WELCOME ARC Spring Advisory Council Meeting April 17, 2008 Arlington, VA.

WELCOME

ARC Spring Advisory Council Meeting

April 17, 2008

Arlington, VA

ARC’s Advisory Council

Jeannine Rahe

Director, Marketing and SBD

ARC PROPRIETARY AND CONFIDENTIAL. This document includes confidential information that is proprietary to Airlines Reporting Corporation (ARC). Disclosure of this document or any information contained herein to third parties is prohibited without the prior written consent of an authorized ARC officer.

Obsolete versions of this document should be destroyed in a manner to prevent compromise of the information, e.g., shredding.

© 2007 Airlines Reporting Corporation (Unpublished Work)

Welcome

• Introductions

• Plan for the day

• Why are we here?




History

• The primary Working/Advisory Groups for Agents/CTDs

• Advisory Council

• JAB-ARA

• CTDAG

• Agent Working Group




What’s wrong with this picture?

• Overlap

• Are our customers/ARC getting the most of these meetings?

• Does it make sense to consolidate?




Moving forward…

• For 2008

• JAB-ARA --- agreement changes

• CTDAG --- no longer in existence

• Agent Working Group --- ad-hoc focus groups as needed

• Advisory Council brought back to life




So, what’s the goal?

• Construct a team from many sectors of the industry

• Strategic interactive discussions

• What’s going on at ARC and within the industry as a whole

• Strengthen the overall ARC Agency Distribution Channel

• Many more……… times are changing




Let’s get started

Questions/Suggestions?

ARC Advisory Council

ARC Distribution Solutions in Interesting Times

Mike PremoVP, Sales, Marketing and Customer Care




Presentation Goals

• Learn about ARC’s current status and recent events• Learn about the strategic challenges and opportunities that face

ARC and its airline and agency communities• Learn about actions ARC has and will be taking to address these• Have the opportunity for questions




ARC – Who We Are

• An airline-owned travel industry solution

provider specializing in

– Travel agency accreditation and air ticket

settlement

– Data and analytical products

– Value-added solutions

• Owned by 11 10 U.S. carriers

• Serving the U.S., Puerto Rico, the U.S.

Virgin Islands, and American Samoa

• Headquartered in Arlington, VA

– 440 employees




ARC – By the Numbers (2007)

• $79 billion in travel agency and CTD airline sales

• 193 million transactions processed

• 97+% of transactions are e-tickets

• 1.4 billion ticket segments stored in ARC COMPASS®– 39 months of stored ticketing data available on-line

– 30,000 registered system users

• 18,000+ Accredited Points of Sale

• 200+ approved CTD locations

• 167 Participating Carriers

• 22 System Providers




2007 Highlights

• Major year for new products and improvements– Relaunch of ARC MarketPlace – Launch ARC Memo Manager – Launch of Verified Travel Consultant accreditation– Launch of ARC Travel Card– First online agency satisfaction survey for our Customer Support Center– Launch of MyARC portal– 99 Taxes

• Continued award-winning technologies– 2007– Computerworld Best Practices in Business Intelligence

• Winner: Driving Process Management with BI

– 2007 – The Data Warehousing Institute • Winner: Best Practices in Operational Business Intelligence




2007 Performance Stats

• IAR– System available 99.94% of the time in 2007

• MyARC– System available 99.80% of the time in 2007– Average visit lasts 22 minutes

• Document Retrieval Service (DRS)– Carrier - 3,461 active users from 163 carriers (96.5% of all

carriers)– Agency – 25,036 active users from 15,600 agencies (80.5% of

all agencies)– Corporate Travel Department – 549 active users from 111 CTD’s

(75.5% of all CTD’s)




2007 Performance Stats (cont’d.)

• Verified Travel Consultant (VTC)– 139 approved applications in 2007

– 46 additional approved through 04/01/08

• ARC Memo Manager– 89 carriers subscribed

– 2,965 agencies registered through 04/01/08

• Customer Support Center (CSC)– 173,908 travel agent support calls handled in 2007

