Philadelphia - Rosenbluth International late last month joined Galileo International, United Airlines and US Airways in an effort to proliferate the exchange of airline Web-only fares for distribution cost savings. The mega agency is sacrificing 50 cents per segment in incentives paid to it by Galileo, while Galileo also is forfeiting 50 cents a segment, for a total of $1 in per-segment savings for the carriers.
Rosenbluth is betting that improvements lowering the cost of such functions as refunds, debit memos and negotiated fare filings—as well as some new volume from previously unavailable fares—will recoup the incentives it is surrendering. Galileo also sees the agreement as slowing disintermediation, which it calculates will erode 3 percent of its segments this year.
Other U.S.-based Galileo agencies, as well as airlines that participate in Galileo's highest level of connectivity, are invited to adopt the new program, dubbed Momentum. As part of Momentum, which begins March 1 for United and US Airways, carriers enjoy a three-year lock on Galileo pricing, mitigating the effect of a 2003 price increase that averages 2.2 percent, Galileo said.
As usual, corporate buyers are skeptical. "It all sounds good," said Mark Vilcsek, senior purchasing manager for travel services at National Semiconductor in Santa Clara, Calif. "But how long will it take before the agency passes along those fees to their clients?"
"We're not planning on changing our pricing," asserted Rosenbluth president and COO Alex Wasilov. Asked how the mega could forgo 50 cents on each segment booked with two of its top carriers through its top GDS, Wasilov touched on additional components of Rosenbluth's arrangements with Galileo and the two bankrupt carriers. "We've been given support to take costs out. We have agreements with the GDS to create technology to reduce our costs relative to things like refunds. We also have agreements with the participating airlines to create solutions to reduce costs. For example, we have a high cost associated with debit memos, and there are other similar things." Those include, "technology that will be put in place to automate the filing of private fares in the GDS," a process improvement that last year accelerated elsewhere in the industry
(BTN, Aug. 12, 2002).Corporate buyers resoundingly support improvements to these functions, depending on how they are made. Rosenbluth declined to provide additional details, citing through a spokesperson the inability before press time to get "consent from everyone in the partnership."
Momentum is an adaptation of US Airways' earlier deals with Galileo and Sabre in which the airline offered access to all fares in return for a 10 percent per-segment discount. No other carriers adopted that plan, and now US Airways will transition to Momentum. Meanwhile, Sabre's similar 10 percent program with US Airways, called the DCA Three-Year Option, recently added four smaller carriers
(BTN, Jan. 20).According to United Airlines senior vice president of planning Gregory Taylor, Momentum provides the airline with "a sizable reduction in our GDS fees." Sam Katz, president and CEO of Galileo International and Cendant Travel Distribution Services, in a press statement said, "We expect this program to gain momentum and magnitude as more airlines and travel agencies enroll, which we expect will happen soon." Galileo also "plans to consider applicability to other regions later in 2003."
Marc Casto, vice president of Casto Travel in Santa Clara, Calif., said his agency is seeking to sign with Momentum. Such a deal would complement Casto's participation in American Airlines' EveryFare program, which also is designed to cut airline GDS costs.
EveryFare provides AA's complete range of fares in return for shifting the payment of GDS fees from American to the travel agency. American pays agencies an allowance credit—currently about $4 per flight coupon—and agencies then pay to AA an amount equal to their own GDS fees. The allowance gradually declines during the term of the contract.
"After doing an analysis a couple of weeks after EveryFare took effect, we found the early indication is that between 5 percent and 10 percent of AA bookings are Web-only," Casto said.
According to TQ3 Maritz client Patty Gallant of I2 Technologies in Dallas, the return on investment for participation in EveryFare was $6,600 in the first month. For both Gallant and Donna LaMarca, director of travel and fleet services for Pearson Inc., with U.S. operations based in Upper Saddle River, N.J., the issue is largely a matter of assuring travelers the department can get the lowest fares—well worth the dollar TQ3 added to fees for bookings with all carriers.
Neither buyer said participating in EveryFare put off competing carriers, probably since both already were big AA customers, but according to Casto, "It depends on whom you ask within the airlines. Some viewed it as us 'lining up' with AA, but it's not an announcement of an intention to partner with one versus the other." He said United carries 40 percent of the lift from Casto's local market, twice AA's figure.
