David Collins

INTERVIEW: ARC on Evolution

Behind the scenes of most online or travel agency bookings, ARC (also known as the Airline Reporting Corporation) tracks, audits and reports on various elements of nearly $80 billion worth of transactions a year. But some dramatic changes are underway as ARC transforms from simply a bank settlement plan to a provider of business intelligence and data analytics. ARC president and CEO David Collins, along with vice president of marketing, sales and customer care Mike Premo, spoke at length last month with The Beat's Mary Ann McNulty about ARC's role in the industry today and tomorrow. An excerpt follows:

McNulty: A couple months ago, ARC introduced a new itinerary detail product for airlines and said it would help improve corporate contracts and assess agency incentive programs. Can you give us an update?

Collins: I don't have the number of airlines with me, but I think it's been a successful program. One of the things we set out to do with these things, particularly when you bring it up in that context, is to be the trusted, neutral source so everyone is talking off the same page. Both sides can look at the same data and have a discussion.

McNulty: Is this product--analyzing and dissecting data that you settle--representative of what ARC views as its future in data analytics, rather than just transaction processing and settlement, which you've really been known for over these past 20 years, and the 20 before that for your predecessor (the Air Traffic Conference of America's Area Settlement Plan)?

Collins: Yes. We've really evolved into three business lines now. The first is our traditional reporting and settlement function, which is alive and healthy and doing well. We continue to bring that up to date. We took the industry out of the paper age there and have made it an electronic and highly efficient system. Our second business line is data and analytics. By going electronic, it really positioned us to do that because we sit on 39 months of data. Data in this day and age is what helps drive businesses. Slicing and dicing data is what helps you be successful these days. Our third business line is what we call industry products and services. An example of that is our recently introduced ARC Marketplace, which is enabling our travel agents to sell destination products and earn commissions, and they are products that they may not have sold before because getting the commissions in the past was hard. Because of ARC's efficient money-moving system, we can take care of that for them.

McNulty: Are you planning any such enhanced reporting tools for corporations or agencies?

Premo: When ARC launched into the data business, we took a very conservative viewpoint of who would be able to get what parts of this data. We're a little more comfortable now that those policies are solid, and we are expanding the community that will have access to more information to include employers, card companies and others that have business on the transaction. We typically have really limited that to agencies--and agencies on a very limited data set. Those data sharing policies are under review and we've got some proposals in front of our governance committees right now to make more of that data available to the different communities that we serve.

Collins: Underlying that is the principal of "right to see." If you're an employer, you can't go in and see another employers' travel. If you're a credit card company, you can't go in and see another credit card companies' data. You can go in and see your own because you want to know what's going on.

Premo: We have customers who want to see more data about a transaction than they have on their own internal system. So we can supplement their data in a way that adds some value for them, or for their customers. Visa is never going to see American Express' transaction data from ARC. We take protective measures so no personally identifying information is accessible, and ensure that apart from your own data, you can only see aggregate market data. We're a fairly conservative organization in terms of those types of policies and we should note that we're one of the few industry companies that is [Payment Card Industry]-compliant, so we do adhere to PCI security standards around card numbers, names, etc. That's a significant undertaking, one that we're quite proud of, but also a certification that you can lose with some ease. So we treat data security very seriously.

McNulty: When will these policies be reviewed and when will the products be released?

Collins: They will be reviewed at the end of June and [the products will be] out right after that.

McNulty: Historically, ARC has formed working groups or pilot programs to learn how best to introduce controversial changes, like ETDNs (Electronic Ticket Delivery Networks) and Corporate Travel Department designations. As you began developing the new line of business of analyzing data, what type of discussions or debates were held, and with whom?

Collins: That's in a sense a very timely question because one of the things that ARC has set out to do in recent years is become much more customer-focused, to be in the market learning what our customers want, and don't want, from us. We now have a sales and marketing organization that Mike Premo heads up. We've had that in place now for about two years, but it's new for ARC to get out there more and talk to all our customers, whether it be airlines, large agents, small agents, large corporations or small corporations to learn what they're doing with our products today and where we can help them moving forward. I wouldn't call it a dramatic shift. It's all part of our evolution as a company as we grow and look at new opportunities to serve our customers better.

McNulty: Did you have any discussions with your customer advisory boards or conduct pilots?

Collins: This has been more one-on-one, getting their feedback and testing ideas.

Premo: We're more externally focused as an organization. We use a very typical product management methodology to develop our products and decide whether we should take them to market or not. ... Yes, it's a little less traditional in ARC's working committees and industry groups, but it reflects our maturing as an organization and shift to a more entrepreneurial focus.

McNulty: Your evolution is raising some concerns, especially from those who are concerned about data ownership issues and privacy, and are questioning whether ARC has a right to analyze the data and then sell those reports to others. Yes, you have the data, but what gives you the right to repurpose?

Collins: We have a different approach to data. Our approach is around rights to use rather than ownership. Who actually owns a piece of data [is something] we can talk about all week long. We base what we do at ARC on rights to use. We consider the people with the greatest rights to any piece of data the passenger and the airline. We derive our rights to use from the airlines. We believe we have complete authority to use that data. That said, we respect privacy laws. We are Safe Harbor-compliant, as far as the European Community is concerned, and obviously individual data--credit card data--isn't included on any of the products we sell. We respect privacy and we have certain corporate policies that we adhere to, to respect those things.

