Morris Travel, one of Salt Lake City's largest travel agencies, is slashing its 425-member work force and cutting back in other areas. The $1.5 million restructuring is a direct result of plane-ticket commissions being capped by major airlines, the company said.
Changes in personnel will begin at the executive level, but other layoffs are expected, according to industry observers."As a direct result of airline commission cuts and caps, we need to change our cost structure. Morris Travel will continue to be the leader in our travel markets, and to do so we must be profitable," said Mark Slack, Morris president and CEO, in a prepared statement.
Slack had previously questioned whether the airlines' decision would have a major effect on the travel agency industry.
All major U.S. airlines recently announced they were cutting their costs by capping commissions paid to agents on domestic plane-ticket sales. Airlines now will pay $25 for one-way tickets and $50 for round-trip tickets instead of the previous 10 percent commission.
Some airlines, such as Delta, also have cut travel agents' commissions on international travel arrangements. Some cuts went from 10 percent to 8 percent. However, certain other airlines have actually increased commissions on international plane-ticket sales.
In response to the airlines' action, the American Society of Travel Agents said it would file a class-action antitrust lawsuit against the airlines alleging price-fixing.
The organization also said it would seek a restraining order to stop the financial cuts, urged its members to meet with their respective congressional representatives and planned a national ad campaign.
The airlines' decision on plane tickets - which is the largest source of travel agency income - has caused a 20 percent income decline, according to Morris Travel officials.
At Morris Travel, some executive officers will no longer have day-to-day operations duties but will continue to serve as shareholders and board members.
Morris Travel officials also are thinking about charging fees for some of their services and renegotiating many agreements with corporations for travel accounts.
Industry observers said Morris Travel has been charging customers fees for several months for plane tickets on low-price airlines Southwest, Vanguard and Value Jet. Fees typically have been $10 per ticket for up to two tickets.
Slack indicated he was optimistic about the future of the travel agency. "We were just awarded the Huntsman account," he said. "This account was formulated under the new airline commission structure and exemplifies the direction we will be taking with corporate accounts in the future."
The pain is hitting another large, local travel agency, Murdock Travel, as well.
Dave Strobel, vice president of sales and marketing, said the company is "looking at all sorts of things."
"We haven't come up with anything concrete, but we'll have to adjust just as Morris is. There are a lot of different ways to adjust - growth in business without adding new employees would be the most natural way and without affecting employees' lives."
Strobel said Murdock has been affected by the airlines' decision, but since 40 percent of Murdock's business is international travel, the impact has been less damaging than for other agencies.
"We do more international (ticket sales) than all the other agencies in Utah combined and yes, we are affected by the domestic ticket sales (changes)," but not to the degree that other agencies are.
"We need to be more efficient and there may be some reduction of employees, but not mass layoffs in our company," he said.
Strobel also predicted that some of the smaller travel agencies might go under as a result of the commission caps.
"We understand what the airlines are going through - they've lost $10 billion in the last four years. Some have lost zero, some have lost millions. Delta is one of the biggest financial losers in the industry, and because Delta is such a big player in Salt Lake, the agents in Salt Lake are affected by Delta's woes," Strobel said.
Last year, Delta was second only to U.S. Air in financial losses.
Strobel said Murdock has handled the largest amount of total airline ticket sales in this market for the past two years.