First & Final Interline Billing First & Final Interline Billing

Business CaseBusiness Case

2

The purposeThe purpose

Mutually agreed billing without Mutually agreed billing without manual validation or pricingmanual validation or pricing

Guaranteed transactions, no reject Guaranteed transactions, no reject processingprocessing

Faster processing and settlementFaster processing and settlement Better cash-flowBetter cash-flow Reduced costs to the industryReduced costs to the industry

3

The basic principlesThe basic principles

Single proration business standard - NFPSingle proration business standard - NFP• Two approved engines: ATPCO CIPS and Kale Two approved engines: ATPCO CIPS and Kale

APEXAPEX

Consistent and mutually verifiable coupon Consistent and mutually verifiable coupon valuationsvaluations

Single source and rule set for interlineable Single source and rule set for interlineable taxes (RATD)taxes (RATD)

Standard data transmission sourcesStandard data transmission sources• TCN, BSP, CAT, (= ISR); IDECTCN, BSP, CAT, (= ISR); IDEC

4

Summary of business Summary of business benefits - prorationbenefits - proration

Neutral Fare Proration (NFP)Neutral Fare Proration (NFP)• No interline disputes over valuesNo interline disputes over values

– Everyone gets the same resultEveryone gets the same result

• Mutually-agreed SPA applicationMutually-agreed SPA application– If you approved it, you can’t disagree with itIf you approved it, you can’t disagree with it

• Use for Sample pricingUse for Sample pricing– Accuracy permits smaller sample sizes Accuracy permits smaller sample sizes – Reduction in sample adjustmentsReduction in sample adjustments

5

Summary of business Summary of business benefits – reject processingbenefits – reject processing

What rejects? There are no rejects!What rejects? There are no rejects! No re-billingsNo re-billings No second pass, no third passNo second pass, no third pass No correspondenceNo correspondence

6

Summary of business Summary of business benefits - administrativebenefits - administrative

No paperwork, handling costs, No paperwork, handling costs, shipping costs, storageshipping costs, storage

Fewer staff in Interline, so more time Fewer staff in Interline, so more time available for added-value activities:available for added-value activities:• Agent recoveriesAgent recoveries• Fare auditingFare auditing• Management informationManagement information

7

Summary of business Summary of business benefits - financialbenefits - financial

Cash-flow clarityCash-flow clarity• What you bill is what you getWhat you bill is what you get

No provisioning for rejectsNo provisioning for rejects No adjustments to management No adjustments to management

reporting for flown revenue variancesreporting for flown revenue variances Mass of cost reductions from revenue Mass of cost reductions from revenue

accounting departmentsaccounting departments

8

Summary of business Summary of business benefits – added valuebenefits – added value

Extracts more value from existing Extracts more value from existing data sources – TCN, BSP, IDEC, etcdata sources – TCN, BSP, IDEC, etc

Sales data repository – Sales data repository – comprehensive data analysis possiblecomprehensive data analysis possible

Single process for entire industry, Single process for entire industry, managed by IATAmanaged by IATA• But you can have bilateral arrangements But you can have bilateral arrangements

on topon top

9

Basic pricingBasic pricing

Sign-up fee US$ 2,750Sign-up fee US$ 2,750 Monthly administrative fees vary Monthly administrative fees vary

between US$ 747-US$ 1,820, between US$ 747-US$ 1,820, depending on volumedepending on volume

Transaction price = US$ 0.093Transaction price = US$ 0.093 Post sales price = US$ 0.15Post sales price = US$ 0.15

10

Case outline – large non-Case outline – large non-sample airlinesample airline

XX 2003 (q4) 2004 2005 2006 2007Expected annual volume of IDEC transactions: 1,000,000 1,000,000 1,000,000 1,000,000

% of annual available for First and Final Billing during: 10% 30% 40% 50%

% of annual expected to be lift-based: 25% 25% 25% 25%

TCN band (1=lowest, 5=highest) 4 4 4 4

Expected number of months participation: 12 12 12 12

TOTAL CHARGES FOR YEAR 31,792$ 49,398$ 59,576$ 69,754$

Cost savings in prime billings 125,000$ 375,000$ 500,000$ 625,000$

Cost savings in reject handling 15,093$ 45,278$ 60,370$ 75,463$

TOTAL COST SAVINGS 140,093$ 420,278$ 560,370$ 700,463$

Savings-service cost 108,301$ 370,880$ 500,795$ 630,709$

11

Case outline – large sample Case outline – large sample airlineairline

YY 2003 (q4) 2004 2005 2006 2007Expected annual volume of IDEC transactions: 3,000,000 3,000,000 3,000,000 3,000,000

