Arbitration panel rules against ARC on agent fee hikes

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After a struggle of several months, ASTA and its cohorts in the agency community were vindicated last week when the Independent Arbitration Panel ruled in their favor and concluded that ARC's 2008 hikes in annual administrative fees for travel agencies were not justified.

The immediate effect for agencies whose 2008 fees were split into two payments is cancellation of the second assessment. For all agencies, ARC is required to recalculate the fees and make adjustments, including refunds.

The arbitration panel, a standing body established under ARC's governance to settle such disputes, declared that "ARC has not met its burden of proof to show that the new annual administrative fees adopted by ARC on Dec. 6, 2007, represent a fair allocation of costs between carriers and agents. Therefore, ASTA's appeal is granted."

In addition, the panel said, ARC's decision to raise annual fees "represents a shifting of ARC's cost burden from the carriers to the travel agents without any proven benefit to either ARC or travel agents."

Cheryl Hudak, ASTA's president and CEO, said the ruling "shows that David can bring down Goliath when you have right on your side. This is a tremendous victory, not just for ASTA but for travel agents across the country who now will not be subject to unconscionable annual fee increases that could have risen by as much as 500% in coming years."

ASTA was joined in its appeal before the panel by Carlson Travel Network Associates and Uniglobe USA.

Roger Block, president of the Travel Franchise Group/Carlson Wagonlit Travel Associates, said, "We could not be more pleased that the Independent Arbitration Panel appeal process works. ... IAP has truly demonstrated its independence and ability to rule fairly."

The fee structure that was struck down had called for an increase in the annual administrative fee from $145 to $395 for single-office travel agencies and headquarters locations; an increase in the branch-office fee from $145 to $150; and a transaction-fee increase from 1.7 cents to 2 cents (with the maximum affected transactions rising from 1.5 million to 1.875 million per year).

The package also included elimination of a number of training fees and miscellaneous accreditation fees.

After ASTA appealed the ARC move and sought a stay to prevent collection of the higher fees, ARC agreed to collect only $150 from single-office locations in January, with the rest due in July.

ASTA then dropped plans to seek a stay but proceeded with the appeal. After months of information gathering and other legal exchanges, the arbitration panel heard the matter in a two-day, 19-hour session, June 7 and 8. Agency witnesses were Andrew Henry of Uniglobe, Don Kennedy of Carlson, Priscilla Alexander of Protravel International and Allan Huntley of Abacus Travel.

When ARC first proposed the fee hikes in September, Paul Ruden, ASTA senior staff vice president for legal and industry affairs, reported that ARC officials had signaled in meetings with ASTA that "the ultimate outcome of this is to shift the cost" ratio for operating ARC from 90% paid by the airlines and 10% by agents to a ratio of 70-to-30.

ARC's response to the arbitration panel's decision reflects that interest in shifting costs: David Collins, president and CEO, said, "We sincerely believe that ARC and our accredited agencies must do all we can to make the travel agency channel more cost-competitive with other distribution options available to suppliers and that this decision seriously hampers our ability to do so. In light of the economic environment that airlines in particular face, this decision is even more impactful."

Recognizing the need to show value for the increased investment, ARC in September said it had decided the time was right to adjust fees, which had not been raised in seven years, because several of its initiatives had been successfully implemented, including the Interactive Agent Reporting system, the Document Retrieval Service and ARC Memo Manager. A spokeswoman said then that ARC had wanted to show that agencies were receiving savings in time and cost as a result.

ASTA has calculated that the proposed 2008 fee hikes would increase ARC's annual administrative fees by as much as 172% for some agencies and by as much as 500% by 2011.

ASTA reported that the arbitration panel's finding applied specifically to the 2008 fee hikes, but it also addressed future years by saying that "absent new evidence," the proposed fee structure did not appear to represent a fair allocation of costs "based on the value of other services that ARC provides and offers to the travel agents."

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