BA, GDSs Still Talking: Business As Usual Despite Much-Hyped Contractual Expiration

British Airways' contracts with global distribution system providers expired last Thursday without service interruption or BA immediately pursuing a substantially new course, as some in the industry had feared.

BA CEO Willie Walsh, in Tokyo during a Oneworld event last Thursday, would not detail the specifics of GDS discussions or the possibility of surcharges, but said he is "confident we'll get these issues resolved" and that "we continue to talk to the GDSs."

"We've got to have a structure that works," Walsh continued. "When you look at the value chain in the airline industry, we've struggled to generate levels of profitability that would be deemed acceptable. Other parts of the value chain, including the GDSs, have made operating margins in the double digits, and that shows me that something is wrong. We need to see a structural change, and I'm confident it will be resolved." Walsh noted that BA has been able to "significantly reduce" the cost of distribution in recent years, "but there remains more to be done."

"We have fares in our European operation at £29—inclusive of everything," Walsh said. "When you consider the rack rate for some of these GDSs, they can be as high as $7.50 or about £4. As a percentage of a fare, when you strip out all the taxes and charges, we're left with a fare of about £2 and you have a GDS charge that does not make sense."

BA executive vice president of the Americas Robin Hayes last week, prior to BA's global distribution system contract deadline, told BTN, "I'm almost certain we won't get deals with all of them, but we might get deals with some. I can't say whom. We want to have agreements with all of them, but we're only prepared to do that if we can find deals that make sense."

Hayes said for those distributors with which BA may not reach an accord, the carrier's content still would be distributed, but the carrier would be charged standard rates by the GDS. Additionally, Hayes said, "We'd be free to make decisions on how we're distributed and whether we'd charge a surcharge, or whatever you want to call it." If mutual terms are met, Hayes said, the possibility of surcharges goes away.

The outcome of BA's GDS negotiations has been considered an important indicator of how relations between other European carriers and GDSs will develop following last year's overhaul of the distribution model in the United States. In recent weeks, theories circulated suggesting BA is insisting on a non-negotiable discount from the GDSs of 50 percent because the airline would prefer to withdraw many fares and distribute them exclusively through its own Web site. A source involved in the talks said: "The scaremongering going on is predominantly fiction."

Meanwhile, the Business Travel Coalition last week sent a letter signed by 117 BA corporate customers to BA CEO Walsh, expressing concern about BA's "intentions to undermine the existing corporate travel procurement process by imposing new surcharges and withholding content from the global distribution systems."

A well-informed senior source said he anticipated BA and the GDSs compromising on the airline's original pricing demands. As a result, the GDSs will recoup some of their price cuts by implementing a surcharge to travel management companies. "I expect a U.S.-style type of resolution," he said. "BA can't do without the GDSs. They have agreed to the bones of it. They are just sorting out the details."

If so, TMCs inevitably would pass on the surcharges to their corporate clients. BA has indicated that it would ease some of this burden for its leading customers.

Corporate clients rallied by the Business Travel Coalition threatened to withdraw business from British Airways should new global distribution agreements result in booking surcharges. As signatories to a letter to BA's Walsh, such companies as McKesson, Oracle, Philips Electronics and PricewaterhouseCoopers would shift business to other airlines "that build their distribution programs around our preferences," if British Airways elects to withhold content and levy new charges. "We are writing to express our profound concern about your airline's reported intentions to undermine our existing corporate travel procurement process by imposing new surcharges and withholding content from the global distribution systems and the travel management companies and corporations they serve," the letter states.

BTC, the U.K. and Ireland's Institute of Travel Management and U.K.'s Guild of Travel Management Companies have urged BA to keep customers in mind when coming to new GDS terms.

"This could be an additional distribution cost, which we as the customer will have to bear," said one of the signers of the letter, Nicky Spence, ITM board director and commercial manager of travel for Smith & Nephew, a manufacturer of medical devices. "It is already difficult to manage corporate travel. This puts buyers and TMCs in a position where travelers could move back to booking on the Internet."

"If content is fragmented and travelers can't book through one medium, this could affect our whole program. We have responsibility to know where people are," said Alison Johnston-Ralph, global travel manager for Air Products, who also signed the letter. "The airlines should make sure all content is accessible through the GDSs. I am worried this may be a ploy to persuade corporates to book direct through BA.com. We won't do that because we want our TMC to be able to capture all of our data."

Meanwhile, the European Commission has issued a fresh consultation paper on whether to deregulate its computer reservations system code of conduct. Responses to the nine questions in the document are invited by April 27.

Isabelle Leroy, legal adviser to the European travel agents' association ECTAA and the Guild of European Business Travel Agents, said travel buyers should respond to the document. The response "will form the main basis of the Commission's opinion," she said, "because they don't seem to have fixed ideas on this subject."