The growth in incentives paid by the Sabre Travel Network to subscribers of its global distribution system slowed last year, according to Sabre Holdings' annual report published this month. With familiar pressures from airlines to further reduce booking fees and from new competitors claiming greater efficiencies, GDS companies will attempt to continue this trend for the foreseeable future as they craft programs with suppliers and travel agency users that lower or eliminate incentive payments.
Sabre said incentives paid to GDS users increased by $36 million in 2004, $11 million of which was attributed to "increases in the average incentive per booking driven by competitive pressure on renewals and conversions." By comparison, Sabre in 2003 paid $63 million more in customer incentives than in 2002, including $33 million resulting from higher average incentives per booking.
Cendant Corp. in 2004 paid $18 million more in GDS incentives than in 2003. Total incentive payments from GDS operators Worldspan and Amadeus were not made available but executives from both have been clear that escalating numbers are not sustainable.
"There must be some limit to incentives. We don't know where that limit is," said Amadeus executive vice president of commercial David Jones in a BTN interview late last year
(BTN, Jan. 17). "It is the end consumer that pays, one way or another. The question is, who does the charge come from?"
That answer comes in a variety of models, including wholesale arrangements in which agencies assume GDS costs and "opt-in" programs in certain non-U.S. markets in which travel agencies agree to lower incentive payments in exchange for full access to carriers in question. Sources suggested agencies will be asked to sacrifice that revenue stream to secure comprehensive content for customers, just as GDS companies accepted lower segment fees from airlines to defuse Web fare quarrels.
Sabre last year also introduced a program for smaller travel agencies that includes "a new structured incentive schedule that drives a slowing of the incentive growth rate." Sabre chairman and CEO Sam Gilliland late last year told BTN the program offers "more product in return for a better incentive model" and that customer renewal rates have not been negatively impacted.
"There is significant incentive pressure because the new entrants are incentive-less models," added Greg Webb, senior vice president of marketing for the Sabre Travel Network, referring to the likes of G2 SwitchWorks and ITA Software. "There is no question incentives will be reduced."
Corporate buyers are split on the issue of GDS incentives. A recent poll by the Association of Corporate Travel Executives showed that while 64 percent of 127 corporate travel manager respondents said GDSs should stop paying incentives to agencies and travel buyers, 29 percent said a rebate paid to their company still is "somewhat important." Only 9 percent of respondents, however, said a rebate would make or break their preferred GDS selection.