Deconstructing TravelBahn
Charles Petruccelli, president of American Express Business Travel, last week spoke with BTN editor-in-chief David Meyer about how Amex's TravelBahn platform is keeping its users shielded from paying distribution pass-through fees charged to nearly all other North American travel management customers.
BTN: Are all of your clients exempt from pass-through charges?
Petruccelli:It's only for the clients who have accepted to be on our DS platform and our online booking contracts.
BTN: Is that the majority?
Petruccelli:The majority of our clients, effectively. We offer them the possibility to do so at their time of renewal. We are not forcing anybody.
BTN: As for the nonparticipants in that model, are they paying the segment fees?
Petruccelli:Yes, absolutely.
BTN: Do they pay the industry standard of $2 per transaction?
Petruccelli:Exactly.
BTN: Were you the conceptual architect of TravelBahn DS?
Charles Petruccelli:I am not the architect. It was the team led by Andrew Winterton that structured the concept. I liked the idea as soon as I heard about it. We worked on it a little bit more and made it work. It is a three-year-old idea, which actually changes the model between the GDSs and the airlines enough that it allows us to control the relationship from our side. That gives us the possibility to not apply surcharges, because we are not being made to pay surcharges because our model doesn't work that way.
BTN: Andrew and the team developed the concept and came to you—
Petruccelli:Exactly. And the idea was, how can we avoid being caught between the airlines and GDSs in terms of their own economic model? What we tried to work out is a different scheme that would remove us from their debate. That was the idea behind TravelBahn. I don't want to be more precise than that because I don't want to explain it, because it's a trade secret. We signed the first airline, American, three years ago and then Continental and then recently United and a few others, of course, but these were the big ones that we signed that really make a difference.
BTN: My understanding is that to some extent this includes GDS bypass in that the transaction activity that would have gone through the GDS is going through this network. Is that correct?
Petruccelli:It is absolutely not GDS bypass. We do continue to work with the GDSs and the airlines but in a different format, but we still work with them. It's a different model, but it does use the GDSs for what they perform for us and it does use the airlines for what they provide for us in the way of content. We do not bypass the GDSs. There is no direct connect. That's why it's a smart scheme because we keep everybody in the loop. We do not disengage anyone and we do not bypass anybody. Our position in the industry has always been that the GDSs have been providing very solid, very capable and very sophisticated distribution solutions and content access. As much as there are other alternatives that are being developed to replace them with better economics for the airlines, we haven't been able to see how those alternatives, and we have done a very thorough assessment, could effectively replace the GDSs. But we wanted at the same time to extract ourselves from their economic debate. We worked out our scheme and we said, "We propose to you this scheme, with this technology that will allow you to play with us, but to play with us according to our rules so that everybody wins and nobody will lose."
BTN: Is it fair to say that it is a proprietary backbone with good long-term financial deals in place?
Petruccelli:I won't say more than that. Honestly, everybody is asking us about it.
BTN: Within TravelBahn, there is no technology aggregating content, correct?
Petruccelli:I won't comment on that. Every move we make in the industry is scrutinized, and rightly so, by our competitors, and then six months or a year later we find a claim there. We are very careful about what we will and we won't share.
BTN: Does participation in TravelBahn affect clients' GDS relationships?
Petruccelli:We just changed the model, right? The client serviced by Sabre will continue to be serviced by Sabre. That doesn't change any of the arrangements regarding content access and anything else.
BTN: Because you have this advantage at this moment, does that mean that this is a good opportunity to extend the life of contracts with clients?
Petruccelli:Clearly, it increases the ties that we have with customers and in some cases allows us to extend the length of contracts and even to win new business because there are some customers who are asking questions about the surcharge, what's in it for them and what other alternatives exist in the market. We've done it primarily in order to get a competitive edge—the problem in the industry is that everybody wants to remove cost out of the equation, which is a very sound and positive goal. When transferring the cost to somebody else in the value chain, you don't remove any cost. Who is at the end of the value chain? The customer. And we don't think that is a valid way of doing things. If you start entering into transferring of costs from one to the other, where does that stop? The old model was that the airline was buying my volume by paying me an override, buying it from the customer by giving him a rebate, and the customer was also going to the airline and negotiating that same volume for another rebate. In the end, it was the same volume sold three times. When we went to zero commission, I saw that actually as a blessing for the industry. We are going to stop selling each other the same volume and discuss with each other the value I create for my suppliers, my partners, and extend it to the value I create for my customers, and let me be rewarded for the value I created. This whole concept allowed us to rethink completely our business model and to, a certain extent, a natural evolution of that on the supplier side.
BTN: So it's a bulk-purchasing approach—
Petruccelli:I won't tell you more.
BTN: Directionally, where does TravelBahn go from here, to work with more suppliers or to work with other suppliers?
Petruccelli:And to continue to remove costs out of the equation.
BTN: Is there a technological investment going forward?
Petruccelli:More automated platforms, effectively.
BTN: Do those in the American Express Affiliates Network use TravelBahn?
Petruccelli:They could use TravelBahn, absolutely, but I don't know that we have any now using it. They would have to come under our contract, but they could.
BTN: Our understanding is that the European airline GDS contracts are up in 2007. Is this model applicable there as well?
Petruccelli:It is totally applicable in Europe, although it is different than in the U.S. because there are very strong ties between the carriers and the GDSs in Europe and so even though the contracts are for renewal, I don't think the challenge will be the same for Europe as in the U.S. We're keeping our options open there. Like in the U.S., the solution will come as a natural alternative if the discussion gets very intense.
BTN: Do you think it will be as intensive of a discussion as happened here or that it will move faster?
Petruccelli:I think the GDS-airline discussions in Europe will be a faster resolution process. In Europe, it's a market-by-market situation, and a lot of the markets do not have the same power of industry emotion that it does in the United States because of the size of the market and what is at stake for everybody.