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With airline-imposed fees and global distribution system opt-in programsscheduled to take effect at the end of the week, travel management companies and their corporate customers are scrambling to understand new distribution economics, prepare themselves for pass-through costs and accounting changes, and consider other possible sources of content. A dispute between American Airlines and Sabre--the largest respective players among airlines and GDS companies--lies at the heart of the confusion and epitomizes the schism between some suppliers and distributors.
Approaching a Sept. 1 deadline, the two sides appear to have dug in their heels; AA plans to charge $3.50 per segment for bookings made in Sabre and other non-preferred channels and Sabre plans to offer financial incentives to book away from American. Without some form of ceasefire, this latest travel distribution conflict will carry into the autumn business travel season and further affect corporate travel expenses and customer loyalties, especially for those organizations traveling to AA strongholds in Chicago, Dallas, St. Louis and other key business markets.
Among the latest developments:
Not among the latest developments is a new agreement between Delta Air Lines and Worldspan, though Delta has not communicated any new distribution fees.
All of these issues impact managed travel programs in different ways--depending on agency, GDS and airline affiliations--but the primary focus is on the American-Sabre impasse. "We continue to encourage AA and Sabre to reach an equitable agreement as quickly as possible," said Carlson Wagonlit Travel executive vice president Mike Koetting.
The situation is muddy for travel managers, especially if agency incentives from GDS operators had not previously been fully transparent. In a paper developed by its data protection committee, the National Business Travel Association told GDS companies that "we strongly recommend a net pricing structure so true costs are recognized and understood."
Beyond users of AA and Sabre, the result of changing distribution economics also is likely to be added cost. For travel agencies, those generally amount to the 80-cent incentive reduction. For many customers, that may translate to per-ticket fees levied by their travel agencies.
"Review the new costs presented by the TMCs to make sure that they accurately reflect the financial impact of adjusted incentive compensation from the GDS," NBTA suggested to member travel managers. "TMC fees should represent the cost of effectively managing the systems plus a fair margin, and should not continue as a repository of hidden revenues ... this is a revenue stream for these companies that should be openly discussed during contract negotiations."
NBTA recommended travel managers "prepare" their senior executives for the necessary budgeting of distribution costs, which for some large organizations could increase by hundreds of thousands of dollars. "Distribution of inventory is not free, and never has been free (just without cost to you)," the association wrote. "Treat it as a manageable expense, and manage this cost actively, not passively."
That may require additional reconciliation and auditing. Furthermore, any strategies to shift bookings to other carriers in an effort to avoid new fees could jeopardize airline discounts and overrides, and add fresh complexities to the daunting tasks of negotiating and fulfilling preferred supplier agreements.
NBTA also told airlines that if customers incur higher costs by being "forced" into a multi-inventory system, "it is likely that the free marketing information received in your monthly, quarterly or annual customer contract performance reports is likely to no longer be provided to you without cost."
"Proposing fees that have not been fully explained and clearly identified, or are not auditable by the end user, the corporate customer, is not a productive solution to the current GDS pricing conundrum," NBTA's paper continued.
Addressing travel managers at last month's NBTA convention in Chicago, Farelogix chief marketing and product officer David Cerino said, "We used to consider all the GDSs kind of the same, but now you have to look at them as different channels because they all are going to be providing different content possibly at different prices. You still want the same service and you want to make sure you can get access to all the same content, but the question is, are you really ready to take the fee increase?"
At least one carrier, Continental Airlines, characterized the current airline distribution turbulence as temporary. "Certainly there are a lot of challenges going on in the industry, a lot of upheaval, but customers ultimately will benefit from this," said managing director of distribution planning John Slater, also speaking at the NBTA convention. "If we can weather the storm and let things settle down--which I believe they will--you are going to be the beneficiaries of that."
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