Q: Before about 1990, each travel retailer had its own ARC appointment and its own staff of employees. Independent contractors (ICs) were few in number, being concentrated at a small number of agencies in New York and Los Angeles. Now, many if not most agencies use other agencies for ticketing, and most advisors are ICs. Were there any legal changes that allowed these seismic shifts into what I call the “verticalization” of the retail travel industry?
A: I have also observed that the retail industry is becoming more vertical. In some cases, the verticalization is extreme: There are ICs who are ICs of host agencies that operate as branches of large agencies that are franchisees of mega agencies.
Two ARC legal developments have accelerated these major changes. First, about a decade ago, ARC revised its standard Agent Reporting Agreement to delete the following sentence: “The agent shall not knowingly or negligently sell or issue ARC Traffic Documents covering air passenger transportation to be offered by the carrier to persons who plan to sell, issue or offer to sell or issue such ARC Traffic Documents but who have not been authorized by the carrier to represent the carrier.”
Technically, this “sale for resale” clause prohibited ARC agencies from allowing non-ARC agencies to get tickets for sale to the latter’s clients. In practice, ARC had not actively enforced this clause for years, but its removal gave the green light to ICs that dealt in the sale of airline tickets.
Second, also about a decade ago, ARC authorized the Associate Branch appointment that allowed Agency A to designate Agency B as its own branch office (with its own ARC appointment) as long as Agency A agreed to be responsible for the debts and other liabilities of Agency B. This change allows hosted Agency B to have its own ARC numbers, if both parties agree.
Major airlines, which control ARC and which largely determine the structure of the travel agency industry, have acquiesced in the verticalization. In the short term, the change probably benefits the carriers because their sales reps have far fewer travel agencies to call on than they used to, thus saving on staffing costs.
Other travel suppliers, such as cruise lines and resorts, probably view the verticalization in the same light: It enables them to save on marketing and distribution costs, as the hosts take over responsibility for marketing to the hosted ICs.
In the long run, however, verticalization has enabled the agencies at the top of the chain to negotiate better commissions, overrides, discounts and favors, as they bring the buying power of hundreds or even thousands of travel advisors to their ARC numbers. Everyone at every level can make more money.
Someday, there may be no more than half a dozen major travel agencies with ARC appointments and enormous clout, and all the other agencies and advisors would use their ARC numbers and supplier deals. That could turn into a nightmare for suppliers.
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