Amadeus Trying New Pricing Scheme For 2004

Amadeus Global Travel Distribution late last month said that on Jan. 1 it will begin a "modest" but "complicated" program to charge airlines up to 10 percentage points more for "premium, intercontinental bookings or domestic and intracontinental reservations made outside an airline's home/prime market" than for "standard, domestic and intracontinental reservations made within an airline's home/prime market."

The difference reflects 5 percent cuts on standard and 5 percent increases on premium bookings in Europe, North America and the Middle East and Africa. Pricing on standard bookings in Latin America and Asia/Pacific remains unchanged, but premium reservations will be 4 percent higher than in 2003. Carriers can decide for themselves what is their "prime" market, but Amadeus said that most often would be their home country.

"We think these changes will be broadly neutral" in terms of the impact on Amadeus' revenues," said commercial executive vice president David Jones. North American COO Kay Urban would not comment specifically on the revenue impact in her region. "Some will see a saving, and some will see an increase," said Jones when asked about the effect on airlines. "We are trying to explain a direction we believe the industry has to move in, and if airlines can look ahead, what we're talking about can and should lead to some significant benefits for them in terms of reduced costs and improved value."

Amadeus also said it would introduce by 2005 an "itemized pricing arrangement for specific optional distribution services in line with the requirements of each airline." Next year, the Madrid-based global distribution system provider will test "reduced fee options for airlines to distribute selected low-fare content through specific reservation classes. Travel agents will be able to choose to participate in this program and could be asked to share in the distribution cost." Amadeus said its new 2004 pricing will not impact agency and corporate incentive payments.

Amadeus officials labeled "short term" the airline cost-savings solutions from Galileo, Sabre and Worldspan (BTN, Aug. 11). Sabre gave up tens of millions of dollars in revenues to achieve parity with other channels on content from more than 20 airlines. "Amadeus has resisted and become a higher-cost distribution channel, not to mention leaving their agency users at a disadvantage," said former Sabre Holdings chairman and CEO Bill Hannigan in October. "I'd expect our competitors to lose share in the marketplace if they do not step up."

"We've come to the view that the single booking fee model is at the end of its product life," Jones said. Urban expects "varied reactions" from the industry.

"Amadeus believes they are entitled to this fee without regard for what their customers think, even though everyone else now is 15 percent to 20 percent cheaper," said Northwest Airlines vice president of distribution and e-commerce Al Lenza. "It's rearranging the chairs, but at the end of the day we're paying the same as we did this year—where's the utility in that? I understand their logic, but Amadeus has not addressed distribution costs for airlines, and they haven't addressed Web fare issues for subscribers. They just don't get it. Amadeus either has to compete with the other three, or we will eventually bring them to parity one way or the other."