The earthquake that rocks the world of distribution was quietly delivered in a session at CASMA last week.
Cory Garner, the newly appointed director of merchandising strategy for AMR subsidiary American Airlines, made an unequivocal statement about the future direction of AA’s distribution.
Further clarification came for the team with Don Bender, manager of distribution strategy, highlighting the components of the strategy.
Essentially AA will deploy two forms of direct distribution: an XML toolkit and a web-based solution.
AA has been working with Farelogix on this solution for quite some time and has deployed the capability in more than one geography.
What is somewhat interesting here is that the team took a very holistic approach and addressed more than the usual connection services.
AA has already engaged with the financial fulfillment process via ARC and presumably BSPs to arrange for direct distribution on a very broad scale.
My team at T2 has contacted large scale intermediaries in several markets and can confirm that contracts are now out to players for use of the tools associated. AA waited until the whole process was in place before going public with the announcement.
At this point we can only speculate on what role the GDS will play in the future of AA’s distribution.
Last month SITA’s IT trends 2010 was released and it showed a clear move by the world’s airlines away from GDS based distribution. In the space of ten years from 2000 to 2010, the GDS based distribution share has fallen by 50%.
But AA is creating in effect a brand new category of distribution that is not unlike a dealer model.
Moving the control of display of product from the GDS to the agency is a fundamental shift that will forever change the paradigm how product is served and managed.
For the future – this will mean a major change for the world’s intermediaries.
Commercially it puts perhaps the final a nail in the coffin  of the GDS segment fee model.
Technology wise it creates a challenge for the intermediaries to develop independent supply chain systems.
Companies like Farelogix will become increasingly valuable to both sides of the value chain.
Large scale players like the OTAs who have strong technology platforms and resources will find the adoption of multiple supply chains easier.
Many TMCs will struggle with the challenge and will probably regret having put all their eggs in the GDS basket.
Ultimately the AA announcement last week in Las Vegas is just another step along the way from holistic to heterogeneous (read fragmented) supply.
Anyone who wants to play in this game now needs to assess their future positions carefully.
In my humble opinion GDSs can still play in this field but no longer in the exclusive central role where they have held sway for so long.
I find it ironic that but a few months back Sabre was chastising Farelogix for creating a fragmented world.
The core reason the airlines like AA are moving away from the old ways is that the GDS companies failed to come to terms with their airline partners in addressing the cost model. Now they are paying the price.
Welcome to the new world order.
About Timothy O'Neil-Dunne
There are silly schemes, some crackpot schemes and some so incredibly stupid that they beggar beleief. This move falls into the last category.
Let’s take a brief look. What is intended is to take a system that works incredibly well, that can move anyone from anywhere on the planet to anywhere else on the planet easily, efficiently yet above all, securely and throw it away. The GDS, of course, costs money. Irrespective of people talking about “models” the GDS way of doing things is not a system which is broken. Indeed, the GDS is probably the cleverest piece of selling software invented, ever. SITA is wonderful at producing statistics without depth, further, the travel trade press is wonderful at shouting such statistics without any attempt at analysis or even an attempt to lift the curtain.
We also have the rather challenging American way of thinking which is, basically, that there is America and er…..
What about SITA – 50% of what? What sort of flights? With whom? Where to? We are well aware that there are many limited route short and medium haul airlines (and many airlines that are neither here nor there) for whom a GDS is not an option – they don’t need it. That is not the case for a legacy style airline which professes to be global.
We forget that business travel (which is where the money is) is not just point to point. It is, indeed, global and requires the ability to combine all airlines across all continents. Without the GDS these bookings will simply not be possible. Airline distribution must encompass business travel and business travel can only work with the GDS. If we lose the ability to interline, business travel will become unworkable. Air travel distribution will be back to the 1960′s.
What is proposed, apart from being banal, is short sighted. If you dismantle the GDS system, the interlining, the minimum connection times and all the bits and bob’s that go with it global travel will become a nightmare. This is not an earthquake – it is the road to distribution hell by some very, very silly people.
For some reason my blog entry does not show as a track back on here but essentially I don’t think this is such a big issue at all.
I wrote about it at http://www.insidegroup.net/2009/11/04/good-move-aa/
AH! Yes, we will have a GDS but the content will come in a different way. Hmmmm…. Yes, good idea. Let’s re-invent the wheel.
So what is proposed is a GDS – with the same sanity of thinking that says “we do not pay commission to agents, but we do pay bounty for marketing” – a GDS but do things differently. And agents must then expect to pay for content. Yes. Right. So, not only do airlines expect to have their products sold for free they further expect someone to pay them for the pleasure of being able to sell them. Not very bright, are we? Smaller agents, lest we forget, only choose to retail travel because they can (or could) make money out of it. They do not have to retail travel.