McNulty: What do you see as ARC's future role in this industry? Where do you expect most of your revenues to come from in the future?

Collins: One of the interesting things about ARC is that one of our core attributes is still very vital in the marketplace today. We've always made business efficient to conduct and I don't think that's going away. For most of those 20 years, and even prior in the other 20, people have speculated that ARC is a dinosaur. We've shown that we're far from it. We've shown amazing adaptability as a company. We were a leader in going electronic and taking paper out of the industry. Our core is strong, healthy and will lead this company for the foreseeable future. Data will become a bigger product for us--a revenue generator for us--in the future as we learn how to deliver products that customers want and as customers learn how to use data better. Data analytics in this day and age is critical to run a successful business. If you're not highly analytical about what you're doing in the marketplace, you're not going to be successful. Thirdly, we'll come up with other products that will benefit people when you look at what our efficiencies are built around, and that's moving money, storing data and moving data. In a nutshell, that's what we do, and we do it very efficiently.

McNulty: At the end of 2006, your customers included about 152 airlines and railroads, 21,000 agencies and 200 corporate travel departments. Where would you like to see those numbers and how can you get there?

Collins: On airlines, we'd like to see that grow. There are a lot of airlines--maybe smaller ones in this country, but mostly in other countries--that could take advantage of ARC and our efficiencies to market. Our number of airlines has gone up consistently over the past four years, so we continue to look at developing the number of airlines we have participating.

As far as travel agencies, you're well aware that the number is going down (in terms of locations, it's now half what it once was). What we might see in the future is that the number of traditional ARC-accredited agents might continue to go down as consolidation continues. But you might see us serving more of the non-traditional agent. There are more agencies out there specializing in cruises and tours, or home-based agents. We would probably look to those agents, probably not to be accrediting for airline tickets, but to provide other services that we do, such as Marketplace or the travel agency service fee [an ARC tool that facilitates such collections], which has been very successful.

As far as corporations are concerned, I don't know that we have a goal to increase or decrease. We have a goal to provide what the market wants. So what we've done out there is provide choice. Corporations will vary in what they want to do. If you build widgets, you probably may want to focus all your skills on building widgets, and leave a travel management company who is expert at travel to run your travel. You may have different attitudes as a corporation and want to control all your travel spend and have far greater insight. What we think we do is provide two alternatives to the customer corporation and they can go down either route. We don't mind them going down either route.

McNulty: What do they want from the CTD designation? What will cause them to choose that route more often?

Premo: We actually have about 150 active CTDs today. Over 200 might have applied, but I'm not sure they all got to live status. Some have been bought by other companies and some have reverted back to regular TMC [configurations]. Our view is that we think it's a good thing for a corporation to have the ability for an ARC appointment. Not everyone is going to choose that, but in this era, there are more challenges in travel programs and infrastructure in programs than there has probably ever been. With GDS content fees, the economics changed by a couple dollars last summer. The shortage of travel professionals--because of the cloud around agency business and 9/11 and other factors--can create staffing challenges. Some companies are more security-conscious. They don't want outsiders to look at their travel activity. When you look at those kinds of dynamics, probably over time there will be more companies to say, "A CTD makes sense for me." Do we think there's going to be a land rush and there will be 50,000 CTDs anytime soon? No, I don't think so. But we like the relationship. It's a very strong and vibrant community. They're all very passionate about CTD status and we will go out of our way to support them and the community.

McNulty: And create more products?

Premo: Yes, we have a couple things to talk about. At [the National Business Travel Association conference in Boston next month], we'll have some things to talk about.

McNulty: At the CTD conference in December in Sonoma, Calif., Mike mentioned that you were trying to convince the airlines to process their own Web sales through ARC due to the cost-efficiencies you've attained. Any success?

Premo: We've actually had a U.S. regional carrier start to have some interesting conversations with us around that. It's early days. That's a fairly radical concept in the mind of the industry. But when you look at issues like becoming PCI-compliant... We basically run three major locations and have 400 employees. For us to put in place the standards, systems and protocols to meet PCI was a big challenge. And we have $80 billion of scale to spread that investment across. If you're an airline and have 20,000 or 40,000 employees, hundreds of locations, and people accessing your systems all over the world, can you really be cost-effective, or as cost-effective as someone like ARC? Over time, I think our argument is going to be successful.

McNulty: Another thing you've been working on is helping airlines reduce credit card fees. Any new products there?

Premo: Come to NBTA.

McNulty: With the growth of Web sales and portals, use of G2 SwitchWorks, ITA Software and others, what percent of all airline sales does ARC process today versus three years ago?

Premo: We hear from major carriers that 30 to 40 percent of their sales are through direct channels. Our share is in the 55 to 60 percent range.

Collins: We've been a flexible system. We have something called the ARC direct connections so we can process through [channels] other than the GDS. G2 is a system provider, and other types of transactions go through that, such as Orbitz. We've gone from having four system providers to 18.