Mark Pestronk
Q: I am a travel advisor and independent contractor (IC) of Host A. As I understand it, Host A is under common ownership with Small Agency B. I have ascertained that Small Agency B is listed as an ARC branch of Large Agency C, which also provides GDS access to Agency B. Large Agency C is a franchisee of Major Franchise D. Large Agency C is also a member of Consortium E, which provides special rates and commission programs that Major Franchise D does not have. Is this complicated structure legal as far as ARC, Iatan and suppliers are concerned? I know I get higher commissions because of all these relationships, but is there any downside for me?
A: The vertical structure that you describe is not only legal but also increasingly common in the agency business today. Travel suppliers recognize and even encourage this vertical integration of the retail agency business.
Before the turn of the century, nearly every agency had its own ARC and Iatan appointments and its own GDS contract. Most advisors were employees. Most suppliers paid the same commissions to most agencies. The industry structure was simple.
Then, after smaller agencies lost revenue because of commission cuts, smart agency owners realized that they could get much higher commissions by joining a host agency that had the volume and clout to negotiate better deals.
Cruise lines, hotel chains and other non-airline suppliers rewarded the larger hosts and franchises with higher commissions because of their pooled volume. Hosts, franchisors and consortia also offered training and marketing assistance that the typical agency could not get on its own.
However, major airlines and GDS vendors generally refused to recognize either the host or franchise relationship, so large agencies came up with the idea of having ARC recognize the hostee as a branch of the large agency. Smaller agencies were then able to get the same airline commissions and overrides as larger agencies.
So, you now know how the industry became so vertically integrated. Unfortunately, you are at the bottom of the chain and have no legal rights except as may be set forth in your IC agreement.
For example, your IC agreement probably makes you responsible for all debit memos that Host A receives from Small Agency B, which receives them from Large Agency C, which receives them from ARC Memo Manager. If you want to dispute the debit memo, no party is legally obligated to assist you, and you cannot access ARC Memo Manager. You are probably going to be stuck with paying the debit memo or having Host A withhold the funds from your commission split.
I realize that knowledgeable and experienced ICs sometimes develop their own supplier relationships, chiefly with hotels, resorts and destination management companies, and that some hosts allow ICs to deal with suppliers directly. However, those ICs are the exception.
The plight of the typical IC at the bottom of the ladder is the result of a trade-off: In return for more revenue, training and marketing help, you give up any legal rights in supplier relationships.