BA Weighs Distribution Agreements, Surcharges

British Airways, facing expiration of its distribution deals late next month, said renegotiated agreements could result in booking surcharges for corporate clients. Travel management professionals carefully are watching BA's renegotiations, which they see as the bellwether for changes to European corporate travel distribution.

The U.K. and Ireland's Institute of Travel Management this week sent a memo to its members warning them of possible surcharges from BA as well as the withdrawal of content from GDSs. "BA have advised that, should negotiations with all GDSs not be finalized by the end of February, they will automatically move to paying full GDS content rates and therefore will review the inventory displayed through these systems," the memo said. "They have also advised ITM, however, that they will not remove total inventory from any single GDS."

"In discussions with ITM, they have also confirmed that that they will engage the buyer membership if the model is going to change. It is still possible that surcharging and content withdrawal will ensue unless agreements can be reached," the memo continued.

Richard Tams, U.K. and Ireland head of corporate sales for BA, acknowledged that corporate clients may well not escape a surcharge if their travel management company is hit by fees either from BA or a GDS. Tams hinted that the airline would seek ways to relieve clients of some of this burden should they face surcharges, although he would not divulge specifics.

"We are still trying to reach a deal with the GDSs to reduce the costs associated with their services to us," said Tams. "In their search for cost savings, GDSs need to take some of the pain and not transfer it all to the agent. We are well aware that [TMCs ultimately surcharging their clients] is a possible outcome, and any impact this creates has to be managed. I can't say any more than that, but we are well aware it has to be part of our plans. We need to assess how to minimize the impact. We are not oblivious to it."

Tams confirmed that BA has received requests from a handful of clients about establishing direct connections as an alternative to GDS distribution. "The technology has not been developed yet, but we think more clients will want to explore the possibility," he said.

Meanwhile, the U.K.'s Guild of Travel Management Companies has called for BA and the GDSs to agree to a deal that does not adversely affect corporate customers. "It's time the parties concerned realized the damage they could be causing to this industry," said GTMC chairman Paul Allan. "What we need is full content at no extra cost to the traveler and, of course, parity with the Web. It's what airline pricing surely already includes and doesn't need further debate.'

A senior European executive for one of the GDSs told BTN he expects to see similar deals in Europe to those in the United States. GDSs last year lowered fees to U.S. carriers in exchange for full content, with GDSs recouping some reduced revenue from TMCs and, in turn, from corporate clients. "These deals will translate to Europe to the bigger carriers, although not to all of the smaller ones because they don't have the negotiating power," he said.

Business Travel Coalition chairman Kevin Mitchell agreed that European carriers likely would try to recreate their American counterparts' distribution achievements.

"You have the makings of the entire year of 2006, leading up to Sept. 1, condensed into a two-month period at the end of February," Mitchell said of how he expects the European GDS landscape to shake out. "What BA wants to do is very similar to what U.S. carriers wanted to do. At one end of the playing field is the airlines' goalpost: They want the freedom to do what they want with content, and they want to pass as much of their distribution costs as possible on to their TMCs, then on to the end customer. On the other end of the field, you have TMCs that want full content at no additional cost and parity with the airlines' Web offerings. If the TMCs are effective, and if the associations and their individual members do their jobs, we'll end up somewhere at midfield."

Three years ago, the United Kingdom became the first country in the world where agents either had to pay a fee to a GDS to opt into a deal with BA, or pay a fee to BA for booking through one of its non-preferred GDS channels. Unlike the agreements hammered out between agents, GDSs and the Big Six U.S. airlines in 2006, this did not result in agents passing on surcharges to corporate clients. In the United States, corporate clients now are being charged an average of $2 per transaction for Big Six bookings made through the GDSs.

"I don't know what the other airlines are doing, but I believe our deals do come up for renegotiations before anyone else's," said British Airways executive vice president of the Americas Robin Hayes. "We are getting very close to a point where we do need to make a decision, so I imagine you'll be seeing more on this very soon."