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Amtrak’s slashing of its sales force and commission cuts

September 29th, 1998

[Originally posted to the All-Aboard email list]

Enough first-hand industry sources have now confirmed Amtrak’s plans to slash its outside sales force and cut travel agency commissions in half to move beyond the speculation point of view.

It is Amtrak’s plan to eliminate most of it’s outside field sales force, change their focus from servicing travel agencies to other undefined areas, and slash travel agency commissions from 10% to 5%.

This will have a disastrous result for Amtrak.

Amtrak’s current sales force was critically undermanned, with many travel agencies being virtually ignored for lack of manpower.

Amtrak was one of the few remaining major carriers in the travel industry that paid a traditional 10% commission on sales for tickets written by travel agents.

Now, with no field support and commissions cut in half, travel agents have less incentive than ever to write Amtrak tickets.

Amtrak sales are often time-consuming and bewildering for travel agents who are primarily trained to sell airline tickets and cruises. Once these agents “learn the ropes” of Amtrak sales, things go smoother, but most Amtrak sales are still time consuming because of the nature of the sale.

In the early 1980s, Amtrak’s management fought a major war to become a part of the Airlines Reporting Corporation, the clearinghouse mechanism for the collection and disbursement of all monies for airline tickets sold. Amtrak’s argument was that by joining this organization, they would make more money because more travel agents would sell their product.

And, they were right.

Amtrak travel agency sales rose to over 40% of systemwide sales. That’s not quite the 85% average airlines enjoy for their travel agency ticket sales, but it was an improvement.

VIA followed suit in Canada later, and has gleefully joined the ARC as well.

Now, Amtrak management has decided that since agency sales have recently declined to only 29% of nationwide sales, that this segment of business is unproductive.

Travel Management Daily, an influential travel industry newsletter was quoted today as saying “Amtrak is reviewing its ‘market strategies and distribution channels’ in light of a surge in internet sales and direct bookings, and a continuing softness in travel agency sales, which have dropped from 40% of the total to 29% over the last three years. For the fiscal year that ends tomorrow, sales are up from all sources except agents. ‘We want all of the distribution channels, including travel agents, to be as productive as they possibly can be,’ a spokesman said. Unlike the major airlines, Amtrak still offers agents a flat 10% on everything, with no cuts or caps.”

It’s good that internet sales are up, but is this new business? Most likely it is rail fans and some business travelers who would travel by Amtrak anyway, but are saved the inconvenience of making a reservation by telephone or standing in line at a station.

Typical internet bookers for airlines are passengers who do not now use a travel agent, but handle their own arrangements. So, the internet has probably helped Amtrak cut costs at reservations centers (this is very good), and probably cut down on lines at stations (also very good), but probably has not achieved any noticeable amount of new business.

If travel agent sales continue to decline for Amtrak, that will be lost business. Agents who do sell the Amtrak product often sell it as an alternative or suggestion for “something different” for discretionary travel. When this influential well dries up because of lack of interest from travel agents, what will replace the business?

This is not a long distance versus NEC debate. This has a direct impact on all parts of Amtrak. Most business travelers in major cities such as New York or Philadelphia still rely on travel agents to make their travel  arrangements. Busy executives often do not wish to stand in front of an automated ticket machine and punch buttons for a ticket. They would rather make a free call to a travel agent who writes a ticket for free for the client and delivers the ticket to their office. When this is gone, too, there goes more business.

This is an issue germane to the survival of Amtrak. For all of those who enjoy the operations side of the business, what makes all of those trains possible is the marketing side that brings passengers onto the trains. When the distribution system is stymied, then everybody suffers.

Bruce Richardson