Air Transport, Tension Between Carriers and Distributors

Recently, IATA, the airlines’ organisation and owner of the BSP (Billing and Settlement Plan), has further hardened its position towards travel agents. The information reported by Déplacements Pros is important. It would seem that the tension between operators and distributors has been revived after the period of calm that followed the collapse of air transport during Covid.

It is worth recalling what the BSP is for and why it is essential in the organisation of air transport. Before the invention of this product in 1971 by Brian Barrow, then in charge of distribution at IATA, airlines had to deposit stocks of tickets in travel agencies, which classified them by carrier in standardized drawers. At the end of the month, depending on the agreements made between each company and each travel agent, the latter had to draw up a sales report and pay the amount to each carrier.

The invention of the BSP has revolutionized this practice, which would be impossible nowadays given the volume of banknotes issued. It consisted of using a single stock of tickets, managed by IATA, which receives payments from travel agents and distributes the sums among the operators. This is a huge administrative gain both for airlines, which no longer have to deposit their ticket stocks in travel agencies, and for the latter, who now make only one payment to IATA.

It took more than 20 years for this system to be extended to all countries, each of which uses its own administrative rules. It was necessary to create a BSP for each country or group of countries in the case of small markets. But little by little, this product has become a must for managing the relationship between travel agencies and carriers.

Apart from the United States, for which a similar body has been created, the ARC (Airlines Reporting Corporation), all the other countries, with the exception of those for which IATA considered it impossible to implement the BSP due to administrative and financial rules that are not compatible with international monetary exchanges, such as Algeria, Sudan or North Korea, now have the BSP.

However, the BSP belongs to IATA, i.e. the airlines, and the airlines are constantly repatriating the proceeds of sales held by travel agents as quickly as possible. For the latter, cash flow is an integral part of their economic system. The BSP’s payment methods, between 15 and 30 days after the end of the month of issue, allowed travel agents to have a welcome cash flow, even if it did not belong to them.

This advantage was all the more important as airlines gradually eliminated all commissions from their distributors. These commissions, between 7% and 9%, have been replaced by fees paid directly by customers. What we learn from the Voyages Pros article is that IATA will unify the rules for repatriating money throughout the world.

It goes without saying that this measure is the prelude to a real-time withdrawal of the money collected by travel agents, all electronically. This is the stumbling block. On the one hand, carriers want to collect their money as soon as possible, thinking that it is better in their accounts than with their distributors, and the latter will no longer have the flexibility to give even a few lines of credit to very large companies that pay at the end of the month.

If, as is very likely, IATA succeeds, how then will companies still be able to ask for bank guarantees from travel agents? It is not clear on what grounds they could be justified. Nor do we see why carriers should continue not to pay their distributors, whom they unquestionably need. It should be remembered that direct purchases by customers from airlines represent only 30% of the total, the rest being done via travel agents, including very large consolidators. The generalization of electronic operations has not changed anything.

A period of tension is beginning. The response of distributors will undoubtedly be complicated because they do not have a strike force of equivalent weight to that of the companies. But they will be justified in asking operators to join guarantee funds that will ensure the successful completion of the transport purchased by customers via their travel agents. So far, airlines have managed to postpone the implementation of such a guarantee, but pressure from distributors and customers on political authorities could well lead the latter to legislate on the matter. And we know that in this case they have a heavy hand.