IATA Sets Interlined Fares: Extends Lifeline As European Commission Ends Tariff Conferences

The travel industry has given a qualified welcome to news that passengers can continue to interline among International Air Transport Association carriers next year thanks to IATA's new "flex fares." Interlining—the use of multiple carriers for different segments of a trip, other than between members of the same airline alliance—was under threat after the European Commission recently announced it will end the right of carriers to set fares jointly at tariff conferences without prosecution for anticompetitive behavior.

IATA's solution is to set fares automatically by calculating the average fully flexible fare on each route, then charging a premium for the benefits of interlining, which include the ability to switch from one carrier to another on the same route, using one ticket for a single journey involving multiple carriers and not having to recheck bags on journeys involving multiple carriers.

Although IATA has been applauded for its swift action to rescue interlining from oblivion, it continues to attract criticism from travel agents for the slowness of its reform on several other issues. Gaining pan-European agency accreditation has become easier, but travel agents said barriers remain. They also reported little progress in consolidating to a single bank settlement plan for Europe and are unhappy that some BSPs are reducing the time they give agents to settle from the traditional period of one month.

Agents complained too of continuing abuse of the IATA agency debit memo facility by which airlines can withdraw money from agents' accounts for setting tickets at too low a price. Finally, agents claimed that although IATA changed its rules last year to allow them access to published fares from any country, airlines are manipulating yield-management systems to ensure fares still are not universally available.

IATA will introduce its first flex fares on Jan. 1, 2007, the date that tariff conferences no longer can be held for intra-European Union flights for use starting March 1. The block exemption allowing tariff conferences for routes between destinations in the European Union and the United States and Australia is scheduled to disappear in July, with routes between the European Union and the rest of the world provisionally following in October 2007. IATA hopes to introduce flex fares for routes between the European Union and the United States and Australia next year, but would require approval from, among others, the U.S. Department of Transportation.

Precise details of the mechanism by which the fare averages underpinning flex fares are to be calculated have not yet been revealed. IATA said the averages would be re-calculated every March and October. Asked what will happen to the price of an interline ticket when the flex system is introduced, an IATA spokesman said, "On average, most fares will be the same or lower, but there will be some exceptions."

However, one senior TMC executive disagreed, voicing a suspicion that travelers could end up paying twice for the privilege of interlining. "The unrestricted fare on which the average is based is already an interlineable fare. This is going to add a surcharge to it," he said. "Logic says that fares are going to be more expensive."

Philip Carlisle, chief executive of the United Kingdom's Guild of Travel Management Companies, gave a more favorable initial response. "This confirms that there are ways of achieving interline fares other than through tariff conferences and we are interested in knowing more about it," he said. "It seems a welcome solution in principle and very much in the interests of our customers."

Isabel Leroy, legal adviser to the Guild of European Business Travel Agents, also praised IATA, but expressed reservations about what might happen to pricing. "We appreciate that IATA reacted quickly so that passengers will not notice a difference in their ability to interline," she said. "We note the use of average fares, which is not an approach that would seem to bring intense competition into interlineable fares."

The U.K.'s Air Transport Users Council, the most active official passenger watchdog in the European Union, similarly tempered approval with doubt. "We would be happy to see the interlining system continue in some form or other, as long as passengers continue to have access to the wide range of non-interline fares and routes they currently have," said industry affairs adviser James Fremantle. "We would not want to see passengers forced into buying a flex ticket when they did not need to interline."

There has been less praise for IATA's progress in reforming its dealings with travel agents. A coalition of TMCs and their corporate clients have lobbied both IATA and the European Commission in recent years for change, especially to make it easier for TMCs to handle multinational clients consistently across borders.

GTMC and others acknowledged progress on such issues as relaxed rules for securing ticket stock and in giving pan-European accreditation to agencies. However, GTMC said IATA insists on verifying that each branch of an agency meets its standards before giving accreditation. Agents must be accredited separately in at least two countries before receiving pan-European certification. "It would make us much more fleet of foot in matching corporate clients' requirements if this were simplified," said Carlisle.

GTMC also is frustrated with progress towards a single BSP, even one solely for euro currency countries. Instead, a new development is making agents unhappy: BSPs are reducing the time agents have to settle from the standard one month to either one or two weeks. The latest region where this is happening is Scandinavia.

An increasing number of clients use cards to pay for flights booked through agencies, which means this is less acute a problem than would have been the case a decade ago. However, one senior TMC executive estimated that 20 percent to 30 percent of the agency's business is not put through cards. "It means we will have to pay the airlines before we get paid by the client," the executive said.

Other areas of frustration do not concern IATA directly, but result from airline misuse of IATA rules. Last year, IATA made it possible for agents to book published fares in countries other than where the journey originates. Agents said this generally has been respected, but problems remain. Although fares are shown as available on GDS displays, they prove no longer available when the agent attempts to make a reservation. GTMC said multinational members' tests show that on such occasions the same fare remains bookable on GDS sets in other countries.

The other running sore that has not been resolved is alleged misuse of the debit memo system by which airlines debit agents through BSP for air fares that have been erroneously underpriced. Agents are unhappy that their ability to retain right of redress, if they believe they are debited incorrectly, is limited. They also claim that airlines are using agency debit memos to collect charges and impose fines, which is not the purpose of the system.

GTMC started lobbying airlines two years ago to reform ADMs (BTN, Oct. 4, 2004) but Carlisle said the situation has worsened. Recent abuses he cited were using ADMs to collect excess baggage fines and a case of a European airline whose contract with a leading global distribution system came to an end in the Asia/Pacific region. While negotiations were underway for a new contract, the airline used ADMs to debit agents for the difference between the fee the GDS was charging and the fee that the airline was prepared to pay. "It is a total misuse of the system," said Carlisle. "Of all the issues which annoy my members, ADMs are probably the most irritating."