ARC is attempting to modernize its agency accreditation program to improve transparency for the airline industry in light of evolving travel management company structures, according to president and CEO Mike Premo.
He said the modernization effort, which could include a more direct role for ARC in communicating agency ARC number status changes to airlines, would take up to two years.
Premo revealed the initiative last week during an on-stage interview at The Beat Live in Las Vegas.
He was asked to educate attendees about an issue that emerged early last year when American Airlines and United Airlines expressed dismay regarding a model in which one TMC sells its ARC number, but not its company, to another TMC.
A number of TMCs in the United States have done so to benefit from more generous airline incentive programs enjoyed by the acquiring TMC.
AA had complained that "these agencies are incorrectly marketing and sharing the benefits of American Airlines' incentive program with these purchased ARC numbers."
AA and United said they would recognize such agency deals only if the buyer also acquired 51 percent of the seller's equity. "The TMC may be asked to provide proof of the 51 percent ownership change," United informed TMCs in February 2010.
"Airlines are willing to pay incentives to agents to move business, but they don't want to have to pay for the same business at a higher rate," Premo said Tuesday. "If someone actually buys an agency, [airlines] accept the fact they will have to do that. But if someone says they're buying an agency but they're really not buying them — it's sort of a sham ownership change — that's a cause for concern for the airline, and that seems reasonable to me. My job is to provide transparency so airlines can make their own judgments about that.
"I don't think we have done a very good job [during the last several years of providing] transparency to the airlines about who is selling their tickets," Premo continued. "As travel agency business models have changed, ARC has not changed along with them. We're still using the basic accreditation model from 1962 — you know, you have a home office and you have branches.
"As agencies have grown or bought each other, or they have a parent company that is running two or three different travel entities, we make people jump through a whole lot of hoops."
Premo said ARC "almost messed up" Travel Leaders' acquisition of host agency Nexion from Sabre Holdings, announced in August 2010, because while Travel Leaders subsidiary Tzell Travel is accredited by ARC, its parent company is not, and the buyers wanted Nexion to be part of the parent company for tax purposes.
"We were saying, 'We only know Tzell. We don't know the parent company, and you guys are going to have to do a whole raft of additional paperwork,' " Premo said, noting ARC's mission to vet agencies and ensure carriers get paid when agencies sell their tickets. "We just haven't kept up with the times."
As part of the modernization effort, ARC will speak with agencies about their business models and to airlines about "what sorts of accreditation challenges they have," said Premo.
"Agencies have to tell the airlines when an ARC number changes because they bought an agency or closed a branch," Premo said. "They have to update it so their incentive program is up to date with the carrier. That should be my job, shouldn't it? I should be telling [airlines] which ARC numbers go with which travel agencies, but I'm not. So that's the kind of modernization of the settlement system that we are taking on.
"It will probably take us 18 months to two years to go through all that, but it needs to be done to make this thing more modern and transparent. ARC doesn't want to be in the business of deciding which agents get which incentives, but we do have an obligation to provide a clear vision into the nature of the agency setup."
Asked whether AA's and United's statements last year put an end to the practices that concerned them, Premo said, "I have not had carriers calling me with concerns."
Generally, Premo said, he wants to "bring both some change and some continuity" to ARC. He said he does not want to "mess with" certain functions that work well, but he does want to change ARC from being internally focused and very controlling to externally focused and flexible.
"People want to do business with people they like and trust," he said. "We had viewed the world as one size fits all."
This report appeared last week in sister publication The Beat.