Unfair Level Playing Field by Airlines vis-a’-vis Travel

Agents

Dr Michael Tanti-DougallSenior Partner,

Tanti-Dougall & Associates_____________________

Advocates

Valletta, Malta

IFTTA Conference – Rome 2010

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INTRODUCTION

The relationship between airlines and travel agents in Malta has been progressively deteriorating over the past four years.

IATA accredited travel agents have found themselves in a situation where they literally have to make both ends meet in order to survive in a highly competitive market … some have even contemplated closing shop.

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Airlines’ On-Going War Game -vs- Travel Agents

That airlines are competing directly with the travel agents by means of electronic ticketing through the airlines’ website is a well known reality which has been accepted world wide …

however that airlines compete directly with travel agents by providing them with availability of seats in certain classes with higher price tag other than class ‘Y’ seats - which is chargeable at the normal fare and therefore has average price per ticket …

… is also a reality even though not much spoken of.

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“Travel Agents today are working in an agency environment that is under threat like it has never been

in the past”.

Mike Hatton, UFTAA CEO had declared the above in 2003.

In December 1st, 2003, British Airways had reduced the travel agent commission to 1%, Aer Lingus, Iberia, Finnair, Lufthansa, SAS went down to Euro 1 per sector for all tickets issued in Finland.

In Singapore, travel agents were presented with a contract known as the Singapore Airlines Passenger Sales Agency Agreement which contemplated that the agent be paid $ 1 per year as total income from Singapore Airlines!

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Travel agents in Malta provide more than 70% (during certain months even as high as 80%) of the total passengers’ capacity for Air Malta and yet Air Malta has decided to take up a ‘crusade’ against travel agents instead of working hand in hand with them.

Air Malta’s behaviour on the market has made it evident that it does not need travel agents. Commission payable to the travel agent by Air Malta is down to 1% from 9%. Indeed, the commission payable to the travel agent by airlines went down over the past six-seven years … with certain airlines even to 0%.

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Other leading airlines operating to and from Malta like Lufthansa, Alitalia, Air France, Singapore Airlines, Austrian Airlines and British Airways have adopted the attitude to follow the policies adopted by the national carrier Air Malta … their reasoning is : if the national carrier can get away with it, then they feel protected.

IATA’s behaviour on the market which is supposed to have only a representation of the airline companies, acting on their behalf, has been far from acceptable …

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IATA’s Unilateral and Arbitrary Approach

The IATA accredited Travel Agent has had ‘his’ Travel Agent’s Handbook’ for his appointment as ‘travel agent’ – entered into with IATA on behalf of the major airlines - unilaterally and arbitrarily amended by IATA.

The PSAA – The Passenger Sales Agency Agreement - has been mostly the target of the unilateral and arbitrary amendments.

The very existence of the travel agent is at high risk.

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Resolution 824, para. 2.3 states:

“the Agency Administrator shall provide the Agent with subsequent editions of the Handbook and all amendments thereto. The Agent shall be notified by the Agency Administrator of any amendments to the contents of the handbook and such amendments shall be deemed to be incorporated herein unless within 30 days of receipt of such notification the Agent terminates this Agreement by notice in writing to the Agency Administrator.”

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Resolution 824, para. 9 entitled “Remuneration” states:“for the sale of air transport and ancillary services by the Agent under this Agreement the Carrier shall remunerate the Agent in a manner and amount as may be stated from time to time and communicated to the Agent by the Carrier. Such remuneration shall constitute full compensation for the services rendered to the carrier.”

What is deemed to be fair and adequate remuneration for the travel agent? 9%, 7%, … 1%, 0% when the travel agent is also collecting airport tax, fuel tax, departure tax AND when the running costs of the agent have increased?

Working for nothing?

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IATA’s Idea of a Round-the-Table Discussion

The Chairman provided all present for the meeting with a printed note which stated the following:

“the meeting is being conducted in compliance with the Provisions for the Conduct of the IATA Traffic Conferences. Pursuant thereto, the meeting will not discuss or take action on fares or charges other than cost recovery charges described by the Resolution of the Passenger Agency Conference, nor it will discuss or take action on remuneration levels of any intermediaries engaged in the sale of passenger air transportation. The meeting has no authority to discuss or reach agreement on the allocation of markets, the division or sharing of traffic revenues, or the number of flights or capacity to be offered in any market. Delegates are cautioned that any discussion regarding such matters, or concerning any other competitively sensitive topics outside the scope of the agenda, either on the floor or off, is strictly prohibited.”

