The most important aspect of aviation’s distribution chain stands to make the biggest efficiency gain for more than 40 years, thanks to NewGen ISS (IATA Settlement Systems).
The various back office processes between airlines, global distribution systems, and travel agents will be transformed should a vote on a five-element package at the PAConf in late November be positive.
“Hefty savings, the reduction of unrecovered amounts, and significantly improved cash flow management are the most obvious airline benefits,” says Juan Antonio Rodriguez, IATA’s Director of Financial Distribution Services Operations.
There are enormous benefits on offer that will deliver faster settlement, safer funds, and simplified processes
“The agency population as a whole, meanwhile, should experience savings arising from new financial security options as well as benefit from more flexible forms of payment methods upon airline consent, and enjoy a tailor-made accreditation model that better accommodates today’s diverse agency business.”
There are four elements to NewGen ISS:
An improved agency accreditation
The introduction of EasyPay, an extremely competitive pay-as-you-go solution based on the e-wallet concept
The creation of a more secure financial environment, through the Remittance Holding Capacity
Global Default Insurance to provide an alternative to hefty bank guarantees for travel agents
A fifth element, Transparency in Payment (TIP) will be added to the package to support the efforts of NewGen ISS.
“The overall package is a win-win-win for the value chain,” affirms Rodriguez.
“Everybody gains and the whole community can move forward. Yes, there are trade-offs and each element affects the partners differently.
"But there are enormous benefits on offer that will deliver faster settlement, safer funds, and simplified processes.”
Cost transparency
TIP typifies what NewGen ISS will achieve, providing greater visibility on costs and, therefore, greater control.
TIP reveals the different costs associated with each form of payment. As it stands, airlines only see the settlement cost after the fact, if at all. In essence, agents make a decision about which Transfer Form of payment to utilize on behalf of an airline.
Airlines are effectively blind. TIP helps them to see. It allows airlines to regain control over specific forms of payment
This can hurt the airline’s bottom line as some credit cards have extremely high merchant fees compared with others, while the virtual credit card often favored by agents also carries a substantial charge.
“Airlines are effectively blind,” says Rodriguez. “TIP helps them to see. It allows airlines to regain control over specific forms of payment.”
No form of payment is barred by TIP but agents can only use those forms to which an airline has previously given consent.
Importantly, TIP allows agents to use their own credit cards if an airline approves, previously not supported by Resolution 890.
This has been a long-standing request and will be particularly pertinent in some parts of the world.
Low-cost transactions
EasyPay is another aspect of NewGen ISS offering benefits to airlines and agents. For airlines, the key gains are lower costs (just $0.53 per transaction) and faster settlements—48 to 96 hours versus a more typical settlement period averaging about 18 days.
As a secure form of payment, EasyPay transactions will not be part of an agent’s cash sales at risk
For agents, the benefits of this voluntary system are also two-fold.
As a secure form of payment, EasyPay transactions will not be part of an agent’s cash sales at risk.
This will offer agents a means to lower their financial security amounts with IATA, and to issue transactions which are not included in their cash issuance capacity.
Remittance Holding Capacity (RHC), meanwhile, is a monetary threshold for an agent’s outstanding sales that needs to be seen in conjunction with the additional tools provided to agents by NewGen ISS.
RHC acts as a risk management framework to enable safer selling and mitigate default losses in the BSP.
About $50 million disappears from this particular part of the distribution chain every year due to fraud, an amount that at least doubles when other losses, such as agent bankruptcy, are taken into account.
Agent concerns that RHC would limit their ability to sell tickets have been addressed through an extensive discussion process over the past 12–18 months that has seen RHC levels rise from the average of the three busiest periods plus 5%, to the three busiest periods plus 100%.
Trials are ongoing and, so far, just 1% of agents have reached their RHC limit.
And this is without having the various new tools available to them to manage their RHC. For example, agents will be notified when they reach certain RHC thresholds, such as 75% and 90%.
And because advanced remittances will become possible—something agents couldn’t do before—agents will be able to add capacity. Agents can also use IATA EasyPay or the customer’s credit card, both of which are outside the RHC.
Implementation timeline
Assuming consent is given to the package at the upcoming PAConf, the partners will “cross the line” together in March 2018.
Not everything will be immediately available and the implementation timeline of each element will necessarily be different.
Global Default Insurance—another NewGen component—has been piloted and is also running ahead of schedule
Rodriguez confirms, however, more than 50 countries are scheduled to be live within the March 2018 launch wave and will be implementing the accreditation models, EasyPay and RHC.
Global Default Insurance—another NewGen component being offered by Euler Hermes that will provide agents with greater flexibility and the opportunity to reduce their financial security costs—has been piloted and is also running ahead of schedule.
TIP will take a little more time as IATA has to be build a system to support up-front sales validation.
“From March 2018, agents will be able to use any form of payment that has airline consent, but airlines will have to review these payments in-house and IATA will support post-sale reporting until the pre-sale mechanism is built,” says Rodriguez.
This pre-sale mechanism will automatically check that consent is given for a particular payment method before the sale is made. It should be ready in late 2018 or early 2019.
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