Op-Ed: Incentives' End Is Near

The end of global distribution system incentives for travel agencies is near. It is funny how this phrase leaves people with a sense of helplessness, but agency executives won't have to worry when it comes to the financial assistance they are getting from their GDS supplier. The signs are on the wall, but unfortunately many people won't think about it until it is far too late. If you don't think it is going to happen, then please wake up! It happened with commissions and now it is going to happen with GDS incentives. By the end of 2011, incentives will be a thing of the past, much like commissions on airline tickets.

Why will these incentives end? Because they have to. When a GDS looks at its pricing model, it must realize that part of the amount that is charged to the airlines in the form of segment fees is the incentive checks that it gives larger agencies for booking volume. The airlines have long been saying that the GDSs charge them too much. As a result, they have started to look at options such as Farelogix, G2 and others. The airlines also have realized that they cannot survive or sustain growth without the GDS community either. Just look at the addition of JetBlue to both Sabre and Galileo as a good example. So, while Farelogix and G2 offer the airlines an option to decrease the segment fees to about $6, the airlines would ideally like the GDSs to do the same. With the current GDS model, it is virtually impossible for any GDS to do that. Just as the airlines successfully removed agency incentives (commissions), the GDSs were asked to do the same with agency incentives. With the airlines giving advice to them (I am sure of this), they devised a plan to remove those incentives.

First, the airlines would impose a $3.50 surcharge when a booking takes place via the GDS. Why $3.50? It is also the maximum any GDS pays an agency for a booking segment. So in charging this amount, anyone who does not opt in will technically lose the entire amount they are getting from the GDS. This will force each agency to sign up with the program that their GDS is offering to "protect" them from the $3.50 charge. In doing so, the GDS will charge $0.80 per segment. The beauty of this idea is that now the dynamic between the agency and GDS has changed. Instead of the GDS paying the agency, now the agency is paying the GDS.

In the next five years, new contracts will signed between GDSs and agencies without financial assistance incentives as part of their structure. Instead of the GDS paying the agency, the agency will pay the GDS. Everyone wins, except the agencies, if you are pessimistic. If you are an optimist, you realize agencies are no longer "married" to the GDS. Instead of booking through one GDS, agencies can for the first time have choices and use more than one.

TMC Kintetsu Int’l manager of sales and marketing Aash Shravah