Rapidly developing changes in economics and rules governing legacy airline participation in global distribution systems are forcing many travel managers to quickly sort out an immense amount of industry information. As a Sept. 1 deadline for decision-making approaches, GDS users and customers trying to understand what's going on are looking to industry advocates for help.
Boiling it all down isn't easy, but the American Society of Travel Agents and the Business Travel Coalition have taken steps, as have such vendors as BCD Travel. The BTC today posted an informative, if alarming, white paper for travel managers ( download here). Likewise, ASTA has offered travel agencies a presentation on the history and prevailing dynamics of the issue ( posted here). Meanwhile, BCD Travel this week posted a comprehensive matrix on the status of negotiations between airlines and GDS firms ( posted here).
According to these and other resources, with some exceptions and caveats, here are the bottom lines:
- Legacy airlines are threatening to levy $3.50 per-segment U.S.-point-of-sale booking fees(see "The GDS Threat" chart, in this issue) to get GDS users to accept hits to their GDS incentives of as much as (or more than) 80 cents per segment. As part of the GDS companies' various new programsdescribed as "optional" or "full content," these GDS-imposed incentive reductions or related fees allow for hefty discountsoff the prices that carriers pay to GDS companies for distribution. According to BCD, "it is estimated that some [airlines] could save 20 percent to 30 percent in distribution costs" as a result of new five- and seven-year content agreements signed this year with GDS firms.
- The expected reductions in GDS revenue paid to travel management companies--by $3.20 per roundtrip connecting itinerary (which is four segments), in contrast to $14 per roundtrip connecting itinerary that the new airline fees would generate--already prompted some TMCs to choose the lesser impact and make clients responsible for covering its added cost. For example, the newly merged Carlson Wagonlit Travel and Navigant Internationallast week told clients they would be charged $2 per ticket--evidently using a business-traveler average of 2.5 segments per trip--for bookings that are part of the GDS companies' new "optional, full content" programs. ASTA has even offered agency members a boilerplate document they can use to inform clients of increases in their agency transaction fees.
- TMCs and other GDS users are beginning to acceptthe 80-cent hit, not just to avoid the $3.50 airline fees, but also--according to GDS companies--to secure commitments that participating airlines would not remove private or published fares from the particular GDS channel with which they are working. Without accepting the new economics of "optional" agreements, GDS firms say, users may be subject to airline price and inventory discrimination.
- The lack of agreements on the two most prominent legacy airline-GDS relationships--respectively between American Airlines and Sabre Travel Network, and Delta Air Lines and Worldspan--makes a mockery of the already iffy Sept. 1 deadline for the activation of all new programs. BTC suggested that travel managers may yet have time to make an impact; many TMCs say they are still negotiating with GDS companies and/or carriers.
- Corporate clients have begun pushing back, some speaking quietly about responding to what they see as the legacy airlines' bad-faith move by shifting international bookings to foreign carriers--hitting the U.S. airlines where it hurts most. Others are speaking more openly, frustrated that airlines do not simply raise fares if they cannot make money at current distribution cost levels.
The likes of BTC are attempting to wake up travel managers to the importance of this issue--some saying the impact lies well beyond the potential for thousands to hundreds of thousands of dollars in added operational costs. The issue, some say, illustrates a direct attack on the very function of travel management.
According to MacNair Travel Management president and CEO Mike MacNair, "More businesses will give up on travel management because they cannot understand or defend what is going on in the industry. All travel suppliers would have no one who cares to talk to them about travel management, market share, etc., and this will continue to hurt our industry (TMCs, GDSs, suppliers and especially the companies and their travelers)." Suggesting some TMCs would go out of business if they fail to pass on the added costs to clients, MacNair said, "I worry [about] who will support these folks on the road in the instances of strikes, storms, terrorism threats, etc., if few distributors reign the marketplace."
BTC's white paper--which was peer-reviewed by 180 travel professionals including more than 25 travel managers and travel management company executives who put their names on it--characterized the issue in stark terms.
"The really bad news for senior management would be if the champions of content fragmentation, airlines, were to win the battle," BTC wrote. "In the near term, that would mean new levels of complexity, expensive workarounds and higher fares paid. In the longer term it would mean a loss of credibility of corporate managed travel programs and significantly higher overall total costs for business travel-related activities. This is a battle that travel managers cannot afford to lose, much less be on the sidelines during."
Related Resources:
ASTA presentation
BCD matrix
BTC white paper
Upcoming BTC seminar
NBTA FAQ
NBTA letter
NBTA white paper