same percentage commission payment. I n c e n t i v e commissions offer travel agents f i n a n c i a l i n c e n t i v e s f o r high volume s a l e s or f o r sales to p a r t i c u l a r destinations-  8 3  iv  Table of Contents  1  2  X N T HO D UCX XO N • • •» — • * 1- 0 I n t r o d u c t i o n ................:....».....--..• 1.1 Thesis Objective . . w . . . . ^ . . . . . . . . . . . . . . . 1.2 L i m i t a t i o n s and a s s u m p t i o n s . . . . . . . . . . . . 1.3 B e n e f i t s and C o s t s from T r a v e l Agent S e r v i c e s ................................ B e n e f i t s and C o s t s f o r t h e C o n s u m e r s . . . B e n e f i t s and C o s t s f o r t h e A i r l i n e s . . . . B e n e f i t s and C o s t s f o r t h e A g e n t s ....... 1.4 O u t l i n e o f Remaining C h a p t e r s TRAVEL AGENT REMUNERATION APPROACHES 2.-0 Domestic Commissions ................... 2.1 I n t e r n a t i o n a l Commissions . . . . . . . . . . . . . . Conference Ticket Clearing'Procedures -. LATA Bank S e t t l e m e n t P l a n .4,,„. 2- 2 Open R a t e C o m m i s s i o n s 2.3 Impact on I n d u s t r y S t r u c t u r e . . . . . . . . . . . 2-4 A l t e r n a t i v e C o m p e n s a t i o n Schemes - - - - - - Net P a r e R e m u n e r a t i o n A l t e r n a t i v e . . . . . . U n i f o r m Commission Rate A l t e r n a t i v e . . . . I n c e n t i v e Coamission A l t e r n a t i v e ....... R e g i o n a l Development Commission A l t e r n a t i v e ...-----»'.....--.----..'--.-.-  1 1 2 3 4 4 5 6 8 9 9 12 12 13 14 20 29 30 33 35 40  REGULATION . . . . . . . . . . . . i . . 44 The P r o c e s s o f E n t r y . . . . . . . . . . . . . . . . . . . 44 A i r l i n e Conference Recognition 45 C a u s e s o f Agency F a i l u r e s 49 T r a v e l A g e n t I n d u s t r y R e g u l a t i o n . . . . . . . , 52 consumer P r o t e c t i o n from the R i s k o f B a n k r u p t c y . . i . . . . . . . . . . . . . . • • . ' .. 60  3  INDUSTRY 3.0 3.1 3.2 3.3 3.4  4  COMPETITION FOR MARKET SEGEMENTS . . . . . . . ......... 4.0 A i r l i n e R e l i a n c e upon T r a v e l , A g e n t s . . . . 4.1. E t h n i c Markets ................. Chinese T r a v e l Agencies i n Vancouver ... Special Ethnic Services 4.2 E t h n i c T r a v e l Agent M a r k e t i n g S t r a t e g i e s ............................. 4.3 C o - o p e r a t i o n Among E t h n i c A g e n c i e s . . . . . 4.4 D i v e r s i f i c a t i o n of E t h n i c A g e n c i e s ..... 4.5 T r a v e l Agents vs. C i t y Sales O f f i c e s ... C i t y S a l e s O f f i c e s as A l t e r n a t i v e C h a n n e l s o f D i s t r i b u t i o n ... D i f f e r e n c e s Among S e r v i c e C h a r a c t e r i s t i c s ........................ Importance of T r a v e l , A g e n c i e s f o r the City Sales Office ...................  62 62 64 65 66 68 69 74 77 77 77 78  V  5  6  ACCESS TO ELECTRONIC RESERVATIONS SYSTEMS 5.0 I n t r o d u c t i o n c f Computer B a s e d I n f o r m a t i o n S y s t e m s t o A g e n c i e s ......... 5.1 A i r l i n e C o m p e t i t i o n f o r T r a v e l Agent Bookings ............................... Introducing Electronic Reservations Systems t o T r a v e l A g e n c i e s ............. E l e c t r o n i c R e s e r v a t i o n s Systems i n 0. S. T r a v e l A g e n c i e s . . . . . . . . . . . . . . . . . . Marketing Advantages through Automation 5.2 B e n e f i t s a n d C o s t s o f System I n s t a l l a t i o n f o r t h e T r a v e l Agent . . . . . . . . . . . . . . . . . . . 5.3 B e n e f i t s and C o s t s o f System I n s t a l l a t i o n f o r t h e A i r l i n e s ....................... 5.4 B e n e f i t s and C o s t s o f System I n s t a l l a t i o n f o r t h e Consumer 5.5 Long-term I m p l i c a t i o n s .................  81 81 82 82 84 85 86 89 91 91  EVALUATION OF TRAVEL AGENT REMUNERATION ALTE RN AT I V ES ................. - ... i - - - - . - - - - ------95 6.0 Methods o f E v a l u a t i o n . . . . . . . . . . . . . . . . . . 95 6.1 S e r v i c e A t t r i b u t e s ...... . . . v - . - - i v - . . . . 95 6.2 C r i t e r i a f o r Evaluation 97 6.3 Evaluation of Alternatives . - - i - . 100 Net F a r e R e m u n e r a t i o n A l t e r n a t i v e . . . . . . 100 S e r v i c e L e v e l O b j e c t i v e s . - - - i - . - - - - - - - - 100 E c o n o m i c O b j e c t i v e s . . . . . . . . . . . . . . . . . . . . . 102 P o l i t i c a l Objectives 102 R e g i o n a l Development O b j e c t i v e s . ^ . . . - - . 1 0 3 U n i f o r m C o m m i s s i o n A l t e r n a t i v e . . . . . . . . . . 103 Service Level Objectives 103 E c o n o m i c O b j e c t i v e s »«...;,..-•--..•.«....-.- 105 Political objectives 106 R e g i o n a l D e v e l o p m e n t O b j e c t i v e s . . . . . . i . . . 108 I n c e n t i v e C o m m i s s i o n A l t e r n a t i v e s . . . . . . 106 U n r e g u l a t e d I n c e n t i v e Commission A l t e r n a t i v e . . . . . . . . . . - - - - » . - • . - ... . . . . . . 107 Service Level Objectives 107 Economic O b j e c t i v e s 109 P o l i t i c a l O b j e c t i v e s . . . . . . . . . . . . . . . . . . . 110 R e g i o n a l Development O b j e c t i v e s . . . . . . . . 1 1 1 R e g u l a t e d I n c e n t i v e Commission A l t e r n a t i v e ..>..........-- - - . . . . . . . . . . . .. 111 S e r v i c e L e v e l O b j e c t i v e s . . . . . . . . . . . . . . . 110 E c o n o m i c O b j e c t i v e s . . . . . . . . . . . . . . . . . . . . 112 P o l i t i c a l O b j e c t i v e s . . . . . . . . . . . . . . . . . . . 112 R e g i o n a l Development O b j e c t i v e s . . . . . . . . 112 Summary o f O b j e c t i v e A c h i e v e m e n t . . . . . . . 113 6.4 C o n c l u s i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113  7  SUMMARY 7.0  Summary  Bibliography Appendix  1  Appendix  2 . i i a posted  vii  list 1- U n i t e d  States  Travel  of  Exhibits  Agent S a l e s  per l o c a t i o n ..„...,  7  2. CP A i r - D o m e s t i c S c h e d u l e o f C o m m i s s i o n s f o r Air  Travel  3. S e l e c t e d  Originating  International  i n the United Commission  States  ........  Levels  4. I n t e r n a t i o n a l T r a v e l Agent C o m m i s s i o n s P a i d by U n i t e d S t a t e s A i r l i n e s - 1974-1976 . . . . i 2 5- T r a v e l A g e n t C o m m i s s i o n P a i d by S c h e d u l e d C a n a d i a n Carriers -  13 22  7  1970-1S76 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28  6. P a s s e n g e r C o m m i s s i o n s a s a P e r c e n t o f Revenues ( I n t e r n a t i o n a l Trunk C a r r i e r s ) .....................  39  7. C h i n e s e T r a v e l  Agencies i n Greater  V a n c o u v e r . . . . . . . 71  8. Summary o f R e m u n e r a t i o n Scheme O b j e c t i v e Achievement ...........................^............  115  s Acknowledgements I would l i k e t o express my a p p r e c i a t i o n t o the members of my T h e s i s Committee, Dr. K a r l M. Euppenthal, Dr- Trevor D. Heaver, and DrJames B. Stephenson f o r t h e i r a s s i s t a n c e in the writing of this thesisSpecial a p p r e c i a t i o n i s a l s o expressed to passenger marketing managers of A i r Canada and CP A i r and to the travel agents who were instrumental i n providing useful information r e l a t e d to my t h e s i s t o p i c .  1  CHAPTER 1  1.0  INTRODUCTION  Introduction There i s l i t t l e  role  in  the  doubt t h a t t r a v e l agents p l a y an  airline  industry  by  providing  t r a v e l l e r s . The a i r l i n e i n d u s t r y has r e l i e d offered  by  the  travel  essential  services to a i r  upon  the  services  agent i n d u s t r y because of the numerous  advantages which an independent channel o f d i s t r i b u t i o n comparison The  with a i r l i n e - o w n e d channels of d i s t r i b u t i o n . traveller  contemplating  f l y i n g from New York C i t y t o  Chicago i s faced with choosing from among 6 and  75  has i n  direct  different  carriers  f l i g h t s as w e l l as numerous c o n n e c t i n g f l i g h t s .  I n d i v i d u a l c a r r i e r ' s c i t y t i c k e t o f f i c e s tend t o a l a r g e to  emphasize  the  w h i l e deemphasizing for  1  extent  s a l e of t h e i r own a i r t r a n s p o r t a t i o n product the s a l e of competing  carriers.  Tbe  result  the passenger may be a l o n g e r t r a v e l time than i s necessary  because  a  carrier  »ith  an  indirect  routing  T h e r e f o r e , a lower l e v e l of customer s e r v i c e situation, travel  the  agent  unbiased  can  consulting  eliminate  delays  selected.  results.  services and  is  In  this  provided by the  provide  air  travel  s e r v i c e s i n a more convenient manner.  *0ff i c i a l A i r l i n e Guide-North American E d i t i o n , Oak Brook, I l l i n o i s , Reuben H- Donnelley, November 15, 1977, p. 274.  2  Travel  agent  international familiar  services  sector  with  are  where  p a r t i c u l a r l y important i n the  travellers  are  generally  the v a r i e t y of t r a n s p o r t a t i o n ,  accommodation  other t r a v e l s e r v i c e s o f f e r e d . C o n s i d e r , f o r example, of  the  family  travelling  abroad  on  a  the  limited  own  t r a v e l agent w i l l  f a m i l i a r with a l t e r n a t e modes of t r a n s p o r t of  The  low-cost  to the t r a v e l l e r than would an a i r l i n e s e l l i n g i t s  s e r v i c e s . S i m i l a r l y , the  range  and case  budget.  i n d i v i d u a l t r a v e l agent i s much more l i k e l y to present alternatives  less  s e r v i c e s but  frequently  most  likely  providing  be  a different  deemphasized i n a i r l i n e  sales  offices. Thorughout the agent i n d u s t r y that by  travel  a n a l y s i s of problems c o n f r o n t i n g  presented i n t h i s t h e s i s , one  of  travel  should bear i n mind  agents, i n the context of the a i r l i n e i n d u s t r y  d e f i n i t i o n appointed s a l e s  channels  the  distribution;  s e r v i c e s per se, but  representatives they  rather,  do not  serve  r e c e i v i n g a commission f o r the  as  which  produce sales  serve  are as  transportation intermediaries,  s e r v i c e s which they provide t h e i r  clients.  1.1  Thesis As  Objective  a general  frame of r e f e r e n c e ,  bringing  into  consideration  carriers  and  government  consumers, regulatory  examining the changing r o l e of transportation pages  which  industry. follow  is  a multi-facetted  the  travel agencies  travel  agent  More s p e c i f i c a l l y , the to  approach  agents, is in  taken the  o b j e c t i v e of  air in air the  s e l e c t a t r a v e l agent remuneration  p o l i c y f o r Canadian t r a v e l agents which i s i n the long-run  best  3  interest  of the  travelling  public. A subsidiary objective  e v a l u a t e the need f o r r e g u l a t i o n of the  t r a v e l agent i n d u s t r y i n  order t o r e t a i n d e s i r a b l e a t t r i b u t e s a s s o c i a t e d agent  with the  travel  industry. In  order  to  achieve  this,  present a i r l i n e - t r a v e l  remuneration p o l i c i e s are d e s c r i b e d ; and  i s to  a n a l y s i s of the c o s t s and  alternative  a l t e r n a t i v e s are  b e n e f i t s and  the  agent  generated;  impact  of  each  i s s t u d i e d . F i n a l l y , an a l t e r n a t i v e i s s e l e c t e d  presented as a suggested p o l i c y change f o r i a p l e n e n t a t i o n  and  by  the  degree  of  analysis  of  Canadian Transport Commission.  1.2  L i m i t a t i o n s And There are primarly  comprehensiveness  of  Assumptions two this  major l i m i t a t i o n s t c the thesis.  problems l i m i t s i t s e l f t o c o n s i d e r i n g agents  i n the a i r l i n e i n d u s t r y .  First, the  the  usefulness  of  Although the non-air  travel  modes play  a s i g n i f i c a n t r o l e i n the t r a v e l agent i n d u s t r y , a recent revealed  that  agent s a l e s was focus  of  37  percent of the t o t a l d o l l a r volume of t r a v e l  derived  from non-air  a t t e n t i o n of the  mode  tour  wholesaling  sales.  2  Second,  a n a l y s i s presented i s upon r e t a i l  opposed to wholesale t r a v e l agents. The in  study  through  the  involvement of  ownership  or  I t i s assumed t h a t the  impact of r i s i n g  commission  as  airlines  control  wholesale t r a v e l agencies i s d e a l t with i n a t a n g e n t i a l  the  cf  fashion. levels  i n Canada s h a l l be s i m i l a r to the changes which have r e s u l t e d i n  2  Louis Harris and Associates, The United S t a t e s T r a v e l Agency Market, P u b l i c a t i o n s , A p r i l 1977, p. 1 0 .  Character- and; v Viol urne of - the New Xork, N.Y., Ziff-Davis  4  the of  United States. both  the  related  to  respects. considers  1.3  travel  As  One  should  And  travel  bear  .The  there  Agent  step shopping  to  ensure;the  of  c a r r i e r s . For  prevailing  2,000 t o u r  structures  u n b i a s e d n e s s of  by  of  convenient for  are  the the  per  to  and  clients in  most  location  attractive  travel  the  the  and  the  features  travelling  agent  shich  public.  select  order  i n the  selection  1977-78 c o m m i s s i o n  structure  cent commission  A i r Canada and  agent  tc  operators  have been d e v e l o p e d i n  the  example, under  both  two  businesses o f f e r  i n C a n a d a , a 7.5  sales  thesis  Consumers  in  small  this  Services  . Convenience  one  in a l l  setting.  communities-  3  primarily true  that  a Canadian  were more t h a n  Uniform commission  3  mind  locations  t r a v e l agencies as  As  in  in  characteristics  necessarily  convenient  associated  interest  this  in  industries,  agents p r o v i d i n g  Canadian  ticket  airline  C o s t s From T r a v e l  Costs For 1977,  diffences  t h i s i s not  alternatives  and  to  and  differences,  policy  of  agent  size  Benefits  Benefits  However, due  CP  paid  A i r , i t was the  flight  on  in  domestic the  best  which i s  most  customer.  small business concerns,  position  than a i r l i n e  clients  with  owned  personalized  l h e number of t r a v e l "The Big Business 1977, p.T-1-  t r a v e l agencies are  city travel  ticket  offices  consulting  in a to  services  hetter provide which  f i r m s i n Canada d u r i n g 197 7 i s drawn from of Travel," The F i n a n c i a l Post» March 26,  5  extend much f u r t h e r than merely becking a seat on making  a  hotel  reservation-  segments  such  as  flight  or  Consumers of a i r t r a v e l s e r v i c e s  b e n e f i t from the s p e c i a l i z a t i o n of t r a v e l market  a  the  agents  into  various  commercial t r a v e l or the  ethnic  market segments. Of course, the s e r v i c e b e n e f i t s obtained travel  agents  are  not  obtained  without  by  consumers  incurring  However, p r o v i d i n g a p r e c i s e answer to the q u e s t i o n , f o r the s e r v i c e s performed by the t r a v e l agent?" do.  Ihe  power  view.  participants  process.  On  the  regulatory  in  i s not easy to  the  lower  other body  is  able  to  by  point  increases  assuming without  that  most p a r t  the  the  in  cost  travel  of  agent,  with the use of t r a v e l agents.  airlines  benefactor  from  the  t r a v e l agents i s the a i r c a r r i e r . The travel  restrict  a i r l i n e s w i l l f o r the  Similarly,  B e n e f i t s and Costs f o r the  of  hand, i f commission l e v e l s r i s e but a  there i s no r e a l c o s t a s s o c i a t e d  upon  to users i n the form  i n f a c t " f r e e " from the consumer's  p r o v i d i n g s e r v i c e s would be g r e a t e r  key  passing  then i t i s c l e a r that the s e r v i c e s o f f e r e d  profits.  Another  airfare  I f c a r r i e r conferences succeed i s  a i r f a r e s , then, c e t e r i s paribus,  reliance  pays  commission  the  t r a v e l agents are not,  earn  "Who  of  airfares,  strong  cost.  bargaining  the c o s t of high commission r a t e s along  of  a  impact of t r a v e l agent c o s t s depends upon the  determination  higher  from  services  rationale  performed  underlying  by the  agencies i s e s s e n t i a l l y fonnded upon the  b e l i e f that i t c o s t s the c a r r i e r  less  to  market  its  product  through an appointed agent than what i t would through c i t y  sales  6  offices.  C l e a r l y , i t would be economically, i n e f f i c i e n t f o r each  c a r r i e r to e s t a b l i s h as many t i c k e t o u t l e t s as there are travel  agencies.  f r a c t i o n of the United  States  Even i f each a i r l i n e e s t a b l i s h e d only over  14,000  carriers,  agencies  fact  that  providing  kept  in  mind  approved  a i r l i n e managers are h i g h l y concerned with at  the  adequate customer s e r v i c e l e v e l s should when  by  paid.*  minimizing t r a v e l agent commission expenses while time  a modest  marketing c o s t s would be much g r e a t e r  than commissions which are p r e s e n t l y The  presently  retail  analyzing  the  remuneration  same  also  be  alternatives  presented i n t h i s t h e s i s .  B e n e f i t s and The  Costs f o r the Owners o f T r a v e l  Agencies  most obvious b e n e f i c i a r i e s from the s e r v i c e s o f f e r e d  t r a v e l agents are the s h a r e h o l d e r s  and  by  p r o p r i e t o r s of i n d i v i d u a l  business e n t e r p r i s e s . l e c e n t Air T r a f f i c Conference s t a t i s t i c s r e v e a l t h a t i n the United  States,  sales  per  approximately 8% during when  the  number  of  the  of  sales  s  1974,  i n t r a v e l agent s a l e s per  agencies  outlets,  a  period  increasing. location  5  is  be kept i n mind wnen e v a l u a t i n g are  hence  generally  of  a  t o t a l f i r m e a r n i n g s would  be  * T r a v e l Agent Commissions Reach $1.44 Transport World. October 1977, p.32. M  to  agency l o c a t i o n s was  i n E x h i b i t 1. I t should  t h i s data that t r a v e l number  p e r i o d from 1969  travel  Evidence of the i n c r e a s e revealed  l o c a t i o n rose a t a compound r a t e of  Billion  composed  in  1976," • A i r -  Air Traffic Conference of America, " T r a v e l Agent Commission S t r u c t u r e , " Washington D.C., 1974, p.3.  7  g r e a t e r than s a l e s per o u t l e t . i  :  ~  I  J I I I  Exhibit 1 United S t a t e s T r a v e l Agent S a l e s Per L o c a t i o n  Year -  Thousands Of C e l l a r s  Index  1969 1970 197 1 1972 1973 1974  299 318 330 358 368 432  100. 0 106. 4 110.4 119.7 123. 1 144. 4  | J  Source; A i r T r a f f i c Conference Of America, "Travel Agent Commission S t r u c t u r e " , Washington D.C., 1974,  J  P-3.  i I  i  .  l e c e n t data drawn from a Canadian the  average  agency  produces  setting  $900,000  annually with net e a r n i n g s v a r y i n g widely  indicates  to $1 m i l l i o n i n s a l e s from  0  percent of gross revenues, the average being around Fringe  benefits  such  transportation fares attract  as  that  tc  aboct  1 percent.  to  which  has  generally  c h a r a c t e r i z e d as having long working hours  and  relatively  pay.  agents  industry,  The  frequently  an  6  i n s t r u c t i o n a l t o u r s and reduced individuals  agent  4  many  industry  travel  travel  low  benefits  untaxed  (and thus a l l - t h e - m o r e a t t r a c t i v e ) , r e f l e c t a to the a i r l i n e i n d u s t r y i n  receive  been  fringe  r e l a t i v e l y low c o s t  which  the  comparison  are  with  8 commission  1.4  expenses.  O u t l i n e Of Remaining Chapter  procedures,  2  describes  generates  presents the advantages of  the  various  following the  Chapters existing  alternative  commission compensation  alternatives.  The  t h r e e c h a p t e r s immediately  of t r a v e l . agent  evaluates  carriers,  public.  facing  from environmental changes.  Chapter 3 reviews the h i s t o r y upon  and  parties  with separate problems  t r a v e l agent i n d u s t r y r e s u l t i n g  impact  schemes  and disadvantages t o i n t e r e s t e d  Chapter 2 are concerned  its  remuneration  legislation  travel  Chapter.4 c o n s i d e r s unique s e r v i c e s  agents  offered  and  and t i e  by  travel  agents to p a r t i c u l a r segments of the t r a v e l i n d u s t r y such as the ethnic  and  commercial  travel  markets. The f o l l o w i n g  Chapter 5, c o n s i d e r s the impact o f the and the  technolocical  changes  r e t a i l t r a v e l agent i n d u s t r y . In p a r t i c u l a r , the disadvantages f o r consumers, c a r r i e r s and t r a v e l introduction  industry i s dealt  of  electronic  selected  public  advantages agents  of  r e s e r v a t i o n s t e r m i n a l s to the  upon t r a v e l agents, c a r r i e r s  and  the  are e v a l u a t e d and one remuneration scheme i s  as the most d e s i r a b l e  The method o f s e l e c t i n g in analysis  upon  with. In Chapter 6, the impacts of t i e v a r i o u s  remuneration a l t e r n a t i v e s travelling  chapter.  given a s e l e c t s e t of  these o b j e c t i v e s  of the commission  issue  objectives.  plays an i n t e g r a l  role  presented i n t h i s c h a p t e r .  ^"licensed leisure", The F i n a n c i a l Post. Supple nsent Canadian t r a v e l i n d u s t r y , Harch 26, 1977, p. T-2-  the  9  CHAPTER 2  2-0  Domestic In  the  the  Civil  reguires  which  Eoard  originating  in  (C.A.B-).  This  the  United  they f e e l  with  In  the r e g u l a t o r y  will  States  though  i s not reguired  i t reserves  structure  changes which  s i t u a t i o n concerning  right  to  the  of  body  World  commissions sc.  to  provided  commissions  Airways Canadian  this  attempted  of  agents  even  commission to the  of t h e e x e r t i n g  occurred to  Air  structures  may, i n i t s v i e w , be d e t r i m e n t a l An example  American  with the  Commission's  disapprove  industry-  power  body  agency.  s u r v i v a l of the a i r l i n e regulatory  be f i l e d  t o approve commission  the  i s  of a i r t r a v e l  profits  somewhat d i f f e r e n t . The C a n a d i a n T r a n s p o r t  Committee  sales  t o pay t r a v e l a g e n t s  maximize  t h e government  regulates  regulatory  structures f o r sales  i ti s filed Canada,  which  on t i c k e t  t h i s system, c a r r i e r s a r e f r e e  whatever c o m m i s s i o n  is  t h e f e d e r a l agency  t r a v e l agents r e c e i v e  Aeronautics  B o a r d . Under  that  States,  that a l l commission  services  APPROACHES  Commissions  United  commissions  the  TRAVEL AGENT REMUNERATION  of  i n 1977 when Pan  introduce  b u t was p r o h i b i t e d  incentive from  doing  7  The  result  "Pan Am C a n n o t Travel Courier,  of  this  s i t u a t i o n h a s been t h a t  Offer Incentives to O c t o b e r 7, 1976, p. 1.  Agents  t h e two major  Here",  Canadian  10  Canadian c a r r i e r s , A i r regional  carriers  established f o r transborder  Canada  have  O.S.  and  CP  followed  carriers  with  competition,  the  Air  at  well  commission  respect  to  follow  States.  as  the  structure  domestic  and  defined  Aside from  as  reasons  the major reason f o r t h i s i s the requirement of  Traffic  airlines  the  as  t r a v e l ; the l a t t e r of which i s g e n e r a l l y  t r a v e l between Canada and t h e United of  Air,  Conference  of  America  the same commission  JATC),  that  s t r u c t u r e . One  t h i s p o i n t t h a t A i r Canada and CP A i r are  member  should  note  associate  members  structures  were the  of the AIC. As  of A p r i l , 1978, domestic commission  same f o r both A i r Canada and CP A i r . T h i s which  is  shown  in  Exhibit  2 provides  incentive to s e l l transportation  commission  structure  agents with a monetary  services incorporating  i n a d d i t i o n t o a i r t r a n s p o r t a t i o n from p o i n t A t c point One  must d i f f e r e n t i a t e between the v a r i o u s  different  commissions.  advertised  a i r tours,  The  ATC  convention  t o u t s and i n c e n t i v e a i r t o u r s . and  independent  commission  air  e  tours  B.  which  d e f i n e s four  different  air  independent  As o f  tours, April,  1978,  air  advertised  o f f e r e d only a  and convention a i r t o u r s are package  tours  must i n c l u d e a i r t r a n s p o r t a t i o n as w e l l as one a d d i t i o n a l  8  tours;  commission.  Advertised  related  pay  t o u r s o f f e r e d t r a v e l agents an 11 percent  whereas i n c e n t i v e and convention tours  10 percent  services  component  Air Traffic R e s o l u t i o n No,  such  as  ground  transportation,  and  travel hotel  Conference o f America, Trader P r a c t i c e aanua1* 80.15, December 31, 1975, p. 19.  11  accommodation or a s i g h t s e e i n g t o u r . Independent a i r prepaid  tours  including  travel  to  American: c i t i e s or l o c a l i t i e s . The promotional  two  are  non-contiguous North-  agent must a d v e r t i s e and make  e f f o r t s i n - o r d e r t o q u a l i f y f o r the independent  commission. I n c e n t i v e t o u r s are comprised well  tours  as other accommodations and  of  circle  tour  trips  as  tourist related a c t i v i t i e s .  In  order to q u a l i f y f o r i n c e n t i v e commission r a t e s , such t o u r s must be promoted with p r i n t e d promotional The various  r a t i o n a l e underlying tours  stems  from  literature.  d i f f e r e n t i a l commissions the  belief  for  the  of the conference  agents should r e c e i v e g r e a t e r compensation f o r s a l e s  that  which  are  more expensive to s e r v i c e . Due increase  t o the economic i n c e n t i v e f o r t r a v e l agents to seek to the  revenues, higher  ratio  the  of  tendency  revenues  retained  over . t o t a l  to c l a i m t h a t t i c k e t s a l e s q u a l i f y f o r  tour commissions was  r e p o r t e d to have i n c r e a s e d  e s p e c i a l l y before the widespread use of d i f f e r e n t i a l in  the  international  market.  This  could  rapidly  rather  9  commissions  be expected as  revenue a l t e r i n g v a r i a b l e s which r e t a i l t r a v e l agents may are  sales  the  alter  l i m i t e d . Moreover, from the i n d i v i d u a l f i r m ' s point  of view* t h e r e i s a s u b s t a n t i a l d i f f e r e n c e between the commission l e v e l of 7 percent  and  one  of 10 or 11  previous  percent.  Commission l e v e l s f o r domestic a i r t r a n s p o r t a t i o n i n Canada and  the  United  States have remained r e l a t i v e l y  over the l a s t decade because of the  i n t e r v i e w with P h i l l i p Morgan, CP 15, 1977.  strength  of  nan-competitive the  ATC  and  A i r IATA r e p r e s e n t a t i v e , March  12  because  tbe a p p r o p r i a t e  commission  rates  expressed  by  filed  the  spread  to  precipitating airlines. domestic  The  include  commission  expenses. situation  10  concern  that the commission  2.1  been rate  commissions  an  the  domestic  open  rate  situation  for  a r e s i g n i f i c a n t . Indeed, i f the open  spread,  expenses  to  between an open r a t e s i t u a t i o n f o r  and  commissions  costs  the  profitability  be reduced given as  a  percent  of  the high  The c o s t s and b e n e f i t s of the open  rate  operating commission  as w e l l as a view as to whether r e g u l a t o r y be  domestic  variability  of the t o t a l  commissions i s i n t h e p u b l i c ' s i n t e r e s t s h a l l the  has  for international  marketing  c a r r i e r s would most l i k e l y of  carriers  similarities  to  Some  have not r e j e c t e d  domestic commissions as w e l l , thereby  increased  r a t e were allowed  bodies  them.  developed  commissions  international  with  domestic  phenomenon which has will  regulatory  control of  presented  in  l a t t e r part of t h i s chapter.  Commissions On I n t e r n a t i o n a l A i r  Conference T i c k e t C l e a r i n g The  International  Transportation  Procedures  A i r Transport  Associaton  <IATA)  has  designed a s e t of procedures which i t c a l l s the Agency Programme i n order t o ensure t h a t a l l agency o u t l e t s  are  "competent  and  ^©Evidence o f t h e r e l a t i v e importance o f i n c r e a s i n g commissions to the ATC member c a r r i e r s i s revealed i n 1977 A i r T r a n s p o r t A s s o c i a t i o n of America s t a t i s t i c s . Over the p e r i o d from 1S75 to 19.76 passenger t r a f f i c commisions r e p r e s e n t i n g 4.9% of o p e r a t i n g expenses i n c r e a s e d by 17.7 percent while labour c o s t s i n c r e a s e d by only 10.4 percent- A v i a t i o n D a i l y , January 10, 1977, p.63.  13  ethical  organizations  dependable s e r v i c e  capable  t o the  public".  of  providing  accurate  and  1 3  i  :  :  1  I i  Exhibit 2  I  J j j  CP A i r Domestic schedule Of Commissions F o r A i r T r a n s p o r t a t i o n O r i g i n a t i n g In The United States  J J  C o m m i s s i o n On D o m e s t i c C a n a d i a n Transborder Transportation  j . — _ _ _  I J I j J | J I 1 | I | | I | J | I I \ | i J  .  Charter Class Hawaii fares C h a r t e r C l a s s Canada Fares Family Plan Fares 7/30 Bay E x c u r s i o n Fares 30 Day E x c u r s i o n F a r e s D i s c o v e r America Excursion Fares Extraterritorial Trips Group F a r e T r a v e l Discount 20-Air Travel North America 111 Other Domestic/ Transborder Fares Charters Advertised/Independent A i r Tours Incentive/Convention A i r Tours  j  -  .  