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Asia-Pacific Symposium

Asia-Pacific Symposium. Optimizing the Airline Business Cycle. Macao, 16-17 September 2004. Asia-Pacific Symposium. Macao, 16-17 September 2004. Interline Traffic and Revenue Management Current and Future Claudio De Salvo Manager, Tariff Industry Affairs, IATA. What is IATA?.

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Asia-Pacific Symposium

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  1. Asia-Pacific Symposium Optimizing the Airline Business Cycle Macao, 16-17 September 2004

  2. Asia-Pacific Symposium Macao, 16-17 September 2004 Interline Traffic and Revenue Management Current and Future Claudio De Salvo Manager, Tariff Industry Affairs, IATA

  3. What is IATA? • 273 member airlines in 143 countries. • Represents 99% of scheduled international air traffic world-wide. • IATA Members transport 4.5 million passengers per day. • IATA provides the basis for the Interline System.

  4. IATA is more than Interlining -IATA’s Priorities: 1. Safety2. Financial3. Security 4. Regulatory and Public Policy 5. Infrastructure

  5. However, IATA was founded in 1945 to promote Interlining:And Interlining still remains a top priority of IATA today.

  6. What is Interlining? • Facilitates travel between cities not served on-line. • Facilitates one ticket, one booking, one transaction and one currency. • Cheaper than sum of sector fares. • Offers passengers flexibility on routings/stopovers.

  7. MOW ULN ALG BAH NTY No airline or alliance is able to offer what Interlining does.

  8. From our Example: Interlining offers Passengers and Airlines access to all destinations:

  9. Interlining –Benefits to Airlines: • Gain Access to off-line markets. • Stimulate market growth. • Increase market penetration. • Increase revenues. • Increase yields. • Increase load factors.

  10. Interlining –Benefits to Consumers: • One ticket, one booking, one transaction and one currency with through-checked baggage to all destinations. • Cheaper than sum of sector fares. • Flexible routings & stopovers.

  11. Interlining –Benefits to Regulators: In addition to the benefits to national airlines and consumers, the current Interline System creates published Interlineable fares available to governments for approval and regulation.

  12. Interlining: How does it work?

  13. The 4 pillars of Interlining REVENUE IATA CLEARING HOUSE TARIFFCOORDINATION PRORATE MITA INTERLINE

  14. Interlining: What is MITA? Multilateral Interline Traffic Agreement: Managed by IATA and signed by more than 300 airlines for acceptance and issuance of each other's tickets on a reciprocal basis. MITA also facilitates: • Interline checking of baggage • Processing mishandled baggage • Involuntary rerouting • Baggage claims and indemnity

  15. The 4 pillars of Interlining REVENUE IATA CLEARING HOUSE TARIFFCOORDINATION PRORATE MITA INTERLINE

  16. Interlining: What is the IATA Clearinghouse? • ICH enables the world's airlines, airline-associated companies and Travel Partner companies to settle their Interline billings. • Efficient: 80% settled through the netting process, requiring no movement of funds.

  17. The 4 pillars of Interlining REVENUE IATA CLEARING HOUSE TARIFFCOORDINATION PRORATE MITA INTERLINE

  18. Interlining: What is Proration? • Administered by IATA through the Prorate Agency. • Process of Prorating or dividing revenues between each carrier on an Interline ticket. • Multilateral Prorate Agreement – Passenger (MPA-P): Establishes prorate factors for every segment flown used for the division of revenue between interline carriers.

  19. The 4 pillars of Interlining REVENUE IATA CLEARING HOUSE TARIFFCOORDINATION PRORATE MITA INTERLINE

  20. Interlining: What is Tariff Coordination? • Tariff Coordination offers the only government approved and IMMUNIZED forum for airlines to negotiate Interlineable fares (IATA YY Fares) and industry tariff standards. • 130 Tariff Coordination Member Airlines.

  21. Tariff Coordination –Industry Fares: Pre-deregulation: IATA YY fares accounted for nearly 100% of international air traffic.

  22. Tariff Coordination –Industry Fares: Post-deregulation: IATA Fares represent 15% of worldwide Interline traffic, still accounting for as much as $40 Billion in ticket sales.

