Antitrust Suit Deal Reveals Divisions

Lufthansa settlement may lay groundwork for future, but criticism remains

By: Kevin Brass

Within hours of signing a settlement agreement with Lufthansa Airlines, Jeanine Flaugher, one of the lead plaintiffs in the class-action agent suit against 17 airlines, changed her mind about the deal.

“It stinks,” said Flaugher, who owns Flowers Travel in Belleville, Ill., with her husband, John. “Even though I signed, I regretted that I had.”

The agreement announced June 27 must still be approved by the court, but it is the first proposed settlement in the landmark antitrust case filed in North Carolina against the airlines over the end of commissions.

In addition to potentially laying the groundwork for future negotiations with the airlines, the agreement has revealed sharp divisions in the goals and strategies of the plaintiffs in the class-action lawsuit, which represents all U.S. travel agents who booked tickets with the airlines since 1997.

The executive committee for ARTA, another plaintiff in the case, voted unanimously to reject the settlement offer, denouncing it as “too little, too late.”

The criticism puts attorney Daniel Shulman, the co-lead counsel on the case, in the unusual situation of defending a settlement agreement from complaints made by his fellow plaintiffs.

“What we’ve tried to do is make a deal that is good for the class,” said Shulman of Gray Plant Mooty in Minneapolis. “It’s a good deal for travel agents.”

Although three other similar suits have been filed representing different groups of agents, the North Carolina case, filed under the name of travel agent Sara Futch Hall, should be the bellwether for the industry’s legal attack on the airlines.

The discovery phase has been completed and the trial is scheduled to start Sept. 2.

The North Carolina class-action suit charges the airlines with violating the Sherman Antitrust Act by “conspiring to cut, cap and/or eliminate the commissions they pay to travel agents,” and attempting to “force travel agents out of business.”

Under the terms of the proposed settlement with Lufthansa, the airline would establish the Lufthansa Transatlantic Bonus Program, offering up to a $100 bonus for each Lufthansa round-trip trans-Atlantic ticket sold in the first year of the program.

After the first year, only agencies selling at least $10,000 worth of Lufthansa tickets will qualify. The threshold goes up to $20,000 the next year. The settlement makes no provisions for bonuses after three years.

In addition, agencies that have gone out of business since 1997 would be eligible to file for additional fees. They would be eligible to receive up to a 10 percent commission on Lufthansa tickets they sold, minus the base commission they were already paid, which often ranged from 5 percent to 8 percent. Tickets booked through consolidators and incentive programs would not qualify.

Lufthansa has also agreed to make Web fares available to agents.

“This agreement shows we remain committed to growing and strengthening” the relationship with the travel agent community, Thomas Winkelmann, Lufthansa’s vice president, The Americas, said in a prepared statement.

Lufthansa declined further comment. Other airlines named in the suit and contacted for a response to the settlement referred questions to the Air Transport Association, which didn’t return calls.

According to Shulman, the settlement addresses the major goals set by travel agents specifically to receive compensation for the airlines’ cutting of commissions, set up a system for future revenue, and “keep the airlines in business.”

“This settlement achieves all three objectives and it is better than travel agents could do in litigation,” Shulman said.

But criticism has focused on the performance thresholds for participation in the bonus program, labeled a “sales promotion” by ARTA.

“We don’t want to set a precedent that agents only get commissions if they meet sales requirements,” said attorney Alexander Anolik, who represents ARTA.

Beyond the program, some plaintiffs also believe the airlines should be forced to pay damages to agents.

“What we’re hearing from our rank and file members, loud and clear, is that they primarily want airlines to be judged liable,” said ARTA president John Hawks. “They want somebody in a black robe to say the airlines screwed you.”

Flaugher, who says she felt rushed to approve the agreement, doesn’t believe it is tough enough.

“To me, this is about justice,” Flaugher said. “We’re in it because we feel what was done was totally wrong.”

But Shulman argues that any deal that could result in airlines going out of business would be bad for agents.

“To ask for a pound of flesh is not productive,” Shulman said. “Travel agents and airlines need each other.”

A hearing to review the settlement agreement has been scheduled for July 28. Even if plaintiffs oppose the deal, the judge could still approve it.

However, ARTA represents 3,600 agents, which gives it a certain amount of clout. If it were to pull out of the case, the judge could “decertify” the class, removing the class-action status and sending the case back to square one.

“We’re not talking like that,” Anolik said, noting however, that everyone is aware of possible decertification.

While ARTA and others have criticized the deal, the proposed settlement agreement is still viewed as a positive sign the first indication that airlines are willing to negotiate.

Other airlines also are said to have entered into serious discussions in connection with possible settlements in the case.

“Obviously we’re happy that there is a break among the conspirators,” Anolik said. “We’re happy we got one who will roll.”