February 19, 2009 - Though most current distribution agreements between airlines and global distribution systems won't expire for at least two years, recent developments and industry commentary point to how the next set of deals may be negotiated and structured. American Airlines, for example, expects that the technological capabilities of GDSs--and their willingness to collaborate with third-party technology providers--on optional services, ancillary revenues and other airline merchandizing strategies will play a central role.
Increasingly popular among airlines, those strategies include a la carte pricing, branded "fare families;" unbundling of such services as baggage handling, seat selection, inflight meals and priority check-in; and add-ons from hotels and others.
"The past couple rounds of GDS negotiations have really been around economics," said AA managing director of distribution and merchandizing Suzanne Rubin in an interview last week with
The Beat. "This time, it will be much more about the ability to deliver products and services in a way that generates the kind of customer interaction and revenue streams that we are able to get through our other channels. The rules of engagement are changing."
Rubin's comments came after
The Beat reported that Sabre Travel Network in December canceled its agreement with "multisource" fare and inventory aggregator Farelogix.
According to Rubin, Farelogix is developing technology for AA "that would allow us to push through unique content, our schedules, fares and availability, and then any additional content we develop here that we want to push through to the agency channel. What we are really talking about when we say unique content is services and products that quite frankly we don't deliver today through third-party channels. We are trying to figure out ways to get product into the marketplace--products and services for which the GDS today doesn't have a way of handling."
Sabre's decision regarding Farelogix, Rubin added, "seems like a pretty bold move this early in the developing landscape to draw the lines."
American Express Canada and BCD Travel are among users of the Farelogix platform, which according to the Farelogix Web site "obtains content from virtually any travel data source," including "global distribution systems, direct travel supplier connections, private/corporate fares, Internet fares and consolidators." The system "enables comparative shopping across sources. It also insulates corporations and travel management companies from changing industry dynamics without operational disruption, while providing travel suppliers with huge distribution cost savings."
Sabre Travel Network recently has reinforced its policy of seeking remuneration for non-revenue-generating transactions that use its system for storage. A recent deal with Concur means that Concur is passing to clients a $3.75 per booking fee for Cliqbook bookings made outside the GDS but whose information is stored in Sabre passenger name records. Web fare aggregator Booking Builder Technologies, on the other hand, does not have an agreement with Sabre for similar services because it opposed the fee.
STN senior vice president and GetThere president Chris Kroeger said Concur's philosophy is aligned with Sabre's in that Concur has committed to booking content using the GDS whenever available. "We provide access to 98 percent or 99 percent of the content they need through the Sabre GDS," he said. "In such cases where there's content outside the GDS but it is being merged back into Sabre to get the value of being inside the GDS environment, we think there's value and, as such, we put a convenience fee in place for that value."
But Farelogix, according to Kroeger, is "actively encouraging fragmentation and some new economic models that we don't think were balanced, which is fundamentally different from our philosophy on content. It creates inefficiencies for buyers."
Farelogix declined to comment officially.
AA's Rubin, however, suggested that airlines increasingly are considering products and services that cannot be handled through the GDS or by any industry standards now under discussion, necessitating cooperation with others in the distribution chain. She provided this example from Air Canada: "With a certain fare category, you can get a hotel upgrade or a value-add product provided from a third party as part of the fare. Nothing is being contemplated today that would be able to deliver that through a standard format in the GDS."
AA wants flexibility to adapt its delivery of optional services based on changing customer demand, and it wants distributors to "display the product in a way that is consistent with how we intend it and how we intend to deliver it," Rubin said. "We are working with a lot of our agencies to look at the products they need in order to provide better service to their customers, and matching that up with our internal capabilities to deliver those products and services. Those distribution companies that are able to present our product in a way that most effectively garners additional sale and additional revenue are going to be the distribution providers that we continue to innovate with and put new product in. Those that cannot--that are more static and can't facilitate the kinds of targeted product presentation that we are talking about--will find themselves out in the cold."
Michael Strauss, CEO of Pass Consulting, which partners with Farelogix, agreed. "Fearful of losing further terrain or giving away their expertise, GDSs restricting collaboration with independent third-party technology providers are overestimating the risk of losing power in the market," he wrote in a guest column published in
The Beat. "Insisting on preserving the status quo, they do not see the opportunities that accompany collaboration with third parties."
In response to Strauss' comments and news of Sabre canceling its Farelogix relationship, Travelport GDS president and CEO Gordon Wilson wrote, "Any GDS company has the right to determine with whom they work, to whom they will open up access to the huge invested asset of their system and capabilities, and the terms and conditions upon which they do this." Nevertheless, Travelport has "the wherewithal to maintain and, in certain critical areas like the point of sale, increase our investment for innovation. Customers will start to see our new desktop offerings being rolled out through the course of this year." Travelport executives have positioned the new desktop as capable of handling the airlines' optional services.
Also in response to Strauss' comments, Amadeus executive vice president of the Americas Dwayne Ingram wrote that while "each distribution company is adopting different strategies," Amadeus has "welcomed third-party providers with open arms. There are many clever niche providers in the market and if it helps our clients build better businesses, then it's a win-win for everyone."
Though AA and Sabre are laying out opposing philosophies that seemingly set the stage for airline-GDS negotiations, Sabre and United Airlines in November announced they had extended by two years--until 2013--their existing "full-content" distribution agreement.
