ARC’s monthly sales and settlement reports have long been bellwether statistics for tracking the ups and downs of airline sales.
But changes in what exactly is included in two key line items have made it difficult for observers of commercial aviation revenue to make apples-to-
apples comparisons from one month to the next.
As a practical matter, there appear to be no ramifications for travel agents, but it has had the effect of obscuring the revenue impact of cancellation and change fees as well as fuel surcharges and other fees imposed by airlines.
The fuel charges and some other fees have simply been included in a line item labeled “taxes,” or sometimes, “taxes and fees.” Government regulators and many travel professionals have typically regarded airline fuel surcharges as part of the fare.
Continuing the tradition of its predecessor, the Air Traffic Conference, ARC has been regularly publishing the aggregate data since its creation in 1986.
Last month, for example, ARC reported that in June it processed just under $7.2 billion in travel agency sales, reflected in 11.8 million transactions.
The monthly total was down a bit from the same month in 2011, but at the six-month mark, ARC had processed $46.4 billion in travel agency sales, up 5.5% over the comparable figure for 2011.
The total included $8.2 billion identified simply as “taxes” in the online version of the report, but that doesn’t tell the whole story.
ARC president Mike Premo acknowledged that some people might look at the monthly report and see “oddities,” adding, “I accept that fact.”
But he emphasized that the inconspicuous treatment of cancellation and change fees is not an attempt to hide anything. He also said that while ARC has no current plan to change the format to make it more transparent, such a change is something ARC might consider.
‘Total sales’
The key figure in the typical monthly report is “total sales,” which shows the dollar value of agency transactions reported through the system, including taxes. By all accounts, the total is regarded as an accurate figure. The “oddities” acknowledged by Premo occur in the breakouts and subtotals.
Several years ago, after ARC stopped breaking out commissions as a separate line item, the monthly report took on its current format, in which total sales were shown as the sum of two components: “fares,” the portion of ticket sales that goes to the airlines, and “taxes and fees,” which was widely understood to be the amounts remitted to governments for ticket taxes, airport Passenger Facility Charges, departure taxes, etc.
That was the case up to and including 2006, a year in which total sales came to nearly $77.9 billion, precisely the sum of “fares” and “taxes and fees.”
In 2007, however, “total sales” exceeded that sum by $750 million, but the difference was not explained in the ARC report.
By 2011, the gap had grown to more than $1 billion (see chart). If that money was not “fares” and not “taxes and fees,” what was it?
Chuck Thackston, ARC’s managing director of data and analytics, said the extra slice in the pie represents airline cancellation penalties and change fees processed by agencies through the system. He said that prior to 2007, this particular revenue stream was not reflected in total sales at all. ARC decided to include it in 2007, he said, to present a more complete picture of its settlement activities.
Unaccountably, however, ARC never broke it out as a line item, and this extra slice of the pie remains invisible for most casual readers of the monthly report.
In ARC’s most recent report for the month of June, for example, “fares” approached $5.87 billion, and “taxes and fees” came to $1.2 billion.
Only by subtracting those amounts from “total sales” can the user see the additional $93 million, and even then the source of this revenue is a mystery. For the year to date, the amount is approximately $561 million in airline cancellation penalties and change fees that are not identified on the report.
‘Taxes — and fees’
A second oddity in the ARC report concerns the amount shown for “taxes and fees,” which often takes double-digit jumps that are not always easy to reconcile with real-world events.
In the month of June, for example, total sales fell 1.8% from the same month of last year, while the overall number of transactions fell 5%, driven down by a 7.6% decline in domestic transactions.
In short, June was not a robust month for ARC settlement. Yet amid this sea of flat and declining numbers, the “taxes and fees” category rose 13.3% in June, to $1.2 billion. For the first six months of this year, this line item was up 25%, even though the number of transactions over that period was flat and fares were up only 2%.
Asked to comment on the apparent discrepancy, ARC’s Thackston said the numbers do not correlate exactly because of fluctuations in airline fuel surcharges, a hitherto unknown component of “taxes and fees.”
Thackston said that several airline fees and surcharges, principally fuel surcharges, are routinely “bundled” into the “taxes and fees” category and have been for years.
Thackston was unable to readily estimate the amount of airline revenue that is included in this line item or to list all the included fees. He noted, however, that the new generation of ancillary fees that are transforming the industry, such as fees for checked baggage, premium seating and lounge access, are not included in this line as they are not commonly collected by agents and reported through the normal ARC workflow.
Premo confirmed that the line identified as “taxes and fees” and often shortened to “taxes” has included airline revenue from “fees of all sorts.”
He noted that different airlines construct their fares in different ways, with a base fare and various add-ons, such as fuel surcharges. He said that while some persons might assume that the “taxes and fees” category includes only government-imposed fees, “that is not true.”
Ripple effects?
This was news to several longtime industry figures. ASTA’s Paul Ruden, senior vice president for legal and industry affairs, said it was always his understanding that the “taxes and fees” column represented government revenue and that the “fares” category represented industry revenue.
He also expressed surprise that cancellation penalties and change fees began appearing in 2007.
Travel attorney Mark Pestronk, who has represented individual agents, travel management firms and consortia in dealings with ARC for several decades, was similarly surprised.
But neither he nor Ruden could think of a practical ramification that would affect agents. Pestronk noted that the “total sales” figure remains an overall total for the revenue flowing through the settlement system.
He said the method used to break out various subtotals might have more effect on ARC internally than on its external relationships.
Industry consultant Bob Joselyn of Joselyn, Tepper and Associates, who is also president of the TAMS group and a proponent of accurate financial analysis and benchmarking, said he was unaware of the way ARC had been breaking out its data but did not think the result had any meaningful impact on individual agents.
Similarly, Douglas Quinby, senior director of research at travel research firm PhoCusWright, said the legacy architecture of some airline systems might play a role in the way ARC categorizes the different revenue streams but was also unaware of anybody in the industry whose reliance on ARC data would be affected. (PhoCusWright is a unit of Northstar Travel Media, Travel Weekly’s parent.)