Travel managers this week are working with their travel management company partners to evaluate Sabre Travel Network's optional program that, starting Aug. 1, would offer to Caribbean and U.S. points of sale comprehensive access to fares and inventory from several airlines, and protection against any global distribution system service fees those carriers may impose.
The program comes with a cost in the form of reductions to incentives the GDS company pays system users. Sabre executives did not disclose the amount of the incentive reduction ( see 5Q), but The Beatreported last week that the reduction would be 80 cents per segment unless existing payments are lower than $1, in which case the new incentive would bottom out at 20 cents.
The impact on agencies or corporate users that decline to opt in remains unclear, but the implication is that they could lose access to certain airlines' content or be subject to charges not unlike the controversial GDS fee floated by Northwest Airlines in 2004.
STN developed the program in conjunction with new GDS participation deals it signed in recent months with AirTran, Continental, Delta, Northwest, United and US Airways, in which those airlines enjoy substantial discounts to the booking fees they pay Sabre.
Cendant's Galileo last week said that although it is opposed philosophically, "industry dynamics" mean it is considering a similar model; earlier statements from Worldspan indicated it, too, has "optional programs" in the works. Neither of those GDS firms has detailed their respective programs.
"We are imagining that other such programs will be announced over time," said Sabre Holdings chairman, president and CEO Sam Gilliland at a Bear Stearns conference this week. "We have had some perspective that some [competitor] agreements do not have the same types of protections we have negotiated in these agreements for customers. We'll see."
Similar to the way the reduction in airline commissions over the past decade caused TMCs to rework deals with clients, the new program is expected to put upward pressure on fees that customers pay to TMCs. In general, TMCs and travel managers contacted by Management.traveldeclined to officially comment on the program, since they are still working out its impact. Officials with BCD Travel, Carlson Wagonlit Travel and Navigant International did not immediately respond to requests for comment. American Express, however, said it supports the program.
"At long last, this is a way to step back from a lot of the distribution rhetoric and noisy challenges to ... where we can make a business decision," said American Express Business Travel senior vice president and global leader for supplier relations Andrew Winterton. "We need to encourage a strong debate, rather than knee-jerk reactions."
He said American Express prefers its TravelBahn DS program in which the mega TMC pays the GDS for system use rather than the other way around, and the airline pays a booking fee to Amex rather than the GDS. The only publicly acknowledged participants in TravelBahn DS are American and Continental airlines, but Winterton hinted that others are involved. Some suspected Amex would use its leverage to get other airlines to participate in DS, rather than face a decision about whether or not to opt in to Sabre's new program.
American, meanwhile, remains the only major network carrier to not extend its GDS deal with Sabre; sources suggested AA could join after it assesses the reaction to Sabre's opt-in program, known as the Efficient Access Solution.
Granting that the TravelBahn DS program is a "special case" on the large end of the TMC market, Winterton said Sabre's EAS is probably cheaper for midsize TMCs than integrating airline content using the likes of Farelogix, G2 Switchworks or ITA Software--once known as GDS new entrants.
"Airlines were promoting new entrants, but we have a fairly good idea of what it would take to integrate and operate them," said Winterton. "We believe [the cost of] Sabre's model is substantially below those opportunities." He said American Express clients would incur "minimal to no" cost impact as a result of Sabre's program.
How the program impacts other TMCs will "depend on the TMC's relationship with suppliers and the value they bring," said Winterton. "If they bring a high average ticket price, I would envisage there will be significantly less impact than to someone who is distributing the $99 fares, where the cost of distribution is a major burden. A variety of airlines will institute a variety of policies."
There is no word on any potential plans by airlines to segregate content or initiate GDS fees, but one well-connected source who requested anonymity said the carriers have never been more serious about cutting their GDS costs.
The source said airlines are likely to offset higher-end fees paid on GDS bookings through their own booking fees charged to distributors. According to a March 8 letter from American Airlines to travel professionals, AA "may not participate in all GDSs going forward. Further, if you choose to source your fare content through a more expensive distribution channel, you may be asked to cover some distribution expense."
Whatever the method, what Cendant has termed "cost shifting" represents what one TMC source called "a serious impact on the travel agency community. A lot of pricing takes into account the incentives." Another suggested that TMCs may look again at taking a multi-GDS approach, partly to garner the highest possible incentives by pitting the GDS competitors against each other on bids. But that, too, comes with integration and training costs.
Corporate, government and university travel managers need to consider how these developments may or may not affect contracts they have with airlines. While the Sabre program ostensibly ensures that airlines could not discriminate against a client's preferred channel by putting negotiated fares only in the airline's preferred system, it's not clear how that could play out if the client's TMC opts out of the new Sabre initiative.
In that scenario, asked one consultant, "Is the corporate account being told by the airline to book with it directly to get contract rates, or is [the airline] moot on the point, and is it up to the corporate account to switch to another agency that has the proper inventory?" Such a dynamic may prompt corporate accounts to pressure agencies to opt in.
"Some agencies, as they do their evaluation, will determine this is good and will jump right in," said Sabre Travel Network North America senior vice president Chris Kroeger. "But there will be others that say they need to wait a little bit and do their analysis." He said Sabre is confident it will soon wrap up a deal with American.