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Rediff.com  » Business » Airlines to travel agents: Pay on time or face suspension

Airlines to travel agents: Pay on time or face suspension

March 10, 2014 18:58 IST

Airlines to travel agents: Pay on time or face suspension

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The newly introduced billing system may not go well with travel agents who have always been at loggerheads with airlines on extention of credit limit. Airlines including Jet Airways, IndiGo and SpiceJet may get into difficult situation as there are higher chances of agents failing to make timely payment.

Aerojet Travels, a Delhi-based travel agent, could not pay around Rs 50 crore (Rs0.50 billion) to airlines last month, making it the second big sales default in a year. Last April, Spring Travels failed to pay Rs 120 crore (Rs 1.20 billion) to airlines. Travel agents fear more such defaults after airlines halved their credit.

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Image: Airlines will not extend credit limit for travel agents beyond seven days
Photographs: Reuters

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Airlines to travel agents: Pay on time or face suspension

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A source from the aviation industry says, “Aerojet Travels had given a bank and insurance guarantee to the International Air Transport Association (IATA’s)'s billing and settlement plan but traded much above the limit. The default happened last month and a large chunk of the Rs 50 crore (Rs 0.50 billion) is due to Air India."

Air India and Aerojet Travels proprietor Maneesh Mehta did not respond to queries.

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Image: Travel agents are finding it difficult to follow new billing system
Photographs: Vivek Prakash/Reuters

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Airlines to travel agents: Pay on time or face suspension

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An IATA spokesperson said: "Aerojet Travels was suspended from participating in the billing and settlement plan when it failed to settle its due. Its passenger sales agency agreement is in the process of being terminated. This is also one of the reasons why the implementation of the weekly settlement is critical in minimising the risk exposure of airlines. We have been in contact with the affected airlines and are providing them with support in their recovery efforts."

Agents must furnish a bank or insurance guarantee to IATA as a cover in a new settlement mechanism that got going last month. 

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Image: Weekly settlement system will minimise risk exposure for airlines
Photographs: Rediff

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Airlines to travel agents: Pay on time or face suspension

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Airlines cap the number of tickets an agent can issue each fortnight based on these guarantees.

The cap can be changed on demand from the agent or based on its past sales. IATA provides airlines with a daily report on the sales of travel agents versus the guarantees they have provided.

The new mechanism requires agents to remit ticket sale collections after seven days, half the 15-day credit they had in the old system.

Agents are resisting the switch and plan to move the Supreme Court after the Karnataka High Court dismissed their petitions against the new mechanism. Iqbal Mulla, president, Travel Agents Association of India, said: "We are examining all legal options and plan to go to the Supreme Court. The seven-day payment cycle will hurt agents."

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Image: Airlines incentivise agents depending on the number of tickets sold
Photographs: Courtesy, Mumbai International Airport Ltd

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He further said."Corporate clients enjoy longer credit (periods) from agents and will not pay in seven days. There is no practice among companies to pay agents in advance. Agents take overdrafts from banks and managing working capital will be a challenge. If one payment is delayed, an agent's financials can go haywire. Airlines believe they can manage sales with a few large agents but should realise that when you put all your eggs in one, basket there is a risk."

Pradip Lulla, general secretary, Travel Agents Federation of India, said: "A weekly settlement system will be difficult to implement in India. Defaults will also impact the credibility of agents and clients will take advantage of the situation."

 


Image: Travel agents say, airlines are making business environment difficult by imposing rigid policies
Photographs: Reuters

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