When the first discount air-travel agency -- McTravel in Northbrook, Ill. -- started advertising for business last winter, the sky fell in. Some of the agency's higher-priced competitors complained to the airlines, McTravel says. American Airlines stopped the company from advertising American tickets at a discount. McTravel is now suing American for $10 million.
Not that travel-agent discounts are new. They have long been available to large corporations and, more recently, to favored individual clients at certain agencies.
But rebating wasn't done publicly. The sin of McTravel was to offer discounts widely to all comers, and to advertise them broadly. McTravel's competitors would love to see it go out of business -- and indeed, if it loses the lawsuit, the outlook for discount travel will be dim. Other airlines might follow American's lead and snuff out the spread of free-market competition in the travel business. But if McTravel wins, more travel agents can be expected to bid for your business with a lower price.
McTravel saves money for travelers by rebating the commission that travel agents normally get from the airlines. Typically, there's a 10 percent sales commission built into the price of tickets to U.S. destinations, and 8 to 15 percent on international flights. But instead of taking a commission, McTravel charges you a flat fee:
On a domestic ticket -- $8 to make a booking and $7 to write a ticket, with a minimum charge of $10 per order. On an international flight -- $20 for the booking and $15 for writing the ticket, with a minimum charge of $20 per order. You can save money by booking the ticket yourself by phone and just having McTravel write it for you.
Procedurally, McTravel writes the ticket at full price (so it can claim the commission), then gives you back a check for 10 percent of the price less the agency's ticket-writing fees. Everything can be handled by mail, credit card and telephone (312-498-9390).
On a low-price ticket, it's cheaper to buy from a regular agent and pay the commission. But on a U.S. ticket costing more than $108 including tax (if you do the booking, or $183.60 if they do it), you'll save money with McTravel or with any other agency willing to make a full rebate. You'll even pay less than if you had bought the ticket from the airline, because the airline price includes the 10 percent.
How does McTravel do it? By offering only a bare-bones service. There's no travel consulting, no arranging of itineraries, no booking hotels and rental cars, no train trips and no agency credit. The agency simply books or writes airline tickets, for cash or a credit-card charge.
If you want to change your flight, McTravel will rewrite your ticket -- for another fee. (If you do your own booking, you're responsible for any booking changes. If McTravel books, it will make changes as part of the initial fee.)
American Airlines says that it's not opposed to rebating per se. "That isn't a realistic position to take" in today's market, company spokeswoman Linda Johnson told my associate, Virginia Wilson. What American dislikes is that McTravel is telling the world about it. "It's bad business to have an agency selling tickets for less than us and advertising it," she said.
Airlines have the right to refuse to deal with agents that practice rebating, although they rarely do. American's position seems to be that it's okay for travel agents to give secret rebates to corporations and pet clients but outrageous to offer them to everyone.
One interesting point about McTravel's rebates on international flights: They're supposed to be against the law. Although rebating is legal within the United States, there is no free market in international ticket prices. The U.S. government negotiates them with other countries, and all agree to abide by the rules.
But in fact, international rebating is widely, though secretly, practiced, according to McTravel officials. Every now and then the U.S. Department of Transportation brings a case to pretend that it's serious. No formal complaint has been brought against McTravel for international rebating, a DOT spokesman says. But informal complaints may very well be in the pipeline.
Meanwhile, back at McTravel, business is good, and the agency is planning to start rebating package tours. Now the wait is on, to see if the sellers of higher-priced tickets can use the courts to put discounters out of business.