ARC has rewritten its Agent Reporting Agreement (ARA) for the first time since it was introduced in the 1980s, significantly changing rules governing ARC number allotments, agency transparency and the settlement remittance cycle.
The revamped ARA, the contract between travel agencies and ARC, was approved by ARC’s agency advisory panel, the Joint Advisory Board-Agent Reporting Agreement, last week.
It is still subject to approval by the ARC board, which will vote on it June 7. If approved, the revised ARA will take effect on Jan. 1.
ARC has spent most of the last year interviewing about 30 travel agencies and airlines about potential changes to the ARA, focusing primarily on identifying terms, restrictions and rules that no longer make sense.
Mike Premo, who took over as CEO of ARC last June, made overhaul of the ARA a priority of his tenure, and he made collaboration with both agencies and airlines a cornerstone of doing so.
“The ARA is the foundation of the U.S. travel industry’s agency accreditation and settlement system,” said Premo. “Updating this agreement is a springboard enabling ARC to make meaningful improvements in relationships, systems, and processes for all stakeholders. This revised ARA wouldn't have been possible without the collaborative efforts of our many valued industry customers.”
Lauri Reishus, ARC’s vice president of operations, said a key concern for agents involved in the revision was having more flexibility overall and getting rid of rules that were adding a lot of overhead and expense to their businesses.
One significant change is that the revised ARA offers a new location type, called an “associate branch,” and it allows an agency (termed a “home office location”) to add an associate branch that is not fully owned by that home office.
“A single home office location must take full financial responsibility for its associate branch,” Reishus said. “The home office may own part of the associate branch, or the associate branch may be owned by the entity that owns the home office.”
Under the current ARA, members may have branches but only if they own them.
“We only allow wholly owned branches,” Reishus said. “With the associate branch model, a home office can own a portion of another entity. It’s a very desired change by a number of agencies that want to acquire a share of a business but not the whole business.”
Another change agents requested, Reishus said, was allowing agents more than one ARC number at a physical location. Agents told ARC they want to use multiple numbers “as a way to manage their business,” perhaps by using one for corporate accounts and another for leisure.
Agents will also be able to move their ARC number with them if they move from state to state. Currently, if an agent moves, he or she has to get a new number.
“That’s a big hassle for them,” Reishus said. “It creates a lot of noise in the system for them.”
Reishus said these kinds of rule changes were intended not only to make things easier for agents but also to save them money.
“There is a lot of overhead and hassle and expense related to those rules,” she said. “We weren’t trying to make life difficult. These rules made sense when ARC operated a paper ticket-based settlement system.”
While updates have been made to the ARA over the years to reflect electronic ticketing, a complete overhaul of the agreement has never been made before.
One of the most significant updates to the ARA, Reishus said, is the change in the draft date from 10 days to five days after the close of the sales report period.
The 10-day time frame was based on when paper tickets were mailed to ARC and allows what Reishus described as a potential three-week window of cash sales exposure before ARC drafts an agent’s account.
If an agency is not in good financial health, that delay can mean that it is able to issue airline tickets for three weeks before ARC knows there is a problem, Reishus said, adding that the delay has been a concern for airlines.
Reishus said that carriers asked ARC to improve the risk management for cash sales within the system.
“ARC’s settlement system is 100% electronic now, so time allowed for the mailing of paper documents is no longer needed,” Reishus said. “Agents will still have three days after they authorize their sales report before ARC drafts their account.”
The change also means that agents and airlines will get paid faster, while risk is being reduced.
Reishus said that while not all agents liked the new timing, “most found it to be a very reasonable change that makes sense in today’s electronic world.”
Another change that airlines asked for was more transparency about travel agencies, Reishus said. The revised ARA provides this, she said, by requiring more information about the ownership structure of each agency. In addition, ARC will, for the first time, be reconfirming every location’s accreditation details on an annual basis.
“One of the concerns from a carrier perspective about an associate branch model was knowing who owns that agency,” Reishus said. “We believe at ARC that it’s our responsibility to provide the ownership structure of all accredited locations.”
The annual process will confirm agency locations, ownership and other details.
“The associate branch model provides a legitimate, approved way for an agency to have an ownership stake in another location,” she said. “There will be a clear line of responsibility from a financial surety perspective.”
Besides the content, the look and feel of the ARA will be totally different, a change ARC and agencies agree is significant. It has been shortened to 22 pages from 80, and is written in layman’s terms instead of complicated legalese.
“One of the goals of the new ARA was to never hear another agent tell us, ‘I considered becoming accredited with ARC, but I couldn’t find my way through your agreement, threw up my hands and said, never mind,’” Reishus said. “Our primary goal was usability and readability.”
The fact that the ARA was revamped with the input of so many agents was a major step for ARC, which since 2008 has made improving its relationship with the trade a priority.
“We are quite proud of the outreach,” Reishus said. “We devoted quite a bit of time to interviewing and establishing relationships where we didn’t have them and really trying to understand the needs of our customers. That’s not radical stuff, but for ARC it represented a much more open engagement and collaborative process.”
John Pittman, ASTA’s vice president for industry affairs and its representative to the agency advisory panel, commended ARC for its “refreshing approach,” saying the corporation reached out to them and many of their members for input.
“Not only did they come to us and say they wanted to change the agreement; they also asked what would we want to make the agreement better,” Pittman said.
Follow Johanna Jainchill on Twitter @jjainchilltw.