Agent debit memos (ADMs) are a way for airlines and travel agencies to balance the books if a ticket has been undersold.
The 2.3 million ADMs issued in 2015 are a by-product of today’s third-party distribution process through the travel agencies. It is extremely complex, with lots of touchpoints. Airlines file fares on a daily basis at a minimum. When a travel agent makes an inquiry, Global Distribution Systems (GDSs) take fare information, along with scheduling data, and check availability with the airline. The result of all that coordination is an offer.
Constructing an offer is a tried and tested process, but errors can happen. After all, airlines are not making the offer to the customer, and the fares can be hours or even days old. Add to this the fact that an agency commission may have been worked out manually, a local tax may have been interpreted differently, or the exchange rate may have fluctuated wildly.
“A contributing cause is that there are a number of blind spots in a typical ticketing process, especially at the handover points between process suppliers,” says Lars Thykier, Managing Director, Association of Danish Travel Agents and Tour Operators. “It seems that the handover in itself generates both responsibility issues and errors when the agent books and tickets a trip.”
The result is that the price an airline expects and the money it receives may not match exactly. When that happens, it issues an adjustment notice to the travel agent concerned.
The problem with the process is that the industry is spending $150 million annually on ADMs to settle $530 million. Not surprisingly, this is a source of friction in the airline-travel agency relationship.
“IATA agents across the globe see ADMs as the number-one problem and challenge when dealing with the IATA airlines and the BSP,” says Jayson Westbury, Chairman of the World Travel Agents Association Alliance and the CEO of the Australian Federation of Travel Agents.
Airlines accept this position and are working to reduce the number of inefficient ADMs—that is, ADMs caused by errors or inefficiencies in a complex process.
ARC, the US agency responsible for the country’s financial transactions, has taken the lead in this endeavor. It has managed to reduce ADMs from 1 per 249 transactions in 2013 to 1 per 315 transactions in 2015. But, of course, ARC is dealing with just the US market. IATA manages 177 BSPs around the world, and so must face the challenge on an altogether grander scale.
An ADM Working Group (WG) of airlines, travel agents, GDSs, and ATPCO, facilitated by IATA and with the active support of ARC, has been established to study the problem. It’s an initiative that Aleks Popovich, IATA’s SVP, Financial and Distribution
Services, says “is indicative of the airlines’ desire to have good relationships with their partners.”
The ADM WG is working on defining, measuring, and analyzing the problem of inefficient ADMs. In the years to come, it will move on to improvement and control. Popovich reveals that even this first phase has been far from easy. Many reasons for ADM issuance remain undetermined, largely because the cause of the ADM isn’t filed properly. These documents—so rarely scrutinized in the past—can be vague or incomplete.
The work being done by the ADM WG is, however, shining a light into a few of the recesses. India, for example, tops the ADM ranking by value, and certainly has a bewildering set of local taxes. It appears, though, that ADMs are often used by airlines to claim withholding taxes on commission, a practice that seems to sit well with both airlines and travel agents.
“If the use of an ADM is accepted by both parties, then there is no need to change the process,” says Popovich. “The WG is tackling only the inefficient ADMs, usually caused by an incomplete understanding of—or mistakes in—commission, taxes, exchange rates, and refunds.”
The initiative to tackle inefficient ADMs will establish targets by the end of 2016, and these are likely to fall into three categories.
“First, there will obviously need to be a reduction in the number of inefficient ADMs,” Popovich says. “Second, we want to reduce the time between an agent sale and an airline issuing an ADM. Third, there will need to be a clear improvement in the airline-travel agent relationship.
“This third category is the key,” he adds. “If the relationship improves, trust between the partners is building, and the ability to work together to resolve issues becomes apparent.”
Westbury concurs. “The global agency community will always work with IATA and airlines to improve the BSP and to foster more open and successful relationships between the parties involved,” he concludes.