The Sabre Travel Network in the coming months will begin offering a menu of value-based pricing options for travel suppliers participating in the Sabre global distribution system, a strategy conceptually similar to one employed this year by GDS operator Amadeus and those in development at other GDS companies. Following the U.S. Department of Transportation's move to deregulate the GDS sector this summer, "we can now base pricing on a variety of factors," said Sam Gilliland, president and CEO of Sabre Holdings, in a conference call last month with analysts. "Airlines will be able to choose based on their own characteristics."
Meanwhile, in an agreement reflective of changing GDS economics, fledgling low-cost carrier Independence Air began listing its availability in Cendant Corp.'s Apollo/Galileo GDS systems. "It really is a different world with deregulation and we could not have done this when we launched earlier this year," said a carrier spokesman, who cited "hundreds" of requests from agencies and travel managers to list in preferred channels. Like JetBlue and Southwest in Sabre, Independence Air is participating at Galileo's most basic level.
Network airlines are leaving no stone unturned in their quest to restructure as lower-cost operators. Gilliland, during a September presentation to investors, said airlines are "in some cases even demanding that we help them lower distribution costs." Citing the buzz around GDS-bypass channels, he asked, "Are there different ways we should help airlines distribute their product? We are viewing it with a healthy paranoia."
In the more recent call with analysts, Gilliland said the market's "rekindled interest" in GDS alternatives accelerated Sabre's new pricing strategy. He said discussions are ongoing with several airlines, and that individualized pricing options could be introduced during the latter half of 2005. Factors to be considered may include a carrier's orientation as either a short- or long-haul carrier, its share of bookings routed through the GDS, its use of products and services available from Sabre's Airline Solutions portfolio and listing hotel inventory from Sabre's Travelocity on its Web site.
Changes to pricing structures undoubtedly would further impact incentives travel agencies receive for using GDS systems. "Under the old model, GDS companies had been raising prices and then competing for travel agency customers by increasing the amount of revenue they shared with those travel agencies. That is not a basis of competition we are excited about," said Cendant Travel Distribution Services chairman and CEO Sam Katz, during a presentation last week to investors. "We are trying to replace that model by giving travel agencies other products and services they can make money from beyond revenue share."
The shift already has begun in certain foreign markets, including Australia, Canada and the United Kingdom. "We have good success so far in getting agencies to opt in," Gilliland said, referring to a Sabre-Air Canada program that asks agents to exchange lower segment incentive payments for access to nearly all of Air Canada's fares
(BTN, June 21).In the U.S. market, Amadeus in late 2003 formalized a value pricing structure that levies different fees dependent on the type of booking, with intercontinental premium bookings incurring larger fees than standard domestic ones, for example
(BTN, Dec. 8, 2003). It plans to announce additional pricing policies later this month.
Cendant's Galileo in early 2004 said it had altered pricing to better reflect revenue and costs generated by a given airline transaction
(BTN, Jan. 19). A Worldspan official confirmed the company's study of potentially new GDS pricing models but provided no details.
Some sources questioned the concept of value-based GDS pricing and raised concerns related to end-user costs, travel agency incentives and the GDSs' push to bundle their various services into pricing strategies. Others wondered how inconsistent pricing, both from one GDS to the next and within each GDS, would work in a commodity market.
"We are skeptical because this may just be a reshuffling of the deck and long-term stability and access to content is not assured," said Michael Qualantone, American Express vice president of global distribution strategy. "The value and the savings don't get to the customer." He said an airline saving on lower fees for short-haul, domestic bookings, for example, won't necessarily share that savings with the end user, while higher fees for long-haul bookings could be passed down the distribution chain.