Time to adapt to new BSP

hourglassWith the announcement that IATA’s BSP will be reduced by seven days, agencies need to plan ahead to prevent a credit crunch. STEVE JONES reports.

As transition periods go, the one afforded to travel agents over plans to shorten the payment cycle of air ticket sales would appear to be a generous one.

Under changes announced last month, which followed exhaustive negotiations between the International Air Transport Association (IATA) and the Australian Federation of Travel Agents, IATA’s Billing Settlement Plan (BSP) will be reduced from the current 21 day cycle to 14.

The new arrangements will see the retention of the seven-day remittance period, but the halving of the processing and payment element of the cycle, from 14 to seven days. In short, agents’ credit period is being cut. 

While the reduction is hardly good news for IATA-accredited agents and consolidators, they at least have been given plenty of warning. It will be two and a half years before the change is fully implemented, which surely gives even the most disorganised of retailers sufficient time to make the necessary adjustments to their internal processes.

In the phased transition, the 14 day settlement will reduce to 11 days from 1 February 2016, then shortened by a further four days in 2018.

The reduction, which is likely to be trimmed even more over time, will bring Australia in line with several other markets, New Zealand among them, whose IATA-accredited agents went through the same transformation last year, but without the two-year transition period.

Andrew Olsen, chief executive of the Travel Agents Association of New Zealand (TAANZ), described the change as almost a non-event, telling travelBulletin it was “discussed and agreed by agents and airlines at the APJC (Agency Programme Joint Council) over a substantial period of time”.

“Agents were notified of the change in advance to ensure they were financially prepared for the cut over. TAANZ has not received any documented issues since the change,” he said.
While agents in Australia may take heart from Olsen’s words, and though the staged transition will make the upheaval slightly more palatable, the new arrangements will, nevertheless, be as unwelcome as much as they were inevitable.

AFTA chief executive Jayson Westbury said the biggest issue will be the loss of interest agents earn on trust accounts which hold client monies.

For a retailer the size of Flight Centre, and for the major consolidators, that is likely to be a considerable sum, particularly when you consider the 652 IATA-accredited agents in Australia processed US$13.5b in 2014.

“If you are going to get seven days less interest, that is significant,” Westbury told travelBulletin.

“Interest is a free ride income and if you’re not going to get that anymore, or at least generate less of it, you have to prepare for it.

“That’s why the step change period is so important. It will enable agents to think about how they are going to budget for a forecast…on the back of having money in their account for less time.”

Impacts on cash flow are also likely, although Westbury stressed IATA-accredited agents are forbidden from using client money to help fund the running of their business.

At the heart of IATA’s global push for a shorter BSP is the desire to reduce the financial risk of airlines. Put simply, the less money is held by agents and the less is slushing around the BSP system, the less financially exposed they are.

IATA South West Pacific area manager, Ian Lorigan, acknowledged that risk mitigation was one of the key drivers for reducing agents’ credit period.

“The purpose of the change is to reap process efficiencies enabled by a paperless ticket environment, improve cash flow for airlines, while improving risk mitigation by reducing the volume of airline monies in the BSP processing cycle,” he said, adding that the phased implementation will allow for an “orderly transition” and a “smooth assimilation by agents to the new BSP processing cycle”.

Despite the financial loss agents will suffer, Westbury suggested it was hard to argue against IATA’s desire to speed up processes, particularly in an age when technology is facilitating more efficient payment systems.

In addition, while IATA and its member airlines have not been stung too often locally, collapses elsewhere have seen bonds held by failed agencies fall well short of what airlines were owed.
“In part, this change is about tidying up their exposure to credit. The cold hard reality is that airlines want their money faster,” Westbury said. “It isn’t unreasonable because of the modernised payment methods. And the days of long arm credit in business to business is disappearing fast.
“No IATA agent will say they are happy, but when they stop and think, it is the airlines’ money and they are entitled to it. That’s the way it is. A good fight was put up and the best possible outcome was achieved.”

He added: “We’ve had it good for a long time and the fact we managed to get a two year transition period is world class. Very few other jurisdictions have managed to get a step change.
“There are two years to get your act together and prepare your business disciplines for what you now know is coming over the horizon.”

Yet Westbury’s assertion that money collected by agents is airline money is one not shared by all.
Express Travel Group chief executive, Tom Manwaring, welcomed the spirit of collaborative negotiation between IATA and AFTA but rejected the view that money collected by agents belonged to airlines, arguing it remained the customer’s money.

“In many industries you receive payment on delivery of the product,” he said. “But as a consumer buying a flight, you’re not going to sit in that airline seat for another six months so you’re not using that product. You’re not burning fuel and you’re not eating the airline’s food. If you’re discussing whose money it is, I’d say it belongs to the consumer.”

Manwaring also observed that in the current 21-day BSP cycle, airlines are still receiving their money early considering the average time between booking and flying is 55 days.
“Squeezing the travel industry for those extra days when there are very few defaults on the volumes we are doing is a little mean,” he said.

Be it mean or simply airlines requesting what they are entitled to, change is coming. Agents, while not doing cartwheels, can console themselves with the knowledge they have plenty of time to adapt.

Subscribe To travelBulletin