Southwest drops agent commissions

Monday, Oct. 20, 2003 | 11:16 a.m.

Southwest Airlines, the largest commercial passenger carrier at Las Vegas' McCarran International Airport, will stop paying travel agency commissions in December, the company announced today.

The announcement came as Dallas-based Southwest announced a 41 percent increase in third-quarter earnings over the same period a year ago due to strong summer vacation travel demand.

Southwest reported earnings of $106 million, 13 cents a share, on revenue of $1.55 billion. That compares with $75 million, 9 cents a share, on revenue of $1.39 billion a year ago for the quarter ending Sept. 30. Earnings for the 2002 period included a $25 million Airline Stabilization Act grant.

Earnings were in line with Wall Street's expectations.

In midday trading on the New York Stock Exchange today, Southwest stock was up 30 cents from Friday's closing price to $18.70.

In a conference call this morning, Gary Kelly, chief financial officer of Southwest, said the company would discontinue its 5 percent commission to travel agents effective Dec. 15. Southwest was the last major carrier to offer commissions to travel agents to book passengers on its flights.

The airline said travel agents booked 15 percent of the passengers that flew on the airline, while 55 percent booked reservations over the company's Internet site.

In a statement, Southwest Chief Executive Jim Parker said Southwest was the last airline hold-out on commissions, as most of the major companies began reducing, then discontinuing commissions nine years ago.

"We appreciate the choice our travel agency partners continue to provide to our customers,' Parker said "We waited this long to make the change in our commission policy to give all agencies -- large and small -- ample time to shift their business model to the industry norm of fee-based services."

Rob Jordan, president of the Southern Nevada chapter of the American Society of Travel Agents, said it was unfortunate that Southwest is discontinuing its commission policy, but that most agents already have modified their business models to reduce reliance on airline commissions.

"All agents that would be affected by this are now charging a service fee and the commission amounts they were receiving was so minimal that they will be able to manage without it," said Jordan, chief executive of Las Vegas-based TravNet, a company that offers support services to travel agents.

He said companies that book a large amount of corporate travel would be most affected by the change, since they generally have large business accounts with Southwest.

"It's too bad, but at least Southwest held out for a long time," added Sharna Blumenfeld of ProTravel International, Las Vegas. "Most agents now depend more on cruises and tours and have business management fees and service fees. Agencies that relied on airline commissions probably aren't around any more."

Southwest also reiterated its aggressive growth plans over the next three years, including expansion in Las Vegas, which recently overtook Phoenix as the airline's busiest station.

Kelly also said the airline would take delivery of 47 new Boeing 737 twin-engine jets in 2004 and retire 17 older models. The net increase of 30 planes represents a 7 percent increase in overall capacity, he said. He reiterated that Southwest intends to add an additional city to its route map in 2004, but also would increase flights in cities already served by the airline.

He said that while Southwest has growth opportunities on the East Coast and in the Florida markets, Las Vegas also has potential for more flights because of demand in the market. He would not state any specific details.