United Airlines' proposal last month to its top travel agency partners regarding use of alternate distribution systems drew mixed responses from agency executives and industry observers. Many praised the airline for bringing new possibilities to the forefront but voiced apprehension about inability to aggregate content, the logistics of moving transaction volume and the economic impact on relationships with global distribution systems and corporate clients. Meanwhile, new distribution entrants G2 Switchworks and ITA Software claim they are building systems that soon will offer agents new features and customer benefits at a fraction of the cost of existing GDSs.
United is offering a per-ticket incentive of up to $5 for early-adopting travel agencies that shift bookings from legacy GDSs to newer systems. Graham Atkinson, United senior vice president of worldwide sales and alliances, last week reported strong interest among top agencies. "We have to look at ways to encourage adoption for an industry which has a different remuneration model than the one we are trying to develop," he said.
To be sure, no one—including United and the new companies with which it is working—expects agencies to migrate huge booking volumes to newer distribution systems in the short term. In discussions with BTN, executives at large travel management companies applauded United's collaborative approach and kept open all options, but generally favored the existing GDS model.
Nevertheless, new options offer the promise of efficiency and the potential leverage to lower distribution costs. Airlines would be primary beneficiaries, as they would lower per-ticket costs from the rough range of $8 to $15. Agencies and corporations also may find advantages in accessing specialized content and securing benefits not available to those unwilling to shift bookings.
"The restructuring of override programs is one way to radically change agency behavior," suggested Barry Rogers, a senior consultant with TCG Consulting in Chicago. "If those programs get tied to alternative distribution systems, you may see the large agencies looking not at whether they should use new the options, but how to use them."
"United hinted it may offer better fares through new distribution systems," added Bill Tech, president and CEO of Omaha, Neb.-based Travel & Transport. "If they do, we may need to be a part of it to get those special fares. We have to be prepared for that."
Whether the lure is added financial incentive, exclusive content or the potential for increased productivity, travel agencies said they need a strong business case along with requests from corporate clients before committing to new distribution channels.
"There has to be more discussion than just 'here's your 5 bucks,' " said Dee Runyan, WorldTravel BTI executive vice president. "What United is doing is making sure that dialogue is starting."
She described the $5 figure as a "magic number," a rough per-ticket distribution cost to the airline that American Airlines' EveryFare program
(BTN, Oct. 7, 2002) and Northwest Airlines' shared GDS fee
(BTNonline, Aug. 24, 2004) each tried to achieve. The difference with United's $5 proposal, however, may lie in the evolving mindset of the market and the status of new technologies.
Several third parties now testing new distribution systems are adding content providers and preparing commercial launches
(BTN, Aug. 25, 2004). G2 Switchworks is thought to be within weeks of a formal release and Outtask early next month will offer a new version of the Cliqbook corporate booking tool incorporating ITA Software's faring engine. Outtask CEO Tom DePasquale said the system would be equipped to handle more direct connections with airlines, but "it may take three to six months to go customer by customer, understand their travel needs and have them understand the new functionality."
"We have agents who issue tickets with our software and some with their software linked to our software," added ITA CEO Jeremy Wertheimer. "We are not looking for agencies to make big commitments, but just to try new things."
These third parties are drawing interest from several major airlines keen on minimizing reliance on existing GDSs. "We wholeheartedly endorse new competition," said John Slater, Continental Airlines managing director of distribution and e-commerce. "It is in our best interest to help these new systems get traction and to help agencies use those new systems."
Despite airline intent to use new entrant distribution systems, many travel agencies are decidedly unconvinced. They question the breadth of content they will access—as compared to the hundreds of airlines, hotel chains and car rental companies available in existing GDSs—the true data capabilities they provide for point-of-sale and back-office functions and the degree to which United's offer would offset GDS incentives. Not only is $5 in some cases insufficient to cover per-ticket GDS payments to agencies, but volume targets associated with GDS contracts also would be jeopardized.
"I would never in my distribution role be able to take $5 in order to offset all the costs when the biggest impact is going to be to our customers," said Michael Qualantone, American Express vice president of global distribution. "Are we just truly advocates for the GDS? No. We are advocates for the distribution methods that best meet our customers' needs, keep costs down and give the greatest access to content. These newer systems don't have the proven technology nor the scalability to take on some of these volumes."
