The art of fare construction appears to be in vogue once again, thanks to a new interline system called "Flex Fares," as well as increased international air travel and the growing awareness among travel managers of how various pricing configurations can save their companies money. While fare construction guidelines issued by the International Air Transport Association have for years been used to facilitate international air travel, expertise in calculating ticket prices was once a highly prized skill that helped corporations lower their air expenditures. However, with the rise of electronic ticketing and online booking tools, travel managers began to rely on fares listed in global distribution systems, without questioning their accuracy, according to sources.
"Over time, we've gone [away] from an industry that used to be very aware and cognizant of fare construction as an art and as a skill and something that could reduce corporate travel spend by manually checking some of these processes," said Bruce Bishins, president and CEO of the Airline Training Council, which offers training courses on fare construction for agents and airline personnel. "There has been growing concern that the GDSs are great on a number of things, but when it comes to fare construction, very often a rate desk or a skilled fare construction person can do a much better job."
Bishins suggested that relying on fare data listed in GDSs is a mistake, as it is frequently inaccurate. The rise of air alliance deals also has helped to return fare construction to the tops of travel managers' minds, Bishins added.
IATA enacted changes and updates over the past few years partly in response to corporate travel managers buying more international tickets and realizing that "GDS pricing is not the only factor that should contribute to proper management of international ticket sales," Bishins said.
Precipitated by the rise of electronic ticketing, recent changes by IATA are also lowering fares for international travel, according to Paul Tilstone, executive director of the U.K.'s Institute of Travel Management. "The major change affecting travel managers has been the move to the construction of single fares and combining restricted outbound with flexible return sectors--a response to the fare types of the low cost carriers," Tilstone wrote in an email to The Transnational. "The effect of this has been lower European fares for the majority of corporations."
IATA fare construction rules are "default procedures that apply in the absence of an overriding carrier rule," said Cristina Rotor, IATA manager of industry solutions. "A carrier always has the option to apply an exception or a different procedure than what was adopted in IATA ... such carrier filing is usually valid only on its online services and would not be for interline travel. Without an agreement with other concerned airlines, those airlines are likely to reject the fare calculation." As a result, IATA tries to set the ground rules for all carriers to make international travel more efficient.
The latest change enacted by IATA is the introduction of Flex Fares, which allow carriers to construct IATA-based interline fares when passengers need to use more than one airline to reach their destinations. IATA developed both the e-tariff process and Flex Fares mechanism to replace antitrust-immunized tariff conferences, which did not adhere to European Commission competition regulations. For more than 50 years, participating carriers have set interline passenger and cargo fares during IATA-sponsored, twice-yearly tariff conferences. These conferences will be completely eliminated by October, according to IATA.
The Flex Fares mechanism, IATA said, "automatically calculates interlineable fares based on average carrier fares in affected markets. An interlining premium is added to account for the added flexibility of these interline fares." Flex Fares already are used for intra-European Union travel, and IATA is pursuing wider implementation in other parts of the world.
Carriers flying transoceanic routes to the United States have often used their own, non-IATA fares due to U.S. government restrictions on IATA, Bishins explained. That has made it difficult to construct interline fares that include a U.S. segment; the new Flex Fares were designed as IATA-based fares that comply with U.S. rules. The fares are created using algorithms that include procedures for making adjustments as market conditions change, rather than specific fare prices, Bishins said.
IATA in June applied to the U.S. Department of Transportation to use Flex Fares on routes between Europe and the United States, with a requested effective date of 1 July, leading to sales of such fares starting 1 September. At press time, DOT had not filed a response and the docket was still listed as "pending." Bishins said approval is "very likely."
IATA in 2005 introduced a number of changes to fare construction rules. First and foremost, IATA eliminated old international sale indicators that identified whether a ticket was sold inside or outside the country of origin. The ISIs were a relic from the paper tickets of years past, whereas the point of sale or issuance for e-tickets is no longer relevant, Bishins said.
In addition to the borderless rise of online ticketing, many multinational companies now use regional ticketing call centers, where a single point of issue may be used for multiple countries, Bishins added, so further elimination of country-of-issue fare checks may occur.
Not every market consented with removing ISI-type fare checks. "The 2005 changes to the fare construction rules were dubbed the Internet/Simplification Package," said IATA's Rotor. "However, certain markets such as travel to/from/via Japan continue to apply a couple of ISI-sensitive checks."
These ISI-type checks include country of payment and the Directional Minimum Check. The country of payment check would use the highest roundtrip fare to countries like Japan in the fare construction--but only by certain carriers that notified IATA that they were applying the check. So, a business-class passenger flying roundtrip from Singapore to Tokyo on a carrier that used the COP check, and who purchased his or her ticket outside Singapore, would have to pay a fare equal to flying from Tokyo to Singapore roundtrip, if that fare was higher, Rotor explained. Japanese carriers were still relying on traditional ticket distribution channels at the time of the rule changes, so the fare checks stayed in place, she added.
"The good news is that two months ago ... all the IATA carriers, including the Japanese, have now unanimously agreed to get rid of the DMC/COP by 1 June 2008," Rotor said, adding that the date dovetails with the IATA global deadline for 100 percent electronic ticketing. However, the elimination of these fare checks still require individual government approval, which can be a lengthy process, she cautioned.
Another IATA change introduced new rules on voluntary re-routing and refunds. In 2005, IATA announced that when an unused ticket was applied for re-routing, it could be re-issued as long as the fare was recalculated under the new fare rules and prevailing exchange rates. Last year, though, newer procedures for totally unused tickets allowed the use of the old fare rather than the new fare and rate of exchange, Rotor said, adding that the new guidelines are still awaiting government approval.
"Under the new reissue rules, fares are usually guaranteed to stay the same as long as there is no change to the carrier, flight, date or sector of the first flight coupon of the ticket," Rotor said. If the requested change affects the first flight coupon, however, new fares apply.
IATA expects to detail the new fare construction rules in a 500-page handbook that will be available in early October, Rotor said. Upcoming changes to fare construction rules explained in the handbook include: simplified one-way, return trip normal fare construction steps with the deletion of various minimum checks; clarification on the use of old versus new fares in ticket reissues; a new definition of what constitutes exchanges and reissues; new limitations on indirect travel; new rules for missing fares; instructions on how to deal with restrictions when combining two different special or normal fares; a look at the future of prepaid tickets; removal of standard discounts for children; and the cancellation of some IATA special fares in the European market.
"However, whilst most of the changes lead to lower fare quotes, many have not yet been declared effective until [regulators] such as the U.S. DOT give their stamp of approval," Rotor said.