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What is the prevailing scenario?

Travel Agents have been suffocating as a result of the exclusionary abusive approach adopted by IATA registered airlines and by IATA itself vis-a’-vis the travel agent

Airlines have a right to have own web-site for sale of on-line tickets … according to the decision of the Commission for Fair Trading (CFT) of 19th, October, 2009 – Federated Associations of Travel & Tourism Agents (FATTA) -vs- Air Malta plc (Case Number: 3/2007), the consumer benefits from purchasing on-line tickets and therefore, there can never be any abusive behaviour on the market by Air Malta under the competition law regime.

Travel Agents can no longer operate profitably

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Air Malta’s Case / cont’d

The CFT quoted a decision (Case Number: COM/15/02) made on March 21st, 2001 by the Irish Competition Authority on similar issue, that “ … the number of travel agents have been declining in recent years despite considerable economic growth, suggesting that other forms of selling air tickets are more efficient.”

The CFT further opined that the consumers’ welfare must be protected in terms of price, service, quality and choice.

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Air Malta’s Case / cont’d

That the travel agent has entered the Passenger Service Agency Agreement (PSAA) willingly and out of his own free will ... has not choice but to follow instructions give by IATA from time to time as “passive participants” to an agreement which is amended unilaterally by one of the parties to it ... with the aim of creating a universal conformity in the air travelling sphere.

CFT commented that the consumer can do without the agency system which many times gives rise to certain expenses for the consumer … and yet, Air Malta pays as much as 7% to travel agents in other markets (ex. Cyprus) outside Malta!

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The principal questions which have arisen during the CFT proceedings

1. Is Air Malta somehow contacting directly corporate clients? If so, is Air Malta using the data provided by the travel agents every time they so place a booking into the system? Why are private agreements with corporate clients by the airline imposed onto the agent?

2. Can an airline manipulate its own electronic booking system WAS – World Aviation Systems Ltd which is a joint venture company on a 50/50 basis between Air Malta plc and World Aviation Systems, operating a GSA - General Sales Agency?

WAS represents major airlines, largest and leading GSA

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Prices for seats are fixed according to classes:

N, S, W, K, T, V, L, M, Y + Business

1. Class ‘Y’ seats have average price, normal fare.2. Each class of seats has specific conditions; ex.

Class ‘K’ tickets are non-refundable, processing fee of Euro 25 if taxes paid are requested, charge of Euro 60 for change of date, etc.

3. Prices differ when Air Malta offers travel packages (Council Directive 90/314/EEC) competing directly with travel agents … lowest airfare possible in class ‘Y’ seats.

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Sub Iudice Case 1 vs Lufthansa

Federated Association of Travel & Tourism Agents (FATTA) –vs- Deutsche Lufthansa AG (registered in Malta), Deutsche Lufthansa AG (registered in Germany) and International Air Transport Association (IATA) – Case Number : 763/07 GV

FATTA is claiming (a) that Lufthansa is acting in breach of PSAA by operating a “net fare scheme” though its website which scheme is deemed to be discriminatory against the travel agents who cannot sell air tickets at the same prices being offered by Lufthansa UNLESS the travel agent renounces to his remuneration which is contemplated in the PSAA.

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Sub Iudice Case 1 vs Lufthansa / cont’d

FATTA is also claiming (b) that Lufthansa is also acting in breach of the PSAA specifically para. 9 entitled “Conditions for payment of commission and other remuneration” that the travel agent is not only entitled a remuneration on the “applicable tariff” but also on whatever “charge” which forms part of the air ticket, excluding only the taxes such as the departure tax.

Court has been asked (1) to declare that Lufthansa and IATA are acting in violation of Resolution 818 of the PSAA, and to declare that damages have indeed arisen as a result of Lufthansa’s behaviour and to liquidate the damages so suffered.

