All About ARC (and Why Some Agents Just Hate It)

Travel agents can’t live without the Airlines Reporting Corporation, better known as ARC, but it’s no secret that they can sometimes have a pretty hard time living with it, too.
 
It’s tempting to imagine life without airline debit memos and ARC membership fees. It’s a little less tempting to imagine life without a centralized electronic settlement plan for the 195 carriers that are now part of ARC.

David Collins

“You’d have to hold 195 different ticket stocks, you’d have to report and settle with each of them individually,” said David Collins, ARC president and CEO. “It would be a nightmare for any agent or agency. If you multiply the number of airlines, 195, by 15,000 agents, you just couldn’t do it. That’s what ARC did for the travel agent community.”

Collins is largely responsible for ARC as it exists today. He took the helm 23 years ago in 1988, three years after the airline industry was deregulated. He plans to step down in June, when Mike Premo, currently vice president of business development, will take over as CEO.

The start
The idea of a centralized ticketing and settlement system came out of Braniff Airlines in 1956, Collins told Travel Market Report. What became the world’s first area settlement plan took off in 1965, jointly owned by 37 carriers through the Air Traffic Conference, part of the Air Transport Association. Fast forward to 2011 and only 11 of the original 37 carriers in the ATA/ATC still exist. Just nine still hold an ownership stake in ARC.

ARC itself came on the scene in January 1985 in the newly deregulated marketplace created after the federal government withdrew antitrust protection that had permitted the airlines to set fares and other business conditions, subject to regulatory approval. At that time the airlines spun ARC out of ATA, which was essentially a trade association, and established it as a corporation, which is its current structure.

ARC remains the financial clearinghouse for most, but not all, of the air tickets sold in the U.S. Travel volume has ebbed and flowed with political and economic events, but ticket volume has generally risen each year, even as the number of travel agencies has fallen.

The high point was 1995, with 45,000 ticketing locations. As the airlines began slashing commissions, travel agencies began closing their doors. At the same time, electronic ticketing meant the end of an estimated 13,000 satellite ticket printers. But ARC lives on transaction fees, not ticketing locations. Growing air traffic continues to boost transaction volume and ARC revenues.

In anticipation of the changing of the guard in ARC’s leadership, Travel Market Report’s business travel editor Fred Gebhart spoke with Collins about the origins, evolution and mission of ARC, and the sometimes contentious relationship agents have with the organization.

Who was seen as the primary customer in 1985 and how has that changed?
Collins: I’ve always talked about two major customers. I have the airlines, and they own us, and I look at travel agents as major customers of ours as well. On the airline side, they wear two hats. They wear the hat of owner-shareholder and they wear the hat of customer. Of our 195 airlines, only nine are owners as well. The rest are all customers.

How did ARC, which began as a financial clearinghouse, end up wearing the black hat for so many travel agents?
Collins: ARC is a compromise organization. Travel agents have this image of the airlines calling the shots. And yes, they are our owners. But the fact of the matter is, airlines don’t get everything they would like from this organization either. There are times I have had to tell them ‘no can do.’

What have you not been able to do for your owners?
Collins: I don’t want to get into that. The airlines are very happy with what we do, but at the end of the day, neither airlines nor travel agents could get 100% of their way. You’ve got to run it in a way that benefits everybody. If everybody in the system, airlines and travel agents, is not successful, we can’t be successful either. That’s our bottom line.

How does that work with ARC as the only game in town? Travel agents have long described ARC as a monopoly.
Collins: Part of it is mindset. You’ve got to behave like you do have competitors, like better things might come along and take over. You’ve got to make sure that you are staying relevant. A monopoly isn’t very good with its customers. We’ve spent a lot of time focusing on the customer, trying to render as good a customer service as possible. Years ago, people would have said we didn’t do a very good job. We’ve spent a lot of time, especially in the past 10 years, focusing on customer service.