  23. Industry Fares –Benefits to Airlines and Consumers: YY Fares are published to all destinations with one ticket, one booking, one transaction and one currency at amounts offering clearly identifiable yields to each participating airline and at amounts less than sum of sector fares, thereby benefiting airlines and consumers.

  24. Industry Fares –Benefits to Regulators: IATA YY Fares are filed with all applicable governments for approval before implementation.

  25. Tariff Coordination –Industry Tariff Standards: Tariff Coordination facilitates the worldwide standardization of procedures for fare construction, currency, baggage rules, etc.

  26. Interlining:What challenges does it face? Breakdown of Prorate System due to difficulty in determining the revenue value of an interline ticket and the difficulty in yield managing interline tickets.

  27. Interlining:What challenges does it face? Today’s system of multilateral Interlining under the IATA umbrella is under assault by governmental authorities who are questioning IATA’s immunity from anti-trust law or exemptions from competition law that enable today’s Interline System.

  28. Interlining:Challenges – U.S. • DOJ recommends that DOT revive a case under which IATA has been granted antitrust immunity for certain fare agreements. • DOT granting of antitrust immunity to Alliances is conditional on withdrawal from IATA Tariff Conferences. • DOT delays or does not approve some Agreements reached at Conferences. • US Carriers participation in Conferences reduced.

  29. Interlining:Challenges - Europe • Cargo Tariff Conference Exemption already lost. • Losing exemptions for Agency and Services Conferences in 2004. • Passenger Tariff Conference Exemption expires in May 2005. • EU authority may be extended to apply to/from Europe.

  30. Interlining:What is Anti-trust Immunity? Anti-trust Immunity or exemption from Competition Law allow competing companies to discuss prices.

  31. Interlining:Is the IATA system anti-competitive? Some have argued that IATA’s Traffic Conferences, which have been granted anti-trust immunity to discuss prices, amount to an Airline Cartel, however…

  32. Interlining:Is the IATA system anti-competitive? IATA’s Interline System is clearly not a cartel, because 1) IATA Fares are not the only fares offered in market. 2) IATA does not control capacity. 3) IATA agreements are sent to governments for approval before implementation. 4) IATA YY Fares are less than sum of sectors fares.

  33. Without Interlining -What happens to Airlines? • Could face reduced interline revenues. • Could lose passengers (especially smaller airlines with smaller networks, since passengers will be forced to fly on larger Alliance carriers to reach many destinations.)

  34. Without Interlining:What happens to Consumers? • Might not be able to reach all destinations with one ticket with through-checked baggage. • Might face less options of routings/stopovers. • Might be forced to pay higher sum of sector fares.

  35. Without Interlining:What happens to regulators? • Could face angry consumers forced to purchase separate and more expensive sum of sector fares. • Could face angry national airlines faced with diminished Interline revenues. • No published Interlineable fares available for approval and regulation.

  36. Interlining:How can we defend it? Airlines, consumers and IATA must aggressively lobby regulators to maintain the Interline System.

  37. What is IATA doing to defend the Interline System? • Actively and aggressively defending immunities and exemptions. • Modernising, streamlining and automating existing processes. • Redrafting the Traffic Conferences Provisions to enable use of modern technology. • Developing alternative mechanisms for setting Interline tariffs. • Ensuring Conferences can continue where required and approved.

  38. What is IATA doing to defend the Interline System? • IATA will drive change in the direction of Interlining, fare construction and all other Revenue Management related issues. • Industry partners interested in what direction these go may become IATA’s partners through our Partnership Program, as many other Revenue Management providers have done. • Partners participate in Resolution Advisory Panel (RAP) meetings, at which the industry discusses all revenue related resolutions and pricing distribution questions. • Partners may reach our Member’s Revenue Management Departments for marketing purposes at our Symposium.

  39. Thank you for your attention. Claudio De Salvo Manager, Tariff Industry Affairs IATA - International Air Transport Association IATA Centre - Route de l´Aeroport, 33 CH-1215 Geneva 15 Airport Tel.: +41 22 770 2842 Fax: +41 22 770 2864 Email: desalvoc@iata.org Website: www.iata.org/tariffs

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