And  j j  •  +  I J j j j I J J J 1 ) | I i I I J I J J 1 | I  ,  __| •  10 % 8 % 8 % 8 % 8 % 8 % 7 % 7 % 7 % 7 % 5 % 11 % 10 %  1_  .  _  S o u r c e : CP A i r , M a r k e t i n g D e p a r t m e n t , A p r i l 1978.  The  1 1  specific  r e q u i r e m e n t s of IAIA c o n c e r n i n g agency e n t r y  J . B r a n c k e r , IATA a n d What I t D o e s , 1S77, p . 6 0 .  Leyden,  The  Netherlands,  14  requirements s h a l l be examined i n Chapter .3 which  i s concerned  with i n d u s t r y r e g u l a t i o n One  of  Programme  t h e primary reasons f o r the founding of the Agency  was  established  to  prevent  ticket  agencies  price  by  customers- The c a r r i e r s f e l t in  the  interest  f o r b i d member approved  of  from  splitting  discounting  from  t h e i r commissions with  t h a t i n the long-run,  i t would  the p u b l i c to e s t a b l i s h r e g u l a t i o n s  carriers  from  t r a v e l agencies.  paying  commissions  to  be  shich  non-IATA  E f f o r t s on the part of IATA t o f e s t e r  an i n d u s t r y c h a r a c t e r i z e d as f i n a n c i a l l y s t a b l e and p r o f e s s i o n a l i n character  have been t h s a r t e d  who lend t h e i r t i c k e t stock  The  to a c e r t a i n  extent  to non-IATA approved  by  agents  agencies-  1ATA Bank Settlement Plan A  payment  settlement  c e n t r a l c l e a r i n g house f o r agents  to  typically  member  banks)  airlines.  These  each  carrier  to  The  remit  of  by IATA e s t a b l i s h e s a IATA  approved  travel  c l e a r i n g houses (which are  allocate  i n t e r m e d i a r i e s i s more e f f i c i e n t for  created  payments  carriers.  commercial  appropriate  plan  the r e c e i p t s  utilization  of  than a system ahich  payments  to  to  the  financial would  call  each of a number of  carriers. Tbe agent  advantages o f t h i s system which accrue  air  the  travel  i n c l u d e s i m p l i f i e d r e p o r t i n g and r e m i t t i n g procedures and  the c e n t r a l i z e d issuance and  to  and c o n t r o l o f a l l s a l e s  documentation  the automatic replenishment o f t i c k e t s t o c k s . S i m i l a r l y , the carriers  benefit  compared with what would  from  the  lower  be  the  case  cost under  of the system as a  system  which  15  collected  from  each  t r a v e l agent  h a n d l e d by t h e s y s t e m  The  International  Travel  Traditionally, establishment  reached  of  $1.1 b i l l i o n  ticket  been  sales.  IATA has p l a y e d agreed  upon  somewhat  conference b e l i e f that in  less in  a shorter  complicated  the e a r l i e r  only  the  travel, and  for  in  a f f l u e n t could  from  have  this  cn domestic  stems  from  the  afford;the  abroad than i s  which i s a n a l l e g e d l y  air luxury  was q u i t e  valid  transportation  when  of i n t e r n a t i o n a l a i r  the flights,  rise  least  before  of the excursion  especially  the increased  cross  difference  at  1975,  was  not  a  the past.  importantly  i^Xbid.,  commissions paid  this reasoning  international  freguency  wide  for  domestic journey,  increased  a  those  for  one s o n d e r s whether t h e d i f f e r e n c e between i n t e r n a t i o n a l  fiith charter  than  role i n the  structures  an i n d i v i d u a l ' s j o u r n e y  domestic commissions,  vestige  2  an i n s t r u m e n t a l  International  reason  matter. Although  days  1  sales  t r a v e l a g e n t s d e v o t e more time and e f f o r t  a s s i s t i n g and p l a n n i n g  required  i n 1977.  commission  higher  The p r i m a r y  1 3  Annual t i c k e t  Agent B e m u n e r a t i o n C o n f l j - c t -  international a i r transportation. generally  separately.  section  between  of  on  the  travel  fare  and t h e emergence o f  North in  Atlantic,  that  market  and and  more  access to i n t e r n a t i o n a l a i r t r a v e l of  the  international  public, and  the  domestic  argument  the  to  fcr a  commissions  no  p. 63.  A g e n t s do n o t r e c e i v e i n t e r n a t i o n a l c o m m i s s i o n r a t e s f o r s a l e s on ^ t r a n s b o r d e r flights between Canada and t h e U.S. Such s a l e s r e c e i v e remunerationat a s p e c i a l t r a n s b o r d e r commission l e v e l .  1 3  16  longer  is  very  convincing.  There appears to be no i n d i c a t i o n  t h a t the i n d u s t r y s h a l l adopt a Blanket l e v e l . Indeed, the opposite The  and  7  commission hold.  i n t e r n a t i o n a l commission s t r u c t u r e p r e v a i l i n g , up  until  o f f e r e d t r a v e l agents i n  percent  10 percent  situation  appears t o be  uniform  the t r e n d t a k i n g  A p r i l of 1S75 States  or  and  the  not  inclusive  endure  tours.  forever. Following  introduction  advancements  i n d u s t r y , most c a r r i e r s forward  i n the  technological  were  prepared  1970*s. Industry  for  1960*s  continued  economists and  this  the pheneiriinal  the  numerous  sales  However,  growth p a t t e r s of the a i r l i n e i n d u s t r y i n of  United  on i n t e r n a t i o n a l p o i n t ^ t o - p c i n t t i c k e t  on the s a l e of  could  Canada  and  the  to  the  strides  management faced  grave d i f f i c u l t i e s i a meeting the demands on t h e i r  organizations  i n f l i c t e d by environmental changes such as s p i r i l i n g :•; i n f l a t i o n , the  "energy c r i s i s "  and  i n many markets- One about  at  a  time  a l e v e l i n g o f f of demand f o r a i r t r a v e l  should when  a l s o r e c a l l that these changes  most c a r r i e r s had  entering  the wide-body era i n  growth-  The  carriers marketing agencies.  upshot  became mix The  of  tempted  to  variables  situation alter  not  that  d i r e c t l y regulated  variety  of  1970's  traffic  oj;e by  of  the  government and  conference  due  to  the  traffic.  compensation  schemes and  o f f e r e d by c a r r i e r s to agents were not r e q u i r e d the C i v i l Aeronautics  by  individual  than those agreed upon by  b e n e f i t of i n c r e a s e d wide  was  future  commissions,  r e g u l a t i o n s became widespread i n the e a r l y  The  of  p r a c t i c e of r e b a t i n g passenger f a r e s t o agents  o f f e r i n g commissions higher  short-term  expanded c a p a c i t y  anticipation  this  came  overrides  to be f i l e d  with  Board at t h a t time. Thus, from a competive  17  point  of  view,  individual  it  became  exceedingly  international  commissions o f f e r e d situation  by  progressed  carrier  each  difficult  to  competitor  keep on  for  track  each  the  of  the  route-  The  i n such a manner u n t i l Pan American World  Airways announced i n A p r i l  of 1975 t h a t i t would no l o n g e r abide  by IA2A r u l e s concerning commissions because other c a r r i e r s were offering i l l e g a l following  d i s c o u n t s , r e b a t e s and  Instead  of  the c l a n d e s t i n e course which much of the i n d u s t r y had  taken. Pan American developed the plan  kickbacks.  volume  incentive  commission  and began openly paying a 3 percent o v e r r i d e f o r a l l  sales  i n excess of 90 percent of the b u s i n e s s each agent s u p p l i e d American i n the comparable month of the previous The r a t i o n a l e commissions  is  underlying  found  in  the  exerpts  denunciation  of  IATA.  Pan  Am's  cf  1 4  the  IATA  from a l e t t e r by William  Seawell, Chairman o f the Board of Pan American t o General  year.  Pan  actions  the  T.  Director  touched o f f an open  rate  commission s i t u a t i o n which has had s i g n i f i c a n t r a m i f i c a t i o n s f o r a i r l i n e - t r a v e l agent r e l a t i o n s . The chose  to  take  as  well  as  the  course  action  Pan  Am  reasons u n d e r l y i n g the major  i n t e r n a t i o n a l c a r r i e r ' s d e c i s i o n are e v i d e n t communique^  of  in  the  following  15  *•"Agent Commissions Stir Concern", Technology, A p r i l 14, 1S75, p. 25.  A v i a t i o n Week-and Space -  18  I t i s common knowledge t h a t IATA commission resolution are being widely ignored. Business c o n t r o l l e d by agents has bee erne,, to a significant extent, the subject of competitive-bidding of v a r i o u s a i r l i n e s . .The. problem has become most s e r i o u s i n r e c e n t weeks as t r a f f i c l e v e l s have d e c l i n e d and as c a r r i e r s have sought t o fill empty seat capacity. V i o l a t o r s have found comfort i n the fact that IATA does not or cannot enforce i t s r e s o l u t i o n s . . . fhe present v i o l a t i o n s d i s c r i m i n a t e a g a i n s t those a i r l i n e s and agents who have sought t c observe r e s o l u t i o n . The impact on Pan Am has become most s e r i o u s . . . . We can no longer explain to our s t o c k h o l d e r s , c r e d i t o r s , and employees why Pan fin's p o s i t i o n should be eroded through adherence to standards that others s u c c e s s f u l l y i g n o r e . Given the f a c t t h a t Pan Am cannot a f f o r d to observe r e s o l u t i o n s t h a t no l o n g e r e x i s t i n p r a c t i c e . Pan Am must choose between j o i n i n g secretly others in violating these resolution or of meeting the s i t u a t i o n p u b l i c l y and h o n e s t l y . Be are convinced that i t i s best f o r the travelling public, and travel industry and IATA t o bring this matter i n t o the open and to deal with i t directly. We have concluded that the soundest and l e a s t d i s r u p t i v e course of action lies in denouncing the agency resolutions... The commission r e s o l u t i o n s are toeing breached consistently and extensively by an i n c r e a s i n g number of subscribing c a r r i e r s who are unfairly profiting from Pan Am*s good f a i t h adherence. IATA, which i s charged with enforcement, i s unable or u n w i l l i n g to carrry out i t s assignment. Given these f a c t s , there i s no reason why Pan Am should c o n t i n u e t o regard i t s e l f as bound. Management  at  Pan  American  succeeded  o b j e c t i v e of drawing a t t e n t i o n to the  in  achieving  the  badly needed reform of  the  J-sunited States, Civil Aeronautics Board, "IATA Agreements Concerning Agency M a t t e r s — U n i f o r m Commission S a t e s " , Docket No. 28672, March 15, 1978. pp. 3-4.  19  IATa•commission exposing  resolution.  to  be  agency v i o l a t i o n s  carrier  could  i n c l u d i n g CP followed  suit  their  own  not,  Air,  any  successful  percent  on  1ATA overall  level  percent  t o 7.5  travel  agency  commissions  U.S.  carrier,  for  and  Trans  actions  world  of agency  agents a s t r a i g h t  its  route  of  and one  carriers Airlines  commission variations  cost  on a w o r l d wide S.  its  was  cash bones f o r  network.  proposal  international must  organizations  Airways  Iberia,  commissions announced  the  to  10  an  8.5  routes.  t o t h e Pan Am  B u l i n g s o f t h e U.  new  o f ways. E r i t i s h  T r a n s World A i r l i n e s  1 6  p e r c e n t . One  would  The  carrier  unnoticed, other  increased  on c e r t a i n  responded  eliminate  of r e s c i s s i o n  i n a variety  a l l sales.  p e r c e n t commission  b e a r i n mind  airlines  Civil  augmenting  point-to-point  that  basis.*  by  a  1  sales  the  from 7  the  estimate  by  percent  increase  in  approximately  $165  million  7  Aeronautics  Board  B . K. E l i n g s w o r t h , "Pan Am I n f l e x i b l e on Agent A v i a t i o n Week and S p a c e T e c h n o l o g y . J u n e 23, 1975.  1 6  in  structures.  incorporating  national  go  Airways  have o f f e r e d  sold  to  t h e r e a f t e r , t h e y announced  commission  Spanish  annually  were  resolutions,  course,  British  shortly  to  ticket  of XATA  of  Carriers reacted reported  designed  and g a v e n o t i c e  resolutions; to  they  t h e weakness o f t h e c o n f e r e n c e ' s c o m p l i a n c e p r o c e d u r e s  which a r e s u p p o s e d travel  Moreover,  concerning  Fee Reform", p. 23.  * A survey of 27 carriers representing 51 percent of s o r l d a i r l i n e passenger t r a f f i c r e v e a l e d t h a t agents generated some 55% of a l l p a s s e n g e r r e v e n u e s . Assuming world, a i r l i n e r e v e n u e s o f $30 b i l l i o n , a 1 % i n c r e a s e i n c o m m i s s i o n s would cost world airlines a p p r o x i m a t e l y $165 million annually. Op. C i t . , A i r T r a n s p o r t World O c t o b e r . 1977, p. 32. 7  20  commission l e v e l s have had a s i g n i f i c a n t industry  impact upon the a i r l i n e  and i n p a r t i c u l a r upon the r e l a t i o n s h i p between  agents and a i r c a r r i e r s rescission  of  Subsequent to Pan American's n o t i c e  a  of  IATA commission r e s o l u t i o n s , the C.A.E. i s s u e d a  n o t i c e r e g u i r i n g a l l c a r r i e r s , both maintain  travel  filing  c c m a i s s i o n s and  for  other  public  American  and. f o r e i g n ,  disclosure,  compensations  paid  reports  travel  to  of a l l  agents  for  s e r v i c e s rendered. The agency a l s o e s t a b l i s h e d r e g u l a t i o n s which forbid  carriers  from  compensating  wholesalers a t l e v e l s not on f i l e move  facilitated  the  efforts  and  tour  with the Board- Although  this  of  travel  agents  carriers  to  keep t r a c k of  c o m p e t i t i v e commission l e v e l s , i t d i d not r e s u l t i n the acceptance of a conference commission s t r u c t u r e  2-2  Open Hate An  received  open by  originating  Board's  agreement.  Commissions rate  situation  U.S. t r a v e l in  has  agents  prevailed for  on  commissions  international  travel  the United S t a t e s s i n c e the abandonment of IATA  commission r e s o l u t i o n s by Pan American . Canadian c a r r i e r s which serve i n t e r n a t i o n a l to  some  extent,  been  able  to  isolate  markets  themselves  have,  frcm the  e s c a l a t i n g commission l e v e l s i n the United S t a t e s . The t h r e a t of the d i v e r s i o n of t r a f f i c t o U.S. c a r r i e r s has been suppressed by the p r o h i b i t i o n maintained by t h e Canadian T r a n s p o r t regarding  the  payment of h i g h e r commissions t o Canadian t r a v e l  agents. For example, reported  to  Commission  in  October . of  19 76,  Pan  American  have been p r o h i b i t e d from paying commissions  the 8 percent/11 percent l e v e l which A i r  Canada  and  C  was above  ?  Air  21  maintained  as t h e i r  Nevertheless,  i n t e r n a t i o n a l commission i t i s apparent from  agents  and  devised  methods o f c i r c u m v e n t i n g  regard-  One a p p r o a c h  fcr  the  ticket  reports  Canadian  stock  another  approach  illegal which  of  override  decisions  to  make  which h a s r e c e n t l y i n t h e form  that  higher  payment  came  The  to  agents  as  attention well. change  both  One  above  this  commissions i s  in  the  United  States,  d e v e l o p e d , i s t h e payment o f  agents  not  industry  form  reporting  exemplify  o f 0-S- r e g u l a t o r y  the agency  i n Canada.  s i t u a t i o n has  attracted  a  great  t h e t r a v e l i n d u s t r y and from t h e  attribute  i n commission  This  o f Revenue Canada  were  situations  impact  within  might  in  have  cn t h e i n t e r n a t i o n a l  the attention  that  rate  travel  o f a d d i t i o n a l t i c k e t s cn c a r r i e r s  extraterritorial  open c o m m i s s i o n  1 8  with  regulations  sales  agency  upon t h e a i r t r a n s p o r t  of  dramatic  C.T.C.  affiliate  income.*?  significant  public  an  publications  i n obtaining  who were c o n c e r n e d  as  The  utilized  interviews  no payment i s made t o t h e i s s u i n g c a r r i e r .  inspectors tickets  industry  agency  overrides  for  deal  of  in  structure-  this  l e v e l s over  where p r i o r t o 1975 a g e n t s were e a r n i n g  10  interest  t o the  the p a s t  five  years,  percent  commissions  cn  sales  of  group  t i c k e t s on t h e N o r t h A t l a n t i c a s o p p o s e d t o  the  25 p e r c e n t  level  o f c o m m i s s i o n s which  reported the  to  be p a y i n g  heterogeneity  a a  rates prevailing for  Prohibited",  "Revenue Canada Investigate C o u r i e r , March 9, 1978, p.1  1 9  Airways  was  i n F e b r u a r y o f 1977. E x h i b i t 3 i n d i c a t e s  of commission  ia«g am incentives O c t o b e r 7, 1976, p. 13.  British  Illegal  U.S. t r a v e l  Canadia-n T r a v e l Co c r i e r .  Rebates", Canadian  Travel  22  agents  s e l l i n g i n t e r n a t i o n a l a i r t r a n s p o r t a t i o n a t the same time  t h a t t h e 25 percent B r i t i s h remuneration  _  r  .  l e v e l was r e p o r t e d .  ,  :  ,  ^  1  1  I  J  | j.  Exhibit 3  \  S e l e c t e d I n t e r n a t i o n a l Commission L e v e l s - P e t r u a r y 1977 . ;  i 1  +  i  I  I Airline  I  Commission L e v e l  ]  I  i  Aerolineas Argentenias A i r New Zealand A i r Siam Alitalia B r i t i s h Airways E l Al KIM Pan American ISA  J  f  i  ]  J | I I I | I | I I J i 1 I I 1 I  I  J | | i I J } | | I j i 1 I | I  I  _ _ _ _  Basic Rate 10 To 11 Percent Group O v e r r i d e s To S e l e c t e d Agents Of Between 10 And 15 Percent 30 % On I n d i v i d u a l T i c k e t s ; 41 % Cn Group S a l e s 23 % For M i l a n Or Home Bookings; 3 % O v e r r i d e For Tours Override Of Between 3 % And 17 % To S e l e c t e d Agents I n c e n t i v e Payments To $60 On I n d i v i d u a l Payments O v e r r i d e s Of Between 2 % And 8 % 23 % Commission On C e r t a i n Routes Paying A V a r i e t y Of "developmental" Commissions  J  ;  ;  J j J J I I J I | | J I I J | J  1  J  I  I Source; R. K. E l i i n g s w o r t h , "Agent Commissions S t i r Concern",} J A v1 a t i o n • • < • Week A a d S pac e Te c h no 1 eg v » February 14, 1977, P. 23.)  I  L  :  :  The  open  i  ;  commission  situation  has  1  aptly  "commission war" by i n d u s t r y observers because of increases  i n sales  which  beginning  of  the  dramatic  are p o s s i b l e i n markets with a high  p r o p o r t i o n o f s a l e s through t r a v e l The United S t a t e s - I t a l y  been teraed a  agents.  market i s a case i n point.,  1977, A l i t a l i a ,  the state-owned  c a r r i e r , i n t r o d u c e d higher commissions on  the  At the  Italian  North  flag  Atlantic.  .23  The and  a i r l i n e o f f e r e d t o pay  above the standard 8 percent  Moreover, offered  an  additional  upon a c a r r i e r  $348.22  commission  first  class  commission  associated  a  of the  competitive U.S.  type of performance and attempting  to  structures-  discounting  of  in  an  conditions  on a $1,514  carrier  than  the  round-trip  the  passenger  observes  $148.69  commission  not  only  the  volume i n c e n t i v e s , but  sales patterns  wide  also  the  which i n d i v i d u a l c a r r i e r s  Average  since  commission  the  levels  introduction  have  of  open  Although  conference r e g u l a t i o n s  forbid  airline  ticket  increased  illegal  c o m p e t i t i v e . The is  passenger,  prices  by  sales  higher commissions on h i g h l y c o m p e t i t i v e r o u t e s  have r e s u l t e d i n indulge  agent  C i v i l A e r o n a u t i c s Board i s presented i n  foster.  substantially  intermediaries,  was  t r a v e l agent.  and  the  York-Borne  travel  2 0  Although t h i s i s an extreme example,  d i v e r s i t y of group o v e r r i d e s  commission  carriers-  of 3 percent the  attractive  one  increased  override  by A l i t a l i a  Appendix 1. From t h i s data,  are  most  t o u r s . For New  more  ISA.  by  the e f f e c t upon the i m p a r t i a l i t y t r a d i t i o n a l l y  with the  with  for  was  o f f e r e d by  summary  filings  2 0  incentive  offered  ticket  does point out  A  offered  for i t i n e r a r i e s including  deciding  it  agents an a d d i t i o n a l 15 percent over  temptation  fare  for  discounting  travel  in  order  agents to  remain  p a s s i n g on of lower t i c k e t p r i c e s to end  economic  phenomenon  which  one  t y p i f i e d as having a great  deal  "Airline Commissions 1977, p.31  Go Sky  would of  to  expect  users under  competition  High", Business Beek, February  and  7,  24  l i m i t e d government In  or conference  control.  Japan, where the Japanese government  eventually  stepped  i n , the commission s i t u a t i o n developed t o a point  where a i r l i n e s  were r e p o r t e d t o be keeping as l i t t l e  the  ticket  price.2i Travellers  as h a l f o f  published  were able to shop around among t r a v e l  agents f o r the lowest p r i c e .  2.3  The Impact Of R i s i n g  Commissions  Open r a t e commissions have had a the  travel  agent  industry,  views the i n d u s t r y  On I n d u s t r y  Structure  s i g n i f i c a n t •• impact  upon the way  and upon the i n d u s t r y ' s  upon  the t r a v e l l i n g p u b l i c relationship  with the  airlines. , Evidence o f r i s i n g providing period,  international 1974-1876  commission expenses f a c i n g service  coincides  commission r e s o l u t i o n  OVS.  i s presented i a E x h i b i t  with the d e t e r i o r a t i o n  previously  carriers 4.  The  of the IATA  refered t c .  Important changes which are r e v e a l e d i n c l u d e  the  following:  ID  From 1974 to 1976 commissions paid by O.S. c a r r i e r s for sales of international t r a n s p o r t a t i o n soared 6 5 . 9 percent from $133-9 million to $ 2 2 2 . 2 million.22  i2)  The recent augmentation in international commission expenses i s r e v e a l e d by the f a c t that the two year i n c r e a s e was $ 8 8 m i l l i o n while the i n c r e a s e from 1 9 6 0 to 1 9 7 4 was o n l y $ 8 7 m i l l i o n .  zi«How Discounts 1975, p. 1 1 6 .  Bleed  the  A i r l i n e s " , B u s i r i e s s Week. June 2 3 ,  22 Air: T r a n s p o r t World, o p . c i t . , Oct. 1 9 7 7 .  25  (3)  The ratio of i n t e r n a t i o n a l commissions over passenger revenues increased d r a m a t i c a l l y from 6.31 p e r c e n t i n 1974 t o 9.22 percent i n 1S76.  Sising tax  commission c o s t s  earnings  labour all  of  costs.  have c o n t r i b u t e d  major a i r  carriers  Operating  statistics  s e r v i c e s of Canadian c a r r i e r s  traffic such  commissions  as  these  profitability  from  have  1974  as  of the  have  to  presented  1976.  two  lower a f t e r  higher  fuel  and  in Exhibit 5 for  r e v e a l a dramatic  undoubtedly  picture  t o the  increase  B i s i n g marketing  contributed Canadian  to  carriers  in  costs  the  poor  during  this  period. IaTfl o f f i c i a l s competition of  the  i n general  air • travel  support  have a r g u e d  for  result  the  structure  of the  structure  i t  concentration  marketing  air carriers. travel  result  large  volume a g e n c i e s more  In  the  past  the i n d u s t r y h a s  and  steady  industry  approximately States,  an  annual  dollar  rapid  An  revealed  costs  at  of  83  volumes o f  pace, r i s i n g  198  the  percent  the  frcm  expect  organization  open that  in  the  commission increased  economic a t t r a c t i o n o f  study  of  the  end  of  1976,  arrangements. by e a s y  entry  travel  agent  there  agencies i n the  over  1970  image  net  changes  advantageous  sales increased  percent  to  the  under an  12,240 c o n f e r e n c e - a p p o i n t e d  increase  from  been c h a r a c t e r i z e d  on-going  that  would  plausible  because of  offering  growth.  one  With regard  highly  price  d e t e r i o r a t i o n of the  agent i n d u s t r y ,  appears  would  i n the  i n d u s t r y . , However,  increased  representing  t h a t o p e n c o m m i s s i o n s and  1S70.  were United  Moreover,  the  at  a s u b s t a n t i a l l y more  to  1976,  an  increase  of  26  $9.9  b i l l i o n , from $5.0  to 14.9  billion.  However, other s t a t i s t i c s tend market  share  being  captured  19  percent  percent and  while  large  to  indicate  an  increased  by the l a r g e r a g e n c i e s . Over the  same period of time, the growth c f only  2 3  medium  small sized  travel agencies  agencies 114 p e r c e n t -  2 4  agencies  i n c r e a s e d 136  She same study a l s o  i n d i c a t e d t h a t the d o l l a r volume of s a l e s f o r  individual  agencies  1976-  actually  declined  between 1970  and  i n d i c a t i v e of the trend toward c o n c e n t r a t i o n  was  of  small  T h i s too i s  sales  in  the  l a r g e r agencies One regarding  must, however, be c a r e f u l not to draw hasty c o n c l u s i o n s the  cause of i n d u s t r y c o n c e n t r a t i o n a t the top- Open  r a t e and i n c e n t i v e commissions are not the s o l e contributing  to  the  dominance  causal  factors  of the l a r g e agencies. Indeed,  revenues earned from i n t e r n a t i o n a l a i r t r a v e l  commissions  only  account f o r approximately 25 percent of the s a l e s volume which a t r a v e l agency  produces.  L o u i s H a r r i s and Associates, the 0* S. T r a v e l Agency Market, 1S77.  2 3  The-Character Siff-Davis,  and Volume of the Mea York, April  £ m a l l agencies are d e f i n e d f o r a n a l y t i c purposes as those having annual s a l e s of l e s s than $500,000; medium s i z e d agencies have s a l e s between $500,000 and $ 1 m i l l i o n ; l a r g e agencies have annual s a l e s g r e a t e r than $ 1 m i l l i o n .  2 4  Ex-hifcit  4  I n t e r n a t i o n a l T r a v e l Agent C o m m i s s i o n s P a i d By U n i t e d S t a t e s A i r l i n e s 1974-1S76  I  1  I  a  1S76  1975  1974  2  *  3  A mericBraniff Eastern N.West Pan Am T«A Western  7. 86 6. 05 13. 43 6. 50 68. 27 28. 27 1. 45  6-111 5.89 5-72 4..63 6..97 6..36 4. 17  10. 35 7. 98 15. 41 13. 11 83- 60 31- 91 2- 13  Total  133 -91  6..31%  166 .72 7. 4 9 %  *,  3  ,  5  ,"Commissions  Paid  6. .62* 7. 60 5. 96 8. 42 8. 27 7. 1.5 6. 03  5  6  15. 21 9- 23 16. 87 36. 12 101 -8 37. 6 6 2. 41  7 .52% 7 .97 6 .14 18 .81 9 .82 7 .73 6 .68  222 .25  9. 22%  To T r a v e l A g e n t s I n S m i l l i o n s .  J  I 2,  *, " C o m m i s s i o n s 6  As A P e r c e n t  Of A i r l i n e  Revenues.  } J  Source;  United States Civil A e r o n a u t i c s Board In "U.S. A i r l i n e C o m m i s s i o n s Jump In 1976", A i r T r a n s p o r t W o r l d . O c t o b e r , 1977, P.34.  J J 1  28  i  1  Exhibit  i j 1  5  T r a v e l Agent Commissions "Paid By Scheduled Canadian C a r r i e r s 1970-1576  j.  :  .  J  T r a f f i c Commissions  ; {$Millions}-  I  1 ) i | I | I i  1970 1971 1972 1973 1974 1975 1976  24-93 26. 16 32.26 37.00 48-79 5 6.S7 68.17  I  '•  :  i j } |  Source:  —  A i  Statistics Canada, - A i r C a r r i e r F i n a n c i a l Statements, Catalogue 51-20 6, 1970-1S76.  I  i  i  A  l o g i c a l argument c o n c e r n i n g the l o s s of the i m p a r t i a l i t y  which i s c h a r a c t e r i s t i c by  of the t r a v e l agent has been  opponents of open commission  being the  air  carriers).  They  structures argue  put  forth  <the primary members  that  when  non-uniform  commissions and i n c e n t i v e  payment schemes develop, t r a v e l agents  no longer o f f e r i m p a r t i a l  advice t o t r a v e l l e r s v i s — a - v i s c a r r i e r  choice.  Moreover,  by a c t i n g  a i r c a r r i e r s , proponents of that  as agents o f t h e i r p r i n c i p a l s , the uniform  t r a v e l agents have an e t h i c a l o b l i g a t i o n  of the p r i n c i p a l s on an e g u a l travel  commissions,  agents,  motivated  by  basis; the  under economic  have  argued  to r e p r e s e n t each non-uniform  rates  incentive,  direct  29  traffic  to those c a r r i e r s o f f e r i n g the higher commission.  Alternatively, a  suboptimal booking, { i . e . , s e l l i n g  c a r r i e r which does not n e c e s s a r i l y  the  optimal service  would  not  t r a f f i c t o c a r r i e r s paying n i g h e r  might not he as great as the g o o d w i l l l o s s caused by  suboptimal bookings. N e v e r t h e l e s s , the r e l i a n c e the  market),  c c c u r because the short-term a d d i t i o n a l  revenues earned from d i v e r t i n g  of  on  provide t h e passenger with  c h a r a c t e r i s t i c s a v a i l a b l e from the  necessarily  commissions  space  travel  agent  advice  i s p a r t i c u l a r l y important i n the case of  i n t e r n a t i o n a l a i r t r a v e l l e r s who  are l e s s  domestic  choice  counterparts  upon the  in  the  familiar  than  their  of c a r r i e r s and gateway  cities. The  deterioration  international development regulatory  of  commission of  an  open  officials,  the  previously  structure  and  commission  carrier  homogeneous  the  situation  subsequent have  caused  management and t r a v e l agents to  search f o r a remuneration scheme which i s g e n e r a l l y a c c e p t a b l e .  2.4  Alternative  Compensation  Schemes  A marked need i n the a i r l i n e i n d u s t r y for well  the  escalating  compensation  commission  alteration in  the  industry  marketing which  management  C.A.B. i n v e s t i g a t i o n  scheme.  