RUSSIA: TURF BATTLE OVER TICKET DISTRIBUTION COULD

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 004526 SIPDIS SIPDIS STATE FOR EUR/RUS PATTERSON, EEB BYERLY AND COLEMAN USDOC FOR 4321/ITA/MAC/EUR/RISA BROUGHER AND BEADLE USDOC FOR 3004/CS/ADVOCACY/BLOOM USICAO MONTREAL FOR LAURA FAUX-GABLE NSC FOR WARLICK AND MCKIBBEN E.O. 12958: DECL: 09/14/2017 TAGS: EAIR ECON PREL RS SUBJECT: RUSSIA: TURF BATTLE OVER TICKET DISTRIBUTION COULD IMPACT FOREIGN CARRIERS REF: KYIV 1974 Classified By: ECON M/C ERIC SCHULTZ FOR REASONS 1.4 B and D. -------------- Summary -------------- ¶1. (C) In a September 4 meeting, Delta General Representative, Leonid Terasov, told us that Russia-based airline ticket distributor for the CIS countries, Transport Clearing House (TCH),is probably behind the Government of Ukraine's recent actions against the International Air Transport Association (IATA) in Ukraine (reftel). He added that TCH may very well take similar actions in Russia later this fall as an IATA May 2008 deadline to convert its system to 100 percent E-ticketing approaches. IATA-accredited travel agencies, which handle all international carrier flights into these countries, have been caught in the middle of a turf battle over a $3 billion airline ticketing market with potentially serious consequences for the industry as a whole, according to Terasov. END SUMMARY. -------------- IATA Versus TCH -------------- ¶2. (C) According to Terasov, TCH is part of the civil aviation infrastructure that evolved after the collapse of the Soviet Union in 1991. He said TCH is an opaque organization. There are reputed to be three private owners of TCH, but their identities have never been revealed. The press has speculated that a Duma Deputy with an unsavory reputation, Suleiman Kerimov, controls TCH. Terasov said TCH is also powerful, with cronies in the Ministry of Transportation and Rosaviatsia, the civil aviation authority that controls all domestic government civair assets, such as airports and machinery. Aeroflot even owns a small share of the company, 3.5 percent. Terasov noted that TCH has used strong-arm tactics as part of its business practices. ¶3. (SBU) Terasov said IATA's Billing and Settlement Plan (BSP) and Russian TCH's Air Transport Settlement System (ATSS) are competing ticket distribution systems that facilitate the selling, reporting, and remitting of airline tickets between airlines and ticket agencies. IATA's BSP is a system adopted by 160 countries and handles 80 percent of worldwide airline revenues through BSP-accredited travel agencies -- $187 billion in 2006. TCH's Air Transport Settlement System (ATSS) system by contrast clears accounts between CIS travel agencies and airlines. In 2006, its revenue amounted to $2 billion out of a $3 billion market, small potatoes to IATA but still a considerable sum of money. ¶4. (SBU) Another key difference is that IATA is a trade organization run by the airlines, while TCH is operated as a commercial enterprise. BSP member airlines and travel agents use IATA's common ticket stock to print all tickets, but IATA is counting down the days to May 2008 when its BSP system will go 100 percent paperless, i.e., E-ticketing. Non-BSP member airlines that have interlining agreements with BSP members, such as Aeroflot's association with Delta through SkyTeam, could face problems if Aeroflot is unable to meet the May 2008 deadline. ¶5. (SBU) Last September, Rosaviatsia declared IATA's BSP system illegal, citing customs violations for the generic IATA tickets that are used. Subsequently, Aeroflot dropped out of the BSP pilot program. According to Delta, what's at stake here is TCH's monopoly hold over a $3 billion market. As more travel agencies and airlines in the CIS join the BSP system, TCH's redundancy will become more apparent. -------------- -------------- Ukrainian Developments a Foretaste of Problems in Russia? -------------- -------------- MOSCOW 00004526 002 OF 002 ¶6. (C) Following up on threats reported in reftel, Ukraine's Ministry of Economy in late August formally suspended IATA's cross-border activities in Ukraine over what authorities allege was IATA's failure to bring its paper tickets in line with Ukrainian law (reftel). Although, Embassy Kyiv was able to convince Minister of Economy Anatoly Kinakh to suspend the order until October 5, Terasov, who said he is in regular contact with his colleagues in Kyiv stressed to us that IATA was still threatened in Ukraine and that developments there were linked to TCH and its activities in Russia. IATA's BSP system dominates the market in Ukraine and Terasov said business groups allied with TCH were targeting the significant cash flows generated by the BSP system. ¶7. (C) According to Terasov, TCH may be trying out tactics in Ukraine for eventual use in Russia's bigger market in coming months. Although TCH's days are numbered due to its technological inferiority, it is fighting a rearguard action to prevent BSP's introduction into Russia, to date with some success. BSP has made relatively little headway in Russia's distribution network, with all domestic airline sales still controlled by TCH. Terasov said that as more and more airlines move to E-ticketing, TCH will not be able keep up with TCH's technology but that it will use every trick in the book, such as arguments about defending domestic markets and customs violations of IATA's ticket stock, to maintain their hold in the CIS for as long as possible. ¶8. (C) Terasov said that if TCH succeeds in convincing the GOU or GOR to restrict IATA's interaction with domestic travel agents and other ticketing outlets, even temporarily, the consequence could be quite severe for the international carriers, including Aeroflot, as well as for Russian and Ukrainian travelers. With IATA tickets unavailable, Terasov painted a scenario of international travelers waiting in line outside foreign carriers representative offices throughout the CIS to purchase tickets and as a result predicted a severe drop in international travel on the part of Russians. -------------- Comment -------------- ¶9. (C) We plan to monitor this situation closely and remain in contact with Terasov and other representatives of international airlines present in Russia. If Terasov's concerns prove out, we plan to follow Embassy Kyiv's example by bypassing the middle levels of Russia's civil aviation sector and appealing directly to senior Russia officials. End Comment. Burns