Most corporate buyers, meanwhile, are watching these developments from the sidelines. For some, the potential for market-based and/or regulatory changes
(BTN, Dec. 9, 2002) means decisions on GDS contracts also are sidelined, for the moment. "Will I jump into a five-year GDS contract today? Absolutely not," said Michael Hall, corporate travel manager for Milwaukee-based Johnson Controls, who noted his own bias as a participant in an Orbitz focus group. "The 'quadopoly' of GDSs all are fighting for marketshare, but giving away the farm in incentives and then charging the airlines. If you are paying for distribution and then getting part of it back, wouldn't you just prefer to pay less upfront? Orbitz changes the paradigm on distribution costs and has made other GDSs provide reductions to airlines, which will eventually bleed to the consumer."
GDS companies pay agencies up to about $1.50 of the more than $4 they charge airlines for each segment. Agencies often then pass some incentives on to clients, meaning customers are getting back a portion of what they paid in the first place for the fare. Sabre recently said it expects the rate of growth in the overall GDS incentive pie to be in the high teens year over year.
According to responses to an informal poll conducted by the Association of Corporate Travel Executives' press agent, buyer opinion is mixed on whether access to Web fares is a strong enough benefit "to be a deciding factor in a business agreement." The clearest result from the small poll, said the ACTE spokesperson, was that "this issue seems to strike utmost caution among respondents."
Perhaps more cautious are the travel management firms, for which GDS incentives have represented a significant portion of revenues. Like many agency executives, Casto initially was doubtful of EveryFare's terms. "What changed was the analysis of our costs to determine what we're spending internally on Web searches," he said, noting that his agency uses TRX's Xpedition Web fare solution. "Also, the 5 percent discount on some Y and W fares turned into a huge selling point."
Rosenbluth also said it hopes to save by eliminating the need for Web site screen-scraping solutions
(BTN, July 29, 2002). "We knew that by creating this scraping technology, we would force the industry into creating a GDS-based solution, and we knew that the technology would, at some point, become obsolete," Rosenbluth's Wasilov said. "It's not there yet because not all the airlines have agreed to participate."
Rosenbluth late last month announced the impending expansion of its TRX-based Web fares solution, called Web Central, to Europe and Australia. Other distributors also continue to pursue screen-scraping solutions even as they construct new arrangements to get Web-only fares into the GDSs. These efforts likely would not be wasted because they at least provide access to some increasingly popular low-cost operators that do not participate in GDSs.
TQ3 Maritz Travel Solutions this month made public the global launch of its Web Fare-It solution, co-developed with Alexandria, Va.-based Outtask, whose Cliqbook XA agency product uses FareChase of New York to scrape Web sites. Xpedition and Atlanta's AgentWare back WorldTravel BTI's Net Search. Meanwhile, Sabre's GetThere subsidiary is poised to launch a Web-fare solution of its own, which likely also will benefit Amex's Corporate Travel Online product.
American Express was even more reticent than Rosenbluth in announcing its Web fare program with American Airlines
(BTN, Dec. 9, 2002), saying only that Amex was helping reduce AA's distribution costs in exchange for Web-only fare access. An Amex spokesperson last week reiterated that the program—which she said is "on target" for rollout this quarter—will be available through all GDSs, despite rumors to the contrary. Companies holding their own GDS contracts "will also have access to these Web fares, at least initially," she said. "Over the longer term, as we transition to a more efficient operating model using the TravelBahn distribution solution, there will be a tradeoff in terms of efficiencies, so there may be an adjustment in costs."
As for Navigant International, its Santa Ana, Calif.-based Aqua Software Products subsidiary is preparing the final phase of its connection to Orbitz for "integrated booking capability on the agent desktop that will store the PNR data for tracking, accounting and reporting purposes," said Gina Keating, Navigant vice president of operations. "Aqua is already marketing Phase One, the mid-office product, and Phase Two, the desktop search, to other agencies. Marketing the last phase will follow after testing and validation."
Regarding EveryFare and Momentum, "we've looked at those programs and they don't make a whole lot of sense for us," Navigant chairman, CEO and president Ed Adams said last week. "We'd be giving up more than we can handle for something we get through Orbitz."
Wasilov said smaller agencies may find the Momentum program less attractive. "Small to midsize agencies will have a hard time absorbing the 50 cents, but at the same time they're getting value from some Cendant properties," he said, noting that part of the program offers agencies bonus commissions on Avis, Budget, Cendant's hotels and other units.
"That doesn't impact us at all since our clients are net-net," Wasilov said. Though he said Rosenbluth expects to increase its volume through GDS access to all of the participating carriers' fares, Wasilov did not know how much had leaked to the Web and emphasized the benefit of convincing travelers that there is a level playing field.
Rosenbluth plus Cendant-affiliated agencies generate 25 percent of Galileo's U.S. booking activity, according to Cendant. Wasilov said "a majority" of Rosenbluth bookings are made in the Galileo GDS.