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As the corporate travel distribution chain sorts out in the United States, travel managers, airlines and travel management companies are debating possible changes in Europe. More than 100 industry executives gathered at the National Business Travel Association Corporate Travel Buyer Think Tank here last week to discuss the possibilities of new TMC fees charged to corporate clients to fund increasing global distribution system costs, partial or full GDS deregulation and further content fragmentation.
British Airways head of corporate sales Richard Tams explained that the airline currently is in negotiations with GDS firms and that while nothing is assured, BA disfavors surcharges and cost transfer. [In the United States, airlines and GDSs developed optional programs in which the airline pays lower fees, but guarantees full content to GDS subscribers willing to help offset the GDS's revenue loss.]
"The principle around surcharging is transparency," Tams continued. "The end-user consumer can make decisions on whether they think that price is reasonable or not. They can also make the distinction between one GDS and another. To load those costs into the fare, which is an option, you lose that transparency and the cost of the GDS still remains very much hidden. That is not our preference. Our preference is to get lower costs. We believe the whole revenue flow (between GDSs, TMCs and suppliers) has to be looked at."
General Electric EMEA travel manager Keith Mullineaux agreed. "It is a pretty crazy business model that the GDSs have," he said. "It leads to a lack of transparency and a lack of objectivity when it comes to decision making. We pay our agent, we pay our self-booking tool, we pay Topaz for data and we pay for all the services we receive--except when it comes to the GDS. We would be very happy to pay our GDS, but in return, we would expect full content. We never really get to sit down and have that conversation because of the model being used."
For European corporate buyers, the situation could become even more convoluted, depending on the outcome of proposed GDS deregulation scenarios and the results of airline efforts to cut distribution costs. But for now, the status quo prevails.
"At the moment, there is no reason to introduce opt-in fees in Europe," said Carlson Wagonlit Travel executive vice president of global accounts and solutions Martin Warner, referring to the $2 per-ticket fee CWT is applying at U.S. points of sale. "The outcome of some current discussions between GDSs and airlines might cause me to change that statement. It is probably not wise to speculate on how those changes in Europe will materialize."
There have been some new "full-content" deals announced this year. For example, Lufthansa in August said Sabre "will become a Lufthansa preferred GDS ... Lufthansa's Web fares and Privilege Fares will also be available in the Sabre system to any travel agency that has met the airline's criteria to sell these fares." Other new "full-content" agreements announced this year included Sabre with KLM, Galileo with Virgin Atlantic, and separate Worldspan deals with Air France, Iberia, KLM, Lufthansa and SAS. None of those parties conveyed "opt-in" policies as part of those agreements.
Though the deregulation experience in the United States since 2004 could be instructional, the glaring difference is that Amadeus, Europe's leading GDS firm, is owned by a company that itself is part-owned by Air France, Iberia and Lufthansa. In the U.S., GDS deregulation did not materialize until the market's GDS leaders--Galileo, Sabre and Worldspan--became fully independent from previous airline owners.
"Very little will happen until the airlines involved divest themselves," said BA's Tams, noting that current regulations require Amadeus' airline owners to also participate in all other systems. "We are actually not in favor of regulation. The regulation as it currently stands is too heavy, and we would very much be in favor of lighter regulation, which is workable on all sides."
Tams added that in a deregulated environment, "suppliers should be allowed to get what they pay for. If they want to pay for [screen] bias [within GDS displays], for example, I would expect they'd pay dearly for that. And that's their choice."
On the buyer side, GE's Mullineaux said he opposes deregulation, as it could force a multi-channel scenario for corporations. "If the whole thing unravels, it will have a negative impact on fast transaction times, efficiency, control, leverage, you name it," he said, noting GE's current single-agency, single-GDS approach with CWT and Sabre Travel Network. "If we did not have access to full content, we would have to look at plan B. We don't have a plan B at the moment."
Mullineaux also said display bias would "distort" GE's lowest-fare-of-the-day policy. "We expect the GDS to be completely neutral," he said. "We made the decision to go down the route of a single GDS 10 years ago. It was the right decision yesterday and it is the right decision today. We look to our GDS to make sure there is no compelling reason to go outside [that channel]. Unfortunately, they have been letting us down. They have not kept pace with the changes in the industry. I am still an optimist and hope they can turn the tables to restore the position where we don't have to look at alternatives."
When asked if value-based GDS pricing--in which higher fees are levied on higher-yielding tickets--is a possibility in the European market, BA's Tams said GDS firms probably are considering it, but "to us, that is absolutely nonsensical. At the end of the day, GDSs are transactional systems. There is no more transactional cost for a high-yield ticket than there is for a very low-yield ticket."
Yet, as session moderator John Caldwell of Caldwell Associates noted, TMCs oftentimes use such strategies in setting client booking fees. "For example, in Europe on international multi-segment [bookings], the fully-loaded fee would be higher than, say, intra-U.K. fees," he said, "even though it may take the agent the same amount of time--or less time--to book the multi-segment international."
To that point, CWT's Martin said that charging a flat TMC fee regardless of ticket price can undermine managed travel programs. "If the ticket price is only 50 (whatever the currency) and the traveler sees the fee they are paying for travel management services, they are much more likely to try to escape," he explained. "With a number of corporate clients in some markets, we are actually asked to develop pricing strategies where [the fee] is almost a percentage of the ticket price, in an effort to avoid leakage from the corporate client program." He noted Australia, Japan, France and Germany as countries with large volumes of low-priced domestic air and rail travel, often "10 or 15 times" cheaper than intercontinental tickets.
To find even greater savings on domestic and intra-regional tickets, many travelers are drawn to direct supplier channels, a familiar development that could hasten European GDS deregulation. "The cow is way out of the barn," said Tom DePasquale, vice president and general manager of travel management services at Concur Technologies. "With over 40 percent of European inventory--50 percent if you count hotel and car inventory--already not in a GDS, the industry has moved beyond regulation."
DePasquale pointed to easyJet and more than 100 other carriers that "do not use a traditional GDS to run their business. It is a very expensive decision for them to put inventory into a GDS at all."
British Airways is using parallel strategies to address leisure and business segments. "If you look at the consumer/leisure side, it already looks as if the GDSs are history," Tams said. "Already we take half of our volume of bookings on ba.com. The percentage of our business travel we take on ba.com still is very small."
In any case, the European Commission soon will advance its analysis of the GDS sector. It is now "seeking an independent contractor to assess the economic impact of 3-4 different deregulatory scenarios of CRS reform on the various stake-holders in Europe," according to the Coalition for Fair Access to Reservations in Europe, a lobbying group funded by Galileo, Sabre and others. "This study could take place as early as October or November. Assuming that timetable is followed, the study would then be presented to the Commission in December or January as a discussion document for a public consultation that would include a hearing that would likely take place in February or March 2007, at the earliest."
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