AsiaPacific Symposium

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

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IATA is more than Interlining -IATAs
Priorities
1. Safety2. Financial3. Security 4. Regulatory
and Public Policy 5. Infrastructure
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However, IATA was founded in 1945 to promote
InterliningAnd Interlining still remains a top
priority of IATA today.
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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.

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MOW
ULN
ALG
BAH
NTY
No airline or alliance is able to offer what
Interlining does.
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Interlining offers Passengers and Airlines access
to all destinations

• From our Example

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Interlining Benefits to Airlines

• Gain Access to off-line markets.
• Stimulate market growth.
• Increase market penetration.
• Increase revenues.
• Increase yields.
• Increase load factors.

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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.

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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.

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Interlining

• How does it work?

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The 4 pillars of Interlining
REVENUE
TARIFF COORDINATION
IATA CLEARING HOUSE
PRORATE
MITA
INTERLINE
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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

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The 4 pillars of Interlining
REVENUE
TARIFF COORDINATION
IATA CLEARING HOUSE
PRORATE
MITA
INTERLINE
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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. 

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The 4 pillars of Interlining
REVENUE
TARIFF COORDINATION
IATA CLEARING HOUSE
PRORATE
MITA
INTERLINE
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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.

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The 4 pillars of Interlining
REVENUE
TARIFF COORDINATION
IATA CLEARING HOUSE
PRORATE
MITA
INTERLINE
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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.

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Tariff Coordination Industry Fares

• Pre-deregulation IATA YY fares accounted for
  nearly 100 of international air traffic.

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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.

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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.

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Industry Fares Benefits to Regulators

• IATA YY Fares are filed with all applicable
  governments for approval before implementation.

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Tariff Coordination Industry Tariff Standards

• Tariff Coordination facilitates the worldwide
  standardization of procedures for fare
  construction, currency, baggage rules, etc.

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InterliningWhat 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.

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InterliningWhat challenges does it face?

• Todays system of multilateral Interlining under
  the IATA umbrella is under assault by
  governmental authorities who are questioning
  IATAs immunity from anti-trust law or exemptions
  from competition law that enable todays
  Interline System.

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InterliningChallenges 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.

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InterliningChallenges - 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.

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InterliningWhat is Anti-trust Immunity?

• Anti-trust Immunity or exemption from Competition
  Law allow competing companies to discuss prices.

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InterliningIs the IATA system anti-competitive?

• Some have argued that IATAs Traffic Conferences,
  which have been granted anti-trust immunity to
  discuss prices, amount to an Airline Cartel,
  however

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InterliningIs the IATA system anti-competitive?

• IATAs 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.

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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.)

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Without InterliningWhat 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.

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Without InterliningWhat 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.

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InterliningHow can we defend it?

• Airlines, consumers and IATA must aggressively
  lobby regulators to maintain the Interline
  System.

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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.

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• 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 IATAs 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 Members Revenue
  Management Departments for marketing purposes at
  our Symposium.

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• Thank you for your attention.
• Claudio De Salvo
• Manager, Tariff Industry Affairs
• IATA - International Air Transport Association
• IATA Centre - Route de lAeroport, 33
• CH-1215 Geneva 15 Airport
• Tel. [phone]
• Fax [phone]
• Email desalvoc_at_iata.org
• Website www.iata.org/tariffs