expenses  may  i n t e r e s t . Indeed, concern airline  which  calls  commitment of the i n t e r n a t i o n a l a i r l i n e community to a  established  airline  exists  formed  could  over the  this  left  result  practices or may  If  of  untouched,  in  the  a  dramatic  international  not be i n the p u b l i c ' s best matter  impetus  on  behind  the an  part  of  extensive  i n t o a i r l i n e remuneration procedures.  30  For the purpose of  outlining  significant  advantages  and  disadvantages of remuneration scheme a l t e r n a t i v e s , the f o l l o w i n g three  alternatives;  net f a r e , uniform and i n c e n t i v e  commission  s t r u c t u r e s s h a l l be analyzed. The r e g i o n a l development commission which i s  essentially  a  regulated  incentive  version  of  the  i n c e n t i v e commission a l t e r n a t i v e i s a l s o c o n s i d e r e d -  The Net Fare Remuneration A l t e r n a t i v e Under a "net f a r e " approach, t r a v e l agents would not earn a commission  from the c a r r i e r s per se, i n s t e a d , they would charge  passengers o u t r i g h t f o r t h e i r s e r v i c e s . Such a system would only be v i a b l e as a means of reducing o v e r a l l a i r l i n e marketing c o s t s provided  that  possibility  carriers  reached  an  agreement  excluding  of unathorized commission payment..If:this were not  the case, a h i g h l y compefive commission payment s i t u a t i o n emerge  the  under  which  competitive  pressures  would  force  ssould most  c a r r i e r s to pay some commissions. In theory, attractive  the  from  a  net  fare  concept  appears  to  be  quite  p u b l i c p o l i c y point of view as w e l l as from  the point of view of the c a r r i e r s . The primary advantage to t h i s approach  which  is  officials,  lies  i.e.,  demand  the  frequently  with by  cited  i t s reliance consumers  for  by  airline  upon the market mechanism agents'  determining the value o f the s e r v i c e performed by lith  2 S  fares  set  exclusive  conference  services, the  in  agent.  2 5  of commissions, the passenger Mould  "Airfare Commissions May Go-IATA Considers Net Fare P o l i c y " , Canadian T r a v e l C o u r i e r . May 5, 1977.,  31  have the c h o i c e of purchasing h i s t i c k e t e i t h e r from the c a r r i e r or frcm an agent at p r e v a i l i n g market The  impact  a  somewhat  higher  depending  of  introducing  such  most l i k e l y  upon  the  structure  of  a  distinctly  different  have a s i g n i f i c a n t  travel  larger  market  share  while  impact  agent i n d u s t r y . One  a n t i c i p a t e observing l a r g e r f i r m s with higher volumes a  upon  conditions.  remuneration method would the  price  some  smaller  could  capturing  f i r m s with lower  volumes would probably drop out of the i n d u s t r y . The reason this  stems  from  the  comparison  with  the  structure.  Another  lower  charge  previous  earned per t i c k e t s o l d i n  standing  contributing  " c o r n e r " t r a v e l agent i s i t s high  for  "closed"  factor  to  overhead  commission  the demise of the relative  to  sales  volume. One  might  argue  that  since  economies  of  scale  are  s i g n i f i c a n t f o r the r e t a i l t r a v e l agent i n d u s t r y , i t would be i n the p u b l i c ' s best i n t e r e s t i f the  less  were  average  gradually  weeded  out  and  However i t i s not e n t i r e l y c l e a r t h a t  efficient  small  firm s i z e  small  firms  firms  increased. are  indeed  i n e f f i c i e n t i n performing a l l t a s k s r e g u i r e d of t r a v e l agents. In  order  for  small  agencies t c prove t c be e c o n o m i c a l l y  v i a b l e business concerns, they would have particular  range  to  specialize  in  a  of 'services which are not as r e a d i l y provided  by the l a r g e agencies. An example of such a s p e c i a l i z e d  service  is  market,  found i n the Canada-Hong Kong t r a v e l market. I n t h i s  e t h n i c t r a v e l agents provide a unique range of t r a v e l an  e t h n i c t r a v e l l e r from Canada may  find  seek the a d v i c e of a s p e c i a l i s t i n t h i s  services;  i t to h i s advantage  field.  to  32  The  impact  comprehensive  of  than  the  net  fare  i s evident  concept  at f i r s t  modes of passenger t r a n s p o r t a t i o n  he  more  glance- I f the a i r l i n e  conferences were s u c c e s s f u l i n implementing other  could  such  a  procedure,  would be faced  with the  d e c i s i o n of whether to f e l l o w s u i t or not. By  r e t a i n i n g commissions, other  competitive  advantage  due  to  the  s e r v i c e s of the c a r r i e r o f f e r i n g a Nevertheless,  with  regard  to  carriers  could  incentive  to  higher  monetary  obtain  a  promote the incentive.  passenger s e r v i c e s , i n t e r - m o d a l  competition  is  severely  limited  commercial  or  business  travel; a trans-Atlantic cruise offers  the  businessman a poor s u b s t i t u t e  hurried  especially  in  to  a  the  area  of  trans-Atlantic  flightAlternatively,  i f tour, oceanliner,  r a i l and bus companies  were to f o l l o w the n e t f a r e concept e s t a b l i s h e d e s t a b l i s h e d agencies would be exposed to risk.  Agencies  would  guaranteed  commission  competitive  pressures  immediately rate of  and  a  find  by the a i r l i n e s ,  greater  degree  themselves  instead,  of  without a  exposed  to  a marketplace c h a r a c t e r i z e d  the  by p r i c e  competition. The located  e f f e c t upon in  urban  some core  agencies, areas  particularly  i n close  proximity  upon  to a i r l i n e  operated c i t y s a l e s o f f i c e s could  prove t o be d i s a s t e r o u s .  travellers,  from  particularly  those  would be a t t r a c t e d to a i r l i n e offices  offering  the  marketing conveniences.  owned  the and  same t r a n s p o r t a t i o n  those  Many  b u s i n e s s community,  operated  city  sales  s e r v i c e s and s i m i l a r  33  The  Uniform Commission Rate A l t e r nati-veFrom the time t h e C.A.B. found that t h e f i x i n g  commissions  rejection  Association's  request  the  agents*  was not adverse t o the p u b l i c ' s i n t e r e s t i n 1 9 4 7 ,  to the recent  1974,  of  of  the  International  Air  26  Transport  f o r an i n c r e a s e i n commission l e v e l s i n  commission l e v e l s have been the same f o r a l l  carriers i n  market- T h i s has meant that unless under-the-table  dealings  were t a k i n g p l a c e , conference member c a r r i e r s have agreed to pay agents the same r a t e s o f commission f o r the services  sold  point-to-point the  various  such  as  various  and i n c l u s i v e t o u r s . F o r the purpose of a n a l y z i n g remuneration  provide  of  alternatives,  the  the  possibility be considered-  agents with the same l e v e l o f remuneration which a c c r u e s  of  fluctuation  revenue  i n commission l e v e l s -  which a r e c l o s e d and not s u b j e c t  due  to the  Uniform commissions  to change over a period of time  have, s i n c e t h e i r i n t r o d u c t i o n i n 1947, r e c e i v e d the support the  airline  conferences-  t r a v e l agents i n the commission  for  United  domestic  Moreover, States as  polls favour  well  as  have r e v e a l e d uniform  rates  2  that of  with  respondents r e s u l t e d i n an a f f i r m a t i o n of s i n g l e commission  structures:  2 6  of  international a i r  t r a n s p o r t a t i o n - In May of 1975, a p o l l of A.S-T-A- members 689  of  major advantages o f r e q u i r i n g a l l c a r r i e r s t o  t o the c a r r i e r s i s the s t a b i l i t y of s a l e s lack  of  domestic p o i n t - t o - p o i n t , i n t e r n a t i o n a l  r e t u r n i n g t o a uniform commission l e v e l should One  types  United  7I.bid.,  2 7  S t a t e s , C i v i l Aeronautics p- 97-  Board, op- c i t . , p. 1,  34  From an economic and marketing point o f view, do you believe that s i n g l e , or d i f f f e r e n t i a l commission s t r u c t u r e s and l e v e l s should apply t o the s a l e of domestic versus i n t e r n a t i o n a l a i r transportation? Single Separate One should  be  67 % 33 %  aware  of  the  difference  between  higher  commission r a t e s and open commission r a t e s . Although i t has been argued  that  the c a r r i e r s w i l l i n c u r higher commission expenses  nnder open commissions  {i.e. , 'under  conditions  where  carriers  are  f r e e to s e t the commissions they a r e w i l l i n g t o pay a g e n t s ) ,  it  i s conceivable  i n d u s t r y as a expenses  that  whole  even  closed  commission  be  g r e a t e r ; than  could  though  expenses open  some c a r r i e r s , e s p e c i a l l y  i n c e n t i v e commissions, would i n c u r  higher  f o r the  commission  those o f f e r i n g  commission  expenses  under open commission r a t e s . Another  significant  advantage  attributed  commission l e v e l s concerns the maintenance o f of  the  to  uniform  impartiality  the agent i n i t s f u d i c i a r y r e l a t i o n to the p r i n c i p a l . T r a v e l  agents  are  not  immune  from  being  swayed  by  the  economic  i n c e n t i v e which d i f f e r e n t i a l commissions o f f e r . One of the.major reasons shy t r a v e l agents a r e a b l e to maneuver passengers to the carrier  paying  the  h i g h e s t commission i s t h a t most passengers  r e l y upon the a d v i c e of t r a v e l agents with hotel,  tour  package  72  percent  to  carrier,  and f r e q u e n t l y ground arrangement c h o i c e .  Indeed, a c c o r d i n g t o a survey of t r a v e l States,  regard  agents  i n the  United  o f the personal pleasure t r a v e l l e r s and 55  percent of the business t r a v e l c l i e n t s r e l y upon  travel  agents  35  i n the s e l e c t i o n of c a r r i e r s As  the  present  2 8  "commission  war" has shown, some a g e n c i e s  have a l t e r e d t h e i r s a l e s p a t t e r n s i n accordance with the h i g h e r commissions  offered  by  particular  carriers  in  particular  marketsI t has been argued by opponents t o non-uniform that  the  public  i s a t no disadvantage and passengers a r e not  i l l - s e r v e d by non-uniform commissionsthe  lines  that  commissions  i f passengers  The argument  runs  along  a r e i g n o r a n t of the e f f e c t s of  d i s t o r t e d i n c e n t i v e s upon s e r v i c e s r e c e i v e d , what  they  de not  know cannot h u r t them. Katherine Kent, A d m i n i s t r a t i v e Law Judge, i n ;hearings  concerning  uniform  commission  payments to t r a v e l  agents has r e j e c t e d t h i s argument i n arguing t h a t ; --.when a passenger c o n s u l t s an agent because of h i s own l a c k o f i n f o r m a t i o n as to c a r r i e r s and schedules and has c o n f i d e n c e t h a t the agent will deal with him f a i r l y and i m p a r t i a l l y and the agent does not f u l f i l l h i s o b l i g a t i o n s , the passenger i s d i s s e r v e d whether he knows i t o r not. By  r e t a i n i n g the i m p a r t i a l i t y of the agent, the i n d i v i d u a l  a i r t r a v e l l e r , who may very w e l l  be  ignorant  of  a l l of the  t r a v e l o p t i o n s a v a i l a b l e to him, b e n e f i t s from a h i g h e r l e v e l o f customer  service.  Another  compensation  scheme which should be c o n s i d e r e d by  r e g u l a t o r y agencies as a v i a b l e commission. volume  and  The most u t i l i z e d destination  o f f e r agents h i g h e r  2 a  alternative  i s the  incentive  forms o f i n c e n t i v e commissions a r e  i n c e n t i v e s . Under the former, c a r r i e r s  commissions  f o r sales  volumes  exceeding  l o u i s H a r r i s and A s s o c i a t e s , op. c i t . , A p r i l 1973, p. 19-  36  certain  preestablished  passenger t r a f f i c l e v e l s .  schedules of commission payment are based volume  levels  carriers.  Under  commission one  on  sales  the  revenue  latter,  either  levels  carriers  on  with  offer  individual  agents  higher  payments f o r booking to c e r t a i n l o c a t i o n s s h i c h , f o r  of the  the  major advantages to i n c e n t i v e commissions  flexibility  which a i r l i n e management o b t a i n s  a c t i v e manipulation o f t h i s marketing v a r i a b l e . T h i s the  passenger  reason or another,:the c a r r i e r i s attempting to promote. One  with  or  Preestablished  stimulation  example,  by  of  individual  employing  segment  from  can  be  directed  facilitates  demand.  toward  t r a f f i c on r o u t e s where c o m p e t i t i v e  For  stimulating  retaliation  would  not be s i g n i f i c a n t . However,; t h i s "micro" view i s i n need broadening  of  scope;  the  the a i r l i n e i n d u s t r y has shown i n E x h i b i t s 4 and Appendix  1  of  proven to be s u b s t a n t i a l  samples  and  of  the  large  has  been  States.  destination  In  it  incentives  passenger  are as  shown  a  well  as  1978.  One  29  vast d i f f e r e n c e s i n i n c e n t i v e schemes as w e l l  number  which  maintain t h e i r c o m p e t i t i v e The  as  competitive  bonuses o f f e r e d American t r a v e l agents i n March of should note the  a  5.  presents  volume  of  impact of i n c e n t i v e commissions upon  commission f i l i n g s i n the United multitude  the  a d e s t i n a t i o n i n c e n t i v e on a p a r t i c u l a r  r o u t e , marketing e f f o r t s increased  market  rests  as  c a r r i e r s must be aware of i n order to p o s i t i o n s i n the  i s s u e of <whether the  marketplace.  p u b l i c should have a c c e s s to  2ssugmarv of Competitive Passenger Commission E i l i n g s in' the CP A i r , Industry A f f a i r s , March 1S78, p. 1.  rates  USA*  37  of  commission  U.S. i n  paid  recent  administration for  public  i n order  carrier  The  on  to "help  commission  C. A. E o r d e r e d  should  operators  in  a i r ticket  rate  early  prices,  of commission A s i d e from  pricing  1976.  The  which  airline  variable,  costs  incentive  higher be  perspective,  agent  to  the  association  public's  promotional a c t i v i t i e s -  public  reports  t r a v e l a g e n t s and  are  the part  be made aware o f t h e  control  over  commissions  surveillance  of  the  require  changes  in  i n c e n t i v e s c h e m e s . From  a d d i t i o n a l e m p h a s i s upon s e t t i n g in  marketing  be s h i f t e d t o t h e consumer-  r a t e o f commission earned  used  in  decisions,  detailed  l e v e l s e n t a i l s an i n c r e a s e  w h i c h may e v e n t u a l l y Travel  account  for fare  paid  management  l e v e l s and i n d i v i d u a l a i r l i n e  commission  into  middlemen e a r n .  commission  appropriate  a w a r e n e s s and t o  because commissions  to maintain a constant  industry-wide  need  r a t i o n a l e underlying  management  an  statement  filed • for  the p u b l i c should  increased  decision  The p o l i c y  c a r r i e r s t o begin f i l i n g  Board's order i s e s s e n t i a l l y t h a t of  by t h e F o r d  3 0  a l l commissions and o t h e r compensation  tour  3  be  the  the  costs  as a b a s i s  in  expressed  e n s u r e consumer  structures  a t the B o a r d . "  clearly  t h i s subject.  c a r r i e r costs  commission  inspection  States  t o take  total  some a t t e n t i o n  In f a c t , a p o l i c y s t a t e m e n t  information  t h e C. A . f i .  determining  of  years.  i n the United  reasoned t h a t permit  middlemen has r e c e i v e d  officials from  benefit  have a r g u e d t h a t t h e  incentive by  M o r e o v e r , one might  commissions  providing argue  can  additional that  public  °United States, Ford Administration, International A i r T r a n s p o r t a t i o n P o l i c y o f t h e U n i t e d S t a t e s , September 1976, p. 26.  38  policy  objectives  r e g u l a t o r y bodies manner  that  could  better  directed  certain  of  altering  achieved, i f  commission  groups  prices,  structures  government in  such  much  is  a  more  v  more  visible  approach,  efficient  means  of  of  one  One reason f o r t h i s l i e s with the f a c t  that  implementing p r i c e d i s c r i m i n a t i o n and the s u b s i d i z a t i o n group  by  another.  d i f f e r e n t groups depend example, i t i s g e n e r a l l y more  heavily  upon  a  of t r a v e l l e r s r e c e i v e d a d d i t i o n a l  promotional b e n e f i t s . However, a that  be  the  upon t r a v e l agents more than o t h e r s . For accepted that p l e a s u r e ^ t r a v e l l e r s services  of  travel  agents  rely  than  do  businessmen. Incentive  commissions which o f f e r agents h i g h e r  f o r booking to c e r t a i n d e s t i n a t i o n s o r f o r s a l e s exceed c e r t a i n p r e e s t a b l i s h e d  commissions  volumes  which  l e v e l s should not be confused with  the "open" commission a l t e r n a t i v e compensation scheme c o n s i d e r e d in  this  thesis  deregulation open  i . e . , such, would  of commissions paid by c a r r i e r s  commission  commissions regulated  to so  situation be  that  offered. marketing  is  not  costs  the  to  middlemen:  necessary  Incentive  i n c r e a s e s u b s t a n t i a l l y or a t l e a s t not since  be the case with the t o t a l  for  commissions  an  incentive might  be  t o the a i r l i n e s would not as  much  as  they  have  development of open commissions as documented i n the  previous s e c t i o n . Further i n s i g h t i n t o the e f f e c t which i n c e n t i v e commissions have had on the i n t e r n a t i o n a l Exhibit  6.  trunk  is  revealed  in  As shown i n the e x h i b i t , passenger commissions as a  percent of revenues f o r i n t e r n a t i o n a l 5-81  carriers  carriers  percent i n the f i r s t q u a r t e r of 1975 to 8-47  increased  from  percent i n the  39  third  quarter  commission  of  1977-  Nevertheless, this  r a t e s has been a u g m e n t i n g  increase  at a declining  Exhibit  i n average  rate.  6  P a s s e n g e r C o m m i s s i o n s as a P e r c e n t o f Revenues ( I n t e r n a t i o n a l Trunk C a r r i e r s )  Commission Level  Date March June Sept. Dec. March June Sept. Dec. March June Sept-  1 1 J  \ \ i i i i i i  31, 1975 3 1 , 1975 31, 1975 31, 1975 31, 1975 31, 1976 3 1 , 1976 31, 1976 31, 1977 3 1 , 1977 31, 1977  Percentage I n c r e a s e Over P r e v i e u s Year  5.. 81 .% 6.01 6-40 6.86 7. 43 7. 86 8.25 8. 42 8.32 8-40 8-47  27.9 30.8 28.9 22-7 12-7 6-.S 2.7  S o u r c e ; IATA -.• Agreements C o n c e r n i n g AgencvM a t t e r s — U n i f o r m Commiss-iofl'- B a t e s * W a s h i n g t o n D.C.: March 15, 1978, p-  incentive cause  c o m m i s s i o n s have  behind  i n c r e a s i n g commissions  tends.to i n d i c a t e battle  among  the  selected-volume structure  been c i t e d  i n recent  the h i g h l y competitive carriers agencies.  to  as the  attract  nature  bulk  60.  of  the  years. This  fact  of the marketing  the 'large-volume  More i m p o r t a n t l y , a n open  and  commission  which e m p h a s i z e s i n c e n t i v e c o m m i s s i o n s t e n d s t o  shift  40  control  of  a  larger  segment  of  the  market  s p e c i a l i s t s to the detriment of the s m a l l e r  to  the  agencies.  Although owners of s m a l l t r a v e l a g e n c i e s would from  an  economic  advantageous i n product greater  an  industry  point  not  agree,  o f view, i t might he more  marketing  a  highly  homogeneous  such as a i r t r a n s p o r t a t i o n f o r l a r g e f i r m s to capture a share of the  industry  have  concentrated to  efficiency  volume  noted  Commission must to  that  Observers the  i n recent years.  reinforce  carriers  market.  industry  Since  concentration,  reach  a  decision  agents  the has  incentive  this  offer  of  the  as  incentive  travel  become much more commissions  Canadian  to  agent  tend  Transport  whether  permitting  commissions  is  in  the  p u b l i c ' s best i n t e r e s t .  The  Beg i o nal Be velop me nt Co mm i s s i on^ A l t e r nativeDnder the present  in  Canada,  the  same r a t e o f commission as  Agents  earn  travel  uniform commission  structure  agents i n Hhitehorse, Yukon T e r r i t o r y , earn do  travel  agents  in  Toronto.  the same r a t e of commission based on  the  published  are  situated  a i r f a r e i r r e s p e c t i v e of the community where whether  it  southern  be  an  isolated  northern  the  they  outpost  or  a thriving  metropolis.  A i r f a r e s t o the North from the major population  prevailing  are  generally  higher  Canadian  centres  per journey than the  p r i c e of  average t i c k e t i n southern Canada. T h i s i s because i t  northern  carriers  more  to  Moreover, average d i s t a n c e s greater.  provide  transportation  between c e n t r e s  of  of  costs  services.  population  are  A l l of t h i s i m p l i e s t h a t the average commission earned  41  on the s a l e of an a i r journey agent  operating  costs,  i s higher.  especially  Nonetheless,  the  labour  travel  portion,  are  g e n e r a l l y much higher i n northern communities than i n the South. As i s f r e q u e n t l y the case when  a  proposal  is  put  forth  c a l l i n g f o r the s u b s i d i z a t i o n of a p a r t i c u l a r geographic r e g i o n , government  officials  and  taxpayers  ask  how i s a subsidy f o r  northern  r e s i d e n t s i n the i n t e r e s t o f the country  Answers  to  this  guestion  commissions were allowed  airfares  the n e t r e s u l t would be a subsidy o f a i r l i n e  marketing  r a t i o n a l e underlying in  the  need  f o r higher  rates  development. One  permanent  centres f o r r e c r e a t i o n , development  Canadian Transport  I t i s often residents  shopping  commissions  and  the to  other  only  practical  t r a v e l to larger purposes."  which allowed  31  If  agents to earn by  the  Commission, one c o u l d then a n t i c i p a t e p r o f i t s  r i s e and new f i r m s to e n t e r  the i n d u s t r y o f f e r i n g  a wider range of t r a v e l c o u n s e l l i n g s e r v i c e s .  3 1  which  authority  higher r a t e s c f commission on t h e i r s a l e s were approved  to  of  s u b j e c t has s t a t e d t h a t "In most new remote communities  for relatively  regional  raised  the North i s found i n the great importance  a i r transportation i s v i t a l . . . way  were  communities.  a i r t r a n s p o r t a t i o n p l a y s i n northern the  be found i f higher  northern  commission  on  to  whole?  on  c o s t s i n northern The  have  a  t o be paid to t r a v e l agents i n n o r t h e r n  communities because unless routes,  would  as  There  passengers is  little  K. M. Euppenthal, The Centre f o r T r a n s p o r t a t i o n Studies, University of British Columbia, T r a n s p o r t a t i o n Needs and A v a i l a b i l i t y i n North C o s t a l Comnsinities i n B r i t i s h Columbia. (Vancouver, B. C.: Centre f o r T r a n s p o r t a t i o n S t u d i e s , 1978)  42  doubt  that  higher  ameliorate  commissions  northern  travel  in  agency  northern communities would conditions  by  providing  a d d i t i o n a l i n c e n t i v e s t o s m a l l b u s i n e s s e s to o f f e r a wider range of  services. If  t r a v e l agents a r e to earn n i g h e r commissions than  a s s o c i a t e s i n southern how  much  should  p o p u l a t i o n c e n t r e s , then  northern  commission  rates  their  the i s s u e c f by exceed  southern  commission r a t e s would have t o be r e s o l v e d . One a l t e r n a t i v e between  agencies  proposes  operating  earnings  in  such  deal  agencies concern  of  poses  variation  the  i s that c o s t  implement  cost  differences  a  manner  that  in  with such a proposal i s t h a t  operating  costs  of  northern  problem of non-runiformity. Another area of determination  procedures  are  costly  to  and s i n c e no s i n g l e c o s t i n g method i s n e c e s s a r i l y the  best c o s t i n g method, government r e g u l a t o r y a g e n c i e s agents  bigher  c o u l d o f f s e t the higher c o s t s o f o p e r a t i o n  i n northern a r e a s . One disadvantage a great  average  i n southern c i t i e s and agencies i n  northern c i t i e s be apportioned commission  that  and  travel  would have t o come t o a consensus b e f o r e any progress i n  t h i s area c o u l d be made. Before b l i n d l y  a c c e p t i n g a proposal  calling  f o r regional  development commissions, a d d i t i o n a l problems «ith  implementation  should be c o n s i d e r e d . C l e a r l y , some degree of a n i m o s i t y c o u l d be expected agents.  from And  stimulating located i n  travel  of  course,  traffic urban  agents not c l a s s i f i e d a s northern the  through  centres  carriers high  would  which  volume, most  tend  to  specialty  likely  a d d i t i o n a l c o s t imposed by h i g h e r commissions.  object  travel favour  agencies t o the  43  In  essence,  situation  is  development  what  the  should  fundamental  sales  are  question  faced of  with i n t h i s  whether  northern  be s u b s i d i z e d by the producing areas i n the  South- Higher commissions northern  policy-makers  in  the  intermediaries  agents i n urban southern Canada-  North  imply  a  subsidy  by the c a r r i e r s a n d ; p o s s i b l y  of by  CHAPTER 3  3-0  The Process Of Entry The  stable of  establishment of a s u c c e s s f u l t r a v e l agency r e q u i r e s financial  a  backing and knowledge of a p a r t i c u l a r segment  the t r a v e l i n d u s t r y .  following has  INDUSTRY REGULATION  In t h i s chapter, q u e s t i o n s such  as the  are addressd: "What i s t i e extent to which government  regulated  government  the  travel  registration  industry?";  "How  have  provincial  requirements a f f e c t e d the i n d u s t r y ? " ;  One. ought t o a l s o ask, "How has the t r a v e l l i n g  public  benefited  or s u f f e r e d from the p r o t e c t i o n o f f e r e d by p r o v i n c i a l government legislation?" Individuals  or a s p i r i n g entrepreneurs s e e k i n g t o e s t a b l i s h  new t r a v e l agencies i n Canada f i n d regulated  that s i m i l a r  t r a n s p o r t a t i o n i n d u s t r i e s , entry  insignificant surmounted  and  before  enjoyed- Generally entrepreneurs  to  legal  and  profits  other  requirements are not  financial  it is  "whole  in  s e l l i n g space on non-IATA c a r r i e r s , Columbia  many  harriers  must  be  are forthcoming and f r i n g e b e n e f i t s  speaking, open  to  and i n those provinces  no  the at  lcnger wall"  least  possible  for  t r a v e l agencies not  in  British  and s t a t e s K i t h t r a v e l s e r v i c e s  legislation. The  most p r e s t i g i o u s c e r t i f i c a t i o n which a t r a v e l agent can  r e c e i v e i s the s e a l Transport  of  Association.  h i g h l y d e s i r a b l e because airlines  approval  from  t i e International  Air  C e r t i f i c a t i o n from t h i s o r g a n i z a t i o n i s 1  the  vast  majority  of  international  belong to IATA and i n t e r n a i o n a l t i c k e t s a l e s make up a  45  l a r g e p o r t i o n of t o t a l a i r l i n e t i c k e t  s a l e s by t r a v e l agents  in  Canada. A  series  of  International Air Traffic  steps  newcomer  (ATC)  licence to  be  Transportation  Conference  government  must  to  the  followed  before  Association  obtaining  (IATA)  approval and of course, a  market  travel  travel  industry  services.  must  and  provincial  First,  satisfy  a  p r e r e q u i s i t e s b e f o r e becoming l i c e n c e d to s e l l t r a v e l After  Air  the  list  of  services.  s a t i s f y i n g f i n a n c i a l c h a r a c t e r reguirements, the debutant  i s then ready t o be  licenced  and  begin  p r o v i n c i a l t r a v e l s e r v i c e s compensation redress  to  consumers  in  need.  contributing  government  the  fund designed t o p r o v i d e  However,  b e g i n n i n g of the reguirements f a c i n g the provincial  tc  this  new  approval i n no way  is  only  agent.  the  Receiving  e n t i t l e s the l i e e n c e e  t o s e l l space on IATA or ATC c a r r i e r s . Conference r e c c q n i t i c n i s only c o n f e r r e d upon the agent a f t e r numerous been  reguirements  have  met.  3.1  A i r l i n e Conference R e c o g n i t i o n Of T r a v e l  Agents  Long before p r o v i n c i a l l e g i s l a t i o n was enacted d e a l i n g with travel  agents,  LATA  had  established  requirements f o r agency a p p r o v a l . One  a  detailed  set  of  should, however, note  that  p r o v i n c i a l government l e g i s l a t i o n i s much more comprehensive  as  it  encompasses  profit  Due  engaged  in  the  marketing  to the lack of comprehensive  was p o s s i b l e f o r  carriers  w h o l e s a l e r s r e t a i l t r a v e l agents and non-  organizations  services. it  tour  along  tour with  wholesalers ground  to  cf .  travel  e n t r y reguirements, sell  transportation  space and  on  air hotel  46  accommodations. worthless  A l l too  tickets  often,  were  left  passengers  or  volunteered  honoured  their  services  1  firm.  