Airline Distribution Soap Opera

If you like soap operas, you’ll love watching the battles between the major U.S. airlines and their creations, the GDSs. “It’s the house the airlines built,” says Bob Offutt, senior technology analyst with PhoCusWright. And in the past six months, what was already a contentious relationship has become a litigious one with three lawsuits involving airlines and GDSs. Basically, if the airlines and the GDSs were families, you wouldn’t want to spend Thanksgiving with them – unless you had a large bottle of Jim Beam to get you through the meal.

As is often the case in battling families, it’s a fight about money. In this instance, it’s a wrestling match over who is going to pay the cost of distribution as the airline distribution model evolves. American Airlines singlehandedly had been waging a battle for direct connections, which it says would save it money and let it do much more targeted marketing to its customers. It looked like a lonely battle, however, mainly because travel management companies (TMCs) stood united against it.

For their part, the TMCs opposed direct connect because it’s expensive – and the airlines aren’t offering to pay for selling ancillary services. “It’s a big cost and no money,” says Offutt. “So it looked like the airlines might have to fall back and just do direct connect to the leisure market, which doesn’t have the same force in the marketplace as the TMCs.”

But two things happened to change the dynamic. First, there were some new technology developments. Global TMC giant Hogg Robinson said it would use Travelport’s Universal API, which aggregates content from multiple sources, including GDSs, low-cost carriers and high-speed rail operators.

Then Rearden Commerce, which has 400 TMC customers, announced that it was using direct connect technology. Rearden said in March that it would enable airlines to sell ancillary products and services – such as seat upgrades, meals, increased baggage allowances, etc. — directly from the Rearden Personal Assistant. The company already offers multi-GDS capabilities. Both moves are nods to the inevitability of some kind of direct connect in the future.

Second, the U.S. Department of Transportation (DOT) came out with a new ruling, which said lots about full disclosure but could well be seen as a victory for airlines. The airlines say they want transparency when it comes to displaying their ancillary service fees, but have balked at actually providing such transparency in a way that allows consumers to compare the total cost of a trip side by side with another airline.

The DOT ruling did little change that. For example, the ruling does not require airlines to provide ancillary fee and fare information on any platform selling airline inventory beyond airline websites. It also does not detail specifics on how fee data should be transmitted or displayed. Nor did the DOT adopt rules that require the airlines to share optional fee information in a trans-actable form with travel agents.

So what happened next? Immediately after the DOT announced its new rules, US Airways filed suit against Sabre. In hindsight, you could see the US Airways suit against Sabre coming as soon as the two signed a new contract in late February. Sabre quickly issued a press release saying the deal showed US Airways was endorsing the GDS model as exemplified by Sabre. US Airways promptly fired back with a press release saying Sabre had no right to speak for US Airways.

Offut says that the US Airways suit is probably based on the fact that the airline felt it had no choice but to sign the agreement (US Airways claims Sabre said it was basically its way or the highway). But times change, and the US Airways suit could end up being a way to change its contract.

The US Airways suit against Sabre came just two weeks after American’s suit against Travelport (are you sensing a pattern here?). American claims Travelport is engaging in exclusionary conduct that is part of a broader effort to thwart American’s effort to connect directly with distribution channels. For its part, Travelport counters that American is trying to limit consumer choice in shopping for fares and limit consumer access to other relevant data. Travelport contends that its aggregation, search and shopping allows travel agents and consumers to have a full range of choices across over 400 airlines.

Basically, the airlines are saying the GDSs have too much market power and that they take the segment fees the airlines pay them (which the airlines think are inflated) and pass part of them on to travel agents as an incentive to get them to book through specific GDSs. The airlines say that gives the GDSs a disproportionate power in the marketplace, leaving them no choice but to work through those res systems.

While the GDSs are trying to position themselves as champions of transparency and consumer advocates, the DOT hasn’t bought that argument. In February, the DOT shook a regulatory finger at the GDSs and online travel agencies, both of which say they are consumer friendly because they provide a marketplace where consumers can easily shop and compare airfares.

But the DOT says that is not always the case. In a letter to the GDSs, the DOT said that at least one online travel agency may have intentionally biased or distorted the airfare and schedule information of at least one airline that is displayed to consumers on that online agency’s website so as to not accurately reflect that information when compared with other carriers’ fares. In addition, the DOT said certain GDSs may have biased or distorted the information displayed to travel agents in a similar manner.

What’s next? The one thing you can count on in this industry is change – and a certain amount of entertainment. If your favorite TV soap was just cancelled, just tune in tomorrow to a new channel – the one that the airlines and GDSs have created to showcase their war over distribution.

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