"We don't believe that the alternative distribution channels are ready for prime time yet," added Michael Steiner, executive vice president at Ovation Corporate Travel. "Until we are able to have equivalent content in those tools, it is going to be challenging for us to really look at them as serious competitors to a GDS."
Those agencies trying out the newer technologies also would continue working in tandem with existing GDSs in order to serve clients, a development some said would hinder rather than help productivity.
Furthermore, United's Atkinson acknowledged that per-ticket incentives are a temporary means to promote adoption of GDS alternatives, causing some agency executives to eye the initiative with skepticism.
Tower Travel Management president John Smith summed up the tough questions travel management companies now face: "Agencies that do not tap into these systems may be at a competitive disadvantage and those that do may have workaround challenges."
The bottom line, agency executives said, is properly collaborating with and servicing customers. United said it has not made any offers to corporate clients based on alternative distribution, but it may have to do so to get the ball rolling.
"The shoe that didn't drop at the United meetings was: What will airlines offer corporate clients to make them demand this new path?" asked Outtask's DePasquale. "They may need to come up with corporate carrots: reduced change fees, longer void periods, higher discounts and other things attractive to corporate travel managers. Each airline will look at it differently."
Others also suggested corporate clients either could receive smaller benefits, or perhaps none at all, unless their agency of record accepted United's offer. Though such strict measures appear unlikely for now, some corporate buyers nonetheless are proactively assessing their options.
"It has made us take a new look at our strategy," according to Richard Wooten, director of corporate travel services for Lockheed Martin. "We don't want to shut ourselves out of some lower ticket prices if it's coming through another distribution channel, as opposed to a certain GDS. We have to position ourselves to take advantage of an open marketplace."
Several large agencies, too, are developing distribution alternatives that lower suppliers' costs—with the potential to lower clients' rates—while minimizing dependence on any one GDS
(BTN, Oct. 4, 2004). They include the American Express TravelBahn Distribution Solution, direct connections into Carlson Wagonlit Travel's Symphonie platform and new developments at WorldTravel BTI. "We have been working toward a complete overhaul of our transactional infrastructure for a while, where it is Web-based and everything resides in large part outside of the GDS," Runyan said.
Corporate booking systems such as Sabre's GetThere claim they can access multiple content sources—including all GDSs, various supplier Web sites and other supplier-direct connections—and already offer profile and passenger name record technology being touted by the new entrants.
Executives at GDS operators also questioned the value of the newer systems versus their proven technology. "There has been no real definitive information on pricing or functionality," said Sabre Holdings chairman and CEO Sam Gilliland, during a conference call last week with analysts. "These are products looking for a market."
"Agencies would have to significantly change pretty sophisticated business processes," added Ken Esterow, Cendant Travel Distribution Services executive vice president of supplier services. "A focus on costs is understandable, given airline financial challenges, but if the focus is narrowly applied to just GDS fees, that doesn't put the airline, the agency or us in a very good position."
Nevertheless, some sources suggested new entrant system may at least prompt GDS operators to competitively lower segment fees—an outcome similar to EveryFare's lead to content-for-discount agreements still in place between airlines and GDSs.
"The role new entrants play are the catalysts for supplier discussions with us," said Worldspan senior vice president of e-commerce and product planning Ninan Chacko. "There will be different economic terms-renewals or extensions or replacements of existing agreements."
Chacko said GDS deregulation has fostered new business models, such as technology service agreements under which system users are not charged for supplier bookings. One such agreement is in place between Worldspan and Internet booking portal Hotwire.
All GDS operators seek opportunities to improve efficiency, leverage distribution portfolios, develop new supplier tools and maintain key positions in the market.
Though their dominance has eroded in recent years, primary GDSs in aggregate still account for more corporate airline bookings than any other distribution channel and retain significant influence.
According to Ovation's Steiner, "It's not the functionality, per se, of the GDS that's in question, it's just the economics. I'm hard-pressed to think the GDSs don't recognize that and, when decisions have to be made and the economic pressures become too great, they won't adjust."
~Jessica Kirshner contributed to this report