In Canada, agencies which have p r e v i o u s l y been not  yet  approved,  must apply t o the Agency  Panel, a d i v i s i o n of IATAwhose  to  t h e i r t i c k e t s even though no  revenue was c o l l e c t e d from the i n s o l v e n t t r a v e l  but  with  or even worse, were stranded abroad. In such  cases, a i r c a r r i e r s f r e q u e n t l y stranded  travellers  This panel  established Investigation  administers  a  programme  o b j e c t i v e i s t h a t of a s s u r i n g that agency o u t l e t s used by  IATA c a r r i e r s are c a p a b l e of p r o v i d i n g accurate  and  dependable  s e r v i c e to the p u b l i c . Other o b j e c t i v e s of the programme i n c l u d e ensuring  that  adequate  f i n a n c i a l c o n t r o l s have been taken and  that unauthorized commission payments are e l i m i n a t e d . one  Indeed,  of the b i n d i n g agreements which IATA c a r r i e r s must agree to  i n order . t o restriction  retain of  membership  commission  The s p e c i f i c  IATA  agency are as f o l l o w s ;  in  the  organization  is  the  payments only t o t h o s e agents which  have been approved by the IATA  3  3 2  machinery.  requirements  for  establishing  a  new  3 3  (1)  Sponsorship; An agency must be sponsored by one of the member a i r l i n e s . However, no agency i s accepted i f i t i s owned p a r t l y or «holly by an air carrier.  i2)  Time i n B u s i n e s s : An agency must be a b l e t o show that i t has been established, staffed and has been doing business f o r a t l e a s t s i x months.  2 B r a n c k e r , J.K.S., IATA and What I t Does A. W. S i j t h o f f , Leyden, The Netherlands, p. 60.  33  Audrey Saunders, I n t e r n a t i o n a l i A i r T r a n s p o r t Association, Agency I n v e s t i g a t i o n Panel, Correspondence, March 25, 1977..  £3)  S a l e s Volume: Tbe agency must have t h e a b i l i t y t o generate b u s i n e s s not* c o n s i d e r e d t o be p r e s e n t l y r e a c h i n g t h e a i r l i n e s . The a g e n c y must p r o v i d e a resume of sales p r o d u c t i v i t y f o r s a l e s on • non-? IATA c a r r i e r s .  14)  E x p e r i e n c e : The Agency I n v e s t i g a t i o n Panel uses d i s c r e t i o n a r y power f o r s p e c i a l c i r c u m s t a n c e s b u t in general, minimum l e v e l s of experience are required, f o r two key managers in the travel agency; the manager o f t h e a g e n c y must h a v e had two y e a r s o f f u l l - t i m e experience in an IATA approved a g e n c y o r an IATA c a r r i e r i n " c r e a t i n g , generating and promoting passenger t r a n s p o r t a t i o n , s a l e s and s e r v i c e s " . I n a d d i t i o n , another a g e n t must have had a t l e a s t one y e a r o f e x p e r i e n c e i n i n t e r n a t i o n a l a i r l i n e t i c k e t i n g and r e s e r v a t i o n s w i t h an a p p r o v e d a g e n c y o r c a r r i e r .  (5)  Promotional Activities: The applicant must demonstrate t o t h e p a n e l t h a t t h e a g e n c y has the a b i l i t y t o promote t h e s a l e s o f i n t e r n a t i o n a l a i r transportation.  (6)  Premises: The premises must be devoted exclusively to the promotion and s a l e of a i r passenger t r a n s p o r t a t i o n and related services. The premises must also be c l e a r l y marked a s a travel agency. Photographs depicting the a p p e a r a n c e o f t h e a g e n c y must be s u b m i t t e d t o the panel.  f7)  F i n a n c i a l : The a p p l i c a n t must p r o v i d e an a u d i t e d balance sheet as well as a bank statement verified by the a p p l i c a n t ' s b a n k e r . The firm*s w o r k i n g c a p i t a l must e x c e e d $15,00 0. Net worth i n t h e c a s e o f p a r t n e r s h i p s and p r o p r i e t o r s h i p s and p a i d i n c a p i t a l i n t h e c a s e o f c o r p o r a t i o n s , must n o t be l e s s t h a n $20,000.  (8)  Industry Need: One of the most important s t i p u l a t i o n s s e t f o r t h by t h e p a n e l i s the need reguirement because this e f f e c t i v e l y gives the Agency I n v e s t i g a t i o n P a n e l t h e power t o r e j e c t an application in a particular locale thereby avoiding the dilution of sales revenues of e x i s t i n g IATA a p p r o v e d agencies.  When  evaluating  I n v e s t i g a t i o n Panel differing for  local  management  individual  applications,  u s e s d i s c r e t i o n by  market c o n d i t i o n s . experience  and  For  taking  into  example,  physical  the  the  Agency  consideration requirements  appearance  of  the  48  premises  would most l i k e l y  Williams  Lake,  B.C.,  be r e l a x e d f o r the f r e n t i e r -i town  of  whereas they would be held t o s t r i c t l y i n  cosmopolitan Montreal where i n t e r n a t i o n a l a i r l i n e  sales  offices  are p r e s e n t l y s a t u r a t i n g the downtown area. The  Air  Traffic  conference a f f i l i a t e d America  and  Conference with  composed  p r o v i s i o n s f o r the two similar  standards  agencies which carriers. (ATAC),  major  (ATC), an  Transport  airline  Association  carriers  has  developed  i n d i v i d u a l s seeking t o e s t a b l i s h  the  i n • the  Air  sale  of  space  f o r the e v a l u a t i o n of new  siailar  in  necessity  order f o r Canadian  s e l l t r a v e l space on domestic as well a which are members of the two Even  though  cf  applying  to  t r a v e l agents to  international  carriers  bodies.,  conference  entry  witnessed phenomenal growth over the past decade-  United  approximately  States, 12,240  r e p r e s e n t s an i n c r e a s e of  at  the  end  conference  not  agencies the  of  have  rigidity,  In  number  requirements  diminished i n has  the  similar  a p p l i c a n t s , they have yet to  combine resources and e l i m i n a t e the organizations  ATC  Transport A s s o c i a t i o n of Canada  entrance c r i t e r i a . Even though the three conferences use  separate  travel on  a conference of Canadian, c a r r i e r s has developed  criteria  of  domestic c a r r i e r s with a s s o c i a t e  Canadian  engage  Similarly,  Air  of 0-S.  for  would  the  of America  of  1976,  conference-appointed 83  percent  over  appointed  there  were  agencies-  This  the  approximately  49  6,800 a g e n c i e s which volume  of s a l e s  of  were i n  business  t h e s e a g e n c i e s i n 1976  a p p r o x i m a t e l y t h r e e times the In is  an  little  industry  new  in  policy  the  C a u s e s Of In  early  in British  doors  and  3  placed  3  the  billion,  or  qualified  industry.  created  an  The  number o f  acute  forthcoming. T h i s i s s u e  and  need  for  regulation  i s addressed  Failures  before t r a v e l  a great deal of  3  o f H.  legislation  long  a s many a s one  awaited  According  5  G.  Haina  p r e s s u r e on  was  made  tour operator closed  depriving  their  $300,000.  failure  agency  a Hawaii-based  Columbians o f both  reports *  annual  follows.  Columbia,  approximately  $14.9  both  t o the  has  of i t s Vancouver o f f i c e  British  was  d e c i d e w h e t h e r more s t r i n g e n t  Agency  1977,  The  3  level.  entrepreneurs  s h o u l d be  which  1970. *  i m p r e s i v e r e c o r d f o r growth, i t  attracted  makers^to  industry  the s e c t i o n  3.2  law  been  an  e n t r a n t s t o the i n d u s t r y  public of  that  have  1970  with such  wonder  incompetent  in  and  winter  to  the  thousand holidays  l o c a l : newspaper  A s s o c i a t e s of  the c a r r i e r s  which  Honolulu were  to  » T h e C h a r a c t e r and Volume o f the^•Q-.:S-."-Travel'--:-'&qe.gc.vr-aa:rk-e-ts1976. Louis H a r r i s and A s s o c i a t e s , I n c . Pp. 5-6. c i t e d i n IATAA g r e e m e n t s C o n c e r n i n g Agency Mat t e r s - U n i f o r m - C o m m i s s i o h a ^ t e . D o c k e t 28672 U.S. C i v i l A e r o n a u t i c s B o a r d , M a r c h , 1978, p. 19. i  :  ;  i  3 s  Information on r e c e n t developments c o n c e r n i n g Canadian t r a v e l agents i s d i s c u s s e d i n "Licensed L e i s u r e " , The- F i n a n c i a l P o s t . March 26, 1977, p. T-3, a s p e c i a l s u p p l e m e n t on the t r a v e l industry.  " S u n Not Down Yet on 1977, p.27.  3 6  Hawaii  Trips".  TheProvince,  February  8,  50  provide  transportation  t r a v e l agents which bankrupt  firm's  services  were  to Haina customers and  involved  holidays  the  marketing  t o u r s i n Hawaii. In f a c t , one  s t o r e owned t r a v e l agency agreed the  in  to  on t i e of  the  major department  unconditionally  guarantee  of twenty-three of i t s customers. A spokesman f o r  Northwest O r i e n t A i r l i n e s expressed h i s company»s w i l l i n g n e s s to honour a l l t i c k e t s i s s u e d on h i s a i r l i n e f o r i n c l u s i o n i n tour  packages.  Underlining  the  Haina  importance o f t r a v e l i n d u s t r y  r e g u l a t i o n s from a humanitarian point of view was  the f a c t  that  s i x t y V i c t o r i a - a r e a o l d age  pensioners were among the v i c t i m s of  the f o l d e d tour  firm.  wholesaling  Events such as t h i s have c r e a t e d a r a l l y i n g p o i n t f o r those interested  in  protecting  the i n t e r e s t s of consumers of t r a v e l  s e r v i c e s through the l i c e n s i n g and and  tour  events  wholesalers.  such  politicians  as  the u s e f u l n e s s  travel  agents  A c t u a l l y , the occurrence of unfortunate  this  and  regulation of  has  had  the t r a v e l l i n g  of t r a v e l  much  broader  implications;  p u b l i c have s t a r t e d t o  agents  as  the  marketers  question  of  travel  services. A  number  of  outstanding  cause of the f a i l u r e  f a c t o r s may  swings  capital in  contributing  the  to  is  a  lack  of  industry  to  business  bankruptcies  rests  cycle. with  business management e x p e r i e n c e . Before t r a v e l agent came  into  effect,  straightforward  with  the  sufficient  support the d r a i n on funds d u r i n g  travel  factor  as  of t r a v e l agent l e g i s l a t i o n . Among the most  common maladies f a c i n g the i n d u s t r y working  be p i n p o i n t e d  entrance no  into  the i n d u s t r y  significant  barriers  was  a  cyclical Another lack  of  legislation relatively confronting  51  individuals  aspiring  ancillary  travel  accommodations. characterized competition  to  s e l l t i c k e t s on non-IATA c a r r i e r s  services The  as  such  as  industry  efficient  tours  could  with  a  and  and  hotel  appropriately  sufficient  be  degree  among small as s e l l as l a r g e f i r m s marketing  of  similar  products. Alternatively,  there  is  a  c o s t to the  public  with t h i s type of an unregulated i n d u s t r y . Since began  more  than  been stranded  two  or were not  the bankruptcy or f r a u d Travel a i r and shown  decades ago,  associated  the  jet  boom  thousands o f t r a v e l l e r s have  able t o s t a r t t h e i r  journeys  doe  of t r a v e l agents.  firms s p e c i a l i z i n g i n i n c l u s i v e a i r tours including  land t r a n s p o r t a t i o n as w e l l as h o t e l accommodations have themselves  failures  than  are  to  be  much  retail  more  be  legislation  travel  should  regulating  note  that  arrangements  portion  even  insolvent.  the a  passenger  if  of the  the  to  business  in  most  one  would  provincial  i n d u s t r y . Nonetheless, makes  services  individual  his  air  one  travel  member c a r r i e r ,  purchased travel  shall  be  agent  becomes  for  British  3 7  Alec Burden, the R e g i s t r a r of Columbia  included  f o r t r a v e l on an IATA or on an ATC  the a i r t r a v e l protected  if  susceptible  t r a v e l agents. T h e r e f o r e ,  expect t r a v e l w h o l e s a l e r s t o  has  provided  Travel  Agents  some i n s i g h t to the cause of  travel,agent  f a i l u r e s by o u t l i n i n g the c h a r a c t e r i s t i c s of agencies l i k e l y  €eorge Buchannan, A i r Transport Association of Testimony before the U.S. Senate Subcommittee en Commerce and Tourism, Nov. 18, 1.971.  3 7  to  to  America, Foreign  52  fail:as (1)  The d u r a t i o n of b u s i n e s s has g e n e r a l l y been less than two years. The staff is inexperienced i n the travel industry. The f i r m i s s h o r t on o p e r a t i n g cashThe agency has f i n a n c i a l ^ connections with ether agencies i n f i n a n c i a l t r o u b l e . A high p r o p o r t i o n of t h e i r business w i l l have  12) (3) |4) |5)  been i n a i r t r a v e l . Due through  to  the  frequent  unregulated  occurrence  of  shoddy  arrangements  t r a v e l agencies, consumer a c t i v i s t s  p o l i t i c i a n s i n Canada and the United S t a t e s to enact to  p r o t e c t the purchasers  industry l e g i s l a t i o n  was  prompted  legislation  of t r a v e l s e r v i c e s . S i m i l a r l y ,  designed  to protect  existing  travel  agencies  by c r e a t i n g b a r r i e r s to entry3.3  T r a v e l Agent And As  the  result  agents a s s o c i a t i o n Conference  Ontario,  by  a h i g h l y organized  the  Ontario  Travel  to  promote  These e f f o r t s were motivated an  image  of  as much by  1  Act  established  " 2 0 t o 30 June 1, 1978,  3 8  the  the  Travel  Act, e s t a b l i s h e s a s p e c i a l o f f i c e under the M i n i s t r y of  Consumer and Commercial R e l a t i o n s - One the  aithin  the  public.  O n t a r i o ' s Act which i s commonly r e f e r r e d t o as  of  Industry  legislation in  professionalism  i n d o s t r y as they were to p r o t e c t the consuming  Industry  travel  r e g u l a t i n g the o p e r a t i o n s of t r a v e l agents and  t r a v e l wholesalersdesire  in  efforts  Legislation  (OTIC), the P r o v i n c e of O n t a r i o passed of 1974  December  of  Travel Industry  is  to  register  all  minimum requirements-  Travel p. 4.  Agencies  of the primary o b j e c t i v e s  travel  meeting  the  These minimum requirements  are  Expected  agents  to Fold",• The  Province .  53  designed f o r the  purpose of e l i m i n a t i n g the . s o - c a l l e d  night  agents",  travel  responsibility enterprise  and  in  hence,  ability  an  to  honest  reguirements maintain  manner  p r o h i b i t i o n s have been e s t a b l i s h e d fraudulent The in  a  are  "fly-by-  related  viable  to  business  included-  Specific  restricting individuals  with  backgrounds from becoming l i c e n c e d .  act c l e a r l y o u t l i n e s the reguirements f o r t r a v e l agents  Ontario  seeking  t o s e l l t r a v e l s e r v i c e s t o the  public.  The  m o b i l i t y of t r a v e l agents i s somewhat more r e s t r i c t e d under Act;  the  records an  Begistrar  is  empowered  of t r a v e l agents and  agent  under  soundness  of  Registrar.  B i t h the  the  financial  the  statements  travel  agency  records  of  Consumer  Corporate  provisions  that  of the Act  protection  is  example,  travel  time.  agent  be  agencies  possible  the  financial  supplied  to  if  i f he so the  Relations  has  reason  an  has  violated  agent  provided  of  Canada.  An  and  «Cntario, S t a t u t e s o f O n t a r i o , 115:15, P. 1061-  audit  Ministry to  believe any  additional  of  T r a v e l Industry  of on the  offense  degree  f a l s e a d v e r t i s i n g . The  "The  the  desires-  by the Act by a s p e c i a l clause  s p e c i f i c a l l y with deceptive  only  3 9  indicating must  must  is  or a l t e r n a t i v e l y has-committed an  under the C r i m i n a l Code  3  travel  are however, only  reasonable grounds  for  power of i n s p e c t i o n , the R e g i s t r a r may  Investigations and  the  employer at a  financial  tc maintain  employer to the next, he  n o t i f y the B e g i s t r a r - Furthermore,  Audited  Act,  t r a v e l agencies. I f ,  wishes to move from one  allowed to work f o r one  the  the  of  dealing  marketing  Act, Chapter  54  of  tours  has  advertising of  the  The  to  be  particularly  therefore, may  be  Travel  Industry post  $25,000 d e p e n d i n g  a n n u a l payment t o  be  i n the  the  Act  a bond  compensation  funded  t r a v e l agents c o n t r i b u t i o n s  to  the  particularly  number  First  of  reasons. from  lags  of  businesses  of  eguivalent  Secondly,  relatively  high  travel  the  ratio  established  entirety  the  highly  f o r the  high  of  with  total  in transit followed  of  and  business  outflows  revenue to  with  its on  own  February  Leisure",  Travel 21,  lead  of  te  The  modelled  for a  failure  other  small  of  fixed  costs  with  is  seasonal  exposure coffers  to of  carrier-  Quebec  Act  for  poor  and  agents R e g i s t r a t i o n  1S78.  fund  and  fixed  significant  from t r a v e l l e r  is  desirable  a similar level  imply  the  which  travel industry  i n comparison  size  from  Moreover,  4 0  l a r g e sums o f money r e s t i n g i n the  i n Appendix  Iicensed 7.  4 0 n  and  Columbia  came i n t o f o r c e  is  of  A compensation  f o r t r a v e l agents; combining t h i s  agents while  British and  part  agents  value  i s reguired  a l l the r i s k  f l u c t u a t i o n s i n s a l e s l e v e l s can risk  fund  between c a s h i n f l o w s  budgeting i s r e l a t i v e l y  business  the  i n t e r e s t cf  sales volume.  sales level,  consumer's p r o t e c t i o n  costs.  best  with a f a c e  upon t h e i r  proportional  cash  deceptive  reguires a l l t r a v e l  directly  resulting  to  a d d i t i o n a l s u r v e i l l a n c e on  deemed t o  t r a v e l wholesalers to  by  susceptible  public.  Ontario  $5,000 t o an  and  Registrar  travelling  and  proven  Ontario Act  i s revealed  2.  Although  closely  The  F i n a n c i a l P o s t . March 26,  which in i t s  after  1977,  pp.  the  T1-  55  Ontario  Act,  diffferences consumer  which  consumers  whose  travel  a  special  Travel  Assurance  Board  consumers, the t r a v e l  fund  r e s e r v e s of the on  could  with  with  fund  the  Jj2iJ-»  comprising  failure  is  for  Columbia  the M i n i s t r y  Act.,  Fund, a  A  from  of Consumer  Assurance  to that  representatives  make c l a i m s i f t h e y f a i l  and  special  a  reach  fund  are accumulated  pro-rata  the  a  maximum  basis.*  Minister  fund  who  to  P-30.  receive  travel  have p a i d . .  will  size  be n e e d e d  have s u f f e r e d  direct  of  through  Hair  2  estimated  $700,000. Cash  contributions  M a i r , B.C.  that will 3  Consumer  " t h e number be  of  of and  cases  s m a l l , but each  case  Compensation i s granted  economic  loss  as  of  stated  Consumer  in  and  :  * B . C . T r a v e l O p e r a t o r s Helccme P r o v i n c e , F e b . 12, 1977, p. 10. 3,,  Columbia  travellers  expressly  * * Ne w s R e l e a s e , British Columbia, Ministry C o r p o r a t e A f f a i r s , J a n - 30, 1978. P.30. 42  the  out-of-province  British  i n v o l v e huge amounts o f money-"*  to those  for B r i t i s h  of a t r a v e l agent  may  Corporate A f f a i r s which  additional  means of c o m p e n s a t i n g  i n d u s t r y and  s e r v i c e s f o r which t h e y The  important  under t h e g o v e r n m e n t ' s g e n e r a l r e v e n u e f u n d a g a i n s t  which c o n s u m e r s may  in  deal  Affairs administers a Travel  fund  some  provides  protection  compensating  case  agents  of  the r e s u l t  Such i s t h e  trust  believe  agents  purpose.  Corporate  has  e x a m p l e , an i m p o r t a n t f e a t u r e o f  most c o n v e n i e n t  l o s s e s as  establish  For  Act  l  o f the  their  authors  i n i t s provision  wholesalers-* One  Columbia's  its  protection-  Act i s found  for  British  Registration  Provisions",  'The  56  Section  17 o f t h e A c t : * *  11)  A p e r s o n who h a s s u f f e r e d reason of  direct  economic l o s s by  Ca) t h e i n s o l v e n c y o r b a n k r u t p c y agent or a travel wholesaler under t h i s A c t , o r  of a travel registered  (b) failure t o c o l l e c t money o r d e r e d by a c o u r t t o be paid by a travel agent or wholesaler registered under t h i s A c t a f t e r reasonable execution proceedings have been attempted, or (c) such other circumstances a s may be p r e s c r i b e d may, s u b j e c t t o t h i s A c t and t h e r e g u l a t i o n s , a p p l y f o r compensation from the fund.  In  order  to  enforce the Act p r o p e r l y , s p e c i f i c p e n a l t i e s  have b e e n p r o v i d e d detection reports  for  system  requiring  the  legislation.  agencies  adhering  Also,  to f i l e  w i t h t h e R e g i s t r a r h a s been p r o v i d e d  Moreover,  an  annual  forin  early  financial  the  Act.  4 5  i f t h e R e g i s t r a r s u s p e c t s t h a t an a g e n c y h a s n o t been t o the requirements  particular Registrar  agency may be  in  the  auspices  b e n e f i t s of t r a v e l  industry  t h e p u b l i c » s image o f t r a v e l  Although  somewhat a p p r e h e n s i v e managerial  under  of the  of  the  undertaken.  that i t improves  operators.  o f t h e A c t , an i n v e s t i g a t i o n  question  One o f t h e a l l e g e d is  in  freedoms,  one when a  might faced great  expect with  travel  legislation  agents  and t o u r  agents  legislation  to  be  curtailing  d e a l o f a p p r o v a l was e v i d e n t i a  **British Columbia, B r i t i s h Columbia R e g i s t r a t i o n A c t , C h a p t e r 22, 1S77.,  Statutes.  "Travel  Agents  * "Summary of Proposals Pertaining to Travel Services l e g i s l a t i o n " , D o u g l a s K. H a r r i s o n , F e b r u a r y 1977. (mimiographed) :S  57  B r i t i s h Columbia subsequent to the i n t r o d u c t i o n of the a c t . president Society  of of  the  British  Travel  registration  Columbia  agents  provisions  indicated  which  with  certain pay  many  degree  for  the Canadian  "seme  approval  the  consumer  of  professionalism"  4 6  imposed  insurance  schemes,  of debate developed over the i s s u e of who  increased  traveller,  government  of  particular  require  from t r a v e l i n d u s t r y p a r t i c i p a n t s . As  chapter  The  protection;  should  i t  a  shall  be  the  r e t a i l agent, the wholesaler, the c a r r i e r o r as  i s so o f t e n the case, the taxpayer? Followinq Registration  the  enactment  of  the  B.C.  Travel  agents  Act, r e t a i l agents represented by the A s s o c i t a t i o n  of T r a v e l Agents of B r i t i s h Columbia expressed some concern t h a t Section  8 o f the  Act  consumer c l a i m s which fund. not  4 3  exempt  repayment  of  travel  administering The  have  retail  not  been  agents  liable  co:vered  by  for a l l  the  travel  E s s e n t i a l l y , t h i s i m p l i e s t h a t r e t a i l t r a v e l agents  importantly,  the  holds  4 7  from  joint  consumers  of  and  several  travel  liability  services  are  entitled  money which they p a i d . The Act t h e r e f o r e industry  to  bear  the  burden  of  and  the  are more to  reguires cost  of  the a c t .  impact  of  t r a v e l industry  l e g i s l a t i o n with  mandatory  10.  46  Q p - C i t . . The P r o v i n c e , p.  4 7  Section 8 of the B r i t i s h Columbia T r a v e l Agents R e g i s t r a t i o n Act i s r e v e a l e d i n Appendix 1.  "If B. C. Fund Runs Out, Agents May Have t o Cover C l i e n t l o s s e s " , Canadian T r a v e l C o u r i e r , No. 12, A p r i l 7, 1977, p . 1 .  4 8  58  compensation registered  funds following  appropriately insure  upon  the  the  ne compared  themselves  approximately  enactment to  against  of  are  derived  from  the  the  legislation  additional  firms  legislation  requiring  bankruptcy. The  c o s t s must be borne by f i r m s w i t h i n the  400  which might  firms  to  burden of a d d i t i o n a l  industry  protection  but  benefits  which consumers  en-joy. The safety and  legislation device  tour  to  uses minimua f i n a n c i a l p r o t e c t the  operators.  maintained  by  r e g i s t r a t i o n s are to under can  the  have  develop  financial  in  remain  British  valid.  must  Columbia  if  According  to  a  registration  negative  corporations  can  maintain a net  their  requirements  affected.  be tbeir  Regulations  cancelled  if  certificates  if  they  by  the  firms  which  From the i n d i v i d u a l f i r m ' s  if  without l e g i s l a t i o n i m p l i e s an o p p o r t u n i t y  short-term debt i s r e l i e d Some  legislation  degree was  of  maintained are  evident  to  subseguent  the to  the  cost e s p e c i a l l y  newly its  most  p o i n t of view, a  upon h e a v i l y t o f i n a n c e  resentment  to  4 9  such as these cannot be  incurred  fail  working c a p i t a l p o s i t i o n which i s l a r g e r than what would be case  they  net worth or working c a p i t a l p o s i t i o n ; and  lose  being  a  proprietorships  worth p o s i t i o n of at l e a s t $15,000.  Financial without c o s t s  certificates  as  agencies  standards  T r a v e l Agents R e g i s t r a t i o n Act, s o l e their  directly  p u b l i c from f l o u n d e r i n g  On-going  agencies  requirements  growthintroduced  introduction  in  * British Columbia, M i n i s t r y of Consumer and C o r p o r a t e A f f a i r s , " R e g u l a t i o n s under the Travel Agents R e g i s t r a t i o n Act", May 1S77, p.49  59  B r i t i s h Columbia, p a r t i c u l a r l y among the s m a l l e r f i r m s interest  of  countering  c o n c e n t r a t i o n , one initial  $4 00  must  the  present  guestion  the  fee  appropriateness  hurdle-  strained Perhaps  tax  structure  measure the c o s t of s e l l i n g whether  it  meet  such as  a  would b e t t e r serve  the t r a v e l l i n g p u b l i c . Moreover,  determining  to  legislation  s t i m u l a t e the growth of s m a l l agencies progressive  trend  is  the  costing  the  may  initial  designed  to  graduated  or  studies  designed  to  more c o s t l y cr l e s s c o s t l y to r e l y opposed  to  office.  v a r i o u s reguirements of the Act which could not  be  or three companies were reported t o have dropped out  of  met,  two  the  industry shortly a f t e r  only hypothesize  the  the r e g i s t r a t i o n d e a d l i n e -  5 0  One  can  as t o whether these agencies would have exposed  the p u b l i c to an e x c e s s i v e Whatever  of  an a i r l i n e t i c k e t would be u s e f u l i n  an a i r l i n e owned c i t y s a l e s to  toward  the i n t e r e s t s of  upon the s e r v i c e s of an independent t r a v e l agent as  Due  the  per o f f i c e r e g i s t r a t i o n f e e as s m a l l agencies  f i n d their f i n a n c i a l resources application  industry  In  case  may  degree of r i s k of  be,  business  travel industry l e g i s l a t i o n  failure. creates  a d d i t i o n a l b a r r i e r s t o entry f o r f u t u r e business  f i r m s and  tends to strengthen  of  the  grasp  of  the  market  hence  established  firms. Another  p o t e n t i a l l y troublesome s e c t i o n of the Act  around the u n l i m i t e d coverage of t r a v e l wholesalers be  s  based  in  British  Columbia  or  °"Twenty to t h i r t y more t r a v e l agents P r o v i n c e , June 1, 1978, p-4.  not.,  David  expected  centres  whether they Hordouin,  to  fold",  of  The  60  B.C.  based  Suntours,  a  t o u r wholesaling  f i r m , has  pointed  t h a t i t would be p o s s i b l e f o r a wholesaler to operate i.e.,  outside  of  the  compensation fund and offered  by  province  still  without  protected The  offshore,  contributing  toithe  b e n e f i t from the consumer p r o t e c t i o n  the T r a v e l Assurance Fund.si The reason f o r t h i s i s  that a r e g i s t e r e d r e t a i l agent can s e l l t o u r s wholesaler  out  in  the  packaged  by  world with t r a v e l l e r s purchasing those  any tours  by tbe compensation fund. i m p l i c a t i o n of  this  law  for  the  provincial  travel  i n d u s t r y could be s i g n i f i c a n t i n the f u t u r e i f compensation fund contribution present gradual  requirements  level.  British  exodous  increase  Columbians  could  easily  Bisk Of  the  with e i t h e r  been  established  a s u f f i c i e n t l e n g t h of time are h i g h l y s e n s i t i v e to the l a g  between c a r r i e r the  fact  payment and that  the c o l l e c t i o n of  competitive  agency c r e d i t managers to extend c r e d i t to a  dangerous  receivables.  Due  a i r c a r r i e r c o n f e r e n c e s , t o u r operators  h o t e l s r e g u i r e prompt payment and  to  witness  Bankruptcy  Small t r a v e l agency f i r m s which have not  to  their  r e g u l a t i o n s at a l l .  Consumer P r o t e c t i o n From The  for  above  of t r a v e l w h o l e s a l e r s t o provinces  l e s s s t r i n g e n t r e g u l a t i o n s or no  3.4  significantly  degree,  agencies  can  pressure  commercial easily find  may  and force  accounts themselves  h i g h l y exposed to the r i s k of bankruptcyOf  the importance of a i r l i n e t i c k e t s a l e s payment dates  " B . C . Act Insures the Bhole World, Wholesale Group Government", Canadian T r a v e l C o u r i e r , A p r i l 7 , 1 9 7 7 , p.2.  51  to  Tells  61  travel  agents  agencies, earned.  there  is little  a i r l i n e t i c k e t s a l e s comprise  a  the  high  insolvency  percentage  of  most of  when  declining  clearing  bank.  agents a r e r e q u i r e d  This  sales  travel revenues  case of the f a i l u r e of  Agencies  {which g e n e r a l l y  be  confronted  with  l e v e l s a r e combined s i t h the domestic  problem  to provide  basis.  