The pros and cons of the Airline Deregulation Act of 1978 seem to be constantly before us at the moment as the media focus on the 10th anniversary of legislation that turned loose the forces of the free market on the world of travel.
Yet there is little consensus as to whether we have gained more in terms of reduced air fare costs than we have lost in frustration with the hopeless scramble of today's air traffic system. But at least all can agree that price-fixing has been done away with and that the costs of travel are regulated by the forces of a free market. Or are they?Take the case of McTravel Travel Service of Chicago. The McTravel agency was the creation of Richard Dickieson, who left another Chicago travel agency in 1984 to start this new business. Dickieson's concept was to rebate to the traveler most of the commission paid by the airlines and other travel service purveyors and to make his company's profit by charging a minimal fee for the various services it performed.
While this rebating practice was once illegal, in the era of deregulation it now falls within the law and the spirit of free competition that prompted the law in the first place. In fact, Dickieson's former employer had rebated much of its commission to its clients but had restricted this practice to the large Fortune 500 companies it served, whose business was vital to the survival of the agency.
McTravel's variation on the theme was a discount travel agency that would extend the benefits given only to big-ticket commercial clients to all travelers. While the traveling public loved the idea, discounting, particularly to individual travelers, is opposed by the travel industry - both the travel agency establishment and the airlines.
Travel agents normally get a minimum of between 8 and 11 percent on a domestic air ticket and from 8 to 25 percent for international tickets. What McTravel did was to refund most of the commission paid by the airlines to the passenger and to charge a flat fee, usually around $8 for a domestic ticket, as a ticketing fee. International ticketing cost $20.
While the idea was a winner with the public, and particularly the small business travel client who normally did not have the clout to demand discounts or rebates, travel agents fear the precedent of discount business that might get the public in the habit of comparison shopping for travel services.
The airlines also are out to get the discount agencies. Their interest lies in part in placating the bulk of the travel agents upon whose good will they depend.
The American Society of Travel Agents, the largest of the travel agents' special interest groups, fights the concept of discount travel every inch of the way. "ASTA would like to see us and all other discounters go out of business," Dickieson said. "It is in the interest of most other travel agencies to keep the prices high."
Rebating is now perfectly legal on domestic air tickets and practiced widely on international tickets while technically still prohibited. Private deals are cut all the time between airlines and major corporate clients and between travel agencies and corporate clients as a way of getting business.
What McTravel did, and is still doing, is not that unusual. The unforgivable sin McTravel committed was to go public and to advertise. Worse still, its discount bargains were available to anyone, big customers and small. The price-fixing mentality left over from the days before deregulation is still strong, and the upstarts have to be taught a lesson.
American Airlines was the first to draw blood when it withdrew its plates from McTravel (travel industry jargon for revoking a travel agency's right to sell tickets to the public).
American claimed that advertising discounts on its air fares undermined its ability to sell full-priced tickets and violated its policy and agreement with this agency.
McTravel refused to roll over and play dead and sued American Airlines for antitrust violations, claiming that the carrier engaged in illegal resale price maintenance practices and conspired with other travel agents to fix prices and suppress competition. In the three years that the case has been pending, American's actions, in the opinion of Dickieson, cost McTravel a lot of business.
"We are now dealing primarily with individual travelers rather than being able to sign up the large corporate clients," Dickieson said. "American controls about 30 percent of the business out of Chicago, and not being able to book those flights hurts us with corporate clients."
A trial date was set for early December. Then with no warning, federal Judge Brian Duff found in favor of American Airlines on a technical point. According to Dickieson, the judge agreed that American's action restrained trade, was anti-consumer and constituted price-fixing.
However, as McTravel was an agent of American Airlines, not the flying public, all of this didn't matter. The agreement between American and McTravel was a private one, and American could dictate the terms of that agreement.
Dickieson contends that this premise, if left to stand, has wide-ranging and ominous implications for the traveling public, opening the door for all manner of abuses, conspiracies and deals.
"You never see an ad which says, `See our travel agent.' It always says, `See your travel agent,' " Dickieson said. "We contend that agents represent the public. If they don't the public is simply being duped. We deal with all airlines, and we represent the public interest."
He also contends that this ruling will encourage those who oppose discount travel and discourage those travel agents who otherwise would try to cut prices.