Airline Ticket Distribution

16 June 2003

Veronique Corduant

The sale and marketing of air transport services has rapidly and fundamentally changed since the development of advanced IT means. The reliance on traditional distribution channels, based on travel agents using computer reservation systems (CRSs) is gradually losing ground as the Internet offers the airline operators a more cost-effective distribution channel.

This newly-emerged distribution channel is accompanied by a general trend among the airlines to reduce the booking payments made to the travel agents for selling their tickets to passengers. This has resulted in litigation initiated by travel agents in different countries.

In this respect, the European Commission is currently examining the question of the reduction of travel agents’ commissions within the broader framework of a complaint lodged by two European associations of travel agents[1] in October 2002 against the International Air Transport Association[2] (“IATA”) and its member airlines. This complaint alleges that IATA’s regulations[3] organising the relations between the airlines and the travel agents constitute agreements and decisions of associations of undertakings, prohibited by Article 81 EC, and allows IATA and its member airlines to abuse their dominant position on the market for the distribution of air transport services, prohibited under Article 82 EC.

Until now, however, the European Commission has dismissed all complaints made by the travel agents alleging that the reduction of airlines’ commission constitutes an abuse of dominant position.

In the UK, the Association of British Travel Agents (“ABTA”) lodged a complaint with the Office of Fair Trading (“OFT”), which alleged that British Airways (“BA”) abused its dominant position in the market for air travel agency services in the UK by excessively reducing the commission it gave to travel agents for booking BA short haul flights. ABTA argued that the new rates of commission did not allow the agents to cover the costs they incur in issuing BA’s tickets, whereas BA was obliged, by virtue of an alleged dominant position, to pay a reasonable level of commission.

However, the OFT concluded that even if BA was in a dominant position – a question it did not address – the cut in booking payment was not an abuse. The OFT added: “as with other providers of retail services, travel agents are free to recoup their costs from consumers through a mark-up of service fee”.

ABTA expressed concern that if agents charged such fees, consumers would be encouraged to book directly on BA’s website. However, the OFT said that a price difference between BA’s tickets sold on-line and those sold via travel agents would be justified by the additional services rendered by the agents to the consumers such as searching for available routes and schedules.

The OFT therefore found that BA’s reduction in booking payments did not infringe the UK Competition Act 1998.[4] In this respect, the OFT has followed the reasoning of the airlines, which would like to establish a new relationship with the travel agents: moving from intermediaries of the airlines receiving agency payments for selling tickets to the passengers on their behalf, to providers of retail services covering their costs of selling tickets by charging a service fee to the passengers.

However, bearing in mind that the analysis of a competition problem is done on a case-by-case basis, the OFT’s decision does not prevent other national competition authorities and the European Commission from interpreting differently the airlines’ conduct vis-à-vis the travel agents.

[1]The Group of National Travel Agents’ and Tour Operators’ Associations (“ECTAA”) and the Guild of European Business Travel Agents (“GEBTA”)

[2] IATA is the international association, representing approximately 280 airlines which organises co-operation between the airlines, and the relationships between the airlines and travel agents, and between the airlines and passengers.

[3] The IATA regulations governing the relationships between the airlines and the travel agents, called the IATA Passenger Agency Programme, has been exempted until March 1998 under Article 81(3) EC by the Commission Decision (91/480/EEC) of 30 July 1991 (case N° IV/32.659; OJ L 258; 16/09/1991, p.18-28). IATA filed an application for Negative Clearance in 1997. The application is still pending.

[4] Decision of the Director General of Fair Trading of 11 December 2002, Association of British Travel Agents v. British Airways, No CA98/19/2002, Case CE/1471-02