commercial s a l e s  payment reguirements of i n d i v i d u a l  The  bulk  banks on a bimonthly  i m p l i e s delays i n cash i n f l o w s ) can e a s i l y  IATA  For  The IATA Bank Settlement Plan r e g u i r e s t r a v e l agents t o  remit funds t o settlement with  guestion.  carriers  and the  i s accentuated when r e t a i l  t r a v e l s e r v i c e s t o c l i e n t s i n the  wholesalers.  minimum working  capital  requirements  of  the  Travel  Agents R e g i s t r a t i o n Act combined with the p r o t e c t i o n o f f e r e d t h e travel  agent by the T r a v e l Assurance Fund, s u b s t a n t i a l l y reduce  the exposure proportion  to of  default  claims  by  the  agent  «ith  i t s s a l e s through t o u r w h o l e s a l e r s .  p r o v i s i o n s of t h e Act, make  faced  a  According  i n d i v i d u a l s as well as t r a v e l agents  a g a i n s t the Fund. T h e r e f o r e ,  large to may  protection i s afforded  both consumers and agents a t a cost which has i t s primary impact upon t r a v e l agents because i n Canada, f o r the  part,  they  are not able to s t r o n g l y i n f l u e n c e the r a t e of commissions  shich  c a r r i e r s pay.  most  62  CHAPTER 4  4,0  COMPETITION FOR MARKET SEGMENTS  A i r l i n e Reliance Travel  agents  members p r o v i d i n g various travel  typesagent  ticketing  play  The  industry  to provide  facilitating geographic  travel  the  travel location  at  arrangements-  the airport-  which and  usually making  effective  lines  personalized client  5  2  does  sales  function  of  the  of  the  alone  merely  communication  attention,  agent  can  and A s s o c i a t e s ,  personalized  queues  attention  on a  travellers  flight develop  agents  which  type of  agent  as e a s i l y  1977, p . 10.  the  and making  ticketcounter  develop  The  increase  common between  rale,  for  i s that of  traveller-  with i n d i v i d u a l  which i s v e r y  of 7 0 8  5 2  booking a seat Many  with  accounted  t h e needs o f t h e t r a v e l l e r . T h i s  n o t , as a g e n e r a l  Harris  them  i n purchasing h i s t i c k e t  receive  and  travel  t o a 1976 survey  for  of  open t h e  services  provide  revenue-  reservation-  determining  P.P. c i t , L o u i s  to  The t r a v e l l e r a v o i d s  hotel  carriers  heavily  a i rtravel  agency  Moreover, c l i e n t s  channel  F o r t h e most p a r t ,  of the t r a v e l  arrangements  e x t e n d s beyond  a  facilitates  agencies,  travel  and  travel consulting  a i r travel  convenience f o r the customer travel  as marketing  relies  Indeed, a c c o r d i n g  of the t o t a l  Essentially,  role  as t o c a r r i e r -  upon  earnings.  conference appointed percent  an e s s e n t i a l  a i r l i n e . industry  bias  a g e n t s depend h e a v i l y  63  Agents  s e r v i c e s t o both passengers  without  commission  Upon T r a v e l  and  between  63  airline;  ticket  proponent  of  sales  personnel  travel  and  airline  agents has remarked that the t r a v e l  w i l l "use h i s experience and knowledge t o combination individual  customers.  synthesize  One agent  the  best  of t r a v e l s e r v i c e s o f f e r e d to s u i t the needs of the or group.  1 , 5 3  Another important f u n c t i o n performed  by the t r a v e l agent i s  the o r g a n i z a t i o n of packaged t o u r s or as i s more o f t e n the c a s e , r e t a i l t r a v e l agents market t o u r s which have been organized packaged travel  by  tour  firms  participants  wholesale  freguently in  the  companies.  own  Similarly,  subsidiaires  retail  which  and  wholesale are  active  t r a v e l business. The L o u i s H a r r i s  survey r e v e a l e d t h a t 30 percent of the  agencies  surveyed  were  i n v o l v e d i n the wholesale t r a d e t o some degree. One  advantage  which  the  from purchasing a i r t r a v e l comparison  with  an  the  needs  commercial of  provincial working  with  accounts  legislation  commercial  travel  dimension  sutseguent  to  Ellis,  many  and  important  R-  agencies  receivable  Competition between c a r r i e r  33  Such  reguirements,  r e s e r v a t i o n s systems  a  travel  c r e d i t . T r a v e l agencies  firms.  government  capital  from  agent  in  specializing  t r a d e t a i l o r c r e d i t arrangements to meet the  individual  overburdened  services  t r a v e l l e r may d e r i v e  a i r l i n e operated c i t y s a l e s o f f i c e , i s the  a v a i l a b i l i t y of commercial in  commercial  the  and  which  often  were  it  establishes  would  travel  are  become  agents  for  times net f o r minimum  insolvent. the  market segment has taken on a introduction  of  very new  electronic  (ERS), t o t r a v e l agencies. The next c h a p t e r  " A i r l i n e v. Agent". Aeroplane. Aug.  14, 1968,  p. 15.  64  of  the  thesis  addresses  this  issue  and  considers  its  i m p l i c a t i o n s f o r the f u t u r e of the i n d u s t r y a i r l i n e s have come t o travel Due  agent  industry  be  increasingly  upon  d e s p i t e s p i r a l l i n g commission  to IATA p r o h i b i t i o n s , member a i r l i n e s  eguity  reliant  have  the  expenses.  refrained  from  involvement i n t r a v e l agencies- Moreover, t h e r e has been  no widely n o t i c e a b l e trend to r a p i d l y augment c i t y s a l e s capacity;  instead,  greater  emphasis  has  been  office  placed  marketing through t r a v e l a g e n c i e s . An e x c e l l e n t example unigue  r o l e which t r a v e l agents play may  communities  where  ineffectual  in  carriers  attracting  have  themselves  This  statement  is  based  the  to  be  group members to purchase  d i r e c t l y from t h e c a r r i e r s through a i r l i n e operated offices.  of  be found i n the e t h n i c  proven  minority  upon  upon  city  sales  the o b s e r v a t i o n of a  s t r o n g t r a v e l agent i n d u s t r y w i t h i n v a r i o u s  ethnic  communities  i n Canada.  4.1  Ethnic within  Markets the  ethnic  communities  of  c i t i e s , e t h n i c t r a v e l agencies f l o u r i s h reasons.  First,  sufficient  s e r v i c e s e x i s t s because abroad  are  immigrants. language  and  still  strong  Secondly,  ethnic  for  familial  tc air  ties  a  American  variety  agents  are  of  transportation with  relatives  fa n i l i a r  of new  with  the  customs of e t h n i c community members. Indeed, some  m i n o r i t y group language and and  due  North  p r e s e n t , e s p e c i a l l y among communities  t r a v e l agencies s t a f f e d by new  language  demand  large  customs  of  immigrants are more f a m i l i a r with  customs  than  they  are  with  the  the host c o u n t r y . T h i r d l y , under the  65  present remuneration scheme i n e f f e c t i n Canada, i t c o s t s e t h n i c community members no more to purchase from an e t h n i c agent it  than  does t o purchase from an agent or c a r r i e r l e s s f a m i l i a r with  e t h n i c a t t i t u d e s and customs. The e t h n i c t r a v e l agent can be d e f i n e d as an devotes  the  majority  agency  of i t s r e s o u r c e s t o s e r v i c i n g  from a p a r t i c u l a r e t h n i c group. S o c i o l o g i s t s d e f i n e  which  travellers the  ethnic  group as a group c o n s i s t i n g of people who c o n c e i v e of themselves and  are regarded  by o t h e r s as b e l o n g i n g t o g e t h e r by v i r t u e o f  common a n c e s t r y and a common c u l t u r a l A l t e r n a t i v e l y , one might use which  ethnic  travel  agents  background. * 5  language  as  a  criteria  by  could be i d e n t i f i e d . The r e l i a n c e  upon f o r e i g n languages by e t h n i c agents and t h e i r c l i e n t s i s one of the f a c t o r s which strengthens the t i e s between the two groups and.makes entry i n t o  the e t h n i c  market  by  non-ethnic  group  members d i f f i c u l t .  Chinese T r a v e l Agencies In Vancouver Approximately bulk  of  25  Chinese  the Chinese e t h n i c market i n V a n c o u v e r .  1976 census i n f o r m a t i o n , 45,385 million  5  t r a v e l a g e n c i e s compete f o r the  people  in  or  metropolitan  3.9  55  percent  Vancouver  gave  A c c o r d i n g to cf  the  Chinese  * S o c i e t y Today, Rodney Stark, e d i t o r , Delmar, C a l i f . : CRM 3973, p. 528.  S 5  1.17 or  Eooks,  A g e n c i e s were s e l e c t e d from Eritish Columbia, M i n i s t r y of Consumer and Corporate A f f a i r s , O f f i c e o f the R e g i s t r a r o f Travel Agents, R e g i s t r e d Tray e l Agents and Wholesale r s as of February 2 1 19 78. (unpublished document). f  66  Japanese as t h e i r  mother t o n g u e .  Chinese  Due  origin.  to  5 6  The m a j o r i t y  the . r e l a t i v e l y  large  of these a r e o f number o f t r a v e l  a g e n c i e s s p e c i a l i z i n g i n a p a r t i c u l a r market segment, of  competition  surfaced  i n the  oriental point low  i s rather  agencies-  during  of One  a recent  less  incurring  Special  Services  Ethnic  agents i n t h e i r  ethnic  group  clients.  that  s a l e s assuming  To E t h n i c  can obtain  ability  familiar  Indeed, e t h n i c  to  with  a unigue range  communicate  employed popular  agencies tend  C a n a d a , S t a t i s t i c s Canada, 821, F e b r u a r y , 1978.  ^interview 1S78. S 8  with  ticket were  overrides  Customers  in  Patrick  readily  to  available  i n the language services  ethnic  have  of the offered  agencies  sales  of  are  ethnic patterns  destinations.  5 8  1976: C e n s u s o f Canada,, C a t a l o g u e 9 2 -  Wang,  This fact was r e v e a l e d Managers, i n particular, V a n c o u v e r , F e b r u a r y , 1978.  of s e r v i c e s from  destinations  w h i c h e m p h a s i z e a l i m i t e d number o f e t h n i c  S 6  by  a t one  agencies  that i l l e g a l  member i s b u t one o f t h e i m p o r t a n t  times  that  standard  ,travel  which a r e n o t a s  agents. T r a v e l c o n s u l t a n t s  often  recounted  s a l e s were below  implying  communities  elsewhere.. The  agent  discounting  5 7  Offered  clients  illegal  has  p r i c e war, p r i c e l e v e l s r e a c h e d a p o i n t s o  a l o s s on t i c k e t paid.  of  oriental  commissions  were n o t b e i n g  level  Evidence of t h i s competition  reports  t h a t r e c e i p t s from t i c k e t  prices  by  form  high.  the  Reeds  Travel,  i n discussions Roger Pike,  Vancouver,  July,  w i t h CP a i r M a r k e t i n g Sales Forecaster,  67  Aside  from route f a m i l i a r i z a t i o n , e t h n i c agents  the c u l t u r a l a t t r i b u t e s of prepared  to  accommodate  their  clients  and  understand  may  be  better  the d e s i r e s o f e t h n i c c l i e n t s . E t h n i c  agents with c o n t a c t s w i t h i n e t h n i c community  o r g a n i z a t i o n s are  more l i k e l y to succeed i n d e v e l o p i n g t o u r s of i n t e r e s t to e t h n i c groups.  In  play  dual  a  this  c a p a c i t y , i t i s common f o r r e t a i l  role,  one  of  organizing  a  tour  agencies t o by  making  arrangements with i n d i v i d u a l tour o p e r a t o r s and h o t e l s e c t - , and another of a c t i n g as a vendor of t r a v e l s e r v i c e s Ethnic of  Prepaid  involvement  agents are f r e g u e n t l y i n v o l v e d with the t r a n s m i t t a l Ticket  {PTA)  instruments  to  without i n c u r r i n g  PTA  offers  the  sponsoring  the r i s k of l o s i n g  by  i n conjunction  with  relative  the funds  the  immigrant  spent  on t h e  purchaser-  scheme  immigration.  whereby  Greek  5 9  Government o f f i c i a l s  agents  charged  excessive service fees f o r prepaid t i c k e t s , assistance  One  an A u s t r a l i a n a i r l i n e e x e c u t i v e concerned  community i n Sydney, A u s t r a l i a . a  their  use of PTA instruments by e t h n i c agents has, a t times,  been misused related  to  send an a i r l i n e t i c k e t t o a p o t e n t i a l  t i c k e t , as refunds a r e made only t o the o r i g i n a l The  due  i n i n t e r n a t i o n a l a i r t r a n s p o r t a t i o n and the process  of immigration. The opportunity  Advice  in  immigration  r e l a t i v e s from abroad.  formalities  landed  incident the Greek uncovered immigrants  communications when  bringing  T h i s e x e m p l i f i e s how new immigrants  and their must  r e l y upon the honesty o f e t h n i c agents.  59  Interviess with S i l l i a m February 23, 1978.  Noble,  Quantas  Airways,  Vancouver,  68  Due t o the need f o r r e p r e s e n t a t i o n abroad language  barrier,  ethnic  agents  can  and  the l a c k of a  establish  reciprocal  agreements with t r a v e l agents abroad i n o r d e r t o f a c i l i t a t e transfer  of  prepaid  ticket  advice  the  instruments. However, one  should not be mislead i n t o b e l i e v i n g t h a t PTA's have provided  a  major source of income to e t h n i c agents. Most a g e n c i e s r e l y much more  heavily  upon income from t r a f f i c o r i g i n a t i n g i n t h e i r  own  communities- The a b i l i t y of the e t h n i c agent to meet the s p e c i a l needs o f e t h n i c community members by communicating i n a tongue  and  foreign  p r o v i d i n g t r a v e l i n f o r m a t i o n i s a much more poignant  reason f o r the success of the e t h n i c agency than i s income  from  prepaid t i c k e t advice i n s t r u m e n t s .  4.2  E t h n i c T r a v e l Agent Marketing  Strategies  Within the t r a v e l i n d u s t r y , e t h n i c agencies have been noted for  their  unigue  non-conference  marketing approach  approved  wbich r e l i e s h e a v i l y upon  s u b s i d i a r y agents. Under  this  approach  which i s r e p o r t e d to be q u i t e common i n the O r i e n t , p a r t i c u l a r l y i n Japan and Hong Kong, the p r i n c i p a l t r a v e l agency uses a s a l e s distribution  system  comprised  s a l e s personnel which may conferences. One  or may  of not  subcontracted be  airline  might h y p o t h e s i z e t h a t the reason f o r the r e l i a n c e upon marketing  stems  from  reasons. A c a s u a l s t r o l l through Vancouver's Chinatown  Interview with February, 1978.,  6,0  by  6 0  t h i s unauthorized s u b c o n t r a c t system ; of cultural  approved  agencies and  Aaron Lee, AA T r a v e l Industry I n c . , Vancouver,  69  reveals  the  ominous  presence  of  uniquely  ethnic  business  the  "Japanese"  practice. Although  strictly  approach to marketing ethnic  prohibited  travel  by  IATA,  services  i s wide  spread  agencies i n Canada. T h i s system, i n c o r p o r a t i n g  or f u l l - t i m e s a l e s r e p r e s e n t a t i v e s contradicts  the  spirit  registration legislation  and  from  closer  a  commission  r a t i o n a l e underlying  approach",  ethnic  and more p e r s o n a l i z e d  approach of the l a r g e agencies i s made  contacts  possible  members  with  by  individual  who have f a m i l i a r i z e d themselves with a p a r t i c u l a r f a c e t  rely  upon  the  services  part-time  may  than can  be  offered  travel  s e r v i c e s through s u b c o n t r a c t o r s  the s e r v i c e s which they provide. through  Hence,  subcontracted  a r e held  ethnic  a  agents  personalized  market  liable for  travellers  benefit  p r o t e c t i o n o f f e r e d by t r a v e l agent l e g i s l a t i o n as w e l l  4.-3  by  commissioned agent r e p r e s e n t a t i v e . I n accordance with  i n d u s t r y l e g i s l a t i o n i n B r i t i s h Columbia, agencies which  purchase  have  of the p r i n c i p a l agent i f a wider  range o f s e r v i c e s i s t o be obtained  air  their  impersonalized  of the t r a v e l i n d u s t r y . A l t e r n a t i v e l y , e t h n i c c l i e n t s to  basis  t r a v e l agent  community  t r a v e l agents. The e l i m i n a t i o n of the grand s c a l e  agents  part-time  previously referred t o .  Under the "Japanese benefit  p a i d on  among  who  from  the  as  from  attention.  Co-operation Among E t h n i c T r a v e l Agencies The  level  of  price  competition  g e n e r a l l y agreed to be higher . than among non-ethnic agencies.  among e t h n i c agencies i s  the  level  which  prevails  T h i s may be a t t r i b u t e d t o the s m a l l e r  70  size  of  ethnic  travel  agencies and a l s o t o  firms,  the  the  close proximity  relatively  greater  of e t h n i c  economic  impact  which f o r e i g n t r a v e l has upon e t h n i c community membersIt  i s probably not i n c o r r e c t t o surmise t h a t f o l l o w i n g the  enactment  of  competition  travel  among  industry  ethnic  legislation,  agencies  the  deminished-  level  Within  f o l l o w i n g B r i t i s h Columbia*s r e g i s t r a t i o n d e a d l i n e , f o u r t r a v e l agencies were reported Nevertheless, c o n t r o l s on  even  with  discounting  to have ceased  travel among  agent ethnic  doing  of  a year ethnic  business-*  1  legislation i n effect, agents  have  not  been  establishedVarious  ethnic  agency  groups  across  Canada  Chinese, P a k i s t a n i s and F i l i p i n o s , have formed order  to  encourage  the  exchange  ticket  price  An  attempt  by  a  at  forming  travel  group  among e t h n i c to  eliminate  a s s o c i a t i o n o f Chinese t r a v e l the l a t t e r  part  of  of prominent Chinese agencies s u f f e r i n g from  i n Greater agencies-  an  Vancouver was made during  a l l e g e d revenue l o s s e s agencies  agreements  in  discounting.  agents i n Greater 1S78  associations  of information  agents of a s i m i l a r type and to reach  including  6 2  due  to  discounting-  Approximately  Vancouver have been i d e n t i f i e d These  agencies  have  been  25  as Chinese  identified  in  E x h i b i t 7.  6 1  Interview with J u l y 11, 1978.  Ivan  Cheng, Love and White T r a v e l , Vancouver,  6 2  I n t e r v i e w with Ivan Cheng, Vancouver, J u l y 11, 1978.  Love  and  White  Travel  Services,  71  ,  r  , I 1  I J |  Exhibit 7  I  |  Chinese  Travel  |  agencies In Greater  I.  Vancouver  J  I . j.  :  .  :  ,  ,  1 | i i 3 I | | ] J j | 1 | J J J | J I  Corporations 1. 23. 4. 56. 7. , 8. 9. , 10. 11121314. 1516. 17.  I  I  AA T r a v e l I n d u s t r y CorpAdvice T r a v e l Service L t d Asian Express L t d C o n t i n e n t a l T r a v e l Agency L t d Double Happiness T r a v e l L t d G a l a x y T r a v e l Agency L t d . Kowloon T o u r i s t S e r v i c e I n t e r n a t i o n a l L t d . L o v e And w h i t e T r a v e l S e r v i c e L t d Bandarin Tours L t d , Orient Travel Centre Ltd. P r e s i d e n t T r a v e l Agency L t d Quon On Company L t d R i g h t On Company L t d S o u t h E a s t T r a v e l S e r v i c e (Canada) C o . L t d . T-P-Y- T r a v e l S e r v i c e L t d . T i k i Travel Inc. wankow T o u r And T r a v e l L t d -  J'. J I J 1 J J J I } t J J ] I J 1 I i  Sole  J  I  Propr l e t or s h i e s  i  i  J | J  1819. 20.  Cathay T r a v e l S e r v i c e Quon H. Wong. A g e n c i e s Spot T r a v e l  l  I J J I ,  i  By comparing born  I  ^  S o u r c e : I v a n Cheng, Love And Ministry O f Consumer And Lists.  I  | J j  __  .  f  «.  J 4. 1  White Travel And Corporate Affairs  ™  plotting their  the  location  locations aith  i n Asia r e s i d i n g  within  I  _ _ J  „  of  Chinese  a demographic  J | I J  agencies*  3  and  mapping o f  persons  V a n c o u v e r , one c a n r e a d i l y  observe  " C h i n e s e agencies a r e defined f o r these purposes as agencies which are involved i n t h e C h i n e s e e t h n i c t r a v e l b u s i n e s s and h a v e been i n v i t e d t o j o i n the A s s o c i a t i o n of C h i n e s e Travel Agents.  72  that Chinese agencies concentrations location  of  are concentrated  i n areas  of Asians as expected.  Appendix  23  Chinese  travel  agencies.  with the .highest 3  reveals  the  There a r e 15 agency  o u t l e t s i n the Chinatown or Downtown East Side of Vancouver. The bulk of the Chinese agencies  are  r e l a t i v e l y s m a l l geographic Just  as  purchasing  clustered  together  the  individuals  shop  from  an expensive consumer durable,  store  to  The  when  travel  agency  l e a s t expensive p r i c e f o r an a i r l i n e t i c k e t t o the Ear  the  c i t i e s i n the O r i e n t . Owners  of  of  Chinese  travel For  Chinese  correct  i n Chapter 2.  :  practice  agencies  in  major  this  view d i s c o u n t i n g as a  reason,  fares  organizers  of the  T r a v e l Agents sought t o b r i n g about an  agreement t o stop d i s c o u n t i n g and p u b l i s h a members of  industry  •  threat to p r o f i t a b i l i t y . Association  travel  net f a r e remuneration system presented  p r a c t i c e i s p r e s e n t l y a common business  reason  store  members of the Chinese  E a s t . T h i s p r a c t i c e would be widespread i n the under  this  area.  community have been known t o shop from agency t o for  in  and  association  bulletin  informing  activities.**  The  f o r the i n c l u s i o n o f f a r e i n f o r m a t i o n i n the p u b l i c a t i o n  stems frcm the b e l i e f t h a t some d i s c o u n t i n g was incorrect  result  of  f a r e i n f o r m a t i o n . The o r g a n i z i n g of an a s s o c i a t i o n of  Chinese agencies  i n Toronto was reported t o have e l i m i n a t e d many  o f the d i s c o u n t i n g problems among e t h n i c Before  the  agencies-  c o n s i d e r i n g the e f f e c t over time of changes  ^"Oriental Agents Organize to Combat T r a v e l C o u r i e r , Aug- 25, 1977, pp. 1-2-  i n the  Hanky-Pankv". Cain^d^an  73  market  structure  formation  of  detrimental  of  e t h n i c agencies,  associations effect  among  upon  within  characteristics this  highly  ethnic  agencies  of  healthy  regulated  competition  IATA  approved  it  Alternatively,  consumer pays more while r e c e i v i n g the same when  an  a  members of  are  present  segment of the t r a v e l i n d u s t r y .  when a v i a b l e agency a s s o c i a t i o n enforces levels.  had  addressed.  Owners of e t h n i c agencies b e n e f i t from the higher  tariff  has  the s e r v i c e l e v e l provided  the e t h n i c community must be The  the i s s u e of whether the  p r i c e s charged and  government  i s c l e a r that  level  of  the  services  agency a s s o c i a t i o n i s s u c c e s s f u l i n maintaining  higher  pricesThe travel  advent  of  industry  consumer has  protection  increased  the  legislation  barriers  to  p o t e n t i a l t r a v e l agents; nevertheless,, r e g u l a t i o n s stringent  as  to  severely  restrict  of new  ethnic  agents i s not  agencies  agreements e.g.,  Although i t may  entry  for  are  not  long  delay.  difficulties  Since  authorized  forming  so  still  l i m i t e d , agency a s s o c i a t i o n s such  encounter maintaining  the  e n t r y . Agencies can  e s t a b l i s h themselves without an o v e r l y supply  for  the as  collusive  price l e v e l s .  seem as i f consumers b e n e f i t  from  illegal  discounting,  the c o s t i n the form of a lower s e r v i c e l e v e l must  be  mind  kept  earnings  in  imply  because  lower  reduced  profits.  earnings  In a regulated  from  commission  i n d u s t r y such  the a i r t r a v e l i n d u s t r y , i t would seem prudent f o r  the  l e v e l s of t r a v e l agents to be a v a i l a b l e t o government bodies and  hence, f o r d i s c o u n t i n g  s t r i c t l y controlled.  as  earning  regulatory  of a i r l i n e t i c k e t p r i c e s to  be  74  4.4  Diversification Within  multitude  the  Canadian  of d i f f e r e n t  differing  degrees  needs o f t h e i r  original  explorers  particular clustered The  cities,  have  from  ethnic  the greater  will  assimilate  with  the  noted,  the  Asian  has  periods  have  This  diversified  than a r e e t h n i c immigration  visible  grouped  of  or  history-*  5  i n the  tbe  group  phenomenon  travel with  i s  agencies. earlier  tend  to  be  more  s u c h a s t h e C h i n e s e and P a k i s t a n i  ethnic  ethnic  ethenticity  language  of s e r v i c e of  t h a n i t i s f o r " o l d wave"  "new  with  waves o f  recent  Among i n d i v i d u a l e t h n i c  36  from  more  their concentration  "Statistics  immigration be  agencies associated  agencies  barrier,  the  the  established  N o r t h e r n Europe  less  Similarly,  to  to which they i n t e r a c t  of ethnic  as  deminish  Isles  sociological  g r o u p s . Over t h e g e n e r a t i o n s , a  been  a g e n t s which i d e n t i f y  s u c h as t h o s e f r o m  of  to  in  waves. From t h e  t h e p r o b a b i l i t y t h a t members  majority.  travel  patterns  throughout Canadian  minorities  i n the s a l e s patterns  of  tended  to  transportation  British  subcontinent,  world  immigration  waves  have f o l l o w e d the  one f i n d s a  specializing  passenger  and i n c r e a s e t h e d e g r e e  ethnic  Ethnic  groups,  agencies  the;  from F r a n c e and  i n the v a r i o u s  reflected  travel  servicing  areas of the  longer  Agencies  r e s p e c t i v e communities. Immigration  historians  waves  Travel  mosaic o f e t h n i c  ethnic  in  Canada,  recent  Of E t h n i c  differences  tend to wave"  to  become  d i v e r s i f y and  one: e t h n i c agencies  group. i s more  agencies.  agencies,  there  Canada, Can a d a H andbook- 1977  is  a  Ottawa:  tendency  to  1977, pp. 34-  75  diversify  into  industry-  This  such  cargo  tour  as  non-ethnic  may i n c l u d e  segments  expansion i n t o  marketing,  of  the  marketing  travel  activities  c o m m e r c i a l t r a v e l and t h e i n c l u s i v e  market a s w e l l . The  diversification  aa T r a v e l I n d u s t r y  of  travel  ethnic  travel firm.  Vancouver's airline  r e f e r r e d t o here i s found  Corporation,  a successful  in  community,  commenced  t i c k e t s and i n c l u s i v e t o u r s  to  member  business  members  case  Vancouver-Phased  I n J a n u a r y o f 1375, A a r o n L e e , a  Chinese  the  of  of  selling  the  ethnic  community. Since  i t s founding  through a  i n 1975, t h e f i r m has expanded r a p i d l y  diversification  development affiliated  of  tours  programme of  Western  agencies i n J a p a n -  that  i n order  they  must  6 6  successful  has  Canada  included  marketed  the  through  Many a g e n c i e s a r e o f the b e l i e f  t o expand and i m p r o v e be  which  in  their  financial  marketing  to  the  position, anglophone  community. as to Aa  mentionned p r e v i o u s l y ,  90 p e r c e n t Travel  entirely of  ethnic  6 6  was f i r s t with  operation,  full  70  of their  some e t h n i c a g e n c i e s  transactions  established,  sales  members o f t h e A s i a n the firm's  percent  of  i n a foreign  president  were  conduct  l a n g u a g e . When  conducted  almost  community. A f t e r t h r e e estimated  up  that  in  years  1977,  a  i t s c u s t o m e r s were members o f V a n c o u v e r s  m i n o r i t i e s and t h a t  of  these  AA Travel Industry Incorporated, ( u n p u b l i s h e d ) , V a n c o u v e r B.C.,  approximately  "Annual  60  fieport  percent  1977",  76  were o f C h i n e s e Ethnic segments and  origin.  6 7  agencies seeking  must, f i r s t  o f a l l , break  secondly, develop t h e i r  Travel  counsellors  providing  at  travel  hindered  Many  Travel  and c u l t u r a l  located  in  smaller  become  from  ethnic  of ethnic  other  segment.,  proficient  Vancouver*s agencies  i n t o other  barriers. Typically,  heart  in  i n a n o t h e r market  have  from expanding  language  tbe  expertise  AA  themselves  through the language b a r r i e r  services to clients  b u s i n e s s community. severely  to establish  these  communities  downtown  have  market  at  been  s e g m e n t s by organizations  a r e s t a f f e d by new  immigrants.. Ethnic travel of  t r a v e l agents play  services  ethnic  airlines offered  by e t h n i c  as  as  other  service  intermediaries,  by  the  greater  members  differences,  f o r the services  of t r a v e l r e l a t e d  transportation level  from  which  travelling airline  the world's  A i r .Transport  airlines.  Aaron  World,  related  services  incorporating  public  emphasis expense  might  and  services  the t r a v e l l i n g  public  t r a v e l agents  a n o t h e r p o i n t o f view,  t h e 1976 c o m m i s s i o n  Interviea with V a n c o u v e r . Date.  6 8  substitutes  i n t h e d i s t r i b u t i o n system  considering  6 7  provide  a g e n t s . The v a r i e t y  well  must ask whether  faced  to  Due t o l a n g u a g e a n d c u l t u r a l  easily  t h e improved  receives  served  importance  by e t h n i c t r a v e l a g e n t s s u c h as m u l t i m o d a l b o o k i n g  ticketing  as s a l e s  i s of c o n s i d e r a b l e  communities. cannot  provided  reflects  which  a r o l e i n the d i s t r i b u t i o n of a i r  the a n a l y s t  not  be  better  upon i n t e r n a l m a r k e t i n g , o f $1.44  billion  which  6 8  Lee,  AA  Travel Industry  op. c i t . , October  1977, p 32.  