Airlines Up Agency Debit Memos In Europe

A new front in the war over distribution costs, with travel management companies and their corporate clients on one side and airlines on the other, has flared up in Europe from the rising use by airlines of agency debit memos. American Express estimates that its own agency debit memos increased by 30 percent in the past two years.

This mechanism, used by airlines to debit TMCs via the International Air Transport Association's bank settlement plan for airfares that have been erroneously underpriced, is "one-sided, bureaucratic and complex," said Alan Coles, chairman of the air working party of the United Kingdom's Guild of Business Travel Agents. Corporate clients support travel management companies' resistance. "This has an impact on the buyer," said Tom Stone, chairman of the Institute of Travel Management of the U.K. & Ireland. "Ultimately, we will end up absorbing the costs through higher overheads."

Although ADMs have been around for decades, objections to them have intensified because the number issued has risen sharply during the past two years. One reason for this is that airlines have automated the process by which they check for fare construction errors. Carriers now employ third-party software companies to carry out the audits on 100 percent of their sales. Previously, manual checks were made on only a small portion of them.

The second reason for TMCs' objections is the extension of ADMs by carriers from being a process for correcting errors and oversights to the collection of a variety of self-declared and hotly contested charges and fines. One of these, connected to an argument between U.S. carriers and U.K. travel agents over commission payments, looks set to end up in court.

TMCs are obliged to let airlines issue ADMs as part of their IATA agency agreement. The money automatically is deducted from the TMC's account unless the TMC disputes the memo. This is the first bone of contention: Airlines not only judge the contested ADM themselves, but, in the United Kingdom, can charge a £25 (US$45) administration fee if they consider themselves right.

TMCs also object strongly to the cost and time-scale of ADMs. "It costs around £10 (US$18) just to check an ADM and around £50 (US$90) to dispute it," said Philip Carlisle, chief executive of GBTA and one of the leading lights of the Guild of European Business Travel Agents. That means administration costs frequently are greater than the value of the ADM itself. Amex said 79 percent of the ADMs it received in the past year have been for less than £50, up from 55 percent the previous year. The smallest ADM it has received in continental Europe was for )1.29 (US$1.60), while in the United Kingdom it was £0.48 (US 86 cents).

GBTA's Coles blamed the increase on the automation of airline fare auditing. "ADMs used to involve work for the airlines too, but now that they have automated the process they have become less discriminating," he said. GBTA has called for ADMs to be imposed only on fare adjustments in excess of £25.

Equally frustrating is the lengthy deadline that airlines have to issue an ADM—up to two years in the United Kingdom. The average lapse between ticket date and receipt of an ADM for Amex is 120 days. Bernard Harrop, director of industry affairs for the company, said the longest time taken by Amex to receive a memo was 6.5 years.

Harrop said ADMs have increased costs for TMCs throughout Europe. On the mainland, the most afflicted nations are Sweden and Spain. "All TMCs in Europe have an issue with ADMs, and it is getting worse," he said.

However, the problem is most acute in the United Kingdom because of two local disputes with airlines. The first is an argument with U.S. carriers over how much commission they pay U.K. travel agents for booking journeys originating in the United States. Almost all U.S. carriers pay U.K. agents 1 percent for U.K.-originating journeys, and the agents said their agreement covers U.S.-originating journeys too. The global distribution systems and U.K. version of BSP are configured to pay them 1 percent across the board. The U.S. carriers maintain they pay zero commission to all agents and therefore issue ADMs to reclaim each 1 percent claimed by U.K. agents.

The matter looks set to end up in court. "Legal action is being drawn up," confirmed a spokesperson for the Association of British Travel Agents, which is preparing the lawsuit in conjunction with members of GBTA.

Coles, also managing director of P&O Business Travel, said, "These are illegal demands for repayment of silly amounts of commission. The airlines have not even got the GDSs to unpick the domestic from the U.K.-originating tickets."

American Airlines spokesperson Richard Hedges sees the issue differently. "We are using ADMs to reclaim commission where it has been claimed incorrectly," he said.

In a separate dispute, British Airways has started issuing ADMs for £25 to TMCs that issue paper tickets for BA services where e-ticketing is available. BA aims to achieve 100 percent e-ticketing on its network by year-end and does not issue paper tickets in direct sales to passengers.

Coles said he sympathized with BA's wish to charge a premium for paper tickets but ADMs are an inappropriate, bureaucratic mechanism for collecting the extra sum—something of an irony given that BA's reason for introducing e-ticketing is to reduce administrative costs. GBTA pointed to Singapore Airlines and Cathay Pacific, both of which have found space on their tickets to charge a similar fee at the point of sale.

"We do not have a £25 charge for paper tickets; we have a fine," said Ian Heywood, U.K. & Ireland head of corporate sales for BA. "That is because we have issued a mandate that travel agents do not use paper. We think ADMs are the appropriate method for fining. To get costs out of the system, we need to get a high percentage of e-tickets, and allowing travel agents to issue paper doesn't get you to that position. We don't understand the circumstances in which agents need to issue paper because we are not having any problems with e-tickets."

ITM's Stone disagreed with BA's stance. "ITM wholeheartedly endorses charging for paper if it is shown on the ticket," he said. "BA makes a great play of the fact that the agency now works for the corporation. There is no good reason for not having an e-ticket but as long as corporations want paper tickets, our agents have to go along with us. While agents still have the ability to issue paper tickets, they should have something easy to administer."

GBTA wants to see three improvements to address its grievances over ADMs: the setting of a time limit for imposing them—perhaps six months—a minimum ADM value and a tighter definition of the reasons they can be used to debit agents' accounts. This would require an amendment of the IATA agency agreement. IATA executives are sympathetic to the cause of the TMCs but said changes would have to be voted through by member airlines. "We are very hopeful there will be some progress, and we will try to broker a solution on this," said Alan West, U.K. distribution and financial services manager for IATA.

IATA also has introduced a system called BSP Link, which allows agents to track ADMs electronically. However, agents have to pay to use the service and can still be charged £25 if the airline rejects the claim.