GDS Content Wars Redux

GDS Content Wars Redux
TravelPulse (formerly ModernAgent.com) 
Sep-09-2008
Kate Rice

The agreements that ended the content wars between the airlines and the GDSs two years ago changed the paradigm of GDS pricing, shifting some of those costs from airlines to travel agents in return for full content. Those agreements will begin expiring in three years and the GDSs and airlines are already sparring over the direction distribution, content and pricing will take.

The two sides went head to head yesterday in a panel at the Retail Leadership Summit, part of THETRADESHOW being held in Orlando this week. One thing was clear: airlines operate in a business environment so dire and volatile that they cannot afford to wait for the GDSs to catch up to their changing strategies. Airlines are introducing attribute pricing — a model that varies from airline to airline but essentially means consumers can add on or take away certain amenities or benefits such as choosing your own seat in advance.

With a few exceptions, the only place a consumer or a travel agent can book attribute pricing is online, although the GDS are unquestionably catching up. Sabre, for example, has its Air Merchandising Suite, which has enabled launch customer Midwest Airlines to let travel agents book its premium Signature seats over its Saver seats in the GDS. Similarly, Travelport Agencia enables Galileo-connected Canadian travel agents to access and book the full range of Air Canada’s a la carte fare products and attributes, including Flight Passes. Still, there is much to be done in this area — just look at the fact that the only time travelers can pay for the baggage fees that airlines continue to introduce is at check-in.

Because the GDSs are only now able to display this new kind of pricing in their systems, airlines have continued to turn to their own websites over the GDSs, because the Internet offers faster-to-market solutions than the GDSs. The result is fragmented content. Airlines like it because they can sell a significant number of their seats through a lower-cost distribution channel over which they have full control. But that means travel agents have to go to multiple sources for airline pricing and fees, a highly inefficient way to do business.

In contrast to this more fragmented model are the GDSs themselves, which are all about aggregation and simplification. Chris Kroeger, senior vice president at Sabre, said travel agents want a single source of content. “Fragmentation is bad, aggregation is good,” he said. Of course, that’s not a hard and fast rule for Sabre, he acknowledged, since a subset of GDS customers need to operate in a multi-source environment and Sabre has systems that offer such a capability.

But the airlines, keen to shave distribution costs while maximizing new revenue opportunities, only want to pay for a distribution channel that lets them show the full panoply of products and choices they have to offer customers. For low-cost carriers, their own websites remain the optimum distribution channel and the GDSs, while a source of ancillary business, just don’t offer all that the web does.

JetBlue, for example, uses its website not just for selling tickets but for customer relationship management. “We can use CRM practices, see what customers are shopping for and then offer than things that are relevant,” said Noreen Courtney-Wilds, vice president of sales for JetBlue. She described JetBlue’s website as a sophisticated ecommerce platform in which JetBlue has full confidence.

From an observer’s standpoint, handing off the all-important function of managing your hard-won customers to a third party is hard to justify, Courtney-Wilds said. Consumers can book seats on JetBlue that have extra legroom at JetBlue.com, but not in the GDS. Courtney-Wilds said she saw continuing limitations with things such as seat mapping in the GDS. The GDS could add value, she said, by displaying those same more-spacious seats along with business-class seats that other airlines offer — enabling agents to offer their clients another option besides business class and economy — on long-haul flights.

Similarly, Marc Rosenberg, vice-president, sales and product distribution for Air Canada, said his airline couldn’t wait for the GDS to catch up to the new pricing model it introduced two years ago. Air Canada now offers four prime products, each with unique attributes and service levels that consumers can now customize by buying benefits — seat selection, bag check, meal vouchers and more — for nominal amounts. Alternatively, consumers can forgo those and other benefits, such as frequent-flyer miles, and pay less.

While Air Canada is about to roll out Travelport Agencia in Canada, which will enable travel agents to book all of these products in the GDS, it heretofore had to rely on the web to do that, with one website for consumers and another for travel agents. The revenues Air Canada reaps from such attribute selling online amount to three times more than its GDS costs, Rosenberg said.

Flo Lugli, senior vice president-commercial for Travelport GDS, which now includes Galileo and Worldspan, admitted that the traditional GDS has not been good at differentiating products. In addition, many travel agents have still not adopted the GUI interfaces that enable a GDS to make those distinctions in the numbers they would like to see, she said, meaning many agents are still using the old green screen.

Both Lugli and Kroeger described their systems’ abilities to not just differentiate but to give agents up-selling and cross-selling options, mainly in the hotel and car rental categories. These are classic win-win scenarios — customers get better deals or products that fit their needs better and suppliers sell a broader array of products. According to Lugli and Kroeger, that shows how the GDSs can accommodate the airlines.

Pointing to Agencia, Rosenberg conceded that the GDSs are moving in the right direction — something that he said he would not have been able to say 18 months ago. And Kroeger said further evidence of the advances that GDSs are making is that Canadian carrier Porter Airlines is using Sabre’s Branded Fare Capability to sell attributes.

There is no question that the GDSs are evolving, introducing new tools and platforms that add value to distribution. These sorts of changes can lead to new economic models. Panel moderator Mark Pestronk, a travel attorney, asked if these new models threaten agencies’ GDS revenues. None of the panelists would comment directly on that, mainly because of antitrust regulations governing conversations between competitors about pricing.

Lugli said that the industry does have to think differently about its distribution models, with the GDSs having to provide agents with more tools and solutions to make them more effective and significant. Courtney-Wild said a greater challenge lies in the way that airlines are changing their pricing in response to fuel price increases, for example. She said airlines can’t wait for their industry partners to develop systems to accommodate those changes in such a volatile market. “We have to make decision based on the products we have,” she said, “We have to make decisions in the short term without thinking about whether or not some of our partners can keep up.”

While acknowledging that suppliers might like the idea of shifting distribution costs away from themselves and onto retailers, Kroeger described such a total shift as an unhealthy balance. But Rosenberg, while refusing to comment specifically about airline pricing, advised agents to do a reality check. “When we went through the 1995 commission scheme, did anyone ask your opinion?” he said, referring to the airline commission caps and cuts. “The carriers did what they felt they had to do.” But he said agents nonetheless survived and are better off today. “You found a wonderful silver lining in that huge dark thunderstorm,” he said. “You figured out a way to earn revenue and some of you have done extremely well.”

In short, the name of the game for travel agencies today is to be nimble and adaptable. Consumers will come to agents looking for specific carriers. Agents who don’t want to pay for content in those airlines will lose those sales, Rosenberg said. “I’m not here to predict that model,” he said, “I’m simply saying, ‘do a reality check.’”

No one entity controls the world that agents are working in, but one thing remains inevitable: It’s a world that will change and agents, Rosenberg said, have to make sure that they can manage and embrace those changes.

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