Amadeus' planned 2005 pricing model, announced last week, reflects ongoing change among global distribution systems as operators explore new economic arrangements that tie value to booking types. These newer concepts are likely to alter distributor-supplier-corporate client relationships, especially as content-for-discount deals between airlines and GDSs will begin to expire in late 2005.
Amadeus also is at the center of possible GDS consolidation. The company's airline shareholders last month narrowed the bidders to four, including Worldspan co-owner Citigroup Venture Capital US
(see story).Amadeus' pricing for 2005 builds on the initial value-based pricing concept formalized last year
(BTN, Dec. 8, 2003). Effective Jan. 1, it includes four booking fee categories—standard, standard plus, premium and premium plus—which make distinctions between "prime" market and out-of-market bookings and between short-haul and long-haul bookings. The company said per-segment fees in 2005 would range from E2.67 (US$3.55) to R4.90 (US$6.51) and would vary by airline.
"Fundamentally, suppliers have bought into the concept that not all air segments are created equal," said Amadeus director of marketing Owen Wild. "It becomes more viable with acceptance of similar approaches from other GDSs. We are onto something that should become an industry standard."
Amadeus also is formulating additional low-fare, full-content and a la carte menu pricing programs for airline suppliers
(BTNonline, Nov. 30).Base segment fees charged by the Galileo GDS in 2005 either will marginally increase or show no material change, varying by airline, according to Ken Esterow, executive vice president of supplier services at Cendant Travel Distribution Services. "We are moving away from the one-size-fits-all approach," he said. "We continue to refine pricing methodology by better linking price to value and cost."
Esterow said GDS pricing addresses just one element in Cendant's portfolio. "We envision evolving with a set of carriers where we have a very strategic, deep relationship. We will seek out making tradeoffs on the GDS fee to have those relationships," he said. "For a handful of other carriers, we may have a more contentious relationship."
Esterow also said Cendant is exploring the idea of differentating fees based on the type of booking but suggested "it may just be moving money around from one bucket to another."
The other GDS companies—Sabre and Worldspan—offered no details about their 2005 pricing plans but have said they also are exploring value-based and menu-based pricing models for airlines
(BTN, Nov. 8). "Sabre and Cendant believe a deregulated environment is a positive, as they are able to customize economics to the needs of the customer," said CIBC World Markets analyst Paul Keung in a research note last month.
In the meantime, GDS companies continue to work with many major U.S. carriers and certain foreign carriers under terms of content-for-discount deals. Those deals can be extended, allowed to expire or modified.
Cendant's Esterow said the fate of such deals would vary by GDS and airline. "A GDS that can offer a broader portfolio would take a more holistic approach," he said. "A GDS that offers only the GDS would be focused more on price."
"It is always possible that even before Web fare deals expire we would go back to the airlines and renegotiate a different deal," said Worldspan CEO Rakesh Gangwal, during an analyst and investors conference call last month.
"If we went from a $4 to a $2 booking fee, the GDS business would expand phenomenally. Long term, that is where the money is," Gangwal said. As such, cost-cutting "will be a never-ending process which manifests itself in our ability to reduce booking fees and improve the value proposition for airlines."
One way for GDS companies to lower costs is to reduce incentives paid to travel agents, although Sabre and Worldspan reported higher year-over-year incentive volume in the third quarter.
"Revenue sharing is really directing the price" of GDS segment fees, said Cendant Travel Distribution Services chairman and CEO Sam Katz, speaking last month during an investors conference. "An average, simple roundtrip on the Galileo GDS is $7.50. Large agencies are getting maybe $4 or $5."
"We believe GDSs will be looking to drive down agency incentives in order to maintain content and margin," said Michael Qualantone, American Express vice president of global distribution strategy. "This is evident in the new model Sabre has launched for small and medium agencies where they will provide lower incentives in return for improved content, functionality and access to other solutions. The challenge for GDSs is to maintain growth in a mature market where suppliers exert further pressure on their fees and margins."
Amadeus, however, in a press statement said changes to travel agency incentive models—including programs that charge for content—are "unacceptable in the U.S. and Canada due to the competitive nature of the marketplace." Amadeus, fourth in U.S. market share, acknowledged other regions "are primed" for such changes. Wild, meanwhile, said Amadeus' new 2005 program would not impact agency incentives and that lower booking fees do not necessarily correlate to lower incentive payments.