ThE EffEcTs Of ElEcTRONIc TIckETINg ON REVENuE AccOuNTINg

VIEWPOINT PAPER

Reducing costs through standardization and better data

The holy grail of the airline industry is improving technology in ways that result in significant cost savings. Electronic ticketing continues to bring about savings at all major carriers, but the next step in cost-cutting will be through reducing labor for back-office functions. Airlines can shrink their labor pools and payroll significantly by working together and standardizing available automation technologies, by improving data quality, and by considering outsourcing for areas such as revenue accounting,

TAblE Of cONTENTs
Introduction Maximizing electronic data The labor factor in exception processing Data availability Pricing and proration Manually priced or manually driven tickets Poor data quality Partnerships speed savings Conclusion

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The Effects of Electronic Ticketing on Revenue Accounting

EDS Viewpoint Paper

Introduction
The airline industry continues to be plagued by spiraling costs, making cost-cutting a necessary survival tool. One sure method for airlines to realize cost savings is by increasing the use of electronic ticketing and phasing out paper tickets. Electronic ticketing not only cuts distribution costs, it also reduces back-office accounting work and the need for some support personnel. Not surprisingly, electronic ticket distribution rates are higher in the United States than in other parts of the world, with some U.S.-based carriers generating e-tickets as much as 90 percent of the time. The International Air Transport Association (IATA) is targeting 100 percent electronic ticketing by the end of 2007. Revenue account support staff at some airlines has decreased by as much as 50 percent with the increase in automation and the use of electronic data. But whatever the savings, e-ticketing and data exchange are not the end of back-office accounting support. Staffing is still required to work exceptions in various areas of accounting, including interline settlements, travel agency audits, refund requests and fraud prevention. In spite of the various effects of electronic ticketing on the revenue accounting process, there are ways airlines can achieve their cost-cutting goals sooner through business process outsourcing (BPO).

Maximizing electronic data

Airlines need to understand revenues as early as possible in the process to forecast profitable routes and to understand the revenue impact as soon as the plane departs. As the use and percentage of electronic data and ticketing at airlines climb, revenue information is available much more quickly to use in business decisions.

In spite of the various effects of electronic ticketing on the revenue accounting process, there are ways airlines can achieve their cost-cutting goals sooner through business process outsourcing (BPO).

Most large airlines today continue to rely heavily on transaction control number (TCN) data, which remains the most complete source of airline data available for many airlines. Thats because TCN details are available for almost every ticketing record driven from the major reservation

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EDS Viewpoint Paper

The Effects of Electronic Ticketing on Revenue Accounting

systems or global distribution systems (GDS). This electronic data reduces the need for manual data capture and provides more complete information than sales data from the Airline Reporting Corporation (ARC) or bank settlement plans (BSPs). TCN data provides all relevant information about a ticket and can be used to estimate revenues. The electronic data corresponds to an airlines own sales, as well as travel agency sales. The accounting system uses the TCN as a complete source of information, although the accounting department waits for validation of the sale to reconcile any differences. The industry has implemented standards based on TCN data and electronic ticketing to facilitate the speed and accuracy of information. Within electronic ticketing, the GDS standards further enable more automation to the passenger or travel agent with regard to exchanges, refunds or actual use.

Pricing and proration

The typical practice among airlines and travel agents is to use pricing engines such as Sabre, Worldspan and Amadeus to determine the fare amount when generating passenger ticket records. Because each pricing engine has its own pricing logic and business rules for constructing an itinerary and pricing a fare, each may apply different logic when determining a fare for a given itinerary. Applying even slightly different logic can result in one system quoting a different fare than another system for the same itinerary and date of travel. The pricing engine values the entire ticket; then the revenue accounting system applies complex proration logic to value each leg of the flight or each coupon.

The labor factor in exception processing

Readily accessible electronic revenue information can have a positive influence on an airlines bottom line. The datas availability, however, does not resolve complex problems that require manual intervention such as interline billing disputes based on differences in pricing and proration, incorrect fare construction, or agency audit exceptions. A variety of factors contribute to the need for exception processing, which continues to drive labor requirements in many revenue accounting processes.

Readily accessible electronic revenue information can have a positive influence on an airlines bottom line.

Fare amounts can differ for various reasons, depending not only on the reservation systems business rules, but also on whether an agent chooses to override automated pricing, or if a discount is taken and not allowed. Accounting systems will perform a repricing function to ensure the appropriate fare was collected by a third party for tickets sold in this manner. In this context, the appropriate fare is whatever the carrier deems correct based on its accepted pricing engine. Repricing is used during fare audits and sales of tickets between airlines (for some interline sales), or when a travel agency initially determined the fare to be collected. Agency fare audits require repricing the ticket using the accepted pricing system of the airline on which the ticket was sold and comparing the resulting fare with the fare collected by the travel agent. When there is a difference between the fare determined by the airline and the actual fare collected by the agency, the resulting accounting exception generally requires manual review and results in a debit memo being issued to the travel agent. Manual review drives labor. The memo process of debit, tracking, dunning and other exception processes required in the memo process itself also drives labor.

