One-On-One: TQ3 CEO: Re-Bottle GNEs

TQ3 Travel Solutions president and CEO Marc Hildebrand last month told Association of Corporate Travel Executives conference delegates in London that the travel industry "is in the middle of making one of the biggest mistakes in its history:" building up, at the expense of the established but costly global distribution systems, "GDS new entrants." As a result, he announced that TQ3 is seeking bidders for a $20 million project to build a comprehensive booking aggregation platform. BTN contributing editor Amon Cohen recently followed up with Hildebrand.

BTN: Please tell us about your $20 million distribution aggregation project.

Marc Hildebrand: That number is an indication. It could cost significantly less or more. We have gone out to various providers—GDSs, GNEs and also technology-oriented consulting firms—that we believe may offer a solution to the increasing complexity of content aggregation. Having said that, we have been aggregating content from various channels for the past three years with our product called Web Fare-It.

BTN: What will this new project do that Web Fare-It cannot do?

Hildebrand: So far, more than 90 percent of business-relevant airfare content is still available in the global distribution systems. The other 10 percent or so we have been able to manage through Web Fare-It. We have done that through the use of application programming interfaces or, in the majority of cases, screen-scraping. That technology would not be suitable on a large scale if some of the big network carriers decided to move most or all of their content out of the GDSs and we ended up in a fragmented content world. We would need a totally different platform for content aggregation.

BTN: What details can you give us about the aggregation platform you are planning to build?

Hildebrand: The idea is that it will be one platform that can aggregate TQ3 content from various sources, which can be GDSs, GNEs and airlines directly through application programming interfaces or screen-scraping.

BTN: Are you asking GDSs and GNEs to act as aggregators and be one of the channels to be aggregated?

Hildebrand: Yes, however, I expect the GNEs to respond that they cannot build the platform. Although the GNEs will never be full GDS alternatives, they could become a technology provider to us. As far as the GDSs are concerned, we are effectively inviting them to bypass themselves in the future, to cannibalize their own product. Companies like Sabre and Amadeus are travel technology companies, for which their GDS solutions are just one product.

BTN: Will your platform effectively be a new GDS?

Hildebrand: Yes. It is crazy because all that would happen is we start building what already exists. It is reintegration of the disintegration. Because of our business model, our customers expect us always to make content available and make the market transparent for them. We always will find ways to reintegrate what has been destroyed. That is why the airlines should think twice. If they were being successful with what they were doing, then I would applaud them and say, "great strategy. You have really managed to take transparency out of the market. You have caused confusion and achieved higher yields," because that is their strategy. Yet, they aren't succeeding because the TMCs, especially the global ones, will always find ways, as we have done with Web Fare-It, to make the whole thing transparent again. The biggest point of all is that airlines want to reduce their distribution costs, but I have not seen the proof yet that distributing content outside the GDS will be cheaper for the global network carriers than distributing it inside the GDS.

BTN: Surely it will be because the cost per segment is lower via the Web?

Hildebrand: Yes, but they have to distribute it globally. Global network carriers dependent on feeder services from other airlines will not be able to guarantee that source of supply any more. Interlining, other airlines' availability—all these things will be a problem that risks some of their revenues. Transparency of other airlines at the point of sale is vital. Because of all the crazy pricing that is going on, the market is moving away from corporate net fares to spot market buying, which is why it is even more important that we have full price comparisons at the point of sale. Don't forget also that there will be an enormous cost involved in developing these other platforms. It's not only about content. It's also about all the other functionality found in a GDS. Everyone is saying lower segment fees make sense, but do they really see the value that a GDS brings—things like minimum connecting times or ticketing?

BTN: Will the GNEs not offer these services too?

Hildebrand: They will not replace the GDSs. They can only fulfill some partial functionality. That explains why they are cheaper, but it is only for those limited segments they are distributing. There will be savings for airlines in their content distribution, although they are just shifting costs to another part of the value chain. Our corporate customers will expect us to do these tasks and there will be a cost for it.

BTN: Do you expect the proportion of business-relevant airfare content outside the GDSs to rise?

Hildebrand: Yes. Over the past 18 months, we have really been trying to act as a mediator between the GDSs and airlines to convince them GDSs are the best platform for content distribution on a worldwide basis. The airlines understand that, but cutting distribution costs is so important to them—and the GDSs have not really moved on that point—that we will see airlines starting to take content out. We already see that today. Many airlines, including the network carriers, say they have full GDS distribution, but they don't. We screen fares all day long and can see there is a great deal of content that airlines only distribute via the Web. It is totally irrational pricing, undercutting not only GDS fares but many corporate net fares, which upsets the customers. We are already on the path to total content fragmentation and customer confusion.

BTN: What level of bookings will be outside the global distribution systems in the future?

Hildebrand: I could imagine the number going up to 20 percent, but I could also imagine it going up to 70 percent. It will depend on how the power struggle between suppliers and the GDSs ends. I don't believe international carriers can work without the GDSs. If airlines decide to distribute outside the GDS in their home market, they might be successful because they have such a strong position that corporate customers and travel management companies would support it. But can you imagine any of the European airlines, when they want to distribute in the U.S., persuading travel agencies or corporates to use a different platform for each of them? Can Japan Air Lines do anything in Europe outside the GDS? It won't work. The GDSs will say: "We won't allow you to distribute part of your content on a regional basis. Either it's in there globally or we won't allow you to distribute anywhere in the world." It is very difficult to predict where this will end. Will the GDSs prevail or will the airlines prevail? I really don't know.

BTN: In your ACTE speech, you warned that travel management companies could start to account for as much as 10 percent of corporate clients' travel spend. Yet, we have downward pressure on prices charged by TMCs, mainly because of online booking. How do you convince clients to pay more rather than less for their TMC?

Hildebrand: The benchmark price these days seems to be the online, no-touch price. It is creating a lot of pressure on all our other transactions, regardless of the human interaction and complexity behind them. Therefore, while I don't applaud these developments, additional complexity provides yet another reason why travel management companies add real value to the customer. Should the scenario I have painted come to reality, TMCs will be the only way to get full transparency and content, which is the prerequisite for managed travel.