Since American Airlines in October 2009 publicly divulged its plans to
move all indirect volume to direct channels, including the Direct Connect
program that already has attracted the likes of Expedia and Priceline, the
managed travel community has been trying to assess the potential ramifications.
Some travel management company and global distribution system executives and travel
buyers have suggested that by requiring TMCs to use its channel preference to
access full content, AA is forcing agencies to adapt systems and processes that
could jeopardize productivity. Carlson Wagonlit Travel, for example, has
indicated that since booking AA tickets outside GDSs would drive up operational
costs, it would assess a $3 per-transaction "search" charge applied on all bookings for those clients who wish to include AA in their shopping. An
additional $22 would be charged for bookings actually made with AA. CWT
president for suppliers, products and technology Andrew Winterton last week discussed the topic with Business Travel
Media Group editorial director Jay Campbell.
Campbell: The plan is to charge a $3 fee on
bookings made regardless of carrier if the client has asked you to search
American in that shopping process?
Winterton: If American is
very much more difficult to procure and the customer would need us to procure that,
because obviously not each search would result in an American booking, we need to
charge a premium across all bookings to account for that incremental time and materials.
Campbell: Clients need to decide whether to
search and book AA. Will clients have to indicate in a general way that they
don't want to book AA anymore, or is it case by case, like they want you to
search AA if the trip involves a flight to Dallas?
Winterton: There is a lot
of permutations out there. I think probably the way to categorize this is if one
our accounts asks us to look for and make sure that we search for American, whoever
ends up being booked there is an incremental cost, and we're looking to be remunerated
for that. If an account said, for all international flights, don't, then I think
as we go through this—and we are a little bit in the dark because we don't know
what will happen in the marketplace—we will do whatever our customers want. The
key message is that we anticipate a significant increase in our costs that, as a
low-margin, very high-volume business, we need to find remuneration for. So if customers
would like us to continue to make these complex searches, we are very willing to
do them, but obviously we need to be remunerated for that.
Campbell: If there is a search, is there a
charge even if there is no booking?
Winterton: It depends on
the economic model that exists with each client, so I think it is difficult to give
a binary answer there. In whatever economic model we have with customers, if through
what is happening in the marketplace our costs go up, we will be looking to make
sure we are remunerated for those incremental costs.
Campbell: CWT doesn't want it to come to
this; in other words, you want to continue to use the existing infrastructure.
But if it does come to this, how would you track these charges with all the
permutations, as you said? Is it a billing nightmare?
Winterton: I don't know
if it is a billing nightmare. What we sought to do is to anticipate, because of
the different announcements that have been made by these third parties, that we
are likely to be in a very cloudy period over the summer. We have done a lot of
internal research on what-if scenarios. This is where we have started to identify
that if we have to do this, this is how much time we anticipate it taking and, by
going through a normal model, that's what we estimate the cost to be. With our customers
we have formal contracts. So if we anticipate there to be any change in the charging
or in the remuneration, we obviously have to give them the appropriate notice of
what we have been doing. The pricing regime that we have indicated in those letters
is one that our business as it currently stands can support.
Campbell: Your letter to clients cited
"initial analysis" that determined new processing, technology and
other costs of "up to $25" to book AA if it was not in a GDS. So the
$25 is a top-end estimate? It's the high end of what could be the cost to deal
with this fragmentation, right?
Winterton: I don't really
want to say whether it's low or high, if you can excuse me there. It is a reasonable
estimate based upon what we know today. We have done a certain amount of high-level
estimates on building technical infrastructure to obviously automate what American
is looking for, and on a per-transaction basis, if we were to go down that investment
line, $25 a transaction is actually very low. So it really does depend on exactly
what happens, but we have looked at where we've had fragmentation in the market
in different parts of the world and we have understood the business process in place
to allow us to collect that information for our customers and to process the bookings.
And that is why we feel very comfortable that certainly for the foreseeable future,
and that's probably for the next 12 months or so, the cost indications that we have
given to our customers are fairly realistic.
Campbell: Is that cost analysis all-in,
including, for example, lost GDS incentives?
Winterton: I think it's
much greater than that. There are all sorts of business processes on how you get
data into the reporting tools and the data warehouses and how you get it consistently,
and into the back office and the financial reporting systems consistently, how you
deal with refunds and exchanges and schedule changes ... there's a huge number of
things that are very expensive when you change them in a large scale.
Campbell: How will customers tell you what
they want on AA?
Winterton: The decision
depends on the nature of the contract with the client, because obviously the contracts
vary depending on the scale of the clients as well, but if a small client in contract
with us asks us to positively search for American Airlines, we have notified them
through this process that these charges would apply. Obviously, at a larger corporation,
that would be a single decision maker or a single group, and for a smaller corporation
it's probably more a decision of the traveler or the travel arranger at the time.
Campbell: Will the agent or booking tool ask
the traveler if they want to include American in a search?
Winterton: I don't have
the technical solution for that in place at this time, but if that is what is required,
that is what we will be seeking to build.
Campbell: CWT mentioned to clients that no
online booking tool announced a solution for AA's Direct Connect, but you
probably read that Rearden Commerce will be building for it. Rearden is a major
CWT partner. To what extent is that a possible solution?
Winterton: I can't really
comment on what Rearden Commerce is or is not doing here, but our understanding
in how we are using their online tool is that it will not be able to deal with this
in the near term. I understand that there was an announcement about some relationship
that they made with American, but I don't think it was specifically a solution for
this issue.
—Lauren Darson assisted
in producing this article
Source: The Beat