% of annual available for First and Final Billing during: 10% 30% 40% 50%

% of annual expected to be lift-based: 7% 7% 7% 7%

TCN band (1=lowest, 5=highest) 5 5 5 5

Expected number of months participation: 12 12 12 12

TOTAL CHARGES FOR YEAR 44,956$ 82,938$ 103,304$ 123,670$

Cost savings in prime billings 218,642$ 480,926$ 594,568$ 743,210$

Cost savings in reject handling 16,683$ 50,050$ 66,733$ 83,417$

TOTAL COST SAVINGS 235,325$ 530,976$ 661,301$ 826,627$

Savings-service cost 190,369$ 448,038$ 557,997$ 702,957$

12

Case outline – small, low Case outline – small, low cost airlinecost airline

ZZ 2003 (q4) 2004 2005 2006 2007Expected annual volume of IDEC transactions: 300,000 300,000 300,000 300,000

% of annual available for First and Final Billing during: 10% 30% 40% 50%

% of annual expected to be lift-based: 7% 7% 7% 7%

TCN band (1=lowest, 5=highest) 2 2 2 2

Expected number of months participation: 12 12 12 12

TOTAL CHARGES FOR YEAR 18,311$ 19,634$ 21,670$ 23,707$

Cost savings in prime billings 18,000$ 72,000$ 108,000$ 126,000$

Cost savings in reject handling 5,150$ 15,450$ 20,600$ 25,750$

TOTAL COST SAVINGS 23,150$ 87,450$ 128,600$ 151,750$

Savings-service cost 4,839$ 67,816$ 106,930$ 128,043$

13

Launch pricing offers!Launch pricing offers!

Carriers signed by 31 March 2004 Carriers signed by 31 March 2004 • No sign-up feeNo sign-up fee• No monthly management feeNo monthly management fee• Transaction price = US$ 0.0675Transaction price = US$ 0.0675• Post Sales price = US$ 0.15Post Sales price = US$ 0.15• Minimum charge of 10,000 transactions per monthMinimum charge of 10,000 transactions per month

Carriers must achieve threshold volumes to Carriers must achieve threshold volumes to maintain pricingmaintain pricing• 15% of IDEC billings within 6 months15% of IDEC billings within 6 months• 25% of IDEC billings within 12 months25% of IDEC billings within 12 months• 40% of IDEC billings within 18 months40% of IDEC billings within 18 months

14

Launch pricing, second yearLaunch pricing, second year

Carriers signed by 31 March 2004, from Carriers signed by 31 March 2004, from 18 months on:18 months on:• Provided a monthly average of 40% of IDEC Provided a monthly average of 40% of IDEC

volume is reached then launch prices continuevolume is reached then launch prices continue• If volume threshold is not reached then If volume threshold is not reached then

standard transaction pricing will be applicable standard transaction pricing will be applicable • Option to pay based on 40% thereafterOption to pay based on 40% thereafter• Same minimum volume appliesSame minimum volume applies

15

Case outline – large non-Case outline – large non-sample airline, launch pricingsample airline, launch pricing

XX 2003 (q4) 2004 2005 2006 2007Expected annual volume of IDEC transactions: 1,000,000 1,000,000 1,000,000 1,000,000

% of annual available for First and Final Billing during: 22% 40% 55% 70%

% of annual expected to be lift-based: 25% 25% 25% 25%

TCN band (1=lowest, 5=highest) 4 4 4 4

Expected number of months participation: 12 12 12 12

TOTAL CHARGES FOR YEAR 21,465$ 36,212$ 74,843$ 90,110$

Cost savings in prime billings 275,000$ 500,000$ 700,000$ 900,000$

Cost savings in reject handling 33,204$ 60,370$ 83,009$ 105,648$

TOTAL COST SAVINGS 308,204$ 560,370$ 783,009$ 1,005,648$

Savings-service cost 286,739$ 524,159$ 708,167$ 915,539$

16

Case outline – large sample Case outline – large sample airline, launch pricingairline, launch pricing

