Domestic Aviation

The U.S. airline industry has gone from record losses during the early 1990s to record profits in recent years. Airline cost cutting and sustained growth in traffic have contributed to this rapid turnaround. Travel agencies, the primary channel for selling airline tickets, have not been immune from airline's cost-cutting efforts. Commissions paid to travel agencies are the fourth largest expense for airlines--after labor, fuel, and the cost of airlines. As a result, Airlines have cut commissions and set up Internet sites to sell more tickets themselves. Some travel agency representatives and consumer groups have questioned whether airlines are trying to drive travel agencies out of business, thereby depriving consumers of an important source of comparative price and schedule information. This report answers the following questions: How have changes in the way airlines sell tickets affected travel agencies and consumers? What are airlines' policies and practices for the sale and use of airline tickets sold by travel agencies compared with the sale and use of tickets sold directly by airlines? What are airlines' policies and practices for making their airfares, particularly discount fares, accessible to travel agencies and consumers? What are airlines' policies and practices regarding the use of data on travel agency sales?

GAO noted that: (1) changes in the way the airline industry sells tickets have had mixed effects on travel agencies and consumers; (2) since 1995, airlines have saved as much as $4.3 billion by reducing commissions paid to travel agencies; (3) through the use of new technology such as the Internet and electronic ticketing, airlines have found new ways to lower the cost of selling their tickets; (4) doing so has reduced airlines' reliance on travel agencies, and the number of travel agencies is declining; (5) nevertheless, industry surveys indicate that total travel agency revenues are rising, as the remaining travel agencies diversify their products and services to other types of travel-related sales; (6) about 40 percent of travel agencies have also instituted service fees for ticket processing, ranging from $10 to $50, to offset lower commissions; (7) the effect on consumers is difficult to measure; (8) some portion of airlines' cost savings from reduced commission rates has likely been passed on to consumers, especially leisure travellers, through lower airfares, but the extent is unknown because fares are also affected by many other factors; (9) airlines generally apply the same ticketing policies to themselves and to travel agencies; (10) airlines' policies are contained in rules that govern the sale and use of all airline tickets; (11) the travel agency industry alleges that airlines apply their rules more strictly to travel agencies than to themselves, with the intention of luring customers away from travel agencies; (12) while admitting some unintentional lapses in the past, airlines argue that they have a strong financial incentive to enforce their rules--if they did not do so, business passengers would buy the lower-priced tickets intended for leisure travellers; (13) U.S. and some foreign airlines offer special discount fares that are only available through their Internet websites; (14) airlines obtain data on travel agency sales from a variety of sources and combine them to develop complete sales information, by agency, for each airline market; (15) according to the airline industry, the data are needed to manage their travel agency incentive programs to target agencies that exceed sales targets; and (16) GAO and the Department of Transportation's Inspector General have criticized override programs as anticompetitive and harmful to consumers because they increase the likelihood that the information provided to consumers will be biased.