Orlando - Following the expiration of federal regulations governing global distribution systems two weeks ago, GDSs are free to explore new relationships and pricing models with suppliers and other distributors. While no one in the managed travel industry expected an immediate, fundamental change in how corporate buyers, suppliers and distributors relate to each other, many already are positioning themselves for this new reality.
A gathering here of players in the distribution chain during the week after GDS rules expired generated plenty of chatter about the future of GDSs and the challenges they face from new direct-connect technologies. Executives from around the industry questioned whether the decades-old GDS model could evolve quickly enough to remain viable for suppliers, and travel buyers voiced interest in exploring new opportunities. If there was consensus, it was that changes to travel distribution would come rapidly.
Attempting to maintain relevancy, GDS companies recently announced partnerships and discussed plans for new models. Worldspan, for example, added American Airlines to the list of carriers providing full fare content to its traditional and online agencies, while Sabre disclosed initial efforts to sell display bias to suppliers and alter travel agency relationships. Meanwhile, GDSs seek to secure low-cost carrier participation by altering economic models
(see story)."All of our airline contracts are coming due at the end of the year, and we want to build strategies into the RFP process that take into account GDS deregulation," said Richard Wooten, director of corporate travel services for Lockheed Martin. "The GDS works, but there will be other avenues that we will look at as long as my travelers have the ability to book preferred vendors without being directed to other sites and as long as we can track it."
"In a regulated GDS environment, 15 percent of my transactions were not ARC, not GDS," said Robert McGurk, vice president of corporate travel services for Turner Broadcasting. "I think that will go up to 50 percent or 60 percent. How long, in a deregulated environment, can the GDSs survive? I need contingency planning."
For now, the GDS channel continues to dominate most managed travel programs. "Travel management companies and GDSs can work together to develop the technology that corporations need, but we don't have to do it yet," said Worldspan vice president Cheryl Weldon. "We are not in a meltdown phase."
"When July 31 finally arrived, it felt like a dud," said Ellen Keszler, president of Sabre Holdings' Corporate Solutions, referring to the official expiration of GDS rules in a speech to National Business Travel Association conference delegates. "Nothing seems different, but I believe some fairly significant changes are on the way for the travel industry in general and for corporate travel managers in particular."
At one extreme, changes could include GDS consolidation and/or major carriers pulling out of certain GDSs. "In five years, there will not be four GDSs playing the roles they play today," Continental president Larry Kellner told Business Travel News. "Some consolidation makes sense in that business, and the model will be dramatically different."
Rumors circulating around the NBTA conference included a renewed attempt at an Amadeus-Worldspan merger and potential acquisitions by either Sabre, Galileo parent Cendant or both. Indeed, speculators expect new partnerships between traditional travel management companies, Internet-based travel management companies and GDSs.
Major airline execs, meanwhile, publicly said they still want their products on all store shelves. This month, Worldspan announced an agreement with American Airlines, and an expanded one with United, to provide Worldspan's traditional and online agencies with expanded fare content.
Yet, similar agreements between nearly all major airlines and GDSs that traded full content for booking fee discounts will begin expiring late next year and airlines internally are deliberating their future participation in the GDS channel. Some already have developed corporate and agency portals that bypass GDSs.
"Suppliers can and will choose what GDS will get access to their best content and lowest fares," said Sabre's Keszler.
Meanwhile, technology providers are working to attract suppliers and buyers to new distribution channels that leave behind the traditional GDS model. One new company, G2 SwitchWorks, drew interest from agency and supplier sources during the NBTA conference but has not publicly announced its intentions. The company is thought to be working to gather in a centralized system various direct connections with individual airlines.
"The next GDS will be the one that integrates all the direct connects into one easy to operate graphic user interface," said National Business Travel Association chairman and past president Kevin Iwamoto.
Worldspan's Weldon acknowledged that legacy GDS platforms have limited capabilities, but said investment necessary for new, industrywide infrastructure today is prohibitively high. "We have legacy carriers that are not healthy and the ROI on technology change is not pretty over the next few years," she said. "The buyer is not willing to pay more to suppliers to make investment in technology."
While cost is top of mind for many travel buyers, it is not the only element. "It is a question of control," said Lockheed's Wooten. "Will the suppliers have the control or will managed travel programs control what suppliers are offering?"
Control has become a central issue in GDS deregulation as suppliers now can pay for display bias. Sabre in the second quarter, for example, conducted a test with two airlines using "several marketing and retail capabilities," according to Sabre Holdings president Sam Gilliland.
"Participating agencies shifted four to 10 points of share to those airlines in the 50 markets tested," he said during a conference call with analysts last month. "It is one example of us having discussions with carriers not solely on cost but on revenue and value creation, as well."
In a recent Securities & Exchange Commission filing, however, Sabre said it has "no immediate plans" to broadly pursue preferential displays.
An airline executive familiar with Sabre's test said display bias could reverse some trust placed in distribution systems by a sensitive corporate travel community. "Once the genie is out of that bottle, it would be hard to get it back in," the executive said. Furthermore, some financially troubled carriers may be unwilling or unable to lay out more cash for better positioning within GDS displays.
On the hotel front, Sabre has announced it will offer hotel companies preferential positioning for their properties for a price. In rolling out the Spotlight program, Sabre cited data showing a majority of agent bookings are made from the top third of the availability display.
The pricing is two-tiered. Hotels pay a flat subscription fee to cover the better placement when agents request a list of hotels in a destination, but not those available on a specific date. Hotels also are liable for a transaction fee once a date is requested, but only if the booking is made from the biased display.
The jury is still out as to whether hotel companies—which already control pricing on their own branded Internet and are providing inventory to various third-party merchant model sites—will find Spotlight worth the cost.
Travel managers, of course, can preference vendors based on travel policy and negotiated supplier agreements, both in online self-booking tools and at the travel agent point of sale.
Sabre also is exploring altered travel agency relationships. "Although the majority of our travel distribution revenues are from booking fees paid by travel suppliers, we recently entered into agreements that do not follow this traditional business model, and we are evaluating the desirability of more of these agreements," the company said in the SEC filing. "For example, we recently entered into an agreement in which we charge a transaction fee to the travel agency, rather than a booking fee to the travel supplier."
~Bruce Serlen contributed to this article.