Continental Airlines this month made official its decision to take advantage of Galileo International's Momentum offer to cut by roughly 20 percent its segment fees in exchange for access to all but opaque fares in which the carrier's brand is not revealed before the sale. The decision gives Continental flat pricing for three years and millions in annual savings. Galileo said more than 38 percent of its U.S.-originated airline bookings now are included in Momentum.
Airline participation in Sabre's Direct Connect Availability Three-Year Option grew to represent about 15 percent of Sabre air bookings when United Airlines earlier this month joined the program. It trades to all Sabre users access to all but opaque fares in return for a three-year cap on fees paid to Sabre at about 13 percent less than its 2003 rates, Sabre said. Southlake, Texas-based Sabre also said the program
(BTN, Oct. 28, 2002) has been extended to Europe.
Though United and US Airways had joined both GDS programs, the addition of Continental boosts Momentum's value not only because the Houston-based carrier has fewer marketplace ties with Galileo than the other two, but also because it has not sought bankruptcy protection.
"When the three-year price guarantees were made by Sabre and Cendant, they were widely discounted because the only participants were the ones most in need of pricing breaks, i.e., those in Chapter 11," wrote CIBC World Markets analyst Paul Keung in a report that last week upgraded his outlook on Sabre. "Continental's decision suggests that the offer is compelling, that there is potential stability to long-term pricing, and also places competitive pressures on the remaining three carriers who have not signed up: Northwest, Delta, American. It is interesting to note that the three holdouts are the ones who own Worldspan."
The lack of participation by Worldspan's owners means buyers cannot yet call off their Web-fare seeking robots. According to an American Airlines spokesperson, "American is glad to see the GDSs making efforts to reduce costs, but neither program is cost competitive with other lower-cost distribution channels."
"We are monitoring events and what our competitors are doing," said Al Lenza, vice president of distribution and e-commerce at Northwest Airlines. Continental's move "certainly will be a factor, and the economics are interesting. The problem you have with Momentum is that the savings applies to a tiny percentage of the agencies because it requires double opt-in. We think it's not interesting enough to trade the Web content."
Lenza doubted Galileo's statement that agencies representing more than a quarter of Galileo's U.S. bookings are enrolled in Momentum. Enrollees include Casto Travel and Rosenbluth International. The program requires agencies to give up a portion of their GDS incentives, a cost that could be passed to clients. Rosenbluth had said it would absorb a 50 cent per segment drop in incentives while pursuing cost savings through process improvements with participating airlines and Galileo. For that, Lenza noted, "You have to have an agreement with Rosenbluth as well. They're asking for a number of things for them to chip in the 50 cents."
"There is an agreement for all parties to extract costs from the systems so the clients aren't left holding the ball," said Eric Henderson, director of North American supplier relations at Rosenbluth. "The whole idea is that there are costs borne by all parties, such as airline debit memo processing or our point-of-sale quality control efforts, that can be extracted for everybody's benefit."
Instead of offering to the likes of Rosenbluth such cost-savings measures as automated corporate rate loading with the Airline Tariff Publishing Corp.
(BTN, Aug. 12, 2002), Northwest is bringing that option to its own Web site and Orbitz
(see story). The carrier also provides travelers with automated reissues online, another process improvement Rosenbluth is seeking with Galileo and the carriers. A Galileo official said it will make automated exchanges available by the fourth quarter.
The Momentum program was more attractive to Continental—despite the need for extra opt-in and negotiations—than Sabre's program because it requires agencies to take a hit, meaning all stakeholders are chipping in. In return, according to John Slater, Continental managing director of distribution planning, "Fare filing is a part of the agreement. We're committed to making sure those fares are in there for qualified Momentum subscribers, and we're testing it now."
"It's notable that Momentum, like the EveryFare program, requires travel agency participation, giving agencies a vested interest in reducing overall distribution costs, too," said the AA spokesperson. Both Continental and Northwest said they are talking with Sabre, but that Sabre's numbers are not enough even though its program includes all agency subscribers.
"The challenge with Momentum is that it's a multilateral negotiation," said Sabre chairman and CEO William Hannigan. "The pricing, as far as the impact in the GDS business based on how I look at Galileo's pricing and ours, is pretty similar." Though it does not directly require of agencies a cut in their incentive payments, Hannigan said he expects the DCA Three-Year Option to help slow the growth of incentive payments, which this year are about 9 percent higher year over year for Sabre, excluding Travelocity.
In general, carriers are weighing their commitments to programs that seek greater control over distribution—such as AA's EveryFare
(BTN, March 24), Northwest's World Agent Direct site
(BTN, Oct. 7, 2002) and Orbitz—against near-term cost savings afforded by the GDS programs.
"Granted, we're looking at every dollar out there, but we also have to maintain our strategic objectives," Continental's Slater said, "so we're balancing those." While participating in Momentum does not "jeopardize" strategic objectives, including its direct connection with Orbitz, Slater acknowledged that "by broadening the distribution of our content, it does slow down progress of alternative solutions" like Orbitz. "The consumer wants to make a choice on where to shop and not everyone will go to Orbitz."
Asked why Continental decided now to join the two-month-old Momentum, Slater said: "We wanted to test the waters to see how much agency interest was out there for this offer, how many got into it and how many inquiries we got. We have had some discussions with Galileo subscribers in and around our hub cities that showed they wouldn't get into it unless we were participating. It's safe to assume that having our participation will increase the agencies' adoption of Momentum."