Travel agents still see debit memos as an issue that’s one strike and you’re out.
Collins: That’s between the airline and the travel agent, not ARC and the travel agent. The criticism is that ARC automatically takes the side of the airline and the travel agent automatically gets the short end of the stick whenever a dispute comes up. What we created with the Agency Memo Manager is the ability for agents to dispute debit memos. Possibly agents are not as successful as they could be, but they can definitely dispute debit memos with the airlines. It is important that there is a mechanism for disputes.

What portion of disputes are settled in favor of airlines and what portion in favor of agents?
Collins: We wouldn’t know that. We would know how many debit memos have been withdrawn, but we wouldn’t know why they were withdrawn. It is between the airline and the travel agent. We don’t issue debit memos, we transmit them.

But ARC still has a reputation for being one-sided in favor of the airlines.
Collins: We get messages quite frequently from travel agents thanking us for helping out. What we’re running here has to have integrity in it. It’s got to have credibility in the marketplace, you’ve got to have rules, because there is a lot of money going through this company, between $70 billion and $80 billion a year. One of the things we have been able to maintain is the confidence of the industry in our integrity. If the industry ever lost confidence in this company, we’d be out of business.

Then why has the relationship on the agent side been so contentious? There is a history of contention and flash points, most often around debit memos.
Collins: I can understand the contention around debit memos. I’d love this to be a perfect industry and not have debit memos. From an airline point of view and a travel agent point of view, debit memos are time consuming. It is not productive work. I’d love for this company to be able to contribute to reducing that problem.

We’ve been running Agency Memo Manager for a few years now. My hope is that we will get much more knowledge about it and play a role in the industry to try and reduce the issues. Before Agency Memo Manager, debit memos weren’t coming through us at all, so we had no knowledge of what was causing them. Our mission in life has been not only to enable airlines and travel agents to do business in a much more efficient way, but to help them be financially more successful. I hate to see people spend time on unproductive activities in such a competitive environment.

What was the evolution within ARC that led from a financial settlement organization to creating Helix, with its consortium model?
Collins: Helix is nothing new. We have always seen travel agents as very important customers. One of the things we did through the 90s was build an all-electronic reporting system. It was a win for travel agents as much as for airlines. Agents no longer have to send us stacks of paper, which makes for operating efficiencies. Agents helped us design that electronic system so it would work for them as well as for the airlines.

The next step was when we launched the service fee program in 1995, around the time airlines started cutting commissions and travel agents wanted to move to service fees. We created a system to help agents charge fees and collect them. By our agreement, I am not allowed to say how much money we have processed for agents, but it is huge. For many agents it was the transition that helped keep them in business.

We launched services like the ARC Marketplace to help agents with destination products. We created the VTC (verified travel consultant) as more agents didn’t want to be airline ticketing agents in the post-commission environment. Agents became much more focused on the cruise and tour product, but they still want official recognition in the industry.

And how does Helix fit in?
Collins: Helix is a natural progression to try and meet needs. We did not create Helix to take on Vacation.com. Vacation.com is doing a very good job and a lot of agents benefit from it. We are looking much more at the agents who were not benefiting from the Vacation.coms of the industry and who we were positioned to help. It was all part of our thinking of ways we could use our capability and the capabilities of our staff to help travel agents be more productive and more successful in their businesses.

How would you summarize your tenure at ARC?
Collins: We’ve come a long, long way. Companies, to be strong, have to keep reinventing themselves. We reinvented ourselves in the 90s by going electronic and taking the paper out of the system. We were ahead of the airlines. We started planning to change to electronic reporting in 1992; it was in 1994 that Southwest and United started talking about electronic ticketing and it was launched in 1995. I never thought the airlines would give up paper.

Nobody was beating on our door that we had to go electronic, we were ahead of the industry. Nobody is beating on us now about the EMD, the electronic miscellaneous document for ancillary fees. We’re ahead of the industry. When we see the airlines doing something, we want to make sure that agents can participate. The challenges with EMD is that there are other issues between the airlines and GDSs that have been holding this up. We have positioned the travel agent to continue to service their customers.

Coming Up: Travel Market Report talks with ARC’s incoming leader Mike Premo.