– 5,825 carrier support calls handled in 2007

– 86.2% of calls were answered within 60 seconds




ARC Strategic Challenges and Opportunities

• ARC and the agency channel face some serious business issues– Content

• Decline of legacy carrier capacity– Aggravated by current fuel and economic situation– Shift to international = better revenues, but fewer tickets– Aloha Airlines bankruptcy

• Carrier pressure for direct booking and ticketing

– Agencies investing in Super-PNR systems? • Rise in “new entrant” capacity

– Operate “ticketless”– Zero or limited participation in ARC




“New Entrant” Challenges

• Navitaire’s Open Skies and New Skies are two popular internal systems for new entrant airlines with “ticketless” solutions– Navitaire system carriers do not

have the means to ticket through ARC even if they have the will.

– These carriers do not permit ticketing via ARC—a few (*) do accept ARC paper tickets

• Process and cost implications for travel agencies and their clients

*

*

*




“New Entrant” Challenges

• Radixx International also offers a system for carriers

– Also employs the “ticketless” method

– Ditto the process and cost problems for travel agencies and their clients




How Real is This?

• Spirit Airlines recently advised ARC they intend to terminate its limited participation (paper tickets only)

• ARC agents sold over 400,000 tickets on Spirit in 2007– Doesn’t seem to matter to them




ARC Weekly Transactions

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

2008 Transactions 2007 Transactions




Meanwhile…

Southwest Airlines Reports March Traffic

Dallas, Texas( April 2, 2008) – Southwest Airlines Co. announced today that the company flew 6.7 billion revenue passenger miles (RPMs) in March 2008, a 9.8 percent increase from the 6.1 billion RPMs flown in March 2007.

Strong Demand Boosts Spirit Airlines to Revise 2008 Plan

Miramar, Florida (January 14, 2008) – As a result of continued strong demand for Spirit’s unbundled low fare product, Spirit is revising its growth targets at its Fort Lauderdale gateway and plans to add over 40 percent more flights by this summer.




US Passenger Enplanements VS ARC Transactions Processed

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

700,000,000

800,000,000

ARC Transactions Processed US Carriers Passenger Enplanements

Estimated ARC-Sold Enplanements

1990 1995

2000 2005

85% Market Share 55% Market Share

(Txns x 2.5 segments)

ARC Transactions Processed includes Sales, Refunds and Adjustment Documents




This is Not Good

• There are cost implications for this– Any business will struggle when units are flat or in decline

– ARC recently conducted a 4% reduction-in-force to respond to the transaction volume decline

• Should ARC begin to lose economies of scale, it will be challenged to keep costs from going up– Most major ARC costs are fixed—hardware, IT staff, depreciation

• This makes the ARC agency channel even less attractive to carriers– Today’s costs are an obstacle for “new entrants”

– Expedite the exodus of legacy carriers?

• It also endangers the needed investments in ARC for the future




Bright Spots

• ARC has had success in bringing new carriers into ARC in the past two years– Primarily non-US carriers– Smaller volumes– Some nice success stories, but not much impact on ARC overall

• Some larger “new entrants” have started considering how / when / if to participate in ARC– Want to interline / join an alliance / get more corporate travel– Face technical issues– ARC cost is a concern—one of many, but still a concern




Bright Spots - II

• The ARC agency channel is unique in that it permits cash sales– Over $10 billion in cash sales remitted via ARC in 2007

– Equates to over $200 million in card fee savings to carriers

ARC Cash Sales

Average Annual Card

Savings

Carrier X $ 1,000,000,000 $ 20,000,000

Carrier Y $ 500,000,000 $ 10,000,000

Carrier Z $ 100,000,000 $ 2,000,000




What Else?

