Delta's Last Stand - ' Cost Cuts'

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On Jan. 29 in New York, Delta officially announced Song. On the same day on the West Coast, travel agent Jessica McGinn (not her real name) of San Jose, Calif., called and tried to find out about the new carrier for a customer. But Delta couldn't tell her anything about ticket restrictions or even if tickets would be available through her reservation system.

Helping travel agents is no longer a priority for Delta. The airline has withdrawn all bulletins on flight changes, baggage requirements and other matters from Apollo Galileo, a reservation system geared for travel agents. In fact, Delta now charges her to change tickets—a complicated procedure for which she used to get a commission—to defray the fees that Delta itself must pay to Apollo Galileo when changes are made.

Tensions are so high that McGinn doesn't want her real name used for fear of retribution from the airlines. She says airlines have punished travel agents for speaking publicly about them by "pulling their plates"—preventing them from selling tickets.

If travel agents are starting to feel like second-class citizens, it's because they are. Delta and the other major airlines are scrambling to push ticket purchasing away from the travel agents and toward their own Web sites. A ticket booked through a travel agent costs an airline more than $20 in fees. A reservation handled live by a carrier's call center can cost $15. But it costs an airline only about $6 online.

Last year, Delta sold 5.3 million tickets over Delta.com, 13% of all tickets booked. Another 13% were sold through other online outlets. As a result, the company said it expects to save $57 million in ticket costs and $25 million in call center costs—around $10 to $20 per ticket—this year.

Delta wants to sell at least 70% of Song tickets over the Web or by telephone using automated voice services linked into Delta's own Deltamatic reservation system. This reduces the need for customer service agents and can cut $8 to $10 out of the cost of a sale.

Some online travel agents are getting ready to sell Song tickets. By March 19, Travelocity, Expedia, and the Priceline subsidiary Lowestfares.com were all working with Delta, although McGinn still could not get any information from the airline.

But travel analyst Henry Harteveldt of Forrester Research believes that soon, no travel agency will sell Song tickets. On March 4, Delta announced, along with American and Northwest, that it was selling Worldspan, the last of the reservation systems controlled by airlines designed to serve travel agents.

Harteveldt expects Delta to pull Song tickets out of all third-party reservation systems and sell them through Delta-controlled channels. This would eliminate the transaction fees Delta pays to the reservation systems, which in turn reimburse the travel agents that use them.

Delta's goal is to sell at least half of its tickets online. Already, its Web site is one of the best in the industry. An independent study conducted by Baseline and Empirix, a Web research company, found the Delta site to be either number one or number two for site availability, response time, and consistency when compared with other carriers. It also links to the Delta Nervous System, as does data from Delta's voice-activated transactions.

But McGinn argues that in their zeal to use technology to cut costs, the airlines transfer the costs of flawed processes to travel agents and their customers. For example, she says airlines have refused to honor tickets purchased over their Web sites if those tickets are based on fares mistakenly entered by the airlines, a situation that upsets her customers when they find out she is powerless to fix it. Her reservation system, on the other hand, will absorb such mistakes so long as she is not at fault.

Lately, McGinn is urging her customers to fly Southwest, even though those sales cost her because they don't count toward her monthly quota for Apollo Galileo, which Southwest doesn't use. But she says Southwest's simplified fare structure, lack of change fees and superior frequent- flier program make her customers happy, and that is her first responsibility.

As Delta moves away from agents, it may have to figure out a strategy for dealing with agents who push travelers to the competition.

Delta sold 5.2 million—or 13%—of its tickets through its Web site in 2002. Had it sold those tickets through a travel agent, it would have spent $14 more in distribution costs per ticket, for a total additional cost of $72.8 million on those 5.2 million tickets.

If Delta had matched JetBlue's online sales of 66%, it would have sold 26.2 million tickets online and saved an additional $296.8 million. And, if Delta reaches its goal of 50% of sales online, it would have sold 20 million online tickets this year, saving an additional $207.2 million compared to the costs of selling through travel agents.

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