Incorporated,  77  4.5  T r a v e l Agents Vs. C i t y T i c k e t O f f i c e s  C i t y S a l e s O f f i c e s As A l t e r n a t i v e Channels Of Airlines  have  transportation airline  an  alternative  means  product. U n t i l the r e c e n t  fristributjion of  marketing t h e i r  growth i n the share  of  revenues generated by t r a v e l agents, c i t y t i c k e t o f f i c e s  owned and managed by i n d i v i d u a l c a r r i e r s generated a much l a r g e r share  of  total  passenger  revenue.  conference appointment agreements air  The  a i r l i n e s contend and  s t i p u l a t e t h a t the purpose  c a r r i e r r e l i a n c e upon agencies i s t o s t i m u l a t e new  primairly isolated  pleasure  traffic  or  to  service  clients  of  traffic, needs  in  locations.  D i f f e r e n c e s In S e r v i c e C h a r a c t e r i s t i c s From  the  consumer's  from a c i t y s a l e s o f f i c e travel airline  agency. owned  transportation the  Among city  p o i n t of view, the s e r v i c e s differ  the  most  ticket  services,  from  those  important^  offices  hence,  received  received is  from  a  the f a c t that  emphasize  their  own  s a l e s agents may not b r i n g to  t r a v e l l e r ' s a t t e n t i o n a l l of the o p t i o n s a v a i l a b l e to him. A i r l i n e operated c i t y s a l e s  offices  and  travel  agencies  l o c a t e d i n urban c e n t r e s compete f o r the l a r g e and h i g h l y commercial  travel  market.  s h i c h t r a v e l agents have l a i d commercial  customers  One  or  enticement  o f the s e r v i c e c h a r a c t e r i s t i c s  stress  on  in  order  to  attract  has been the e x t e n s i o n o f c r e d i t terms to  commercial c l i e n t s . As p r e v i o u s l y service  stable  discusssed,  this  additional  from t r a v e l a g e n c i e s has been viewed as  the cause of agency b a n k r u p t c i e s . A i r l i n e s  maintain  their  own  78  commercial  accounts  and  i n addition  agents honour major c r e d i t Carriers agent new  on  services.  commercial t r a v e l  domestic  i n f r i n g e m e n t of  may  travel  be  entitled  whereby  T h i s expedites t i c k e t i n g  the  to  advantage  "express"  procedures g r e a t l y  comparison with most t r a v e l instant  information  introduction agencies,  of the an  from  most  agencies airline  cathode ray  and  travel  agents are  The  is  the  ticket.  particularly  availability  of  systems. . The  terminal e v o l u t i o n of  to  travel  the  travel  implications  r e s e r v a t i o n systems to  Aqencies For  to e s t a b l i s h  marketing  that  the  An  perceived  t r a v e l agents i n the a r e a , the demographic consideration  characteristics when  a new  deciding  The  City Sales  c i t y sales  s t r a t e g y of the  environment c h a r a c t e r i s t i c s . reports  for  of  travel  considered i n Chapter 5.  decision  the  is  reservations  tube {CRT)  electronic  Impo rtance Of Tr ave1 The  upon  of  ticketing  c i t y s a l e s o f f i c e s have i n  important milestone i n the  introduction  of  freguently.  agent s h a l l g r a d u a l l y a l t e r t h i s s i t u a t i o n . The the  a variety  t r a v e l l e r w r i t e s h i s own  which  travel  or f i r m s with a p p r o p r i a t e  a t t r a c t i v e t o commercial t r a v e l l e r s who Another  the  market by c r e a t i n g  For example, i n d i v i d u a l s  credit ratings  travel  cards-  have responded to the  the  a i r l i n e s as w e l l as  Air need  to  upon marketing  of customers, the  the  area  establish  depends  marketing  p r o f i t a b i l i t y of of  office  a i r l i n e and Canada  Office  number of  a r e g i o n and  .are a  manager  taken new  city  the into  sales  79  office.  6 9  The  competitive r e l a t i o n s h i p  airlices  i s also  factors  in arriving  office  taken  into  a r e a . The  agents,  acting  through  establishment  airlines sales  by  have  not  order  travellers,  to  an  a new  i n a given area  an  However,  obvious  better  may  case  i n Toronto  through  convenient,  being  i n c u r r e d among s u b u r b a n  airline in  i n the  e s t a b l i s h e d A i r Canada s a l e s  reached  the s u b u r b s  segment.  7 0  relationship  higher  the  Although between  commission travel  decision to  to b e t t e r  serve  adapt  indirectly carriers  city  to  the  i t s distribution community.  suburbs,  outlets  new  A and  servicing less  and  likely  Therefore,  commercial  their  more  were most  agencies.  to  As  and  became  expenses  related and  of  commercial  situation.  e s t a b l i s h two the  of  due  to  the  sales offices travel  market  the  adversarial  agents,  this action  " I n t e r v i e w .with W.A.C. Rowe, Air Canada, General S e r v i c e Manager, V a n c o u v e r , B.C. March 9, 1978. 7 0  depends  boycotts  problem  service  sometimes  offices  less  an  agencies.  exemplifies this  more f i r m s r e l o c a t e d t h e i r  sales  protest  system t o t h e demographic changes of the b u s i n e s s recent  city  because of the e s t a b l i s h m e n t  provide  other  i n d u s t r y a s s o c i a t i o n s may  been  airline  with  Travel  b a r g a i n i n g s t r e n g t h of t r a v e l  In  along  the  i n the a r e a .  sales office.  agencies  a g e n t s and  o f s e r v i c e which  sales offices  their  o f a new  travel  offices  limited  level  seeks to p r o v i d e i t s passengers  upon t h e number o f a g e n t s and  the  consideration  a t a d e c i s i o n to e s t a b l i s h  w i t h i n a g i v e n urban  airline  between t r a v e l  Sales  and  Interview with G. Kennedy and D. T a n g r y , A i r C a n a d a , W e s t e r n R e g i o n , P a s s e n g e r M a r k e t i n g D i v i s i o n , V a n c o u v e r , J u l y 19, 1S78.  80  reflects agents  the  belief  should  pleasure  confine  sales office  lower  than  :  travel city the  their  the  not  base the  s o l e l y on cost  IATA  that  travel  e f f o r t s to s e r v i c i n g d i s c r e t i o n a r y  sales  office  carrier  than  supposedly  started  deemphasize t h e i r  example,  be  costing  ticket sales  was  organization  in  impartial  A i r l i n e s and  Eastern  : i t  ^"Special Report on W o r l d , O c t o b e r , 1977,  71  approximately  Airlines  carriers  of  an  airline's traffic  for  travel  States  sales  have  offices.  that i t s c i t y  ticket  16  airline  percent  its city including  have f o l l o w e d  A i r l i n e and pp 51-56.  services  United  r e l i a n c e upon c i t y  t o have dropped  Other  are  independent  some c a r r i e r s i n t h e  reported 1977.  that  costs  to stimulate  B r a n i f f Airways which r e p o r t e d  were  establish a  i n c u r r e d i f the  i s much more l i k e l y  will  whether to  upon. I t i s c l e a r  Nonetheless,  to  d e c i s i o n on  which M o u l d  a g e n t s were r e l i e d  offices  by  whether i n t e r n a l o p e r a t i n g  agencies.  For  advocated  traffic.  A i r l i n e s do new  officially  of  sales  office  Trans  World  suit.  T r a v e l Agents".  Air  Transport  81  CBAPTEB 5  5.0  ACCESS TO ELECTRONIC RESERVATIONS  SYSTEMS  The I n t r o d u c t i o n Of Computer-Based Reservations to T r a v e l Agencies The  focus of t h i s chapter i s not so much upon t e c h n o l o g i c a l  developments  which  are  repeatedly  being  i n d u s t r y , but r a t h e r  upon how v a r i o u s  industry  benefit  stand  reservations  to  systems.  from  better  travel  to  an  access  to  attempt  is  airline made  agents,  cathode  reservations  ray  tube  concept  seeking of  to  stimulate  placing  at  placed  terminals  through t r a v e l  agencies were r e l a y e d v i a telephone. However, as e a r l y as airlines  the  "Does the consumer b e n e f i t ? "  P r i o r to the i n t r o d u c t i o n o f to  introduced  p a r t i c i p a n t s i n the t r a v e l  Ultimately,  answering the q u e s t i o n ,  (CRTs)  Systems  terminals  traffic with  1976,  experimented with the  direct  communication  to  a i r l i n e e l e c t r o n i c r e s e r v a t i o n s systems w i t h i n wholesale as w e l l as  r e t a i l t r a v e l agencies.  f o r the f u t u r e therefore  of  should  the  The i m p l i c a t i o n s of t h i s development  travel  industry  are  significant  and  be taken i n t o c o n s i d e r a t i o n i n the a n a l y s i s of  the changing r o l e which t r a v e l agents p l a y . Highly  sophistocated  communications  links  at  e s s e n t i a l to the e f f i c i e n t carrier  as  are  the  airline airline operation  aircraft  reservations points  of  systems  service  o f a modern f i r s t  which  transport  are  with, as  level a i r  passengers.  Computer-based a i r l i n e r e s e r v a t i o n s systems perform a v a r i e t y of vital  services  inventory.  in  a d d i t i o n to r e a l - t i m e seat a v a i l a b i l i t y and  Reservations  systems maintain passenger name  records  82  of p e r t i n e n t . i n f o r m a t i o n r e l a t e d to the i n d i v i d u a l In  addition,  present  among themselves and reservations with  day  r e s e r v a t i o n s systems can  reguest  systems.  bookings  Reservations  a i r l i n e t i c k e t i n g and  A i r l i n e Competition  from  other  72  communicate electronic  systems a r e c l o s e l y l i n k e d  indeed, computerized  are p r e s e n t l y used by both a i r l i n e s and  5.1  passenger.  ticket  printers  agents.  For T r a v e l Agent Bookings  I t i s i n a c a r r i e r ' s b e s t i n t e r e s t t o seek to e s t a b l i s h i t s own  e l e c t r o n i c reservations terminals  agents  | i . e . , CRT  sets) i n t r a v e l  s i n c e i t f a c i l i t a t e s s e l l i n g the s e r v i c e s of the  which i s f e a t u r e d on the system. Even i f a v a r i e t y inventories agent has  are  maintained  immediate  on  access,  of  airline carriers  the system to which the  the  agent  shall  place  greater  emphasis upon s e l l i n g the t r a n s p o r t a t i o n s e r v i c e s of the featured  on  the  to  terminals  in  retail  the  route.  The  I n t r o d u c t i o n Of A R e s e r v a t i o n introduction  of  Air  of  and  a  partial  course,  traffic  on  System To I r a v e i Agencies Canada's  Reservec  I I computer  system which i n c l u d e s the i n v e n t o r i e s of most r e g i o n a l carriers  two  agencies  capture the l a r g e r market share assuming, of  t h a t t r a v e l agents provide a s i g n i f i c a n t amount  The  airline  system. For example, on a route served by  c a r r i e r s , the c a r r i e r with more stands  travel  Canadian  i n v e n t o r y of CP A i r f l i g h t s to  travel  United States, Department of T r a n s p o r t a t i o n , O f f i c e of F a c i l i t a t i o n , "Passenger R e s e r v a t i o n s and T i c k e t i n g " , Washington D.C, 1 9 7 1 , pp. 2-7.  7 2  83  agents provides of  CBT  sets  evidence of t h e importance which  system  i s the  i n t e r l i n e partners  largest  on a connecting  eventually  desirable  system  t o be i n c l u d e d  The  include  as  the  agent's  point  of  e l e c t r o n i c r e s e r v a t i o n system o f f e r e d by CP A i r , the  n a t i o n * s next l a r g e s t c a r r i e r ,  provides  a different  variety  a i r l i n e i n v e n t o r i e s . Those CP A i r f l i g h t s which o v e r l a p flights  are i n c l u d e d  on  in  order  to  t h e i r t e r m i n a l s . A i r Canada has placed  advantageous p o s i t i o n with regard reservations  systems  of  with A i r  i n the A i r Canada system, however,  agents must make a s p e c i a l regues* flights  most  i n t h e Canadian t r a v e l accent's  p o r t f o l i o of t o o l s , a t l e a s t from the t r a v e l  Canada  and  f l i g h t basis, car rental  f i r m s and h o t e l accommodations) i t has been vieaed  view.  tool.  t h e most s e r v i c e s of any e l e c t r o n i c r e s e r v a t i o n system  i n Canada, ( i t i s a n t i c i p a t e d that i t s h a l l all  placement  i n t r a v e l agencies can have as a marketing  Since t h e A i r Canada r e s e r v a t i o n s includes  the  to t h e  placement  view  CP A i r  itself of  i n an  airline  i n comparison•> with CP A i r which, to date,  has.not e s t a b l i s h e d remote t e r m i n a l s i n t r a v e l  agencies.  7 3  As of September,1978, approximately 30 remote CHT t e r m i n a l s had  been  placed  i n t r a v e l agencies i n B r i t i s h Columbia's lower  mainland. The a g e n c i e s chosen by A i r Canada t o  be  linked  with  the a i r l i n e ' s e l e c t r o n i c r e s e r v a t i o n system were s e l e c t e d on the basis  of  how  profitability accountable  73  Intecview 1S78.  many A i r Canada s a l e s they would produce. From a standpoint,  individual  f o r a preestablished  with E i l l  districts  are  held  r e t u r n on investment f o r each  Hurphy, Pagaesus Systems,  CP  A i r , Harch,  84  t e r m i n a l . * In the case of t h e t r a v e l agencies 7  access  to  which have  direct  A i r Canada's system, p r e c a u t i o n s have teen taken t o  l i m i t the amount o f i n f o r m a t i o n a c c e s s . Agents cannot  to  which  travel  agents  have  o b t a i n passenger name l i s t s , i n s t e a d , they  are only provided access t o i n f o r m a t i o n r e v e a l i n g whether c r not space  is  variety  a v a i l a b l e on a p a r t i c u l a r f l i g h t . Nonetheless,  of  passengers  information  including  information  on  a wide  individual  may be obtained or s t o r e d by the t r a v e l agent.  E l e c t r o n i c R e s e r v a t i o n s Systems i n U. S- Tra-vel- AgenciesAirline  competition  for  travel  agent  ticketing  i n the  United S t a t e s has been much more c o m p e t i t i v e than i t has been i n Canada. T h i s can be a t t r i b u t e d t o carriers  with  extensive  essential difference Canada  vis-a-vis  electronic  between  those  in  c h o i c e which American agents of  the  joint  trunk  r e s e r v a t i o n s systems. The  computerization the  of  developments  in  U.S. i s the g r e a t e r degree of  have because of the g r e a t e r  number  t o United S t a t e s J u s t i c e Department d i s a p p r o v a l o f the  development  system.  United  of  an  Airlines,  airline/travel American  A i r l i n e s have each decided t o market agents  agent  Airlines their  reservations  and  systems  Trans to  world travel  on a separate b a s i s . Both United's and American's systems  designed  f o r t h e i r own t i c k e t agents  f l i g h t s are d i s p l a y e d f i r s t  7  number  systems a v a i l a b l e Due  are  large  on the C R T .  75  and hence, t h e i r own The  significance  * I n t e r v i e * i with W.A.C, Rowe, A i r Canada, General S e r v i c e s Manager, Vancouver, March 9, 1978- ,  Sales  of  and  85  e s t a b l i s h i n g an e f f e c t i v e t r a v e l with  airline  that  in  reservations  Onited's  case,  agent  reservations  interface  systems i s made e v i d e n t by the f a c t some  50  percent  of  the  carrier's  passenger revenues were generated by t r a v e l agents i n 1976. * 7  Each  carrier  appears  to u t i l i z e i t s own  c r i t e r i a f o r the  s e l e c t i o n of agents chosen f o r i n s t a l l a t i o n o f t e r m i n a l s .  United  a i r l i n e s f o r example,  levels  which  agencies  has  must  fulfill  $300,000  in  minimum  order  to  revenue qualify  t e r m i n a l , an approved agency  i n s t a l l a t i o n of a CRT generate  established  in  for  must  the  either  annual a i r l i n e revenue with United cr an  annual a i r revenue o f $1 m i l l i o n of which 15 percent must be  on  United. Marketinq Advantages Through The  automated  t i c k e t p r i n t e r which i s used i n c o n j u n c t i o n  with r e s e r v a t i o n s t e r m i n a l s accounts  has  aut omat i o n  become  a  by  travel  agents  and  commercial  r e a l i t y f o r many l a r g e Canadian  a g e n c i e s . Such t i c k e t i n g a c c e s s o r i e s were i n t r o d u c e d  travel  previously  to t r a v e l agencies i n the United S t a t e s . P r i n t e r s f a c i l i t a t e the writing  o f most domestic and some i n t e r n a t i o n a l a i r l i n e  as v e i l as the payment of net revenues t o the c a r r i e r s Travel airline primary  agencies  which  specialize  users  of  domestic  the t i c k e t p r i n t e r although t h i s i s f a r from benefits  from  "airlines Spar Over Ticketing", Technology, February 2, 1S76. p. 30.  7 6  selling  involved.  t r a n s p o r t a t i o n products t o commercial t r a v e l l e r s are the  the only group which  7 s  in  tickets  their  use.  Consequently,  A v i a t i o n K e e k and  Op. C i t . . a i r T r a n s p o r t World, October, 1977,; p. 33.  Space  86  travel  agent a s s o c i a t i o n s have opposed e f f o r t s by A i r Canada to  provide commercial customers with t e r m i n a l s and t i c k e t  printers  f r e e of charge which d e t r a c t s from the s a l e s of t r a v e l a g e n c i e s , particularly travel.  7 7  from  Agents  travel fear  agencies  the  next  s p e c i a l i z i n g i n commercial  step by A i r Canada may be t o  o f f e r commercial accounts a commission airline  tickets.  The  on  their  purchases  a d v e r s a r i a l r e l a t i o n s h i p between  and t r a v e l agent i s apparent once again i n  the  minor  of  airline conflict  which might be fundamentally viewed as an attempt on the part o f airlines  to  minimize ; commission  expenses  and on the p a r t of  t r a v e l agents t o maximize commission earnings5-2  B e n e f i t s Snd Costs Of System f o r The T r a v e l Agent fox  criteria  Installation  those agencies which are f o r t u n a t e enough t o established  by  the  agencies  which  t e r m i n a l s and following  have  been  ticket  benefits:  operating  efficiency  managers o f Vancouver-based operating  printers 7 8  for  leservec  with six  Air  months  Canada  or  travel remote  reported  the  I I provides t r a v e l consultants  with guick a c c e s s to r e l i a b l e i n f o r m a t i o n ; r e s e r v a t i o n s changed  the  a i r l i n e s to o b t a i n a cathode r a y  tube t e r m i n a l , a v a r i e t y of marketing and b e n e f i t s are forthcoming. Two  meet  can  be  a l t e r e d i n a much more convenient manner than under  p r e v i o u s methods; and a great  deal  ""Commercial Accounts to Get T i c k e t Con t i e r , June 16, 1977, p- 1.  of  information  Printers",  ^Interview with Malcolm Nicholson, P. Vancouver, March 30, 1978 and Gordon Bees, Vancouver, A p r i l 6, 1978-  previously  CanadianMEraye'l lasson's Bayshore  Travel, Travel,  87  only  available  airline  from  becomes  available  through  real-time  benefit  hand, the travel  the  access  from fewer  utilization  high to  speed communications l i n k s  computer-based  m i n u t e s s p e n t on  the  cost  agent  of data  to  Air  systems  t e l e p h o n e and/or  communications l i n k s  according  provided  reservations  of e x i s t i n g communications r e s o u r c e s -  regualtions,  Traffic  On  must be  terminals  to confirm  time s a v i n g s passenger  b o r n e by  Conference  occurs  or  while  "call-backs"  i m p o r t a n t b e n e f i t w h i c h makes CBT  to  the  efficiency  services  agencies.  low  commission  7.5  for  provided  percent),  short—range  by  airline  makes i t p o s s i b l e f o r t r a v e l costs  associated  with  low  the  travel  relatively  Capproximately  providing  IATA  use  are  of a  sets  able This  domestic  l o s s e s when  journeys^  r e s e r v a t i o n s systems  s a l e s s u c h as  A  real-time  on  agents i n c u r domestic  CBT  particularly  rate  agents t o cover f i x e d  margin  of  customer waits-  s y s t e m i s an  to u n d e r s t a f f e d  by  the  of  Due  the  to customers-  because t r a v e l a g e n t s  reservations  most  returned  elimination  attractive  ether  7 9  r e p o r t fewer t e l e p h o n e c a l l s  substantial  better  the  In a d d i t i o n t o l o w e r c o m m u n i c a t i o n s c h a r g e s , u s e r s  travel  the  e l e c t r o n i c r e s e r v a t i o n s system- .  Agencies using by  manuals  8 0  The  terminals  and  domestic  variable airline  sales.  " A u t c m a t e d S e r v i c e s P r o v i d e d t o T r a v e l Agents located in the United States", Air Traffic Conference of America, Passenger Committee B u l l e t i n No. 19, W a s h i n g t o n D . C , March 3 1 , 1978.  7 9  T o u c h e Boss and Company, J o i n t T r a v e l Agent-ZAirline- Eccccmic and V a l u e S t u d y , r e p o r t e d i n " T r a v e l A g e n t s L o s e $ 2 3 M i l l i o n on D o m e s t i c S a l e s " , A i r l i n e E x e c u t i v e , J u l y , 1978, p. 40.  8 0  88  The  presence of  travel  agency  an  provides  airline's  a c e r t a i n degree  C o m m e r c i a l c u s t o m e r s may appear  to  image o f  fast  employees and  be  may  the i t  is  image i s f o s t e r e d  A reservation services.  challenge  many  of  the  the  within  promotional  terminal  operating  travel the  CBT  associated  a  CBT  which  projects  set  in  the  agency terminal  with  " p r o f e s s i o n a l " or  presence of  a  benefit.  agencies  Moreover,  subprogrammes  c l e a r that  by  of  a t t r a c t e d to t r a v e l  efficient  enjoy the  learning  Furthermore,  be  progressive. and  reservation terminal  i t .  "airline" a  travel  agency. The  benefits  introduction costs  to  of  which  an  airline  agents,  the  travel  reservations  competing  agent  derives  system  are  c a r r i e r s and  frcm  not  possibly  the  without  even  to  the  regulations  to  t r a v e l w h o l e s a l e r s a monthly f e e  for  consumer of a i r t r a v e l s e r v i c e s . A i r l i n e s have charge the  travel  use  of  agreed  through  a g e n c i e s or  CBT  terminals  major t r a i n i n g c o s t  i s the  and  earn  necessary f o r terminal order  to  to cover  Using  8 1  an the sell the  automatic  opportunity  a g e n t s must d e v o t e t o l e a r n i n g agents  conference  to  use  cost CBT  average commission of agent an  deciding  average f a r e  per  fee.  of  printers.  the  devices.  8.5  time  to  The  which  Assuming  percent,  whether  a d d i t i o n a l $3,117 o f  monthly  ticket  that  i t would  add  t i c k e t s each  an  be  extra  month i n  8 1  ticket  information  as c a l c u l a t e d  in  0p. C i t . , I n t e r v i e w w i t h M a l c o l m N i c h o l s o n , March 30, 1978. In A i r C a n a d a ' s c a s e an i n i t i a l i n s t a l l a t i o n f e e o f $100 i s c h a r g e d f o l l o w e d by s u b s e q u e n t monthly payments o f $265-  89  tie  1978  Touche  Boss  study of t r a v e l aqeat p r o f i t a b i l i t y , an  agent would have t o s e l l 20.9 domestic p o i n t - t o - p o i n t  t i c k e t s or  4.9 i n t e r n a t i o n a l t i c k e t s a t the normal f a r e i n order the  c o s t o f one CRT t e r m i n a l . One should  analysis considers generally  higher  U.S.  travel  agent  reliance  gives  bear i n mind that commissions  which  upon  the  Canadian  travel  preferential  may  display  of  one  carrier  gradually  become  management  accounting  information  is  offered  providing  tour operator  travel  agencies  with  management  inter-face  f i r m s have the p o t e n t i a l o f l e s s e n i n g  travel  agents  reservations  advantageous  to  well  systems.  obtain  r e s e r v a t i o n s systems provided by the agent i s s u f f i c i e n t l y 5.3  as  with a c c e s s t o a i r l i n e a s w e l l as  From the t r a v e l agency as a small business p o i n t is  by  the l a t t e r , independent f i r m s  the dependence o f the t r a v e l agent on a s i n g l e c a r r i e r  it  travel  services.  Computer  as  the  systems i n c l u d i n g marketing and  systems. With r e g a r d ; t o  have developed which provide information  agent  dependent not o n l y on the f l i g h t  d i s p l a y of one c a r r i e r but a l s o upon other s e r v i c e s airline  are  a s i n g l e a i r l i n e r e s e r v a t i o n s system  p o s s i b i l i t y of i n c r e a s i n g a i r l i n e i n d u s t r y c o n c e n t r a t i o n agents  this  States.  One of the primary dangers o f  which  cover  than Canadian, commissions due t o the open r a t e  s i t u a t i o n p r e v a i l i n g i n the United  industry's  to  real-time  access  of to  t h a t the l e v e l of t r a f f i c  view, airline  serviced  high.  B e n e f i t s And Costs Of System I n s t a l l a t i o n F o r The Airlines In Canada, A i r Canada stands to  benefit  substantially  by  90  placing share  its  CRT  shall  terminals  undoubtedly  increase,  s i g n i f i c a n t benefit accruing is  derived  from  the  marketing i n f o r m a t i o n Carriers are  can  i s t r a v e l agencies s i n c e i t s market eiterus  paribus-  to the c a r r i e r p r o v i d i n g  dissemination  of c u r r e n t  Another  the system  f a r e and  to t r a v e l agents hooked i n t o  the  other  system.  b e t t e r dominate t h e i r s a l e s i n t e r m e d i a r i e s i f they  the primary source of marketing i n f o r m a t i o n  f o r ; the  sales  intermediary. Carriers travel  with a s u b s t a n t i a l p o r t i o n of t h e i r s a l e s through  agents  aggressive  may  lose  airlines  t e r m i n a l s i n agenciesthe  United  States  place t e r m i n a l s possibility  a  part  of  share  to  with an e f f e c t i v e programme of p l a c i s g  CRT  not  pertinent  where many c a r r i e r s compete f o r the  placing  agencies should  market  This issue i s p a r t i c u l a r l y  i n t r a v e l agencies-  of  their  more  be r u l e d  Although  than  one  CRT  of  airline  s u b s t a n t i a l short-term  if  the  ticket cash  ticket  stock flew.  can For  terminal i n larger  were  issued  to  the  conference  b e n e f i t provides  also  with  the  b e n e f i t from a  example,  Trans  World  of a t i c k e t f o r another on 184  reason f o r t h i s i s t h a t cash flows f i r s t then  the  out-  A i r l i n e s would b e n e f i t from the issuance airline  r i g h t to  impractical,  A i r l i n e s which couple the placement of t e r m i n a l s placement  in  to  ticket stock. the  host  carrier  c l e a r i n g house f o r d i s t r i b u t i o n .  a d d i t i o n a l i n c e n t i v e s to  carriers  tc  The  This  provide  agents with i n d i v i d u a l a i r l i n e t i c k e t p r i n t e r s . Whether i n s t a l l a t i o n and which  the  airline  systems to t r a v e l  incurs agents  monthly r e n t a l f e e s cover the  cost  implementing e l e c t r o n i c r e s e r v a t i o n is  not  entirely  obvious  from  the  91  limited  amount  Nevertheless, regulations  the had  i n t o a p r i c e war Canada's  of  move  cost fact  for  that  a v a i l a b l e t o the  special  Air  Traffic  public.  Conference  to be adopted t o i n h i b i t c a r r i e r s from e n t e r i n g over CBT to  terminal  placement  o f f e r complementary CRT  p r i n t e r s to commercial benefits  information  the  accounts  carrier  tends  of  coupled terminals  to  and'  and  indicate  additional  outweighs the c o s t o f e s t a b l i s h i n g  with  Air  ticket  that  traffic  the  generated  maintaining  peripheral  terminals, 5.M  The B e n e f i t s And Costs Of System Implementation f o r The Consumer The  benefits  which  from t r a v e l agents  with  difficult  to measure. On  telephone  reservation  becomes  quite  associated  with  consumers electronic  to  systems  are  such as when a i r l i n e  l i n e s are busy, the advantage of the  apparent, improved  them  reservations  c e r t a i n occasions,  other  advantages  is  such  as  the  have  ability  recently  had  CRT  those  accuracy are l e s s o b v i o u s . The  b e n e f i t c i t e d by most agents who introduced  of t r a v e l s e r v i c e s r e c e i v e  CRT  major sets  to s e r v i c e customers more  rapidly. As p r e v i o u s l y o u t l i n e d , t r a v e l agents pay fee  for  the r i g h t to operate remote video  i n the from of user fees., The  establishing additional terminals and  communications  United  A i r l i n e s was  links  is  reported  m i l l i o n on agent t e r m i n a l s  cost  of  to  i n 19 76.  software,  i n s i g n i f i c a n t . For be  remote  c o s t to the a i r l i n e s of  i n c l u d i n g hardware,  not  rental  t e r m i n a l s . I t i s hot  e n t i r e l y c l e a r t h a t a i r l i n e s recoup the e n t i r e terminals  a monthly  prepared  to  example.  spend  $700  92  Given  the  regulated  nature  t h a t the c o s t of improvements i n ultimately may  be  felt  commissions,  airline  conferences  levels,  the  are  costs  such  travel  carriers  cajoled  The  initially  can  demand  into  augmenting  commission  bodies.  cost  not  be very  as  commission  long-term  agents  higher  The  increases  in  fare which  c o n t r i b u t e to o v e r a l l a i r l i n e  great r e l a t i v e to other costs,  c o n t r i b u t i n g f a c t o r which should  5.5  levels  i n t u r n f e l l o w by r e g u e s t i n g  remote t r a v e l agent t e r m i n a l s may  service  fact  c i t i n g l a r g e r l o s s e s on t i c k e t s a l e s . Once  l e v e l s from r e g u l a t o r y  increases  customer  the  by the consumer/, the c h a i n of c o s t impacts  f o l l o w a sequence wherein  higher  of the i n d u s t r y and  rapidly rising  nonetheless,  not be  cost  they  are  a  ignored.  