Buyers Eye Direct Connections

<B> Buyers Eye Direct Connections</B>

By David Jonas

With the growing appeal of reaping substantial cost savings by bypassing the GDSs, direct buyer-vendor links have the industry abuzz. Meanwhile, the airlines stand at various stages of readiness for implementing direct connections with some of their best corporate customers, in many cases through third-party technology providers.

While the idea is not new--a few car rental companies entered the fray early on--a renewed focus on cost savings, stemming in part from recent commission cuts, has travel managers looking more seriously at the concept.

As is the case with many new technologies in 1999, however, the vision goes far beyond reality, as roadblocks slow the pace of implementation. Said Management Alternatives president Carol Salcito, "Direct connections are here, but we're just not sure how quickly travel managers will move forward and actually see a cost savings."

Nevertheless, Oracle's E-Travel is gearing up toward the commercial roll-out of ETLink that will directly link corporations to Continental Airlines and other travel suppliers. Vice president of application development Rick Lifsitz said the company first is ironing out any issues through a pilot with Oracle's travel management, which is "seeing huge long-term savings by basically sharing intermediary fees between the customer and the suppliers."

According to Lifsitz, a wider rollout of ETLink is nearly underway. "From the feedback we have been receiving, almost every E-Travel customer is interested," he said. "It adds positive service and cost benefits." Currently, about 200 corporations use the E-Travel system.

Dave Hamilton, director of travel services at Fidelity Investments in Boston, while remaining interested in a direct connect facilitated through Oracle E-Travel, has yet to move to the service bureau arrangement, which he called "a contingent" of a direct connect. However, Fidelity faces many obstacles before the scenario can unfold, including buy-in from the IT department, Y2K and other testing and financial issues. "It's a bit like self-booking, where it might be good for selective pieces, but not for everything," Hamilton said. "Some standard trips are prime for being taken away from normal channels, such as simple and frequent roundtrips."

Aside from Continental, E-Travel is in discussion with a few other major airlines, and agencies and consumer Internet sites also have come knocking.

The ETLink product is the first in the market to use XML. "Depending on the supplier, we use different protocols, but overall, the architecture is similar in concept to what is being developed by the Open Travel Alliance," Lifsitz noted. However, it is completely transparent to the end-user because of a consistent front-end interface.

Lifsitz said the costs of using the system versus the traditional GDS model is one-tenth. "We charge roughly $1 per trip taken, which could include car, hotel and air," he said. "We don't charge for the reservation if the trip is not taken."

GetThere.com also is progressing on direct connects. While the tech provider already built consumer booking engines for the Star Alliance and National Airlines (see story, page 4), it still is developing its corporate solution.

Dan Whaley, co-founder and chief technology officer at GetThere.com, said the product, once developed, will address concerns raised by many of its corporate customers: Will they actually save money? Will they have access to Internet fares? Will they have access to all the data? Will there be a human agent available to handle after-hours problems?

"Now we are starting to have a critical mass of corporate clients--numbering between 50 and 80 in various stages of implementation--and supplier partners that control major market share," Whaley said. "The logical conclusion is bringing the two together."

However, Whaley is skeptical that the airlines actually will pinpoint and share the savings on transactions. "Major savings does not come from the actual direct connect, but in eliminating agency labor," he said.

Whaley also emphasized the need for standards. "The industry needs to mature," he said. "For that reason, we are taking a very methodical approach in our development and participating actively in the Open Travel Alliance to make sure we don't need to build things twice."

A few other companies are involved in direct relationships, including Siemens and its Pay-As-You-Fly program and Travel Technologies Group, which said it's "ready to go when the world is ready."

Andersen Consulting also has employed a direct connect system, Via World Network's, though it was developed before XML emerged and has not been rolled out to any other clients.

The availability of direct links is particularly timely in light of the latest commission cuts. "It is the last bastion of savings," Lifsitz said. "Now the industry is moving to the next item, which is a combination of cost savings methods with an enhanced user experience with online travel reservations that is more efficient than calling the agency."

