GPM November 2014 Lori Tully, Secretary Treasurer and Managing Director Revenue Accounting

Transcription

1 GPM November 2014 Lori Tully, Secretary Treasurer and Managing Director Revenue Accounting

2 Introduction Airlines Clearing House, an airline owned, not for profit company, has provided net settlement services to airlines and their suppliers since 1944 Operates similar to the IATA Clearing House In 1981, ACH adopted a simplified approach for settlement of involuntary reroute transactions Mandated for settlements between ACH carriers ACH Carriers have settled involuntary reroutes using simplified method for 33 years GPM-November

3 Background At the 2012 IATA Revenue Accounting Meeting airlines expressed interest in adopting similar approach for settlement of involuntary reroutes with objective to simplify, reduce costs, and: Implement alternative solution that would, over time, provide that each airline pays and receives the amounts that would have accrued to the original airline(s) Remove potential for bias by frontline agents to protect passengers based on interline settlement values GPM-November

4 Why? Involuntary reroute settlement procedures are complex, time consuming, costly to administer and prone to dispute Settlement rules for involuntary reroutes state: the airline(s) carrying the passenger over the revised portion of the routing...shall receive the value which would have accrued to the original carrier But then they also state: GPM-November

5 Why Con t? if the issuing carrier cannot supply an official tariff reference then the uplifting airline will bill on the basis of the lowest applicable official fare of the original receiving carrier(s), available, for sale to any carrier. In order to determine the fare owner, apply the standard fare selection rules for the original routing. To which the revenue accountant says: GPM-November

6 HUH? GPM-November

7 In a nutshell The new receiving carrier is entitled to validate that the fare of the original ticket was: An applicable fare based on the published fare basis of the original ticket Was filed in a tariff available to the general public; if not: New receiving carrier is entitled to bill the issuing carrier of the involuntary reroute ticket the lowest applicable published fare Resulting in.. GPM-November

8 Disputes GPM-November

9 Consider This 1 Million Rejection Memos are billed between airlines each month 40% are estimated to relate to involuntary reroutes 4.8Million Rejections Annually! GPM-November

10 One Airline s Experience A major airline has reported that in 2013: 65% of their rejections were related to involuntary reroutes Totaling $27M USD 65% is understated, as it does not include Rejections for Other Airline Issued FIMs Disputes of involuntary reroute transactions included in Sampling GPM-November

11 Another Airline Provided example of a $178 USD dispute in its 9 th stage of correspondence (after 3 rejections) Many disputes regarding validity of fare when ticketed fare basis contains ticket designator not defined in IATA Resolution 728 Disputes that fares filed as internet fares or fare by rule not valid/official Retrieving historical fare information from GDS systems becomes problematic as disputes age GPM-November

12 Example 1 Nov 14-Carrier BB bills issuing carrier $3,468 May 15-issuing carrier rejects $3,165 Resulting in.overstated prior year revenue GPM-November

13 Example 1 Con t. Nov 15-Carrier BB disagrees and rejects back $400 May 16-issuing carrier disagrees and rejects $400 2 years later and still no agreement, resulting in. GPM-November

14 No Agreement Nobody s Happy GPM-November

15 Alternative Approach ACH, IATA, ATPCO, Accelya and 10 airlines collaborated to establish and test a worldwide simplified involuntary reroute settlement process ACH - manages contracts and agreements IATA - facilitates ATPCO - filters Industry Sales Records Accelya operates automated prorate engine Multilateral Agreement for Simplified Settlement of Involuntary Reroutes established in June 2014 GPM-November

16 Concept Lifting airline agrees to accept a % of the IATA Weighted Mileage Factor, based on the origin and destination of the lifted coupon The % of the IATA WMF is updated monthly, and is derived from a monthly analysis of one % of participating carriers sales Each coupon falls into one of ten global regions based on its O & D Each global region has its own % of IATA WMF GPM-November

