In a pivotal development for Galileo's Momentum program, Continental Airlines today made official its decision to take advantage of Galileo's offer to cut by roughly 20 percent its segment fees in exchange for access to nearly all fares. Continental's decision, first reported late last month by
Business Travel News, gives it flat Galileo pricing for three years and millions of dollars in annual savings. It also means more than 38 percent of Galileo's U.S.-originated airline bookings are now included in Momentum.
Though United Airlines and US Airways already participate in the program
(BTN, Feb. 10), the inclusion of Continental boosts Momentum's value not only because the Houston-based carrier shares fewer customers with Galileo than the other two, but also because it has not sought bankruptcy protection.
"It is our hope airlines don't have to go bankrupt to see the light," said Galileo senior vice president of airline strategy Flo Lugli earlier this month at the Travel Commerce Expo in New York. "Otherwise, they'll continue to pay higher distribution costs. If it was all about cost, they'd be beating down the door, but I think it's all about controlling the marketplace."
Carriers including Continental are weighing their commitments to programs that seek greater control over distribution--such as American Airlines' EveryFare
(BTN, March 24), Northwest's World Agent Direct site
(BTN, Oct. 7, 2002) and Orbitz--against near-term cost savings afforded by Galileo as well as a Sabre program that this week added United Airlines
(BTNonline, April 14).
"Granted, we're looking at every dollar out there, but we also have to maintain our strategic objectives," said John Slater, Continental managing director of distribution planning. "So we're balancing those." While participating in Momentum does not "jeopardize" strategic objectives including Continental's direct connection with Orbitz, Slater acknowledged that "by broadening the distribution of our content, it does slow down progress of alternative solutions" like Orbitz. "The consumer wants to make a choice on where to shop and not everyone will go to Orbitz."
Asked why Continental decided now to join the two-month-old Momentum, Slater said, "We were negotiating the finer points of the agreement. Also, we wanted to test the waters to see how much agency interest was out there for this offer, how many got into it and how many inquiries we got." He added, "We have had some discussions with Galileo subscribers in and around our hub cities that showed they wouldn't get into it unless we were participating. It's safe to assume that having our participation will increase the agencies' adoption of Momentum."
Agencies representing more than a quarter of Galileo's U.S. bookings, including Casto Travel and Rosenbluth International, are enrolled in Momentum. The program requires agencies to give up a portion of their GDS incentives, a cost that could be passed to clients. Rosenbluth had said it would absorb a 50-cent per segment drop in incentives while pursuing cost savings through process improvements with participating airlines and Galileo.
Regarding such processes, Slater commented only on the desire by distributors for airlines to use more efficient options to file negotiated rates in the GDSs
(BTN, Aug. 12, 2002). "Fare filing is a part of the agreement," he said. "We're committed to making sure those fares are in there for qualified Momentum subscribers, and we're testing it now."
"There are opportunities to reduce as much as 45 percent to 50 percent of the costs of the fulfillment side of the business," said Lugli. "We're studying refunds, reissues, exchanges and other things that will make agencies more efficient and perhaps allow them to better focus on revenue-generating opportunities in packaging, vacation rentals or cruises."
Slater said the Momentum program was more attractive to Continental than Sabre's program because it requires agencies to take a hit, meaning all stakeholders are chipping in. Still, he said, discussions with Sabre continue. Sabre subscribers automatically are enrolled in its DCA Three-Year Option program
(BTN, Oct. 28, 2002), which CEO Bill Hannigan today said is an advantage.
"The challenge with Momentum is that it's a multilateral negotiation," he said. "That's not to disparage the offer. The pricing, as far as the impact in the GDS business based on how I look at Galileo's pricing and ours, is pretty similar."