With these systems coming on the scene, many in the industry predict the emergence of direct connections is primed to accelerate. "Over the next year or two there will be fast movement to direct supplier deals," said Steve Cossette, vice president of global supplier relations at American Express. "We're at the beginning of a whole new cycle, and the Internet and electronic ticketing are the foundation." He added that direct links, once they take hold with larger volume accounts, will provide a lower pricing structure and facilitate emerging options such as pay at lift. "You'll see experiments in peeling off segments of the business where it makes sense," and all kinds of new arrangements "where everyone bypasses everyone else to get economies of scale that save cost."

Bob Langsfeld, consultant with The Corporate Solutions Group, said there are "a handful" of corporations testing direct links with the airlines. Likely candidates are ARC-accredited corporate travel departments.

"The natural advantage of a CTD appointment is having a unique ARC number," said Andrew Menkes, vice president of global travel management at Republic National Bank in New York and a pioneer in the CTD development. "The Internet gives all kinds of opportunities for a CTD to create direct relationships, both financial as well as transaction processing." While Menkes is exploring these opportunities, he said the savings on GDS fees would not be enough to substantiate moving forward. "There needs to be more of an advantage, be it financial, service or productivity."

From the airline perspective, the hundreds of millions of dollars incurred by GDS fees is ripe for removal. At Delta, Steve Scheper, general manager of agency and corporate program development, said the carrier is progressing on direct relationships by nearing agreements with third-party vendors and "pushing hard" with corporate clients. "A large portion of the marketplace wants the ability to apply corporate policy with a booking engine," he said. "We have several letters of intent and are working out the remaining issues." Delta expects to announce strategic alignments with tech vendors in the first quarter.

Continental is taking a similar approach. Ellen Runyon, manager of electronic product development, said, "We are working on links with third-party software providers. The scenario is that we work with as many of those vendors as possible, and they go out to corporations." Indeed, that script already is being played out with E-Travel as the first facilitator.

According to Paul Leyh, US Airways' global director of corporate programs, that carrier has "three or four quasi-extranet links" with corporations that include access to negotiated rates. "Corporations are concerned about their firewalls, but slowly you'll see them come around because they see the value of it," he said. "And we want to help them find solutions to the challenges." However, at press time, US Airways officials said direct links with corporations had yet to progress beyond the developmental stage.

Northwest, too, is actively exploring direct links. "As GDS fees escalate, it's useful to have more tools in our arsenal as a deterrent or an alternative," said Al Lenza, Northwest's vice president of distribution planning. While linkages with corporations haven't progressed from the drawing board, the carrier is studying the feasibility and value of providing agencies with the capability to book directly for their customers.

There also have been other developments where carriers established direct links with buyers, mainly through extranet connections that provide, above all, a communication tool. British Airways, for example, began using extranets with at least 12 customers earlier this year (<I>BTN</I>, June 7).

Despite the high degree of interest, hurdles remain. "The problem with the airlines is that there are not enough software tools out there that will allow an orderly direct connect," Langsfeld said. "Capturing the data for a corporate travel management function hasn't been completely determined." Also, Langsfeld noted that the logistics of changes to tickets issued apart from existing reservations systems can be problematic. Furthermore, payment and remuneration functions need to be integrated in some fashion to provide real value for buyers.

While the parties involved work through those and other technical problems, each corporation also must evaluate its own justifications for pursuing such a channel. For starters, there currently is no option for shopping around or evaluating comparisons through a direct connect, and it may work well with only certain city pairs.

"The GDSs provide value to the reservations process, such as low-fare searches, connections to many vendors and options for pricing. You can't replace that overnight," Whaley said. "People with direct connections might be ignoring a few of those pieces."

Also, the airlines likely will not divvy up any cost savings with corporate clients unless they receive something in return. "I would not count on sharing in those savings unless you can move considerable share from one supplier to another," said WizCom president Flo Lugli.

Langsfeld pointed out that a true direct connect is merely a tool. "It's just one piece of the process that still needs to be managed, and alternate distribution channels must still be in place so you can slice and dice." Even so, he acknowledged that "there has been enough tech growth--and more on the way--to enable distribution channels to be managed by the buyer as well as the supplier."

Lifsitz compared the evolutionary path with that of online booking systems. "Three or four years ago, people began talking about using those products, and today almost everyone is considering it," he said. "Shortly, the technology of direct links will be integral to purchasing decisions for anyone using or considering an online booking system.