17 Process Monthly, using 1% sample of authorizing carriers sales, determine (1) each coupon s MPA prorate amount and (2) each coupon s IATA WMF Results separated into 10 global regions based on the O & D of each coupon Compare the sum of the prorates to the sum of the IATA WMF to derive a % for each participating carrier and for each global region GPM-November

18 Process Con t Calculated percentages distributed no later than the 15 th calendar day of following month Applicable to next month s invoices Example: Sales from January are used to calculate rates applicable to March FIMs use rates applicable to invoice month Involuntary Reissues use rates applicable on date of reissue Example: Invol reissue date Oct 31, 2014, but invoiced in November. Use percentage rates from October GPM-November

19 Excluded from 1% sample: Process Con t Non-passenger type tickets (where ISR generated) Zero fare tickets Tickets with fare = Q only or <$5 USD or > $20K USD Infants and Child discount fares Reissued tickets Non-Revenue/ID tickets MPA Proration YQ/YR amounts excluded Provisos included GPM-November

20 Global Region A B C D E F G H I J Definition Within TC1 (Excluding within NA) Between NA and TC1 Between NA and South West Pacific Within NA Transatlantic Within TC2 Trans Pacific Within TC3 Between TC2 and TC3 Others Global Regions Invol Ticket/FIM Example: LAX-JFK-FRA-MUC LAX-JFK: Global Region D JFK-FRA: Global Region E FRA-MUC: Global Region F GPM-November

21 Rate Calculation GPM-November

22 Production Rates Example: Invol Ticket Issued and Invoiced in 11/2014 Orig Dest Region WMF % Rate Settlement LAX JFK D % $ JFK FRA E % $ FRA MUC F % $52.69 GPM-November

23 Reduced costs in Revenue Accounting Labor Costs Reduced transaction fees Benefits Reduces prior period adjustments to revenue Disputes can last years. Little or no informational value to flight profitability and revenue management when finalized Internal customers receive accurate flown revenue data upon initial posting Leading to.. GPM-November

24 Benefits Con t Everyone s Happy GPM-November

25 11 Airlines are signatories Where we are AA, AC, AF, AS, DL, HA, KE, KL, NZ, UA & US ACH has adopted and mandated this process to replace existing process effective April 2015 Steering Committee to be formed in first qtr 2015 Six representatives from parties to the Agreement Commercial and Revenue Accounting representatives desirable One each from IATA, ACH, ATPCO and Accelya GPM-November

26 AIA Services ACH and AIA entered into marketing agreement for Simplified Involuntary Reroute Settlement AIA is suite of services offered by ATPCO, IATA and ARC AIA Services enhanced to apply the terms of the Agreement on a bilateral basis AIA s robust filters allow carriers to isolate only applicable transactions for processing AIA Services has agreed to waive its monthly minimum fee if only using AIA Services for this Agreement GPM-November

27 Execute Multilateral Agreement Joining Decide if you will authorize your sales to be used in the calculation process, if so, execute Appendix E of Agreement Optional and at no additional cost Decide which signatories you will settle with using the terms of the Agreement, then execute Appendix D with the other party Annual cost of $1,500 USD waived until June 2015 GPM-November

28 More Information Agreement to be published in 2015 IATA Revenue Accounting Manual airlinesclearinghouse.com Agreement Presentations Overview Document Historical Rates List of Signatories and Sales Data Suppliers GPM-November

29 Final Thoughts Agreement can supplement existing agreements and SPAs that already address involuntary reroutes Existing agreements take precedence Consider both payables and receivables as well as the long term advantages of Agreement Remember that involuntary reroutes are Unplanned, unpredictable and subject to conditions and events outside the control of the pricing analyst Solves for unrealistic settlement amount of frequent traveler tickets GPM-November

30 Let s All GPM-November

31 Contact: Lori Tully, Secretary Treasurer Phone: GPM-November