The technology structure enabling managed business travelers to make airline and hotel bookings is governed by a Byzantine array of agreements on economics and scope. Since the United States effectively deregulated the global distribution system business in 2003, large airlines and large GDS firms have completed two rounds of negotiations--featuring harsh public commentary, threats and lawsuits--to provide travel management companies and managed travel clients with most of the relevant inventory and pricing. But those deals were hammered out only after a couple dollars of the cost of distributing a ticket shifted from airlines through GDSs and TMCs to buyers.
Most of the current airline-GDS agreements won't expire until 2011, but while GDS executives argue that airlines should perceive value in their $7.50 average ticket processing fees, airline distribution executives already are complaining about higher fees for bookings outside their home countries and the GDSs' challenges in displaying "ancillary" services.
The next round of negotiations is poised to be no less nasty than those of the past unless, many say, travel buyers do something about it.
In an idealistic but not altogether unrealistic call to action, attendees to The Beat Livein September concluded that corporate travel buyers could shape events in an effort to preserve the comprehensiveness of their preferred supply source--the GDSs--if they start now. It took years, noted Oracle Corp. global operations manager Rita Visser, but Southwest Airlines "finally" expanded its GDS participation in 2007 after "squawking from the corporate buyers."
"Is that what needs to happen?" Visser asked. "Quite possibly."
She said Oracle already has initiated a "whiteboard session" in which personnel from the company's travel agency, GDS, booking tool, corporate card, expense tool and procurement department will help the firm understand the distribution process.
"There isn't full disclosure on everything that's happening, nor transparencies in everybody's processes," said Visser.
Others at the conference agreed on the need for a new approach, including Farelogix CEO Jim Davidson, who called for "a real, live travel supply-chain working group" and "a frank and open discussion" about the actual costs of distributing travel and profits for the players.
[PULL_1]Part of the challenge is mistrust between profit-driven executives looking at their respective pieces of a limited pie. Another part is the practical constraints of hundreds of contracts between any given GDS firm or travel management company and their clients. If a TMC has a contract under which it passes a portion of GDS incentive income to a corporate client, how can the TMC agree to a suspension of arrangements in order to create a new model? This contractual "ball of yarn," according to Continental Airlines managing director for Latin America John Slater, got in the way last time around, when certain principals expressed a desire to break the cycle of one harsh negotiation after another.
Absent an unprecedented level of collaboration, the cycle won't be broken. The key questions once again will be: What are the airlines using to threaten disintermediation, and how legitimate are the threats? In 2003, it was Web-only fares. In 2006, it was so-called GDS new entrants. It seems that 2011 may be the year of features and attributes. In other words, airlines may withhold the ability to sell advance seat assignments, meals, special-fare programs or other ancillary elements of unbundled fares until they get distribution cost cuts.
Some other things will be different, too. Unlike in 2006, Sabre Travel Network is not the clear U.S. price driver among GDS firms. Travelport GDS now is a bigger rival, having bulked together Galileo and Worldspan in 2007. It is noteworthy that Sabre and Travelport have shown a difference in philosophy on how far to go to get content from reluctant airlines. Travelport has been more comfortable with arrangements that pass more of the cost to GDS users and their clients, as well as with solutions that require travel agents to pop out of their normal booking windows and into something more reminiscent of the Internet itself. That appeals to airlines that are hot on the new ancillary products and services.
Another difference is the much bigger Delta Air Lines, following its acquisition of Northwest Airlines. With that deal comes a near-term concern for GDS firms. Will the larger Delta now try to squeeze industry-best pricing for distribution as its merger gives the carrier the opportunity to renegotiate deals? An oddity there is that Delta's agreements expire in 2013, while Northwest's end in 2011. A Delta spokeswoman said the carrier is reviewing its GDS deals, talking to the vendors and "aggressively" seeking cost cuts "around all distribution components."