Effects of WTC

Rail Europe, a U.S. corporation owned by the French and Swiss railroad systems, late last month merged with longtime rival, DER (Destination Europe Resources). For decades, both companies have been in the business of marketing European rail passes, rental cars, hotel rooms, vacation packages, and transatlantic air tickets. Rail Europe sells to the general public as well as to travel agents. DER markets only to travel agents.

The two companies fought hard to win the loyalty and bookings of the nation's travel agents and between them held the U.S. marketing rights to virtually all European rail passes sold in the United States. As a consumer, you might purchase a rail pass from a travel agent, but it's 99% certain your agent will get that pass from Rail Europe or DER (others have the right to wholesale rail tickets but as a practical matter, all European rail in this country is sold by these two companies.)

And thus we begin to see some of the ways - other than heightened airport security - in which 9/11 will affect those of us who enjoy traveling in Europe.

DER, like most travel companies, struggled to remain afloat in the weeks and months after 9/11. Not only had their flow of new bookings slowed to a tiny trickle, millions of dollars were going the other way in refunds. Apparently it was too much for a company that only a few years ago had been purchased by a few key employees from its Germany-based owner, the massive DER Tours.

Press releases to the contrary, the effect of the merger is likely to result in a lessening of competition followed by inevitable increases in costs to consumers. Already this year, Rail Europe had been directed by its European owners to raise the price of most rail passes and at the same time cut commissions to travel agents. DER - obviously in negotiation at the time to sell out to Rail Europe - could only follow suit. Now, with just one company issuing rail passes in the U.S., it seems reasonable to expect higher rail pass prices and even lower commissions.

A further reduction in travel agent compensation means you, the consumer, can expect to pay fees over and above the cost of any tickets, passes or bookings made in your behalf. For example, Rail Europe's new, reduced standard travel agency commission for Brit Rail passes is 5%. A Brit Rail Classic Pass goes for $279. That's a commission of just under $14 to be divided between agent and agency owner. Let's say your agent spends perhaps 15 minutes explaining the various rail pass options, another few minutes recording your order and making sure your name is spelled exactly as on your passport, and then more time issuing the pass. At the end of the month the agency must prepare a rather complicated report for submission to Rail Europe that involves accounting for all numbered ticket stock (lose one blank ticket voucher and Rail Europe can assess a $500 penalty). Throw in overhead such as telephones, computers, rent, insurance, employee benefits, and you can see no agency can remain in business on $14 commissions.

DER is only the latest in what is becoming an ever-lengthening list of 2001/2002 European travel casualties. Kemwel, a U.K.-based travel wholesaler, mainly of rental cars, was acquired by Auto Europe. Council Travel, for decades a seller of discount travel to teachers and students, recently declared bankruptcy. Maupin Tours, a high-end tour packager owned by billionaire Carl Icahn, closed up its Lawrence, Kansas, headquarters and will continue on a scaled-down basis from Las Vegas. Belgium's national airline, Sabena, and its low-cost subsidiary, CityBird, are both gone. Swissair will be reincarnated as Swiss Airlines in April. KLM has downsized its charter subsidiary, Martinair, to a handful of flights from Orlando, Miami and four Canadian cities. British Air has reduced its workforce by 25%.

Air carriers have incurred huge financial losses. In the 4th quarter, United lost $10 million per day. So, you say, this means empty planes and lower ticket prices, right? Sorry, no. Virtually every transatlantic carrier has eliminated flights and a report prepared for the European Travel Commission by the Donald N. Martin Company says 20% fewer seats across the Atlantic, keeps load factors "considerably higher" than a year ago. More tickets would have been sold if more seats were available. This lack of supply, of course, is propping up ticket prices for 2002.

But some see a better tomorrow. Ron Kuhlmann, vice president of R2A, Inc., a California transportation consulting firm, thinks all-year $400-$500 roundtrip fares to Europe are not at all far-fetched. "Its clear who has the model that works, it's the low-cost, low-overhead carriers like Southwest and Jet Blue in this country and EasyJet and Ryan Air in Europe," says Mr. Kuhlmann.

He notes that in a time when the major international carriers are mothballing airplanes, EasyJet and Ryan have just placed orders for hundreds of new ones. Kuhlmann thinks it's only a matter of time until such airlines apply the template that works so well for them in short and medium haul flights to transatlantic routes.

We all knew 9/11 would affect our travels, it wasn't clear just how. We're beginning to find out. RHB

March 2002