JetBlue Embraces New GDS Economics, But Southwest Won't Follow Suit
JetBlue and Southwest, the two largest domestic low-cost carriers that have garnered the bulk of their business through GDS-independent models, are diverging in their distribution approaches. JetBlue, which recently began re-listing content in third-party distribution channels, said the move has been a boon to its business. Southwest, meanwhile, plans to continue its direct-channel focus, noting that even amid improved airline economics, participation still would come at a higher cost than its direct channels.
Last week, JetBlue announced a content agreement with Amadeus, giving it representation in every major GDS. JetBlue returned to the channel following new agreements in which GDSs lowered airline distribution costs.
JetBlue CEO David Neeleman last month during the carrier's third-quarter earnings call said that since it reestablished content relationships with Sabre, Galileo and Worldspan, "we are getting a greater amount of business from those GDSs than we thought we were going to get."
Neeleman said about 66 percent of bookings coming through the GDSs is new business to the carrier. "These are customers that we've never seen before," Neeleman said. JetBlue anticipates participation in the GDS channels will add as much as $100 million in incremental revenue to its bottom line next year.
Neeleman also said that fares purchased through GDS channels "are about $35 higher per segment, net of the cost of being in the CRSs, than what we're getting from JetBlue.com." JetBlue reentered the GDSs largely as a way to court business travelers, and so far it appears to be paying off, Neeleman said. He noted that "a big chunk" of GDS bookings are coming on Tuesday, Wednesday and Thursday—prime time for corporate travelers.
JetBlue's touted success with the GDSs, however, has not spurred Southwest to immediately follow suit.
"We'd be foolish to make some sort of ironclad statement that we'd never do this. I don't want to say that, but I do think that, being a low-cost carrier, the deals have to work for us and maintain our low-cost distribution model. We just haven't seen those deals yet. If we were to see one, we'd absolutely consider it," Southwest Airlines vice president of marketing, sales and distribution Kevin Krone told BTN last week.
Krone acknowledged that the hub-and-spoke carriers have lowered GDS distribution costs this year. "For them, it's a big reduction," he said. "I can see why they're excited, but for us, it would be an increase in cost. Those deals just don't work for us."
While Southwest said the additional cost of GDS participation remains a barrier to its entry, JetBlue noted in a recent Securities and Exchange Commission filing that the resulting higher fares from participation "will more than offset the increased distribution costs."
After more than a year of nonparticipation, JetBlue in August returned to the GDS channel with the announcement of new five-year, full-content agreements with both Sabre and Galileo, followed by an agreement with Worldspan last month.
Southwest, meanwhile, has remained largely GDS-independent, participating only in the Sabre GDS to a limited degree. "We've been in Sabre for years, but that's really for brick-and-mortar travel agencies. There's no online distribution of us," Krone said. "We're probably in our about 20th year with them, but we've not paid to be in any other CRS."