Pathfinder, Volume 12, Number 3, June 1990 Page: 5
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I ~*.112 percent if the agent sells more than $100,000
of travel on the airline in a month. Again, this mar-
keting device may be used most effectively by the
dominant carrier at an airport to bias brand choice
in travel purchases.
Computer reservation systems (CRSs) also may
be used to bias the airline choice of travel agents
and travelers. Though in 1983 the Civil Aeronautics
Board banned the most blatant display bias-the
practice of an airline that owns a CRS listing its
flights before those of other airlines-there is evi-
dence that more subtle biases may remain, though
interpretation of these data is open to dispute. An
airline is still thought by some to have an advan-
tage in gaining bookings from travel agents that
Continued on page six
PATHFINDERmay be reluctant to sublease underused facilities to
carriers intending to begin competitive service.
At the airports where landing slots are con-
trolled, the FAA should consider allocating at least
some slots through direct auctions, at which both
new and existing airlines would have equal access.
At all other airports, especially those soon-to-be-
congested airports, landing fees should be set ac-
cording to demand so that the full economic costs
of the landing right are represented.
Airports also should review the way in which
gates and terminal capacity are leased. The long-
term leases now generally used can hinder entry by
new competitors. When current leases expire, local
airport authorities should consider replacing them
with leases that can foster better competition.
Marketing Ploys
Barriers to entry in today's airline market are not
limited to the availability of physical facilities.
Schemes used by dominant airlines to sell tickets
also make competition much less profitable. Fre-
quent flyer programs (FFPs), for example, offer
special benefits ranging from service upgrades to
free flights to passengers who travel extensively on
a given airline. Because these programs offer in-
creasing marginal bonuses with higher purchase
volume, they encourage the buyers to make all of
their purchases with one or just a few sellers.
FFPs do in fact benefit passengers, but they re-
sult in what economists call the "principal-agent
problem." This means a business traveler may
choose to fly an unduly expensive airline simply to
obtain a frequent flyer benefit, while his employer
pays the tab. To nullify the lure of FFP bonuses, em-
ployers should be encouraged to monitor the bo-
nuses and adjust salaries accordingly. The federal
government also should consider equalizing the
tax treatment of frequent flyer benefits and other
employee fringe benefits.
A similar increasing marginal payoff schedule
exists in many of the commission arrangements
established between an airline and the travel agent
who sells its product. Travel agent commission
override programs are contracts between an airline
and a travel agent in which the airline agrees to in-
crease the agent's proportional remuneration, usu-
ally in the form of higher commission rates, if the
agent reaches certain sales goals. For example, the
commission rate can be raised from 10 percent toJune 1990
Published six times a year by the Center for Education
and Research in Free Enterprise in cooperation with
Educational Information Services, Texas A&M Univer-
sity, College Station, TX 77843. Telephone (409)
845-7722.
Svetozar Pejovich, Director
S. Charles Maurice and Svetozar Pejovich, Editors
Board of Directors: Businessmen-Maurice Acers,
Leslie L. Appelt, Jack E. Brown, Henry Gilchrist, Jay
Harris, Frank M. Muller, Jr., Carroll Phillips, H. G. Schiff
(chairman) and R. G. Wallace. Texas A&M Deans-
Charles J. Arntzen, Christopher A. Borman, A. Benton
Cocanougher, Daniel Fallon (vice chairman), Herbert
Richardson. Ex-Officio-H. Andrew Hansen 11.
National Advisory Board: Edwin Feulner (chairman),
Rawles Fulgham, Phil Gramm, Willa Johnson, Alex
Kozinski, Dr. Leonard Liggio, John Moore.
Permission to quote or reproduce materials in this
publication is granted. Please credit the Center for Ed-
ucation and Research in Free Enterprise. The opin-
ions expressed in Pathfinder are those of the authors
and do not necessarily reflect the opinions of the
Center for Free Enterprise staff, Board of Directors or
National Advisory Board.
Contributors of $5 or more receive Pathfinder for one
year; teachers in elementary and secondary schools
may receive Pathfinder without a donation.Page 5
Volume 12, Number 3
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Texas A & M University. Center for Education and Research in Free Enterprise. Pathfinder, Volume 12, Number 3, June 1990, periodical, June 1990; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth1031843/m1/5/: accessed July 17, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting UNT Libraries Government Documents Department.