Data availability
The Airline Tariff Publishing Company (ATPCO) provides TCN data to customers of its subscription service. Availability of TCN data depends on whether the GDS provides TCN data to ATPCO and whether the airline then subscribes to the TCN service. The subscription fee may be cost-prohibitive for some carriers. For cases in which TCN data is not purchased or available, other sources of data can be used to fulfill the revenue accounting process requirements. Travel agency sales data from ARC and BSP is not available as quickly as TCN data, nor is it as complete. When no form of automated sales or usage data is available, data must be manually entered into the accounting system.

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The Effects of Electronic Ticketing on Revenue Accounting

EDS Viewpoint Paper

Interline receivables processing for other airline tickets that have a segment flown on the home airline also may require repricing. As an industry, airlines have not yet agreed on settling all interline billings based on the original fare collected. Airlines will reprice the ticket to ensure the appropriate fare was collected prior to determining the billing value of the coupon. After the billing occurs, the billed carrier may then reject the amount if it is not in agreement with the billed amount. The process is time-consuming and does not end until both carriers agree on a billing value. Many airlines have begun using a neutral proration engine, such as ATPCOs Centralized Industry Proration Service (CIPS), for coupon valuation. Some airlines combine this with the industry First and Final agreement, which requires airlines to accept the billing value returned and settle on that value.

several processes, including audits, exchanges, refunds, revenue recognition and interline billing. More complete data means fewer exceptions and manual processes required to complete the revenue accounting processes. It is important to note that although airlines are still in the process of implementing electronic ticketing, many airlines have been using TCN data for numerous years. TCN data has greatly reduced the need for manual data capture.

Partnerships speed savings

By eliminating exception processes, labor costs required to perform airline revenue accounting will continue to decline. One way many airlines improve their accounting processes for faster recognition of revenues is by partnering with an industry technology leader like EDS, which has already established expertise and best practices in its work with airline partners. The airlines can reduce overall costs of revenue accounting by

The airlines can reduce overall costs of revenue accounting by working with partners that can implement efficiencies such as TCN exchange, electronic ticketing, interline electronic ticketing, and First and Final settlement processes.

working with partners that can implement efficiencies such as TCN exchange, electronic ticketing, interline electronic ticketing, and First and Final settlement processes. They can also evaluate and implement complete revenue accounting replacement solutions. The benefits of partnership are many. Experienced technology companies like EDS have already generated solutions with the future state of revenue accounting in mind. In EDS case, the solution is combined with a BPO services offering and can process transaction-based data completely without manual intervention. A solution like this efficiently processes data in the reality of todays environments, streamlining manual and labor-intensive exception processes. The design offers a high degree of flexibility and the ability to rapidly respond to industry and unique airline requirements. Typically, airlines can negotiate with their technology partners, ensuring strict service-level agreements for quality and timeliness so their needs are met.

Manually priced or manually driven tickets

Not all airlines and travel agencies globally subscribe to automatic pricing. When pricing is overridden by the agent or a ticket is generated manually, errors can occur. Both situations can lead to audit and exception processing in revenue accounting, increasing the labor requirements of the department.

Poor data quality

The quality of the ticketing data affects accounting labor. Incomplete TCN data typically requires additional data entry into the revenue accounting system. It also can affect

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The Effects of Electronic Ticketing on Revenue Accounting

Conclusion
As airlines standardize based on available automation and address data quality issues, significant labor savings are possible. Industry research shows airlines can potentially reduce labor pools by as much as 30 percent over and above the gain from electronic ticketing alone by meeting these requirements: Use a single, neutral pricing engine or multiple accepted pricing engines Use a single, neutral proration engine or multiple accepted proration engines Remove manual intervention in the pricing process Simplify rules and procedures such as proration, special document handling and taxes By implementing additional cost-reduction initiatives such as revenue accounting BPO, airlines can continue to drive down overall costs while maintaining focus on industry collaboration to further streamline revenue accounting.

By implementing additional cost-reduction initiatives such as revenue accounting BPO, airlines can continue to drive down overall costs while maintaining focus on industry collaboration to further streamline revenue accounting.

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The Effects of Electronic Ticketing on Revenue Accounting

EDS Viewpoint Paper

AbOuT ThE AuThOR

ginger Wright
Ginger Wright is a program manager in the EDS Project Management Delivery group. She has more than 20 years of experience in applications development project and program management in the transportation industry, and she is a subject-matter expert in passenger revenue accounting. Wright used this experience to support EDS Portfolio Management in conceptualizing a revenue accounting business process outsourcing service offering. Before joining EDS, Wright was a director of revenue accounting with Continental Airlines. In that position, she led teams in defining business requirements for next-generation revenue accounting systems and in evaluating passenger revenue accounting solutions in the marketplace.

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