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Sub Iudice Case 1 vs Lufthansa / cont’d

In its reply, IATA declared that it FATTA is not party to the PSAA (as opposed to the travel agent per se) and therefore, hs no locus standi in the proceedings and thereafter, came out to defend Lufthansa … that the airline is indeed acting in line with the PSAA.

On October 6th, 2008, the presiding judge sent the case for review before the Commission for Fair Trading … still awaiting ruling thereon.

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Sub Iudice Case 2 vs British Airways

Federated Association of Travel & Tourism Agents (FATTA) –vs- British Airways and International Air Transport Association (IATA) – Case Number : 745/07/AF

Following letter dated March 27th, 2007 issued by British Airways to all travel agents in Malta informing them that the commission would be reduced to 1 % from 4 %, FATTA pursued case in court claiming that British Airways was acting in breach of PSAA by providing a ridiculous commission which was not considered to be financially adequate for the services being rendered by the travel agents to the airline in line with the PSAA.

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Sub Iudice Case 2 vs British Airways / cont’d

The court is being asked to declare that the airline is acting in breach of its commercial obligations when imposing onto the agent a ridiculous commission of 1 % … when even the airline was providing the same service to consumers with e-ticketing through its website in direct competition with the travel agents themselves.

Since then many airlines have reduced their commission payable to the travel agent to 0%, while at the same time offer passengers further incentives which normally cannot be offered by a travel agent.

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Judgment by Court of First Instance in Greece

1. In the partial judgment delivered by the Court of First Instance in Greece on March 1st, 2004 in the names “HATTA -vs- IATA” the commission payable by airlines to a travel agent was fixed at 7%.

2. 7% commission is deemed by travel agents as decent and financially viable to continue providing their services.

This judgment shows that while IATA is always seeking a uniform approach in its members’ operations, national courts and the EU Commission are failing miserably in that regard.

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Who is a Travel Agent?

The Travel Agent is deemed to be a ‘commission agent’ in most legal regimes.

It is surprisingly enough that there exists a remarkable difference in how a commission agent is defined and there are at least fifteen (15) different definitions of ‘Commission Agent’ within the EU alone!

There is the urgent need for uniformity to ascertain who is the travel agent. Some legislations like the Commercial Code of Malta and even Law Number 204 dated May 3rd, 1985 of Italy (whereby it provides that a person is obliged by law to file for registration in the Register for Independent Agents), are no longer deemed to be ‘modern’; need to be re-addressed.

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ECTAA

The European Travel Agents’ and Tour Operators’ Associations (ECTAA) based in Brussels has been striving to achieve some form of working agenda with IATA and the airlines. ECTAA has also been lobbying the European Commission … ex. ECTAA has requested to change the definition of ‘fare’ so that it would include all surcharges but naturally, airlines counter lobbied against ECTAA’s proposal thereon … not in their interest.

ECTAA has been working closely with other similar entities on operations taking place by non-EU airlines. Ex. The American Airlines (AA) have for some years announced the end of commission payment to online travel agents both in Europe and in the States who were only allowed to see and to show AA fares but not to book or issue tickets!

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What the future holds…

The EU Commission has embarked on a very ambitious project … an integrated ticketing system for air-rail transport. To overcome the multitude of technical issues, the Commission has proposed that all interested railways companies become members of IATA so that they could participate inter alia in the IATA’s existing IT programs like the GDS.

The Commission’s proposal could be seen as a quick solution to achieve an integrated ticketing system however, it would certainly further enhance IATA’s already dominant position.

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Final Comments

IATA and its Member Airlines

FACT 1: enjoy an on-going dominance and are abusing their dominant position cross nationally (Art. 9/Art.101) FACT 2: are following a concerted practice (Art.5/Art.102)

(a) Collective Action by IATA Accredited Travel Agents … moving away from IATA (AIC, US scenario) … withdrawal from IATA Agreement.

(b) Judicial Action against major airlines and IATA for breach of contract, abuse of dominance and concerted practice.

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Thank you for your kind attention

Dr Michael Tanti-DougallSenior Partner,

Tanti-Dougall & Associates__________________

Advocates

Valletta, MaltaE-Mail: mtd@tdlegal.com Website: www.tdlegal.com