Thanks to widespread use of its Memo Manager application, ARC is for the first time able to tally the number and dollar amount of the debit memos airlines send to travel agencies for ticket pricing errors. In 2013, they added up to 565,000 memos totaling $169 million.
ARC said last week that its goal is to reduce both numbers by 10% by the end of the year.
Increased use of Memo Manager by both airlines and agencies has enabled the airline settlement company to track debit memos, which the carriers levy for booking errors that they claim result in underpayment for tickets. As part of its analysis, ARC said it would also be able to come up with ways to reduce the number and amount of debit memos.
Agencies last week welcomed the development.
“If we can get this industry to the point that [airlines] are not issuing a million debit memos a year, it’s going to save them money, and it’s going to save us money,” said John Millsaps, travel and technology support specialist and vendor relations for Christopherson Travel of Salt Lake City.
“That’s why I’m so excited about the whole process,” Millsaps said. “Even if it’s just cleaning up the language about how debit memos are written, it’s a starting point.”
Although ARC introduced Memo Manager in 2007, it took a few years for a critical mass of airlines to adopt it. In 2012, United Airlines was the last of the majors to come on board, according to Doug Mangold, ARC’s managing director of product management. Mangold said that today almost all airlines participating in ARC are using Memo Manager. Airline participation is voluntary, and all ARC-participating travel agencies have access to the app.
As use has grown, ARC has learned a lot about debit memos.
For example, of those $169 million worth of memos sent out last year, more than $115 million have been closed; another $53 million will be closed — either paid or waived — within the next few months, Mangold said.
In addition, ARC can now analyze the most common debit memos and come up with ways to prevent some of them. To help do that, it created an ad hoc working group last year consisting of representatives of agencies, airlines, GDSs, the Airline Tariff Publishing Co. (ATPCO) and other stakeholders.
Debit memos create problems for both agencies and airlines. They mean a cash drain for agencies, which have to pay airlines back for pricing errors. It also costs agencies money and valuable staff time to process and, when appropriate, dispute the charges.
While there has been no industry-wide metric for documenting the number of debit memos, agencies have been reporting anecdotally that they have been on the increase in recent years.
Airlines insist that they don’t like debit memos either. The carriers say they want fares correctly interpreted up front so they don’t have to invest their resources collecting money that they believe they should have received in the first place.
ARC’s data are now revealing the causes of many debit memos. Roughly $100 million of the memos airlines sent out in 2013 fell into one of three categories: credit card chargebacks; commissions; and fares and taxes.
Each accounts for roughly a third of the total dollar amount paid in debit memos.
Memos to recover fares and taxes totaled just under $33 million, while chargebacks — often instances of credit card fraud — totaled $32 million, even though they accounted for just 7% of debit memos issued.
Commission debit memos — instances in which airlines say agents took a commission where none was valid or took an excessive commission — totaled $31 million.
Industry lawyer and Travel Weekly Legal Briefs columnist Mark Pestronk said chargebacks are the most serious debit memo because they can easily put an agency out of business.”
“Credit card debit memos are for the entire fare,” Pestronk said. “The others are two-figure memos. But if you write a first-class ticket for someone who refuses to pay, you’re screwed out of $10,000.”
That’s a “huge problem,” he said.
Visa and MasterCard, he said, require a card imprint and an original signature as protection from a chargeback. American Express is somewhat more forgiving; for example, it will recall the debit memo if there is proof the credit card holder actually traveled to the destination.
When credit card companies receive a chargeback, they debit airlines, which in turn debit agencies.
In some cases, clients dispute an airline charge on a credit card because they expect to see their agency’s name on it. To prevent debit memos in those cases, one of ARC’s initiatives is working with credit card companies to find a way to include the agency’s name on the customer’s credit card bill.
But Pestronk said such occurrences are relatively rare compared with the much larger problem of credit card fraud, which he called “the elephant in the room.”
The two other major causes of debit memos can be addressed within the agent/airline/GDS community. Airlines, for example, contribute to debit memos by writing fare rules in which one clause contradicts another clause or that are unclear. They might put too much information in the notes section for fare rules instead of using formats that ATPCO provides. Agencies’ automated fare-reading tools can’t always catch the details of rules loaded in the notes section.
The ARC debit memo working group is developing best practices for airlines that would standardize rules and tariff displays. It plans to create a training module for airlines, agents and GDSs to bring consistency to fare rules. That would make it easier for the automated systems that many agencies use to monitor compliance with fare rules to interpret them correctly.
Airlines can also create more communication between two frequently siloed departments: fare-writing and accounting.
Similarly, applying standards to debit memos themselves can help agencies understand why an airline has issued a debit memo so the agency can prevent them in the future. That way agency managers can go back to agents and make sure they price tickets correctly.
Bob Offutt, senior technology analyst with PhoCusWright, said that GDSs are also part of the mix: Sometimes they can miscalculate fares, which generates a debit memo to the GDS; and sometimes the agency gets the debit memo but determines that the GDS made the error, then has to persuade the GDS to pay it.
Timeliness is also important. The working group is discussing timelines for airlines to file debit memos — some airlines can take as long as a year to file a debit memo — and for agencies to respond to them.
ARC plans a day-long session with the working group to develop best practices for airlines, agencies and GDSs. It plans to turn that session into an online training module for the industry.
It’s also working on an interface for Memo Manager users that gives an easy-to-understand view of what’s causing debit memos.
The agency community is reacting positively.
“The working group has done a stellar job at untangling a complex problem,” said John Pittman, ASTA’s vice president for industry affairs, consumer affairs and research. “Kudos to ARC for making it happen.”
Shannon Keever, debit memo reconciliation manager at Altour and a member of the working group, said, “Now we know why they’re issued and how we can reduce the number of debit memos both volume-wise and dollar-wise.”
Follow Kate Rice on Twitter @krtravelweekly.
Photo courtesy of Shutterstock.com.