Some travel management company representatives are unhappy with revisions to American Airlines’ ARC agreement addendum that set conditions for fees charged to their clients on bookings with the airline.
Some TMCs have told clients they would need to charge higher fees on NDC bookings to cover reduced productivity and GDS incentive revenue. Precedents for this sort of thing, also for such reasons as lower commissions or other process costs, include American Express Global Business Travel’s surcharges for Qantas and Southwest, and other TMCs’ higher charges for bookings requiring “non-standard” processes.
Here’s new language in the addendum to AA’s Airlines Reporting Corporation (ARC) Agent Reporting Agreement and International Air Transport Association (IATA) Passenger Sales Agency Agreement, which the carrier updated this month for the first time since 2018:
“Agent also shall not impose service fees based on the method of distribution or the technology underlying American’s products or services that are higher than those imposed by agent on the products and services of other air carriers, and any such service fees charged by agent based on the method of distribution or the technology underlying American’s products or services cannot be disproportionate to the costs that agent is trying to recoup for such method of distribution or technology. Agent also shall not withhold access to American’s content available via NDC unless the request is received directly from the customer.”
The addendum also contains AA’s prohibition on automated rebooking, which upset some corporate travel buyers.
“My general comment is that it is all sticks and no carrots,” according to travel agency industry attorney Mark Pestronk. “Lots of commandments and lots of prohibitions. The carrier’s particular dislike for TMCs shines through.”
“So, if an agency wants to sell American tickets, it must now offer NDC content, except for the rather bizarre case where the client says it doesn’t want NDC fares,” Pestronk wrote in a May 15 Travel Weekly column. “You can’t charge higher fees for American’s NDC content than you do for any other airline’s content, no matter how much extra work you have to do.” (A pre-existing rule in the addendum required any fees on AA bookings to equal the lowest fee imposed on bookings with other carriers.)
“American’s new addendum will undoubtedly cause many agencies to do less business with that carrier,” Pestronk concluded. He told The Company Dime that TMCs could, “in theory,” broker variations with AA.
“We’re in negotiations with AA, and it’s a continuing process,” said Charlene Leiss, president of Flight Centre Travel Group in the Americas. “We’re evaluating the different terms and conditions in the hope that we’ll continue to work with them in the future and have a mutually beneficial partnership that allows a return on investment for both sides. It’s a work in progress.”
“How can you tell me how to run my business?” asked Chris Martin, Wings Global Travel SVP for global business development. “Our costs are going up because it takes more manpower to change a ticket. If it takes five minutes to make a change through the mid-office, but 25 minutes to do something through NDC, you have to look at it.”
Reviewing the addendum, Omega World Travel EVP Goran Gligorovic said, “Not everything is bad.” He was less concerned about the productivity issue than the lost GDS income in a shift to NDC.
AmTrav is booking many of its AA tickets using NDC while not charging a higher fee for it, despite additional costs in the operation.
“Providers like GDSs, TMCs and online booking tools … need to upgrade their software to be NDC-ready and upgrade to NDC-capable connections,” AmTrav director of product marketing Elliott McNamee wrote in a May 11 blog post. “These upgrades aren’t easy or cheap – as evidenced by how few providers have completed these updates. In addition to this upfront cost, if providers (particularly TMCs) find that the new technical connections and NDC capabilities are less efficient because they require more agent intervention, this drives ongoing costs. And GDSs and TMCs may face reduced fees and commissions from airlines as part of those airlines’ broader distribution strategies.”
AmTrav leaders believe that at least some of the extra cost in NDC servicing is temporary. “Many transactions like applying unused tickets and making trip changes will become easy, a simple button push instead of a complex exchange that takes a highly-skilled travel agent several minutes to complete,” McNamee wrote. “This promise will be realized, and this ongoing cost will go away.”
According to an AA spokesperson, the airline this week began formally communicating about bespoke contracts with agency partners. Late last year, multiple TMC sources said AA had reduced override incentives and changed how they were calculated. Travel Weekly reported on Tuesday that, for some agencies, the airline decided not to renew incentive agreements.
Contracts with travel agencies will now include “incentives” on NDC “adoption, upselling and ancillaries,” according to AA. A few airlines, including Air Canada and Singapore, also have said they were open to compensating agencies for ancillary sales.
“Honestly,” McNamee wrote, “if the revenue opportunities exceeded the cost of becoming NDC-ready, then more of these providers might be ready by now — but they’re not ready, and indeed, the cost probably exceeds the new revenue for many. Which is why OBTs and TMCs will likely attempt to charge customers fees and surcharges to raise revenue and cover their costs, like those that we’ve seen for supporting new technical connections (Travelfusion) and supporting certain airlines (Southwest).”
Meanwhile, Cory Garner of Garner AI pointed out that AA’s new ARC addendum “strengthened their language around the termination of travel agencies for both cause and convenience, which in Garner’s view, they would only do if they have plans to rely upon this language in the future.”