Air Fees Spread: Continental, Northwest, United Match AA Charge For Nonpreferred Bookings

Continental, Northwest and United airlines in recent weeks matched American Airlines' $3.50 fee on air segments booked through nonpreferred channels, as three of the four global distribution systems further detailed programs that protect subscribers from such fees and guarantee content at a cost.

With these recent initiatives set to begin on Sept. 1, buyers, suppliers and distributors are a month away from a new distribution dynamic and the fruits of GDS deregulation. The new industry order shifts the cost structure of corporate travel distribution, as travel agencies—and consequently their customers—will foot a larger portion of the distribution bill and, given new agreements with distributors struck throughout the year, airlines will pay less to distribute through GDSs. In the meantime, several GDSs have yet to secure new content deals from all domestic legacy carriers—most notably, no deal exists between Sabre and American, the United States' largest GDS and biggest carrier.

United was the first to follow American in announcing a $3.50 per-segment charge, noting that bookings made through preferred channels were exempt. Continental and Northwest subsequently matched the $3.50 per-segment fee, also effective Sept. 1.

United senior vice president of worldwide sales and alliances Graham Atkinson said, "We didn't do this as a knee-jerk reaction. At the moment, we just want the facts to speak for themselves. This should generate a lot of debate and hopefully the dust will settle over the next few weeks."

At press time, neither Delta nor US Airways had implemented similar fee structures. "At this point, we have made no changes in our distribution strategy," a US Airways spokesperson said last week.

Buyers said these developments further exacerbate concerns over rising costs and content fragmentation.

During a panel presentation on the changing distribution landscape at the National Business Travel Association convention in Chicago, travel buyers showed a general sense of aggravation at the prospect of new costs. Tanya Pope, vice president of travel technology and operations at Viacom Corp. said the changes in the distribution landscape harken back to the introduction of commission cuts, which altered fundamentals of the corporate travel industry.

"I can't accept that this cost comes down to me as a corporate travel buyer," Pope said. "I can't take $1 million a year in additional charges."

One large-market travel buyer who requested anonymity said that while new fees may offset some distribution costs for carriers, it could come at the expense of corporate business.

"Typically in the past, preferred suppliers were biased in our system. We're not going to do that anymore," he said. "I don't think they've really thought through this. Marketshare is going to start moving all over the board. If there's content fragmentation, who's to say that share won't move to Frontier, JetBlue, Southwest and a lot of those that corporations have kind of shied away from?"

Sources said the fees essentially corral agencies and accredited Corporate Travel Departments to recently established GDS programs that offer protections from those fees imposed by the carriers that have agreed to new distribution terms. Many have labeled such programs as "opt-in," as subscribers elect to gain premium content and booking fee protections while agreeing to financial terms. Opting out means fees and incomplete airline content. So far, Sabre, Galileo and Worldspan have introduced such programs, all of which are scheduled to begin Sept. 1. Following AA's announcement of its planned nonpreferred-booking fee, also to begin Sept. 1, Sabre pushed back the start date for its Efficient Access Solution subscriber opt-in program from Aug. 1.

One of Worldspan's two new opt-in programs mimics those of Sabre and Galileo in giving customers "comprehensive content," while protecting them from fees imposed by "program airlines."

Worldspan's Super Access Product gives subscribers immunity from fees and access to content that "encompass schedules, availability, fares (including Web fares) and fare rules, including published fares the Program Airlines sell through their Web sites, third-party Web sites or other distribution systems," Worldspan said in a statement. "Program Airlines will also provide each participating agency or corporation with private fares that apply to that company's customers, as well as promotional fares, and select merchandising features as these strategies evolve. Super Access Product financial arrangements will be materially different than current arrangements for those who choose this product."

The second option, dubbed the Subscription Access Product, provides subscribers with "full content" from signed airlines, yet does not grant them immunity from fees airlines may impose. Subscribers that elect not to participate in either program can continue to access airline content, but carriers that distribute through Worldspan are free to restrict content and levy booking fees.

"Now that the airlines have released these fees, the agencies are understanding that we're offering a balanced offer," said Galileo Americas president David Falter. "We are working with them to help them think about the language that they'd use—if they're corporate agencies—with their own customers around how to pass these fees along to their corporate customers."

In addition to some flexibility for carriers to differentiate content for GDS subscribers who opt out of premium programs, unsigned deals between carriers and GDSs could further fragment fare access for agencies and customers.

As of press time, Delta and Worldspan had yet to announce a new contract, while the lack of a deal between Sabre and American denies a valuable piece of the puzzle to agency subscribers determining whether to opt in to the GDS's Efficient Access Solution.

In fact, Sabre and American can't even agree on what they disagree about. Sabre's Kroeger said the economics have been agreed upon, yet American would not match the GDS's definition of full content. Meanwhile, David Cush, AA senior vice president of global sales, in a letter to corporate clients addressed the new fee as well as its ongoing discussions with Sabre. "This premium is a necessary step to make the economics of distributing through our higher-cost channels, primarily Sabre and Amadeus, roughly competitive with the lower-cost channels. Despite statements to the contrary from Sabre, the absence of an agreement between American Airlines and Sabre is primarily due to economics and certain data-privacy principles about which American feels strongly."

Following the expiration late last month of a 10-year marketing agreement, under which American agreed to promote the use of the Sabre GDS, the airline has indicated through marketing messages and corporate advisories that without a contract it would push volume through other channels.

"American has invited a few of Galileo's sales organization to join them at their national sales meeting, so those American sales reps can become better acquainted with Galileo's functionality and value propositions," said Galileo's Falter. "This is a first for us, at least in recent memory. We've never really been included in that kind of conversation, whereas we know that Sabre's people have. If there's any sort of promise of a share shift, that's certainly the right kind of activity. This, of course, doesn't preclude them inviting Amadeus or Worldspan."

Furthermore, Amadeus has only signed one legacy carrier to new terms and has yet to introduce a refurbished program for agency subscribers.

The eventual consequence of the airlines' and GDSs' moves is a market marked by even further differentiation among distribution options.

David Cerino, chief marketing and product officer at Farelogix, said, "We used to look at GDSs as all the same, but now we have to think of them as different channels, with different content and different pricing."

Falter added: "Our belief is that the carriers want these opt-in programs to stick and if they need to use content discrimination to make sure the programs stick, that's what they'll do. Right now, it's very much a fee-based phenomenon."

"Your access to content is changing and could come at a higher cost," said FedEx global travel program adviser Susan Mays, suggesting buyers avoid long-term GDS agreements, demand truly full content and be open-minded about distribution alternatives.

John Slater, Continental Airlines managing director of distribution planning and electronic commerce, said TMCs will play a valuable role in consolidating content as it fragments, adding, "GDSs will end up with most of the content—not all—but most. And that will come at a price."