ARC Unveils Overhaul of Agency Agreement

The Airlines Reporting Corp. will shorten the bank draft date from 10 days to 5 days after the close of a sales reporting period and will allow travel agency locations to have multiple ARC numbers, under a proposed revamp of the Agency Reporting Agreement.

If approved, the revisions will become effective on Jan. 1, 2013. The changes represent the first significant update to the Agency Reporting Agreement (ARA), the document that defines the agency-airline relationship, since it was written in the 1980s.

New location type
Among the major changes to the agreement is a new location type called an associate branch location, one that is not wholly owned by the home office.

“Agents have wanted us to do this, allowing them to have partial ownership of a branch location,” Lauri Reishus, vice president of operations, told Travel Market Report.

“The home office will still be responsible for financial transactions,” she said. In addition, airlines will have “all transparency around the ownership structure of the location.”

The new location type will require a higher level of financial instrument because it is “untested from a risk perspective,” she said.

Changes to settlement cycle
The changes to the settlement cycle may be less appealing to some agencies, but Reishus noted that more than half of ARC agents are also getting paid by ARC for service fees, overrides and other commissionable products, so they will be getting their money more quickly as well.

Moving up the settlement date also reduces the exposure that airlines have to losses resulting from agencies’ inability to pay, Reishus said, without requiring agents to tie up more capital in financial instruments such as bonding.

Airlines had requested that ARC improve risk management processes to reduce their exposure to monetary losses.

Unlimited ARC numbers
The revised agreement also allows agency locations to have an unlimited number of ARC numbers (for a fee) that can be used to segment their business in ways that make the most sense for them. A large corporate account can be assigned a number, for example, or a number can cover the location’s leisure business.

Agency locations also can take their ARC numbers with them wherever they go.

If, for example, “you have an approved location in California, but you want to move to Arizona, you can take that number with you,” Reishus said.

“Today you have to get a new number, and you have to tell all your suppliers. It’s like starting all over again.”

Nod of approval from ASTA
ASTA gave its blessing to the revised agreement and applauded ARC for consulting with ASTA and the agency community throughout the process.
 
ARC provided ASTA with a draft of the proposed agreement in early April, and ASTA conducted a complete analysis of the document.

As a result, it proposed many changes to ARC, almost all of which were accepted, it said. The changes include language that will prevent the use of the ARC settlement system to draft agent accounts without their consent (formerly known as Payment Express).

“The ARA is the foundation of the U.S. travel industry’s agency accreditation and settlement system,” Mike Premo, ARC president and chief executive officer, said in a statement. “Updating this agreement is a springboard enabling ARC to make meaningful improvements in relationships, systems and processes for all stakeholders.”

Next steps
ARC will publish the updated ARA in June when the ARC board of directors is expected to approve it.

ARC plans to conduct an extensive travel agency outreach program throughout the remainder of the year to educate the industry about the changes to the ARA. This will include resources on the ARC website, webinars, conference presentations and personal meetings with agents.

First big changes to agreement
Since it was written in the 1980s, the Agency Reporting Agreement has remained essentially unchanged, except for being tweaked to reflect the introduction of electronic tickets.

“The system was established when it was all paper,” Reishus said. “Agents had to physically mail their reports. We’ve moved to an electronic system.”