Implications  introduction  of  electronic  reservations  systems  to  t r a v e l agents i n Canada by the n a t i o n a l c a r r i e r , A i r Canada, has important  implications  t r a v e l agent  f o r - the  industries  and  structure  consequently  o f the a i r l i n e for  the  level  and of  s e r v i c e which consumers r e c e i v e . Air  Canada  transcontinental  presently Canadian  has  the  market  with  largest CP  share  Air  of  the  trailing  far  behind. A monopoly i n the placement of r e s e r v a t i o n s  terminals  travel  introductory  agencies by A i r Canada a t l e a s t during  this  stage can e a s i l y r e s u l t i n a greater c o n c e n t r a t i o n one  semi-autonomous,  guestion  the  belief  government-owned that  greater  in  of power with  carrier.  concentration  One within  might the  a i r l i n e i n d u s t r y i s i n the consumer's best i n t e r e s t . From the consumer's p o i n t of  view,  a  computer  interface  93  system  providing  t r a v e l agents with access to the  systems,of a l l c a r r i e r s s e r v i n g Canadian p o i n t s isider  range  of  reservations  reservations  would  offer  a  s e r v i c e s while a t the same time,  e l i m i n a t e the p r e f e r e n t i a l treatment o f f e r e d by  single  airline  r e s e r v a t i o n s systems. On  another  industry  level,  of  the  agent  introduction  terminals  r e s u l t i n f u t u r e s t r u c t u r a l changes e s p e c i a l l y i n  t h a t segment of travel  the  market.  One  industry  their  e f f e c t of  the  prosperous  detriment in  are  by  terminals is  in  that  airlines  in  to t r a v e l agents.  The  only  the  the  capital  a p o s i t i o n to o b t a i n  i n v e s t i g a t i o n of commission  intensive,  the the  t r a v e l agent industry,  which  s h a l l move toward g r e a t e r c o n c e n t r a t i o n . only be  few  more  reservations to  the  Concentration has  been  levels.  industry  composed of many independent s m a l l business, and  follows that  larger,  States t r a v e l agent i n d u s t r y s i n c e 1970  might argue t h a t as  of s c a l e can  commercial  trend toward i n d u s t r y c o n c e n t r a t i o n  n o t i c e d i n the C.A.B.  more  the  the consumer i s the i m p l i e d r e s u l t .  the United  One  established  reguirements  agencies  of  in  system  can a t t r i b u t e t h i s to the minimus f i n a n c i a l  reservations  systems; hence, the  reservation  specializing  reguirements which have been marketing  electronic  travel  i n d u s t r y , the may  of  that  is  8 2  becomes presently  large  firms,  S i m i l a r l y , i f economies  taken advantage of by l a r g e r f i r m s , then i t  consumers  stand  to  benefit  from  s e r v i c e l e v e l s o f f e r e d by l a r g e r f i r m s with CRT  the  improved  terminals.  0p. Cit. , United S t a t e s , C i v i l Aeronautics Board, "IATA Agreements Concerning Agency H a t t e r s - Uniform Commission Hates", pp. 80-107.  8 2  94  Although  the  electronic  reservations  i n t r o d u c t i o n phase  stands to a l t e r  the c o m p o s t i t i o n  of the t r a v e l  some  of  industry  segments  affected  significantly.  protected northern  the  by  the  travel For  example,  agent  industry,  s h a l l probably not be ethnic  agencies  unigue s e r v i c e s which they o f f e r . S i m i l a r l y ,  t r a v e l agencies which a r e u n l i k e l y t o t i e i n t o  reservations  are  styterns  airline  w i l l most l i k e l y r e t a i n the same l e v e l of  b u s i n e s s because of the p r o t e c t i o n o f f e r e d by  their  geographic  monopolies. In  summary,  airlines  which  succeed  p r e f e r e n t i a l position i n providing f l i g h t services  in  obtaining  information  and  a  other  to t r a v e l agencies s h a l l b e n e f i t from the c a p t u r i n g o f  a l a r g e r market share, l a r g e r agencies i n the commercial have the f i n a n c i a l : resources  travel  market  which  provide  t h e i r customers with the speed, accuracy and convenience  of r e a l - t i m e access to probably  electronic  a v a i l a b l e t o them t o  reservations  systems  shall  b e n e f i t t o the detriment of the agencies s e r v i c i n g the  commercial market without e l e c t r o n i c r e s e r v a t i o n s t e r m i n a l s . ,  95  CHAPTER 6  EVALUATION OF TRAVEL AGENT REMUNERATION ALTERNATIVES  6-0  Method Of Description  and  Evaluation of the b e n e f i t s and costs' which a i r  a i r carriers  receive  from  travellers  t h e s e r v i c e s performed by the  t r a v e l agent has been presented i n order t o r e v e a l the e s s e n t i a l r o l e which the t r a v e l agent plays i n services  the  marketing  to the t r a v e l l i n g p u b l i c . D e s i r a b l e  of  travel  service attributes  of a i r t r a n s p o r t a t i o n  marketing systems have been r e f e r r e d t o : i n  discussions  i s s u e s f a c i n g t h e t r a v e l agent  The  of curent  purpose of t h i s chapter i s t o e v a l u a t e  non-commission  must  be  f o r evaluation  defined  and  and  clairfied.  a t t r a c t i v e a l t e r n a t i v e has been s e l e c t e d , i t . i s for  adoption  Commission.  commission  and'  a l t e r n a t i v e s , and s e l e c t the " b e s t " a l t e r n a t i v e .  In order t o do so, c r i t e r i a objectives  industry.  and It  implementation  i s also  possible  by  the  public  After  policy  the  most  then recommended  Canadian  t h a t an a i r l i n e  Transport conference,  e i t h e r i n t e r n a t i o n a l or domestic, would be w i l l i n g t o  implement  a remuneration a l t e r n a t i v e which i t deemed t o be i n i t s favour.  6- 1  Service Many  Attributes  desirable  e f f i c i e n t passenger the  preceding  service c h a r a c t e r i s t i c s associated t r a n s p o r t marketing system  chapters-  have  with an  arisen  in  The s e r v i c e a t t r i b u t e s which have been  96  identified  for  the  purpose  of  policy  analysis  include  the  following,: a)  impartiality vis-a-vis transport choice  b)  individual  c)  a b i l i t y t o provide t r a v e l s e r v i c e s market segments  d)  rapid access information  It  is  the  can  specialized  i m p a r t i a l i t y of  the  c h a r a c t e r i s t i c s i n c e the  extend to the  sales  client  is  to choose from.  c h o i c e between modes as  service  attribute  which has  by  proponents and  of  small  well  been a s s o c i a t e d  knowledge of an  businesses  individual's  needs cannot be adequately provided by sales The  as  I t has  that  been  individual  comprehensive  larger  with  airline  travel  operated  offices. ability  system to serve travellers  of a  from  the  diverse the  passenger set  granted under the  some t r a v e l  agencies  of  transportation market  as  business community, h o l i d a y t r a v e l l e r s  and  service  present system- As  outlined  have  in  specialized  because of  services-  A t r a v e l agent remuneration p o l i c y of the  segments  characteristic  segments  ability  marketing snch  e t h n i c community t r a v e l l e r s i s a  the  of  reservations  t r a v e l agent i n d u s t r y i s p e r s o n a l i z e d a t t e n t i o n .  attention  for  mode  choice between c a r r i e r s .  argued  city  to  passenger  with a g r e a t e r number of a l t e r n a t i v e s  Another the  to  g e n e r a l l y agreed t h a t the  Impartiality  and  attention  intermediary i s a desirable presented  carrier  marketing system to ; meet  i n Chapter  individual  t h e i r a b i l i t y to meet the  taken 4,  market  demand f o r unigue  would not these  eliminate specialized  97  needs-  At  the  same  time,  i t should  s u b s i d i z a t i o n o f s p e c i a l i z e d c l i e n t s by specialized  clients  the  cross-  not , r e q u i r i n g  assistance.  leservation  systems  and  access  to  important determinants of t h e l e v e l of air  minimize  them have come to be  customer  service  which  c a r r i e r s and s a l e s i n t e r m e d i a i r e s provide t h e i r c l i e n t s - As  described  i n Chapter 5, r a p i d or "real-:time" a c c e s s  reservations  systems  is  a  highly  desirable  characeristic  with the a i r : t r a v e l  different  remuneration a l t e r n a t i v e s w i l l f o s t e r the development  different  reservation  extent.  Therefore,  excluded from c o n s i d e r a t i o n It i s difficult  systems this  in  It  airline  associated  of e l e c t r o n i c  industry-  to  travel  attribute  is likely  agencies should  that  to not  considering  be  i n the a n a l y s i s -  t o judge the r e l a t i v e importance o f each of  these a t t r i b u t e s however, i t does not appear to be f a r from truth,  a  the  d e s c r i p t i o n s o f the i n d u s t r y , to s t a t e t h a t  i m p a r t i a l i t y and the a b i l i t y t o provide  personalized  attention  are among the most important--.  6.2  C r i t e r i a For E v a l u a t i o n As  part o f the p o l i c y a n a l y s i s procedure, each a l t e r n a t i v e  i s analyzed reflect  i n r e l a t i o n t o p u b l i c p o l i c y o b j e c t i v e s designed  the  long-run  which w i l l be considered  best  i n t e r e s t o f the p u b l i c -  to  Objectives  i n the d e c i s i o n i n c l u d e the f o l l o w i n g :  98  1-  Service Level  Objectives  -impartiality -access to reservation information -personalized attention - s e r v i c e t o market segments 2.  Economic  Objectives  -user  pay  -economic e f f i c i e n c y 3.  Political -user  Objectives pay  - a v o i d c r o s s s u b s i d i z a t i o n between user groups 4.  R e g i o n a l Development  Objectives  -adeguate s e r v i c e l e v e l s t o small Tbe  desirable  apparent  under  service  characteristics  the s t a t u s quo  The  economic  objectives  subsidies  general  t r a v e l agencies.  The  should  high that  not be so  increases.  With  the  general  respect  been regard  be considered  considered  philosophy  from  have  to  objectives.  implementation of the user pay flowing  which  such as i m p a r t i a l i t y with  to c a r r i e r choice and i n d i v i d u a l a t t e n t i o n may comprise the s e r v i c e l e v e l  communities  and  include  the  public  avoidance  the of  to the owners of  r u l e here i s t h a t commission l e v e l s regulatory  to  agencies  grant  airfare  economic o b j e c t i v e s , a l t e r n a t i v e s  should  be s e l e c t e d on the b a s i s of whether the r a t i o of  level  to  commission expense i s i n c r e a s e d  service  i . e . , on the b a s i s of  improving economic e f f i c i e n c y . In a r e g u l a t e d  i n d u s t r y such as the a i r t r a n s p o r t  indostry,  l a c k of managerial c o n t r o l of marketing v a r i a b l e s i n c l u d i n g ability  to  set  prices  and  to decide where s e r v i c e s should  provided  i m p l i e s that r e g u l a t o r y  involvement may  the be  be necessary t o  99  ensure t h a t economic e f f i c i e n c y o b j e c t i v e s r e l a t e d transport  marketing system are not neglected-  to  the  Specifically,  air the  t r a d e - o f f between the l e v e l of marketing  services  provided  by  travel  juxtaposed a g a i n s t  the  agents  opportunity other and  and  a i r c a r r i e r s , must be  c o s t of devoting  services-  resources  to marketing  instead  Evidence of r a p i d l y r i s i n g commission expenses  t r a v e l agent p r o f i t l e v e l s presented i n Chapter 2  indications  of  of  economic i n e f f i c i e n c i e s , given  serve  as  the s t a t e of  the  industry. P o l i t i c a l o b j e c t i v e s r e l a t e d to the d e c i s i o n t o alternative  remuneration  policy  p o l i t i c a l o b j e c t i v e s concerning general.,  The  magnitude  of  must  be  travel the  choose  an  i n l i n e with f e d e r a l  and  transportation  remuneration  issue  must  in be  r e a l i z e d - Of the importance of the i s s u e w i t h i n the t r a v e l agent i n d u s t r y there i s no l e v e l , i t i s not political  question,  however, on a  federal  political  very s i g n i f i c a n t - Hence, because the impact f o r  purposes  is  insignificant,  r e g u l a t o r y d e c i s i o n s made by  one  the Canadian  can  expect  Transport  that  Commission  w i l l r e f l e c t the economic o b j e c t i v e o f implementing the  user  pay  philosophy. Regional toward reducing adequate  air  development  objectives  r e f e r r e d t o are  r e g i o n a l economic d i s p a r t i e s and transport  marketing  services  are  r e s i d e n t s of i s o l a t e d communities. In the i n t e r e s t development, incentives  it to  would  seem  entrepreneurs  to  prudent provide  to  oriented  ensuring provided  that to  of  northern  provide  monetary  better  service  r e s i d e n t s of i s o l a t e d communities as f a r as i s p r a c t i c a b l e .  to  100 6-3  Ibe  E v a l u a t i o n Of A l t e r n a t i v e s  Net Fare Remuneration A l t e r n a t i v e The  adoption  d r a s t i c long-run way  in  which  airlines-  because  a  net  a i r transport agencies  size  no  would  market  decrease  r e s u l t would be the i n c r e a s e  Counteracting ; the  the  the  increase l e v e l s and  f i x e d c o s t s - The  concentration  of  larger  t h i s e f f e c t i s the l a c k of c l e a r  substitutes  p e r s o n a l t r a v e l c o n s u l t i n g a t t e n t i o n provided by s m a l l  to  pay  words, some  clients  would  still  be  an a d d i t i o n a l s e r v i c e f e e f o r the p e r s o n a l i z e d  t r a v e l c o n s u l t i n g o f f e r e d by t r a v e l agentsprobably  would  from t h e i r p r e s e n t t o cover  by  commissions, the  segments  pressed in  marketed  fixed costs-  t r a v e l agencies. In other willing  would b r i n g about  p o s s i b l y the i n s t i t u t i o n o f f r a n c h a i s e agreements i n  an attempt t o cover  for  are  longer receiving  f o r many  revenues  and  concept  services  many s m a l l f i r m s would be hard  firms  fare  changes i n t h e t r a v e l agent i n d u s t r y and i n the  With  o p t i c a l firm  of  These  people  would  f a r e s , the i m p a r t i a l i t y of the agent with  regard  be few i n number.  Ser v ioe Leve 1 0b iec t i yes Sith  net  to c a r r i e r c h o i c e would be r e t a i n e d t o the extent t h a t the fare  could  be charged  On the other biased retained  hand,  same  f o r the same c a r r i e r s on t h e same r o u t e .  travel  agents  would  become i n c r e a s i n g l y  toward:the c h o i c e o f other modes of t r a n s p o r t a t i o n which the  commission  p r e v i o u s l y pointed out,  form  of  remuneration-  inter-modal competition  However,  as  i n long d i s t a n c e  101  passenger t r a n s p o r t a t i o n i s not a major f a c t o r i n many marketsAssuming  that  concentration agencies  net  fares  and lower p r o f i t  would  he  able  to  would  levels, afford  result one  the  in  could  expect  additional  electronic  enhanced by  the  reservation  a i r carriers  systems  would  themselves  few  cost  of  access  to  probably  be  i n t r o d u c i n g an e l e c t r o n i c r e s e r v a t i o n system. D i r e c t airline  increased  because  additional  i n t e r n a l channels o f d i s t r i b u t i o n (eguipped with CRT sets)  would  be  level  established  provided  by  in  order  travel  concentration  ; t o r e p l a c e the reduced s e r v i c e  agencies.  i n the  industry  f a r e remuneration approach c o u l d likelihood  However,  the  increased  caused by the adoption of a net r e s u l t i n an  increase  i n the  that l a r g e r agencies would be f i n a n c i a l l y capable of  adopting e l e c t r o n i c r e s e r v a t i o n systems. Hith  regard  individual  to  attention  s m a l l agency would ability  to  the  ability  to  provide  clients  under t h i s a l t e r n a t i v e , the demise of the  serve  provide  to  support  personalized  the  argument  attention  counselling  manner by small able  to  attention  could  be  survive  by  spreading  fixed  costs  the  individualized  provided  branch o u t l e t s of l a r g e r f i r m s  that  would be reduced.  Although a trend i n t h i s d i r e c t i o n would r e s u l t , trayel  with  in a sinilar  which  would  be  over many branch  outlets. S e r v i c e l e v e l s t o some market segments would affected  adversely  by the adoption of n e t f a r e s . A l t e r n a t i v e l y , i n market  segments where t r a v e l agents readily  be  provided  by  the  provide  services  which  a r e not  c a r r i e r s , such as i n t h e case of the  e t h n i c market segments, c l i e n t s would  be  willing  to  pay f o r  102  specialized  services.  market segment, one through  airline  ¥ith  could  city  regard expect  sales  by  commercial  the  greater  offices  t r a v e l l e r s Mould -be u n w i l l i n g t o offered  to  commercial t r a v e l emphasis  because  pay  extra  cn  sales  many commercial  for  the  services  the t r a v e l agent. {This would a l s o be t r u e f o r nontravellers).  Economic O b j e c t i v e s The i n s t i t u t i o n of a n e t procedure  travel  agent  remuneration  would e l i m i n a t e any s u b s i d i z a t i o n of the t r a v e l agent  industry  by  the  remuneration  carriers  scheme.  This  agents would be e s t a b l i s h e d the  fare  net  fare  which is  existed  because  under  the  fees charged by  i n the marketplace. In  alternative  is  in  fixed  line  with  this the  travel regard  user  pay  on  an  philosophy. On  the  other  hand,  if  airlines  were  forced,  i n d i v i d u a l b a s i s t o emphasize i n t e r n a l marketing channels- Hence incurring  greater  marketing  costs  and  i n c r e a s e d c o s t s on t o consumers i n the then  this  alternative  i n t u r n passing these  form  of  higher  fares,  would not be i n the t r a v e l l i n g " p u b l i c ' s  best i n t e r e s t as a m i s a l l o c a t i o n of r e s o u r c e s would  result.  It  i s g e n e r a l l y agreed that commission expenses would be l e s s under the  net  f a r e a l t e r n a t i v e than they would be under an open r a t e  s i t u a t i o n as d i s c u s s e d i n Chapter 2.  P o l i t i c a l Objectives It would  goes without s a y i n g  object  that  owners  of  travel  agencies  to the removal of the p r o t e c t i v e f i x e d commission  103  blanket  which,has  industry.  fostered  the  development  cf  an  extensive  However, i n the long-run, the e l i m i n a t i o n of o u t r i g h t  commissions by r e g u l a t o r y support of the net f a r e concept result  in  reflects  lower  the  airfares,  user  pay  ceteris  philosophy  paribus. is  in  should  Clearly,  the  i n t e r e s t . Moreover,: t r a v e l l e r s would s t i l l have the  this  p u b l i c ' s best opportunity  to pay f o r t r a v e l c o u n s e l l i n g s e r v i c e s i f they so d e s i r e d .  Beg 1 on a 1 . He ve l o p me n t 0 b i e c t i v e s Under  the  net  fare  concept,  small  communities would be faced with s e r i o u s due  decreases  in  i n small revenues  to the s h i f t i n market share to the a i r l i n e s i n areas where  t r a v e l l e r s c o u l d c o n v e n i e n t l y purchase from  agencies  the c a r r i e r s , such  their  tickets  directly  as at a i r p o r t ; t i c k e t c o u n t e r s . I n  where agency c o m p e t i t i o n i s l i m i t e d , c l i e n t s c o u l d expect monopoly p r i c e s f o r t r a v e l agent  services  unless  areas t c pay  restrictions  were imposed.  Tfae - jUniformCommission A l t e r n a t i v e This  i s < the  remuneration  alternative  with  which  p a r t i c i p a n t s i n the i n d u s t r y are most f a m i l i a r . As d i s c u s s e d Chapter  2,  uniform commission s t r u c t u r e s p r e v a i l i n g u n t i l  d i f f e r e d only with regard to domestic She  uniform  commission  alternative  or  international  domestic  last five One  1975  travel-  c o n s i d e r e d here would not  make such a d i s t i n c t i o n because the nature o f t h e and  in  international  a i r t r a v e l markets have changed d r a m a t i c a l l y i n the  yearsshould  note  that  the  level  of  commissions has  an  104  important impact upon t h e s t r u c t u r e of hut  the  i n d u s t r y , , Uniform,  low, commissions would not encourage the f o r m a t i c n of s m a l l  agencies.  Ser vice Ch ar act er i s t i c s The r a t i o n a l e uniform  underlying  commissions  the  long-standing  defense  of  by a i r c o n f e r e n c e s i s based on the premise  that uniform commissions f o s t e r the i m p a r t i a l c h o i c e o f c a r r i e r s by agents. T h i s i s one of t h e s t r o n g e s t arguments i n the  retention  of  this  owned and operated c i t y clients  with  a  favour  remuneration a l t e r n a t i v e s i n c e s a l e s o f f i c e s are  truly  d i f f e r e n t i a l commissions  unbiased  unlikely  choice  of  airline  to  provide  carriers  be  agents  induced t o introduce: e l e c t r o n i c r e s e r v a t i o n systems to  t h e i r f i r m s . Under sufficiently  a  high,  uniform  commission  structure  alternative.  s e r v i c e s through electronic  which  is  s m a l l agencies f l o u r i s h because t h e i r i s no  s p e c i a l i n c e n t i v e to d i s t r i b u t e f i x e d c o s t s fare  aith  prevailing.  The l e v e l of uniform commissions determines whether will  of  The  travel  reservation  emphasis agents systems  upon  as  marketing  encourages in  encourages a higher customer s e r v i c e  under  the  the net  air  travel  placement  of  t r a v e l a g e n c i e s and hence, level.  The uniform commission a l t e r n a t i v e promotes the development of a p e r s o n a l i z e d t r a v e l c o n s u l t i n g r e l a t i o n s h i p between and agent because such r e l a t i o n s h i p s a r e more e a s i l y smaller  firms.  furthermore,  clients  financial  incentive  to  select  provided by  are more l i k e l y t o place  t h e i r c o n f i d e n c e i n the t r a v e l agent's c h o i c e the  client  the  of  carrier  when  c a r r i e r o f f e r i n g the  105  highest  commission i s p r e s e n t .  D i f f i c u l t t o s e r v i c e market segments market  segments  will  such  as  the  ethnic  he served t o some degree whether uniform  commissions are o f f e r e d or not.. Nonetheless, uniform commissions w i l l tend to favour those market segments which costly  to  are  the  least  s e r v i c e . Under a commission a l t e r n a t i v e which o f f e r s  agents t h e same rate f o r s e r v i c i n g the commercial t r a v e l segment,  {a  market  transportation market,.  (a  segment, r e l y i n g  heavily  s e r v i c e s ) , as i t does f o r  market  segment  heavily  upon  servicing  involved  market  domestic  the  ethnic  i n international  t r a v e l ) , marketing s e r v i c e l e v e l s w i l l be r e l a t i v e l y h i g h e r f o r the  former than f o r the l a t t e r .  Economic  Objectives  By  retaining  uniform commissions, c r o s s  one market segment by remuneration  another  the  This  l e v e l s e s t a b l i s h e d through, the a i r l i n e  and the government r e g u l a t o r y not  i s retained.  s u b s i d i z a t i o n of  cost  of  framework r e f l e c t  providing  services  to  is  because  conferences  average  costs,  individual  market  segments. Users of s p e c i a l i z e d t r a v e l agent s e r v i c e s do n o t bear the f u l l c o s t of the However,  because  marketing  uniform  services  commissions  which  will  be  increase An  so  high  that  the  level  regulatory  consume.  a r e n e c e s s a r i l y agreed  upon, and the c o n f e r e n c e s a r e i n s t r u m e n t a l l e v e l s , i t i s u n l i k e l y that  they  i n s e t t i n g commission  of  commission  agencies  expenses  a r e requested to  fares. associated  commission  economic  alternative  factor  i s the  related  reduction  to of  the  uniform  business  risk  106  r e s u l t i n g frcm s t a b l e and p r e d i c t a b l e remuneration  levels.  g c l i t i c a 1 Ob i e c t i ve s Uniform  commissions  are  popular  among  travel  agents  r e l a t i v e t o tbe net f a r e a l t e r n a t i v e which would have a dramatic impact  upon  the  international commissions  industry.  Aside  and  domestic  represent  the  from the d i f f e r e n c e between  commission  levels,  uniform  s t a t e s quo i n Canada. From a p u b l i c  p o l i c y p o i n t of view, uniform commissions represent a compromise between the marketplace the  net  under  fare  a  generated  concept  policy  Nevertheless,  and  of  uniform  travel consulting  fees  under  the e x o r b i t a n t commission expenses  deregulated commissions  incentive do  not  commissions.  reflect  i n c u r r e d by t r a v e l agents i n p r o v i d i n g marketing  the c o s t s  services.  Regional Development O b j e c t i v e s 2,  As d i s c u s s e d i n Chapter reflect  the  services  to  higher  cost  residents  Nevertheless,  given  of  of  uniform  providing  remote  a sufficiently  commissions a i r travel  communities  do not marketing  in  Canada.  high l e v e l , they do provide  enough i n c e n t i v e f o r agencies  to prosper, while at the same time  they provide consumers  an  against  monopolistic  with  service  inherent  form  of  protection  f e e s which c o u l d a r i s e under the  net f a r e a l t e r n a t i v e . R e g i o n a l development o b j e c t i v e s might best be achieved travel  by  agents  addressed  providing in  smaller  additional  financial  communities-  This  incentives to possibility  i n the next a l t e r n a t i v e t o .be considered..  is  107  T h e r I n c e n t i v e Commission - A l t e r n a t i v e s For purposes of a n a l y s i s , two types of i n c e n t i v e a l t e r n a t i v e s are c o n s i d e r e d ; which  develop  against  the  under  stated  commissions  are  an  First,  unregulated  objectives.  considered.  such a manner t h a t  the  situation  Second,  The  regional  incentive  development  commissions are  regulated  l a t t e r could  commission  evaluated incentive  be r e g u l a t e d i n  objectives  could  be  attained.  The Unregulated I n c e n t i v e It  is  possible  Gommiss;ion,iAlternative  for  incentive  commissions to e x i s t as a  method of compensating t r a v e l agents f o r the s e r v i c e s which they provide been  under both r e g u l a t e d shown  by  the  and deregulated  open  rate  conditions. I t  situation  prevailing  i n t e r n a t i o n a l a i r t r a v e l marketed by t r a v e l agents i n the States  that  phenomenon  incentive which  commissions  are  a  natural  destination  schedules  incentives  s t r u c t u r e s . Examples are  oriented  based are  upon  termed  United  economic'  i n Appendix  structure-  either  1 r e v e a l that such  commissions  of group t r a v e l and t r a v e l  what i s not e v i d e n t  travel  or  commission  from t h i s appendix  c a r r i e r s use i n c e n t i v e commissions t o i n c r e a s e  l e v e l s through l a r g e r  volume  incentive  toward the s t i m u l a t i o n  on p a r t i c u l a r r o u t e s , that  for  develops i n an unregulated environment to the  b e n e f i t of the c a r r i e r implementing- the commission Commission  has  agencies  which  are  is  their sales capable  of  q u a l i f y i n g f o r volume i n c e n t i v e s . I t has been argued that i n c e n t i v e commissions have been the major; cause of s p i r a l l i n g commissions i n the United  States-  They  108  have a l s o been a t t r i b u t e d volume  s p e c i a l i s t s and  w i t h i n the all  attractive  Service  the  purposes,  incentive  have caused a s h i f t i n power to  hence, have c o n t r i b u t e d  i n d u s t r y . In  practical  to  of  firm  offering  for  the  most  Objectives  attitude  toward  Carriers  invariably  selling  incentives  i«hich  services  the  of  incentive.  entice  from the  travel  services  different  with  the  the  agents  unbiased  of i n d i v i d u a l  carriers.  levels  most  introduction  completely  agent. Consumer l o y a l t y  the  and  types  agents t o emphasize the  carrier  However,  highly  the  offer  commissions would not  not  the  become,  scheme.  I n c e n t i v e commissions a l t e r  are  to c o n c e n t r a t i o n  extreme case, firms may agents  the  a i r transport  attractive of  or  "open"  unbiasedness of  would deminish f o r those a g e n c i e s  biased i n t h e i r  c h o i c e of c a r r i e r . T h i s would  f a c t t h a t a i r t r a v e l l e r s asould r e a l i z e t h a t  being  financial  incentive  destroy the  informed of  a l l of the  of  alternatives  which result  they  available  the  were in  the  market, i . e . , suboptimal booking would r e s u l t Similarly, could  be  impartiality  affected  by  an  situation  which r e s u l t e d  This  t r u e of both the  is  because they are low  earning  earning l e v e l s  (as may  Nevertheless,  an  (as be  unregulated  i n very high unifrom and  capable of  levels  with regard t o  inter-modal incentive  levels  cf  the  fare  net  commission remuneration. alternatives  p r o v i d i n g t r a v e l agents with  may the  be  the  case  case with net with  unregulated i n c e n t i v e  uniform  choice  either  f a r e s ) or  high  commissions).  