Op-Ed: (A)voiding Per Ticket Distribution Costs

There is no question that U.S. airlines are examining and reexamining every possible revenue stream that has or will ever be available to them. This scrutiny has led the carriers to rethink their relationships with distributors, suppliers and the very travelers that fill their seats. In an attempt to increase revenue and decrease costs, the airlines have:

• Eliminated commissions

• Eliminated waivers and favors on ticketing rules and restrictions

• Changed policies regarding nonrefundable fares

• Eliminated negotiated discounts on lower fare classes (K, L, Q, etc.)

• Eliminated unprofitable routes

• Reduced number of aircraft

• Introduced paper ticket fees

• Implemented cost-sharing of global distribution system fees

The next move from the airline industry addresses revenue loss in the agency reporting process. In November 2002, ARC announced a "business process improvement" initiative to address the revenue loss generated by fraudulent voids. The move also will serve to limit the known agency practice of voiding tickets to avoid additional fees for their clients. While part of the new ARC system will bring more expedient and accurate reporting information, when the initiative goes into effect on June 4, travel agencies and their corporate clients will feel a significant fiscal and operational impact.

The first change addresses the fraudulent activity that ARC has said cost the airlines more than $70 million in the past year alone. To accomplish this, ARC will narrow the window during which accredited travel agents and corporate travel departments have the opportunity to void sales transactions prior to concluding and filing their weekly electronic sales reports. Once phase one is implemented, a transaction can be voided directly in the GDS up until 11:59 p.m. on the next business day after the ticket was issued.

Agents have an additional business day beyond that to reconcile the Interactive Agency Reporting data to ensure that all voids executed in the GDS were updated in IAR.

ARC is working diligently to educate the agent and CTD community on the impact of these measures. In addition to e-mail blasts and working groups with industry representatives, ARC has prepared a letter for agents to present to their clients explaining the changes impacting every agency ARC serves.



Impact To The Travel Community

The corporate traveler will face the most significant impact of the new void rules. Most business travelers will assure you that the only constant is change—many travelers make three to four changes per trip. With the new rules, each change will cost the traveler up to $100. To avoid these change penalties, travelers either need to make their changes within one day of making the reservation or purchase a more expensive, but more flexible fare. As these new rules take effect, corporations whose policies mandate penalty fares should plan to increase their travel budget an average of 3 percent to 5 percent. A few corporations have policies that restrict use of penalty fares and therefore their budgets should not be affected.

Some corporations may find themselves applying more risk management principles to certain travelers or types of travel that result in itinerary changes. Travel counselors can use exception reporting and customer relationship management databases to monitor and provide specific data on traveler behavior. This information will help travel managers target and educate travelers who display patterns of using nonrefundable tickets and making multiple changes.

One certainty is that every air travel policy needs to be reviewed and probably changed for penalty fare usage after June 4.

Travel managers should look to their agencies for cost-saving technology that automates the operational work done to manage unused and voided tickets. These applications track tickets from the beginning of the booking process throughout the life of the ticket, so travelers always know all of their options when booking a new trip. Most agencies have these products in place, complete with e-mail notification systems that alert travelers when their tickets are due to lose value.

Managed travel companies and corporations have been challenged in the past two years to adapt to the evolving business model of the major U.S. carriers. This change to the airlines' reporting system is no different than the measures we have seen in recent months.

The bottom line is we need to work as a team with the major airlines to keep America flying. We live in a global economy and all of our businesses depend on air travel for survival. We must help the airline industry heal and thrive. ARC management and airline representatives listened to the agencies and worked as a team to implement the new void window. We hope future changes in the airline industry are as well thought out and inclusive of constituents to provide truly proactive change management.

As for the future of airlines and travel distribution, get ready for more changes until the right business models are achieved. In my 25 years in travel distribution, this industry has always been about evolution, not revolution. The good news is that we are finally experiencing a slow revolution that is changing this industry for the better.

Danny Hood is president of WorldTravel BTI, the mega travel management company headquartered in Atlanta