Rosenbluth International and its closest GDS and airline allies yesterday announced the industry's latest Web fares-for-cost-savings gambit, a program similar in purpose to American Airlines' EveryFare and an earlier deal between US Airways and both Galileo International and Sabre. The Philadelphia-based mega agency is betting that improvements, which lower the cost of such functions as refunds, debit memos and negotiated fare filing--plus some volume from previously unavailable fares--will make up for a 50 cents per-segment reduction in incentives it gets from Galileo. The Parsippany, N.J.-based GDS also is taking a 50 cents per-segment hit as the program offers airline participants, currently United and US Airways, a $1 per-segment cut in their Galileo costs.
Other U.S.-based Galileo agencies, as well as airlines that participate in Galileo's highest level of connectivity, are invited to participate in 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 yesterday.
Rosenbluth president and COO Alex Wasilov emphasized that the cost would not be passed to clients. "We're not planning on changing our pricing," he said in an interview today. Momentum is an adaptation of US Airways' earlier deal with Galileo 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 senior vice president of planning, Gregory Taylor, Momentum provides the airline "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."
Officials with American and Northwest airlines yesterday said they had not yet spoken with Galileo about the program. "The domestic airlines are digesting it, and we have some feedback," said Galileo vice president of airline sales Steve Diffley. "They like that it addresses the model." The model currently has Galileo--in competition with the other GDSs--paying agencies between 25 cents and $1.50 of the more than $4 that airlines pay the GDS company for each segment. Agencies often then pass the incentives on to clients, meaning customers are getting back a portion of what they paid in the first place for the fare. Sabre last week said it expects the rate of growth in agency incentives to be in the high teens year over year.
"This does appear to be another constructive solution to get players in the distribution process to address the issues of content and distribution costs," said a Sabre spokesperson of Momentum. "While we see the benefits, the challenge will be getting acceptance in the marketplace as a result of the complex negotiations required to get each agency to participate and agree to reduced incentives. Given the size of Sabre's network, we believe the DCA Three-Year Option is the most cost-effective solution for carriers."
Wasilov said smaller agencies may find the 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. More tangible, he said, is that "We've been given support to take costs out. Three things are helping offset the cost. 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." He said those include, "technology that will be put in place to automate the filing of private fares in the GDS," a process improvement that accelerated last year
(BTN, Aug. 12).In addition, Rosenbluth hopes to save by eliminating the need for such Web site screen-scraping solutions as TRX's Xpedition
(BTN, July 29). "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," Wasilov said. "It's not there yet because not all the airlines have agreed to participate. Airlines have held back access to inventory from the most profitable segment of their customers in trying to force some agreement that lowers their distribution costs. Our point of contention has been that this industry can save $1 in so many ways by investing a nickel, but no one's been willing to invest a nickel."
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.