commission s t r u c t u r e  more l i k e l y to r e s u l t i n higher o v e r a l l remuneration l e v e l s  is for  109  agents. The  tendency  toward  concentration  resulting  frcm  the  i n t r o d u c t i o n o f i n c e n t i v e commissions would speed up t h e process of  introducing  specialists,  many  f i r m s adversely are  not  hindered  large from  reservation  electronic of  reservation  whom  already  systems,  tc  volume-  have CBT t e r m i n a l s .  a f f e c t e d ty i n c e n t i v e commissions  because  obtaining  real-time  access  to  electronic  systems. The o v e r a l l l e v e l of e a r n i n g s i s important  are  greater  than  what  a l t e r n a t i v e s , i t i s conceivable be  they  enough to q u a l i f y f o r l a r g e i n c e n t i v e s would be  here. I f i n c e n t i v e commissions o f f e r s m a l l f i r m s e a r n i n g which  Small  more l i k e l y  to have  the  would  be  achieved  levels  under  other  t h a t s m a l l t r a v e l agencies would  financial  resources  available  to  i n t r o d u c e e l e c t r o n i c r e s e r v a t i o n systemsThe com mission carriers  high  commission  expenses  s t r u c t u r e would make  attributed  i t economically  to  an  feasible for  to open new c i t y s a l e s o f f i c e s e s p e c i a l l y i n l o c a t i o n s  with high a i r l i n e passenger s a l e s where s a l e s c o u l d be from  e x i s t i n g agencies.  that  i n c e n t i v e , commissions  indicate  that  personalized Earning such  as  open  diverted  T h i s p o s s i b i l i t y combined with the f a c t  clients  favour would  larger receive  firms, a  tends  lower  level  to of  attention. l e v e l s of agencies i n v o l v e d i n s p e c i a l i z e d  the e t h n i c  markets  could  be  adversely  markets  a f f e c t e d by  i n c e n t i v e commissions as agencies i n v o l v e d i n s p e c i a l i z e d market segments such as t h i s a r e t y p i c a l l y s m a l l e r segments  such  as  the  commercial  a l t e r n a t i v e l y , b e n e f i t from a higher  f i r m s . Other  travel  segment  l e v e l of s e r v i c e .  market could, However,  110  unregulated  i n c e n t i v e commissions would not ne  the needs of s p e c i a l i z e d market segments-  designed to meet  Travellers  requiring  s p e c i a l i z e d t r a v e l agent s e r v i c e s Mould p r o b a b l y r e c e i v e level  of  service  under  this  s p e c i a l i z i n g i n smaller  market  advantage of i n c e n t i v e s  offered.  Economic  alternative segments  because  could  not  incentive  commission expenses f o r the shifted  take  to  consumers  commissions carrier  in  the  result  which  may  in  airfares, user pay  the  economic  philosophy i s  commission  further  transport  form of higher a i r f a r e s . To  the  as implementing Moreover,  the  incentive  designed  so  that  different  unregulated  discussion The  of  commissions  levels  for  inability and  of the  allow concomitant i n c r e a s e s misallocation  agents. Although high  result  agencies  international  levels  air  agents.  the o t h e r hand, with a i r f a r e s c l o s e l y r e g u l a t e d  l a r g e earning  the  achieved.  higher  c o s t s f o r d i f f e r e n t s e r v i c e s are r e f l e c t e d  i n the commissions o f f e r e d  of  defined  in  s t r u c t u r e s are congruent with economic o b j e c t i v e s i n  marketing  commission  higher be  objective  t h a t s t r u c t u r e s are g e n e r a l l y  States.  full  eventually  extent that higher commission expenses are r e f l e c t e d  C.T.C.,  agencies  Objectives  Unregulated  On  a lower  as  was  revealed  levels  conferences  reluctance  the  i n disproportionately  commission airline  by  in  i n the  the  United  to  control  of r e g u l a t o r y  bodies t o  i n a i r f a r e s may  be c i t e d as a  cause  of r e s o u r c e s between a i r l i n e s and t r a v e l l e v e l s of s e r v i c e  would  be  provided  most market segments, the c o s t i n the form of a i r l i n e  to  commission  111  expense would be e x c e s s i v e l y h i g h .  P o l i t i c a l Objectives The  higher  earning  levels  offered  commission s t r u c t u r e s would be popular among agencies.  However,  from  by  owners  of  travel  a p u b l i c p o l i c y p o i n t of view, t r a v e l  agent remuneration  l e v e l s c o u l d j u s t l y be c a l l e d  commissions  deregulated  were  unregulated  while  airfares  exorbitant remained  s t r i c t r e g u l a t o r y c o n t r o l . In the long-run, passengers  if  under  would  be  r e c e i v i n g a lower l e v e l of s e r v i c e than that which they c o u l d be r e c e i v i n g i f . e i t h e r a i r f a r e s and commissions were d e r e g u l a t e d or alternatively,  both  i n c e n t i v e commissions  were r e g u l a t e d . I n other words, unregulated do  not  clearly  reflect  the  user  pay  philosophy.  Regional Development O b j e c t i v e s Isolated  communities  special attention scheme. marketing  under  T h i s i s due  would an  most  likely  unregulated  not r e c e i v e any  incentive  commission  to the f a c t t h a t c a r r i e r s c o n c e n t r a t e there  e f f o r t s i n the most p r o f i t a b l e market segments.  These  are t y p i c a l l y l a r g e urban markets. Small f i r m s would most l i k e l y not  be  able  to  qualify  for  volume  s u f f i c i e n t l y high t r a f f i c l e v e l s could not be  The  Regulated  by  because  generated.  I n c e n t i v e C o m a i ss i o n A l t e r n a t i v e  This a l t e r n a t i v e r e p r e s e n t s a presented  incentives  unregulated  c o u l d be designed i n  such  tempering  of  the  incentive  commissions.  a  that  manner  the  extremes  Commissions  attainment  of  112  objectives  could  be b e t t e r achieved.  As revealed  the r e g u l a t e d v e r s i o n of the a l t e r n a t i v e a c h i e v e s to a g r e a t e r extent  on a l l  counts  than  does  i n E x h i b i t 8, the o b j e c t i v e s  the  unregulated  com mission i n c e n t i v e scheme.  Service Level Objectives The  loss  of  impartiality  reduced by the r e g u l a t o r y process commissions with the The the  the t r a v e l agent would  which r e g u i r e s agents to  interests  of  he  file  C.T.C.  acceptance of i n c e n t i v e schemes which would not  consumer access the  of  small  agencies  to e l e c t r o n i c  would  reservation  promotion of s m a l l agencies  indirectly systems.  service in  improve  Similarly,  would be more l i k e l y  t r a v e l l e r s with i n d i v i d u a l a t t e n t i o n and  neglect  to p r o v i d e specialized  markets.  Economic  Objectives  Regulatory  control  over  i n c e n t i v e commission s t r u c t u r e s  a l l o w s p u b l i c p o l i c y makers to s e t commission l e v e l s to the  user  pay  the  system  can  remuneration  Political  philosophy. be  Moreover, the economic e f f i c i e n c y  regulated  by  restricting  of  exorbitant  levels.  Objectives  By r e g u l a t i n g i n c e n t i v e schemes so t h a t they businesses, becomes  reflect  more  the  regulated  popular.  incentive  However,  commission  clients  support  small  alternative  requiring  special  s e r v i c e s from s p e c i a l t y t r a v e l agencies are u n l i k e l y t o hear the  113  full  cost  of  the  services  c r o s s s u b s i d i z a t i o n of one  Regional Economic In  market segment by another i s p r e s e n t .  Objectives  this  regard,  The  higher  superior.  provided by them- To t h i s e x t e n t ,  regulated cost  of p r o v i d i n g  t r a v e l l e r s can  be  small  agents i n s m a l l e r  travel  incentive  incorporated  in  commissions  marketing s e r v i c e s  incentive  commissions  communities r e c e i v e -  upon o v e r a l l a i r l i n e marketing c o s t s of t h i s not be  great  Summary • 0 f For  which  The  impact  alternative  would  Achievement  0b j e c t i v e  the  is  purpose  substitute  for in  of  of  presented  exercised  the  presenting  remuneration in  Exhibit  preceding  interpreting  8.  text  the  a  v i s u a l d i s p l a y of  alternatives, T h i s i s not and  a  t a b l e should be  interpreted  meant to be  a  should  be  caution  a u t h o r s summarizations of  with c a r e as i t n e g l e c t s  the r e l a t i v e importance of each  the  summary  degree to which i n d i v i d u a l a l t e r n a t i v e s have been a c h i e v e d .  6.4  to  f o r most c a r r i e r s .  preceding e v a l u a t i o n matrix  are  to  the This  reveal  objective.  Conclusion Each  analysis  of has  relationship  the  remuneration a l t e r n a t i v e s c o n s i d e r e d i n t h i s  its to  the  own  advantages  objectives  and  which  E s s e n t i a l l y , nhat the a n a l y s t  must do  which  objectives.  best  fulfills  these  disadvantages  have  been  i s s e l e c t the In  in  specified. alternative  order to do  s u b j e c t i v e judgement concerning the, r e l a t i v e importance  of  this, the  114  various objectives In  the  objectives  author's  are  philosophy  necesarily  the  and  costs  upon  objectives  opinion,  most  group-  of  net  impose  be expected  frequently  Transport  Commission  to  travel  agents  f o r Canadian  international  travel  is  the  alternative. This alternative counts;  instead,  it  to a r r i v e at i n c e n t i v e the  i n t e r e s t s of the  Jcr  example,  i s not  serves  retained-  could  be  objectives,  Similarly,  for  political  alternative, support  volume  the "best"  the  goals.  by  the  commission  domestic  and  commission  alternative  on  as a compromise. Through  the  governments would  be  able  which would r e f l e c t  well as the c a r r i e r s . for  particular  f o r a number of c a r r i e r s i n  i m p a r t i a l i t y with the  the  both  incentives  authorized  in  adoption  incentive  t r a v e l l i n g p u b l i c as  same  that  additional  of  to  as  commission s t r u c t u r e s  the  order to ensure that  serve  regulated  process of a r b i t r a t i o n , c a r r i e r s and  destinations  in  pay  made.  a l t e r n a t i v e which i s recommended f o r  Canadian  user  conflict  achievement  level  a p o l i c y change which opposes p o l i t i c a l  N e v e r t h e l e s s , compromises are  all_  The  The  i s very important i n the s e l e c t i o n of an  introduction  structure  service  objectives-  group of u s e r s may  indeed, government agencies can  The  and  development, o b j e c t i v e s  one  another  play-  economic  important  regional  attempts to s u b s i d i z e  comes i n t o  interest  regard of  to  carrier  attaining  economic  higher commission l e v e l s could be a u t h o r i z e d f o r  marketing of t o u r s through t r a v e l agencies-  was  the  115  Exhibit 8 Summary Of Remuneration  Scheme, O b j e c t i v e  Achievement  Remuneration  I  Alternatives  -i  4-  J ilNet JFare I I  Objectives  Service Objectives a) B) c) d)  impartiality i n f o . s y s . acc, * individ. attn, s e r v i c e to spec. mkts.*  Economic  3  Objectives  Political  Objectives  Regional  Development  "v.g." means very  1 J UnifjCom. »  I JSeq. JInc.  i  JCem.,2  1 J  I fair Jf a i r i poor J good I I I v.g\ I v.g. I 1 poor J  I v.g. I good jf air j fair I I i poor  1  I  1 poor J I poor I  3Com1  i  i ! I \ poor J good If a i r I poor I i I good i I good J J v.g. i  i  I j v. p. If a i r i poor I v. p. 1 1 1 poor i J poor I I v. p. I  good,  "v.p." means very poor. n'Onif. Comm." i s the uniform commission "Reg. I n c . Com." means commission a l t e r n a t i v e . 2  the  alternative.;  regulated  incentive  " 0 n r e g . I n c . Com." r e f e r s t o the unregulated i n c e n t i v e commission a l t e r n a t i v e . 3  * " i n f o . s y s . a c c . " means r e s e r v a t i o n systems.  access  to a i r l i n e  s " l n d i v d . a t t n . " r e f e r s t o the a b i l i t y agent t o provide i n d i v i d u a l a t t e n t i o n .  of  H  3  J  i  1  iUnreq. line.  electronic  the  travel  ^"service t o spec, mkts." i s the; a b i l i t y of the system to provide s e r v i c e s to a i r t r a v e l market segments.  H I  116 S e r v i c e s t o s p e c i a l i z e d market segments such urban  ethnic  and  isolated  i d e n t i f i e d by the C.T.C. allowing  greater  northern  communities  as important,  remuneration  as  could  which  he  incentives  in  those  in were  retained  by  these  market  the  federal  segments. Given the f a c t government and  that a i r f a r e s are regulated  i n most p r o v i n c e s ,  entrance i n t o the t r a v e l agent  industry i s p r o v i n c i a l l y regulated, remunerations should shown  that  be r e g u l a t e d  regulated  by  i t f o l l o w s that t r a v e l agent  as w e l l . Moreover, i t has  i n c e n t i v e commissions can  be  adjusted  r e g u l a t o r y bodies so t h a t consumers r e c e i v e an adequate level,  airlines  expenses and remuneration  are  not  to  t r a v e l l i n g p u b l i c which transport  industry.  provide are  by  service  e x c e s s i v e l y burdened with commission  t r a v e l agents are induced by level  been  air  necessary  a  travel for  sufficiently services an  high  to  the  efficient  air  117  CHAPTER 7  7.0  Summary The  environmental  with the a i r l i n e in  SUMMARY  the  role  changes  in  the past decade  i n d u s t r y have brought about tremendous  which  the  travel  agent  plays  i n d u s t r y . In the mid-1970*3, the r e l a t i o n s h i p and  their  agents  commissions. caused  Faced with  government  such  higher  agencies  an  commission  to 'question  expense.  travel  agencies,  and  provided  organization  between  of  airlines  expenses,  sufficient  by  tours  rising  carriers  whether t r a v e l  brought i n t o  1, the ways i n which a i r t r a v e l l e r s , air  provided by t r a v e l agents services  the a i r l i n e  agent  level  to  More fundamentally, the r o l e of the  t r a v e l agent i n the a i r l i n e i n d u s t r y was In Chapter  in  changes  began to d e t e r i o r a t e as the r e s u l t of  s e r v i c e s provided t o t h e p u b l i c were at a warrant  associated  carriers  was  agents and  owners  of  b e n e f i t from the s e r v i c e s  presented.  The  including a i r l i n e the  question.  fulfillment  various  travel  t i c k e t i n g , the of  passenger  r e s e r v a t i o n s requirements were d e s c r i b e d i n subsequent c h a p t e r s . The  s p e c i f i c o b j e c t i v e of t h i s t h e s i s has been to s e l e c t a  t r a v e l aqent remuneration p o l i c y f o r use i n Canada,: which provide  *ould  a i r t r a v e l l e r s with an adequate l e v e l of s e r v i c e , while  a t the same time a v o i d i n g e x c e s s i v e  commission  expenses  which  are  w a s t e f u l . Subsequent  t o the  economically  e v a l u a t i o n of the  inefficient four  and  remuneration  alternatives,  net  fare.  118  uniform  commission,  regulated  i n c e n t i v e commission, tee c o n c l u s i o n  regulated  unregulated  incentive  scheme  would  incentive  "test"  commissions  and  sas drawn t h a t  a  meet the o b j e c t i v e s  s p e c i f i e d and hence be i n the p u b l i c ' s best i n t e r e s t . The o b j e c t i v e s s p e c i f i e d which i n c l u d e d political  and  regional  because they were f e l t public  with  regard  services either  development  to best to  the  directly  service,  objectives  reflect  the  economic,  were  interests  chosen of  the  p r o v i s i o n of a i r t r a v e l marketing  by  the  carrier  or  through  travel  agents. With  the  introduction  of r e g u l a t e d  incentive  commissions  which would o f f e r Canadian t r a v e l agents i n c r e m e n t a l commissions depending  upon  traffic  volumes  generated  to  specific  d e s t i n a t i o n s , the s p i r a l l i n g commission expenses which have been experienced  in  the  United  States  in  recent  avoided. Furthermore, government;policy makers p o s i t i o n to r e g u l a t e user  years would be would  be  in  a  commission l e v e l s i n such a manner t h a t the  pay philosophy with r e g a r d ; t o the purchasing of a i r t r a v e l  marketing s e r v i c e s c o u l d be  implemented., The  initial  impact of the i n c e n t i v e commission a l t e r n a t i v e Mould be  moderate  in  the  sense  that  the  immediately be a l t e r e d . t h e i r regulatory particular  further  structure Eventually,  power t o s t i m u l a t e  market  segments  Aside an  from  appropriate  the i n d u s t r y  policy  makers  would not could  use  the p r o v i s i o n of s e r v i c e s t o  deemed t o be i n need. For example,  the Canadian T r a n s p o r t Commission growth of s m a l l e r  of  might seek  to  stimulate  the  firms.. addressing  the najor p o l i c y i s s u e of s e l e c t i n g  remuneration  scheme,  background  information  119  directly  and  indirectly  related  to t h e t h e s i s t o p i c has been  pre sen ted. She t r a v e l agent i n d u s t r y i s r e g u l a t e d by p r o v i n c i a l industry l e g i s l a t i o n risk  of  tour  which seeks t o p r o t e c t consumers  wholesaler  or  A i r l i n e conference entrance means  of  injury.  retail  froi  enactment  reguirements  contributions comprehensive  to  of  legislation  compensation  are  an  insufficient  requiring  characteristic  agent i n d u s t r y i s the a b i l i t y  financial mandatory  funds has been p r a i s e d as a more  approach t o p r o t e c t i n g the t r a v e l l i n g  Ah important  the  t r a v e l agent bankruptcy.  p r o v i d i n g consumers with p r o t e c t i o n a g a i n s t  The  travel  associated  public.  with  the  travel  to provide s p e c i a l i z e d s e r v i c e s t o  market segments not r e a d i l y served d i r e c t l y by the a i r l i n e s market  segments which exemplify t h i s a b i l i t y i n c l u d e the e t h n i c  and commercial t r a v e l market faced  with  externally,  the  decision  segments. A i r c a r r i e r management i s of  whether  to  emphasize  offices.  The use of remote e l e c t r o n i c r e s e r v a t i o n travel  agencies  emphasizes  in  agent with  system  terminals  the importance which access t o  a c c r u a t e , up-to-date r e s e r v a t i o n i n f o r m a t i o n agents  sales  through the t r a v e l agent channel o f d i s t r i b u t i c n or  i n t e r n a l l y through c i t y s a l e s  in  Two  plays  for  travel  many market  segments. The i m p a r t i a l i t y of the t r a v e l  regard  carrier  to  choice  is  threatened  by  the  biasedness o f r e s e r v a t i o n s systems owned by i n d i v i d u a l c a r r i e r s . Discussion  of  environment  has  alternative  travel  changes  been  in  instrumental  the in  travel the  agent  industry  evaluation  of  agent remuneration schemes- Although models  have been used i n f o r e c a s t i n g the impact o f v a r i o u s remuneration  120  alternatives, incentive for  whether  commission  Canadian  travel service  agents  the  implementation  of  a  regulated  p o l i c y by the Canadian T r a n s p o r t Commission selling  international  i s i n the ."public's  best i n t e r e s t  and  domestic a i r  can,  in  fact,  only be r e v e a l e d by implementing such a remuneration scheme.  121  Bibliography  A A T r a v e l Industry  I n c o r p o r a t e d . Annual Report. 1S77.  "Agent Commissions Stir Concern." Technology, A p r i l 14, 1975.  A v i a t i o n Week and Space  A i r Canada, T r a i n i n g Programme Development Manager. Reservec I I . T h i r d e d i t i o n , January 1975. Air  Introducing  T r a f f i c Conference of America. "Automated S e r v i c e s Provided to T r a v e l Agents Located i n the u n i t e d States." Passenger Committee B u l l e t i n No. 19. Washington D.C., March 3, 1978.  A i r T r a f f i c Conference of America. "Conference B u l l e t i n No. 71," Washington D- C., March 6 , 1S78. Air  Traffic Conference December 31, 1975.  of  Air  T r a f f i c Conference c f Structure. Washington 11  "Air  America. , Trade P r a c t i c e s  America., " T r a v e l Agent Commission D.C, 1:974. {unbound document).  Travel Dominates T r a v e l Agent • A v i a t i o n D a i l y . " May 2, 1S77.  Business-Travel  " A i r f a r e Commissions May Go-IATA C o n s i d e r s Net Canadian T r a v e l C o u r r l e r . May 5. 1977., "Airline Commissions 1977. P.31.  Go  Manual.•  Fare  Weekly." Policy." /  Sky High. ?* Business; Week:, February 7, 1  " A i r l i n e s Spar Over Agent Ticketing.'? : Aviation- ffeek- and- Space '• Technology-.February 2, 1976. "The  B i g Business 1977.  of  Travel."  The.Financia1  P o s t , March 26,  Brancker, J.W.S. IATA and What I t Does. Leyden, The N e t h e r l a n d s : A.W. S i j t h o f f , 1977. British Columbia. British Columbia Statutes, R e g i s t r a t i o n Act, Chapter 22, 1977 .  Travel  Agents  British Columbia. Ministry of Consumer and Corporate A f f a i r s . "Regulations under the T r a v e l Agents Registration Act." Bay, 1977. "£.C.  A c t Insures the Whole World, Wholesale Group Government." Canadian T r a v e i Cour ier-;. A p r i l 7, 1977.  "B.C.  T r a v e l Operators Welcome R e g i s t r a t i o n Province, February 12, 1977.  Provisions."  Tells' The  122  Buchannan, George AA i r Transport Association of America. Testimony before the U.S. Senate Subcommittee on Foreign Commerce and Tourism. November 18, 1971. (mimeographed). Canada. Statistics Canada. A i r C a r r i e r F i n a n c i a l Statements. Catalogue 51-206. 1870-1976. Canada. S t a t i s t i c s Cana d a. 1976 Cens us of Canada» C a t a l o g ue 821. February 1878. ~ Cheng, Ivan. I n t e r v i e w . Love Vancouver. J u l y 11, 1978.  and  "Commercial Accounts to Get T i c k e t C o u r i e r . June 16, 1877.  92-  White T r a v e l S e r v i c e L t d . , P r i n t e r s . " - Can a d j an Tr aye 1  E l i n g s w o r t h , R. K. "Pan Am Inflexible on Agent Fee Reform." A v i a t i o n Week and Space Technology. June 2 3 , 1975. Ellis,  R- " A i r l i n e v. Agent." Aeroplane. August  14, 1968.,  H a r r i s o n , Douglas K. "Summary of the P r o p o s a l s Pertaining to Travel. Services Legislation," December 1976. (mimeographed). "How  Discounts Bleed  the  Airlines."  Business ^jeek,  June  23,  1975.  "If  B.C. Fund Runs Out, Agents May Have t o Cover C l i e n t Canadian T r a v e l C o u r i e r . A p r i l 7, 1977. ;  Losses."  Kennedy, George and Tangry, D. I n t e r v i e w . A i r Canada, Western l e g i o n , Passenger Marketing D i v i s i o n , Vancouver, J u l y 19, 1978.  Lee,  Aaron. A A T r a v e l I n d u s t r y , Vancouver. I n t e r v i e w . February 28,  1878.  "Licensed L e i s u r e . " The F i n a n c i a l P o s t M a r c h 2 6, 1977. Louis  H a r r i s and A s s o c i a t e s , The C h a r a c t e r and' Volume of the United S t a t e s T r a v e l Agency I n d u s t r y . New York: Z i f f - D a v i s P u b l i c a t i o n s , March 1973 and A p r i l 1978.  Ludjfig, Richard. Interview. CP A i r . Vancouver- A p r i l 27, 1978. M a r t i n , James. Design o f Real-Time Computer Systems : C l i f f s , New J e r s e y : P r e n t i c e ^ H a l l . 1967.  Englewood  Morgan, Phillip. I n t e r v i e w . CP A i r Marketing Department. Vancouver. A i r l i n e - T r a v e l Agent R e l a t i o n s . February 25, 1977.  Murphy, B i l l . Interview. Pagaesus S e r v i c e s , CP A i r , March 15, 1978.  Vancouver.  123  Nicholson, March  Malcolm. I n t e r v i e w , p . 30, 1978.  Noble, William. 23, 1978.  Interview.  Lawson*s  Quantas  Travel.  Vancouver.  Airways, Vancouver. February  O f f i c i a l A i r l i n e G u i d e - N o r t h Amerlean E d i t i o n . Oak I l l i n o i s : Reuben H- D o n n e l l e y - November 15, 1977. Ontario. Statutes of Ontario, 115; 15-  Erook  "The T r a v e l I n d u s t r y A c t , " C h a p t e r  "Oriental A g e n t s O r g a n i z e t o S t o p Hanky-panky." C a n a d i a n C o u r i e r . A u g u s t 2 5 , 1977. "Pan  Travel  Am I n c e n t i v e s P r o h i b i t e d . " C a n a d i a n T r a v e l C o u r i e r . O c t o b e r 7, 1976-  Rees, Gordon1978-  I n t e r v i e w . Bayshore T r a v e l .  "Hevenue Canada Investigates I l l e g a l C o u r i e r . March 8, 1S78. ?. 1. Howe, W.A-C. I n t e r v i e w . A i r C a n a d a , V a n c o u v e r . March 9, 1978.  Vancouver-  April  6,  Rebates." Canadian .Iravel  General Sales  and  Service,  Ruppenthal, Karl M. T r a n s p o r t a t i o n Nee d s and- A v a i l a b i l i t y i n North C o s t a l C o m m u n i t i e s i n B r i t i s h Columbia. Vancouver: C e n t r e f o r T r a n s p o r t a t i o n S t u d i e s , 1978. Saunders, Audrey. Correspondence. International A i r Transport A s s o c i a t i o n . Agency I n v e s t i g a t i o n Panel. Montreal. March 25, 1977Stark, Rodney. California;  Ed. S o c i e t y T o d a y . CRM Books. 19.73,-  Second  Statton, BrentInterview. CP Air, V a n c o u v e r . F e b r u a r y 25, 1977-  edition.  Marketing  D e l Mar, Department.  "Summary o f C o m p e t i t i v e C a r r i e r Passenger Commission the U.S.A.** CP A i r , Industry Affairs, March ^mimeographed) .. "Sun  Not 1977.  Down  Y e t on H a w a i i T r i p s . "  " T r a v e l Agent C o m m i s s i o n s Reach $1.44 ; T r a n s p o r t World- O c t o b e r 1977. "Travel Agents Lose $23 E x e c u t i v e , J u l y 1978. "Travel Industry 12, 1977.  Million  Filings i n 16, 1978  The P r o v i n e e , F e b r u a r y 8, Billion  in  1976."  on D o m e s t i c S a l e s . "  Welcomes C o n t r o l . " T h e V a n c o u v e r  Sun*  Jjjr  Airl-Lne February  :  124  "Twenty t o T h i r t y More T r a v e l Province, June 1. 1978"U.  S. A i r l i n e Commissions Jump i n October 1977.  Agents Expected t o F o l d . " 1976."  A i r Transport  The  World,  United States. Civil Aeronautics Board. ,:; IATA. AqreementsConcerninq Agency M a t t e r s — U n i f o r a Commission^ Rates, Docket 28672- Washington D.C. March 15, 1978. ;  United States. Department of Transportation. Office of Facilitation. Passeaiqei?.^fieseg^at4ons^-%^a,^€4eketinqJ. Washington D- ,C- 1971. United S t a t e s . Interagency Task Force on I n t e r n a t i o n a l A i r Transportation P o l i c y of the United S t a t e s - Statement of ' I n t e r n a t i o n a l A i r T r a n s p o r t a t i o n P o l i c y of the Uojted S t a t e s . Washington D. C . S e p t e m b e r 1976. Wang, P a t r i c k . Interview. 1978.  Reed*s  Travel.  Vancouver.  July  11,  Hyckoff, D. Daryl and Industry. Lexington, 1977-  M a i s t e r , David H. The Domestic A i r l i n e Massachucetts; D.C- Heath and Company,  125  Appendix1 Selected  Competitive C a r r i e r Passenger I n The U n i t e d S t a t e s  Filings  1  Ei  AI, I s r e a l i  Airlines  Point-to-Point:  8%  Inclusive  3%  Volume  Japan  Tour O v e r r i d e ;  Incentive:  $40 p e r p a s s e n g e r ($250,000 t o $1,000,000 a n n u a l r e v e n u e s ) ; $50 p e r p a s s e n g e r ($100,000 t o $5,000,000) $60 per passenger (over $5,000,000) $30 per passenger (over $50,000 on Holiday Class Economy F a r e s )  Airlines  Pcint-to-Point  8%  I n c l u s i v e Tour Override:  3%  Ecnus:  $25 New-York-Tokyo One Kay F i r s t Class New Y o r k - T o k y o one way Economy Class or Excursion  Volume  Incentive  IQ% - 100 t o 499 passengers per year 11$ 500 t o 999 p a s s e n g e r s per year 12% - 1000 t o 1499 passengers per year 131 - 1500 t o 1999 p a s s e n g e r s per year 14% - 2000 t o 2499 passengers per year 15% - o v e r 2500 p a s s e n g e r s p e r year  iComnission l e v e l s such as these a r e a p p l i c a b l e f o r payment t o United States travel agencies o n l y . S o u r c e : CP A i r , I n d u s t r y a f f a i r s - M a r k e t i n g , March 16, 1978-  126  Group O v e r r i d e / T o u r O p e r a t o r  Plan: 12% 10 t o 4 99 p a s s e n g e r s p e r year 13& 500-999 passengers per year 14% 1000-1499 p a s s e n g e r s per year 15% 1500 or more passengers per year  Pan  Am  Fcint-to-Point:  838  Incentive lour:  3% in  Volume I n c e n t i v e :  To/From Borne, Brazil, Tokyo, Manila, Hong Kong or the Middle East 8% - 25 t o 4 9 p a s s e n g e r s 10% - 50 t o 7 4 p a s s e n g e r s 12% - 75 t o 99 p a s s e n g e r s 15% - 100 o r more p a s s e n g e r s  f o r passengers o r i g i n a t i n g the United S t a t e s  Agent must e a r n a minimum or $20,000 o r 110% o f l a s t year«s calendar g u a r t e r whichever i s greater: to gualify. Agent earns 1% extra f o r e a c h 10% above last years period or $20,000 w h i c h e v e r i s g r e a t e r . Group O v e r r i d e Tour Operator P l a n :  Tour Operator.Support 10% on U.S.Europe/Africa/Middle East e x c e p t Home 15% - U.S.-Borne 15% - U - S . - P a c i f i c 10% - a . S . - S o u t h America 5% - U . S . - C e n t r a l A m e r i c a 7.5% - B e s t C o a s t - H a w a i i up t o 1800 l o c a l t i m e 10% - West C o a s t ^ f l a w a i i a f t e r 1800 l o c a l t i m e 10% - U . S . - A l a s k a 10% - New York C i t y / Dallas/Hawaii Group O r q a n i z e r S u c t c r t l e v e I s |saae a s t o u r o p e r a t o r s u p p o r t e x c e p t 7% West C o a s t Hawaii ;  

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