Airlines: Get Out Of The Gray Area

<B> Airlines: Get Out Of The Gray Area</B>
<I>Enhanced SyStems Target Back-To-Back, Hidden Ticketing Practices</I>

By Sarah Welt

Two years after a crackdown by several major carriers on controversial ticketing practices (<I>BTN</I>, Oct. 6, 1997), airlines are still in hot pursuit of offenders--and now they are armed with revenue management systems to track them down with unprecedented precision.

Industry experts noted a rise in debit memos airlines issued for back-to-back and hidden-city ticketing. Repeat agency offenders risk having the airlines pull their ARC plates.

"We've been enhancing our revenue accounting system for the past several years. New software and better systems allow us the ability to better track back to backs and other violations," said Continental Airlines' Dave Hilfman, vice president of national sales. The airline uses a Passenger Revenue Accounting (PRA) system designed by Arthur Andersen.

Back-to-back ticketing involves buying two roundtrip tickets with Saturday-night-stay discounts, and then using a one-way leg of one ticket and a one-way leg of the other to cover an itinerary that does not include a weekend stay. Though the traveler is paying for two roundtrips and using only one, often the price of two discounted excursion tickets is less than that of one full business fare without a Saturday night stay.

Hidden-city ticketing meanwhile, involves buying a ticket for a destination that includes a connection in a different city, and simply getting off the plane at the midpoint.

San Francisco-based attorney Alexander Anolik said he deals with two to three clients a day regarding debit memos from the airlines and that 75 percent of those are related to gray-area ticketing practices. He has seen a "1,000 percent increase" in the number of debit memos issued for back-to-back and hidden city tickets due to improved automation, adding that the carriers "have decided they can make more extorting moneys from the agencies with the basic concept that they will get rid of agencies more and more, forcing corporate clients to go directly to the carriers for ticketing where they won't be subject to reimbursing an agent for a debit memo."

For protection, some agencies now tell corporate customers that if they ever receive a debit memo, the corporate account must pay up, he said.

Anolik opposes charging a full Y-class fare as a penalty. "There are only three incremental costs in filling a domestic 2,000-mile seat and those are 26 cents for insurance, $1.26 for fuel and $1.66 for a piece of rubber chicken. The incremental costs of filling a seat are at the most in the $10 to $14 category."

American Express One vice president of sales and marketing Andy McGraw also has seen an increase in the number of debit memos for back-to-back ticketing in the past 18 months, noting that "the airlines are able to track it a little better than in the past."

Meanwhile, American Society of Travel Agents senior vice president of industry affairs and travel technology Paul Ruden said airlines are "simply not forgiving anymore. There was a time when most airlines wouldn't act unless they found a lot of back-to-back or hidden-city stuff going on--a real abuse. I think they've ratcheted that threshold down to where they are responding to everything."

Commercial Travelers Association executive director James Haynes said several agencies have "gotten the axe" for breaking the rules. "The airlines have gotten much more authoritarian about that. They take a heavy hand to an agency practicing hidden city or back to backs." Hilfman said Continental tries to avoid that situation, however, "we will do it after we have dialogue and can't seem to come to a good resolution. We have done it and would do it in the future, but our desire is always to work that through."

Fear of penalty as well as the desire to reinforce good working relationships with the airlines is likely what keeps many agencies and buyers from taking part in prohibitive ticketing behavior.

The Weather Channel in Atlanta, with $1.25 million in air spend, got caught doing back to backs a few times when travelers booked them and the travel consultants didn't spot the error, according to travel services manager Carol Brusa. However, "we do not recommend it," she said. "It is not in the travel policy but I am thinking of making it so." The company has tried to get discounts the old-fashioned way--through negotiations. But being in a hub city, its "negotiating skills are limited. American and United are looking for business and willing to deal with you, and we are able to work with them getting waivers and upgrades, but Delta? Forget it," Brusa said.

In turn, Joseph E. Seagram & Sons Inc. has taken a hard line on prohibitive practices. "Back to backs and hidden city pairs is a pet peeve," noted director of global travel management Earl Foster. "It is absolutely ludicrous for companies to try to use this. It's a loophole. Companies want to build relationships with the airlines and you can't win both ways. You have to have a win-win and from the company's standpoint that means negotiating from a sheer position of strength. Then, having done that, there is a moral responsibility to go along with the rules."

Meanwhile, agencies too have come out strongly against rule breaking, but that doesn't mean that customers have stopped wanting gray-area tickets.

Washington, D.C.-based ACT Travel's general manager Mike Pingrey said customers have been educated that the agency won't do back to backs, but it still gets requests and has lost business as a result. "They said, 'if you won't provide them, we'll go to a travel agency that will,' " Pingrey said.

While ACT does not condone such practices, it is aware that business travelers can book those tickets without letting the agency know about it. While the agency won't break airline rules, Pingrey acknowledged, "If airline pricing made any sense or had any reason to it, there would be absolutely no demand for back to backs or hidden cities, but it doesn't and that is why such things exist. I am being fairly facetious here, but I maintain that the airlines have basements full of monkeys in green eyeshades who make up fare structures because they make no sense whatsoever."

Added Haynes, "The very fact that you can get a better deal by doing hidden city and back to backs tells you something is wrong with the system."

McGraw noted that American Express One has a written policy not to engage in prohibitive practices. Ironically, he said that about 20 or so years ago, airlines encouraged back to backs. "They called it a series rider," and it was pushed because before revenue management systems it was a "guaranteed predictable revenue stream (<I>BTN</I>, Oct. 13, 1997)," he said. "Now they can predict the ebbs and flows of business and leisure travel, so they don't want to discount an inelastic segment of the market."

While several industry experts noted an increase in debit memos, that is not the case at Continental. "With travel agencies," Hilfman said, "we just talk to them about what our tariffs are and ask for help and cooperation ensuring mutual clients follow proper rules and fare requirements and restrictions. Through education I think we've made a lot of headway. We've seen the numbers improve and compliance is better."

Richard Eastman, president of the Eastman Group in Newport Beach, Calif., has not seen an increase in debit memos by the airlines for back-to-back and hidden-city tickets, even though his company designed a revenue management system for Lufthansa German Airlines that notifies agents if it sees a duplicate booking. "It went from being a hot issue to essentially a non-issue," he said. "Compared with other issues impacting distribution, it is not getting the attention of most airlines. The whole dynamic of the changing distribution structure for the airlines has superseded any of the traditional policing and audit functions. The revenue derived from being a policeman compared with the revenue from finding lower cost distribution solutions is not worth the cost of being a policeman right now."

Hilfman disagreed. "We are always looking to increase revenue and reduce costs but at the same time it is important to continue auditing to ensure we have integrity in our fare structure."

Meanwhile, the entire issue could be wiped away if the Omnibus Airline Passenger Fair Treatment Act of 1999 (H.R. 2200), which was introduced in the House of Representatives in June, were to pass. Section 2 defines an "unfair or deceptive practice" as "any action of an air carrier or foreign air carrier A) to prohibit the person (including a government entity) that purchases air transportation from only using a portion of the air transportation purchased (including using the air transportation purchased only for one-way travel instead of roundtrip travel); or B) to assess an additional fee or charge to i) such a person; or ii) any ticket agent that sold the air transportation to such a person."

ASTA's Ruden, who was involved in writing the bill, said if it passes, airlines will not be able to punish consumers or agents for using these combinations to get lower prices. "They will either have to give up trying to enforce that," he said, "or change the way they price tickets.