• The ARC channel is still not competitive in a number of business processes

– Debit memos: don’t have them on a web-site

– Schedule violations / passive segments: ditto

– Cash remittance schedule: like the card savings, don’t like the lag




Debits and “Schedule Violations”

• Debit memos ARE a significant cost to carriers that goes with the agency channel– Audit

– Create

– Resolve disputes

– Post / write-off

• Major US carriers create over 100,000 memos a year• ARC Memo Manager helps, but does not address the root causes





• Agencies also have legitimate concerns over memos

– Biggest: ancient memos (1-2-3 years old)

– Arbitrary responses from carriers with no appeal / dispute

– One-way street (no compensation when the airline is wrong)

– Cumbersome process when a GDS is involved

– Fearful that carriers will impose BSP collection process





• More savings to be had in distribution: booking violations (e.g. unworked schedule changes, duplicate bookings, "churning")

• ARC Payment Express has been selected by some carriers as a collection mechanism as it has been for GDS opt-out fees

• ASTA requested arbitration; arbiter decided does not have jurisdiction

• ARC and carriers have gotten message about concerns– Data and process improvements under review




Airline Distribution Decisions

Airline.com

ARC Agency

I still like mydirect channel,

thanks!

But, you’re making progress!

-Inexpensive

-No voids

-No debit memos

-No schedule violations

-More expensive

-Voids

-Debit memos

-Schedule violations




What’s Coming?

• Industry dynamics ARE changing

– Home-based agents

– Unbundling

– Super-PNR systems

– Multi-currency / multi-national sales




Carriers

• Why change distribution direction?• Problems on the horizon

– Home-based agents: • Fastest growing sector 15,000+ • You lose agent identity / loss of relationship & accountability

– Unbundling: how much more can airports / res / inflight handle?• Shouldn’t agencies be a good “outsource” for sales & service of many

unbundled offerings?• EMD solution needs your engagement!

– Direct connects to agencies (Super-PNR) have appeal, but:• How many do you want to manage?• Lose cash sales option?

– Multi-currency / multi-national selling / settlement• How much longer can you operate as today?




Agencies

• What are you doing to make carriers want to sell through you?– Maybe a few of the biggees don’t need to worry too much

• Although even you are exposed...• And, investment in technology / work-arounds to deal with non-GDS content

and non-ARC ticketing is costly– Is arbitration and conflict the best approach? Will it help you?– Unbundling

– Have you asked for the business?

• How can ARC better support your business needs?– If you have Super-PNRs, would you like Super-Tickets?




ARC Plans

• ARC is not taking all this lying down• As noted earlier, we are responding to current transaction shortfalls

with budget cuts and reductions in force• We also recently announced Flex-Rate pricing to offer carriers who

increase their transactions through ARC agencies a reduced price on incremental sales

• We continue to market the value ARC provides through our sales team and airline industry conferences

• We have also begun developing a more cooperative relationship with IATA to explore global solutions for agencies and carriers




ARC Plans

• ARC is also committed to execute its strategic plan– Cultural change and product innovation – Wow the Customer

• Continue cultural change toward external focus / flexibilty• Invest in Universal Settlement and EMD solutions

– Upgrade infrastructure – Deliver the Future • Invest in Core Infrastructure emphasizing customer-facing applications

– Price to market, stop unprofitable activity – Increase Profits• Allocate costs equitably for core settlement• Generate profits on opt-in services to fund investment and keep ARC

attractive for agencies and carriers alike




ARC Plans

• ARC also believes we can help carriers and agencies come to better business processes and agreements

• In 2008, we intend to conduct one-on-one and group sessions with agencies/CTDs and independently with carriers– Detail concerns and potential solutions from both

– ARC to consider potential paths to resolution

– Later, ARC will bring parties together to work on solutions

• Got to be a better way!




Let’s not throw the baby out with the bathwater!

• Airlines have choices– Costs are critical– Business processes must be

efficient

• Agencies have legitimate concerns and deliver value– Premium customers– Value of cash sales option

• Upcoming challenges can create opportunities for agents, airlines and ARC!

THANK YOU