YY 2003 (q4) 2004 2005 2006 2007Expected annual volume of IDEC transactions: 3,000,000 3,000,000 3,000,000 3,000,000

% of annual available for First and Final Billing during: 22% 40% 55% 70%

% of annual expected to be lift-based: 7% 7% 7% 7%

TCN band (1=lowest, 5=highest) 5 5 5 5

Expected number of months participation: 12 12 12 12

TOTAL CHARGES FOR YEAR 35,598$ 64,724$ 133,853$ 164,402$

Cost savings in prime billings 369,012$ 594,568$ 782,531$ 1,005,494$

Cost savings in reject handling 36,703$ 66,733$ 91,758$ 116,783$

TOTAL COST SAVINGS 405,716$ 661,301$ 874,289$ 1,122,277$

Savings-service cost 370,118$ 596,577$ 740,437$ 957,876$

17

Case outline – small, low Case outline – small, low cost airline, launch pricingcost airline, launch pricing

ZZ 2003 (q4) 2004 2005 2006 2007Expected annual volume of IDEC transactions: 300,000 300,000 300,000 300,000

% of annual available for First and Final Billing during: 22% 40% 55% 70%

% of annual expected to be lift-based: 7% 7% 7% 7%

TCN band (1=lowest, 5=highest) 2 2 2 2

Expected number of months participation: 12 12 12 12

TOTAL CHARGES FOR YEAR 9,223$ 10,141$ 24,725$ 27,780$

Cost savings in prime billings 54,000$ 108,000$ 144,000$ 180,000$

Cost savings in reject handling 11,330$ 20,600$ 28,325$ 36,050$

TOTAL COST SAVINGS 65,330$ 128,600$ 172,325$ 216,050$

Savings-service cost 56,107$ 118,459$ 147,600$ 188,270$

18

Q&AQ&A

For more information on business For more information on business case examples contact Nick Coote or case examples contact Nick Coote or the AIA teamthe AIA team

For a customised version of the For a customised version of the business case to represent your business case to represent your airline, contact airline, contact nick@nick@mazromazro.com.com or or cootencooten@@iataiata.org.org

19

Some assumptions used in Some assumptions used in case XXcase XX

Effort on non-provisional evaluation (average mins per item) 5 minutesAverage staff cost (fully allocated) $ 25,000Effort on non-provisional evaluation after F&F (average mins per item) 5 minutes

Number of rejects outbound 3%Number of rebills outbound 15%Time spent on outbound rejects (mins/item) 6 minutes

Number of rejects inbound 3%Number of rebills inbound 15%Time spent on inbound rejects (mins/item) 6 minutes

Number going to correspondence 1.0%Time spent clearing correspondence items (hours) 5 hours

20

Some assumptions used in Some assumptions used in case YYcase YY

Number of billed itemsPercentage of total billing which is Sample 80%Average sample evaluation size 5%Effort on provisional billing (seconds/item) 6 secondsEffort on non-provisional evaluation (average mins per item) 5 minutesAverage staff cost (fully allocated) $ 35,000Sample items after F&F (sample size) 3%Effort on provisional billing after F&F (seconds/item) 6 secondsEffort on non-provisional evaluation after F&F (average mins per item) 5 minutes

Number of rejects outbound 3%Number of rebills outbound 15%Time spent on outbound rejects (mins/item) 6 minutes

Number of rejects inbound 3%Number of rebills inbound 15%Time spent on inbound rejects (mins/item) 6 minutes

Number going to correspondence 1.0%Time spent clearing correspondence items (hours) 5 hours

21

Some assumptions used in Some assumptions used in case ZZcase ZZ

Effort on non-provisional evaluation (average mins per item) 5 minutesAverage staff cost (fully allocated) $ 18,000Effort on non-provisional evaluation after F&F (average mins per item) 5 minutes

Number of rejects outbound 3%Number of rebills outbound 15%Time spent on outbound rejects (mins/item) 6 minutes

Number of rejects inbound 3%Number of rebills inbound 15%Time spent on inbound rejects (mins/item) 6 minutes

Number going to correspondence 1.0%Time spent clearing correspondence items (hours) 5 hours