Bigger agents and TMC’s will love it – Why? Simple. The effect, over a fairly short period of time will be leave the TMC’s and large agents holding great swathes of airline premium traffic. In order to make all these proposed feeds work you need to develop a sort of inhouse GDS – only they will have the power to do this and smaller agents will simply disappear. Great. Distribution costs (may) reduce but suddenly the TMC’s will have control – and suddenly start telling airlines where they can fly, how much they can charge and how much they will get.
Sabre, Amadeus et al are still probably still bent over double laughing themselves stupid. What an Airline does is fly people about the place (and by all accounts and reports of profitability, they are not very good even at that, of late) GDS have spent a lot of time working out how to get a product from the airline onto a ticket (and do it rather well) and agents are retailers (and manage that quite well, too) Best t’were airlines should think on’t.
Well, you can guess which side of this argument I’m on, (I’m aka Travelport_DB on twitter) however you may be surprised to learn that I think both sides hold water.
Murray is exactly right to say that the global reach, flexibility and sheer damn content of the GDS is not a broken system, however with more unbundling and other revenue streams being looked at by airlines we need to look at how we bring all this new content to our agents. Content is king after all!
A good way for the GDS to bring this across? Hello XML tool kit. So maybe this is just business as usual?
I’m sure I’m being simplistic, however, what’s easier for a TMC – everything in one “GDS basket”, or a different system for every airline? I’m too young to remember, but I believe it used to work that way until someone invented the GDS, it seems to have worked well, we need to make sure that continues, not by re-inventing the wheel but by refining it.
DB
p.s. By the way, I need to make clear this is my opinion, and not Travelport’s.
DB hits the nail on head. It’s absolutely not about re-inventing the wheel, just refining it.
I am a big believer in the GDS but it has to migrate to newer technologies and more importantly a newer financial model.
On the latter Murray, the single most important thing that is rattling the very foundation of the current model is the GDS kickbacks to agents as part of the GDS airline fee…it simply has to change. And airlines certainly don’t expect you to sell their product for free! As any retailer would, you’d add a mark-up, just it happens everywhere else.
With regards to all the feeds etc; you won’t have to be developing some sort of in-house GDS if your GDS partner is doing that. As I said at least one of them has been actively working on that and others will follow, for sure. It’s in their interest to keep being able to be in a position to supply you with all the content you need, albeit with a different financial model behind it.
One day, people will stop playing with models and start dealing with the real thing. The financial system was not broken, it never was. In any industry, which has it various components of provision, distribution and retailing there is a pie. For it to work, all elements must have a) their particular understanding of their element and b)their reward. Over time, the proportion of the sale price is divided amongst those pie elements and, given a bit of argy-bargy around the edges, life goes on. There is a dominant element which may is the controlling element though more importantly, has greater control. In the intial stages, this is usully the providor of the goods or service. Now, as long as the system remains, that dominant control is maintained through the priciple of, simply put, divide and rule.
Where the system goes wrong is when the dominant element gets greedy; wanting it’s element of the pie AND someone else’s.
This is what is happening in the airline business and it is a story that has been refelected in the past in computers, DIY, food retail and of course, the (UK) brewing industry (to name a few). The dominant element forces the other elements to grow, so as to achieve the economies of scale required given more stringent operating parameters – they change, the erstwhile dominant partner doesn’t. Result is simple and plain: Retail is king, retail will always be king – the provider loses control of the single most important element in any sales process – the point where your product and the end user meet.
Okay, you say that this is what airlines want – to control that point. The thing is, they are not very good at it. Airlines are airlines. They shove lots of humans into a metal tube and take them from point a to point b. That’s what they do, or at least, supposed to. They are hopeless retailers and have zippo understanding of that final point of contact. Indeed, I well remember that stupid woman at BA trying to tell agents their job – she was someone who had never, ever been anywhere near a travel agent (on or offline, agent or TMC). Airlines know nothing of distribution – which the GDS systems do understand,simply because they took a lot of time to understand it. Even a certain low cost airline, manages to irritate their clients before they have even booked a flight.
Further, airlines have become obssessed. Unfortunatly, they have become obssessed with the wrong things! They saw off Freddie Laker (who was the first to see through the system) and were complacent about the others, Canute-like, they could not see what was happening. So, we now have this mad panic to find a solution. The model – better, system – is broken! People must learn! We must all change! They wail from the battlements. Er… Who? Hang on! Agents did change – GDS systems did modernise but airlines? Nope. Same old same old. Instead of realising that their mamouth, byzantine structures with their crazy networks were old hat (though this is another story) they think they can just tweak a few bits and try to undertake elements that they simply are not geared to doing or indeed have the skill sets required.
Sooner or later they must go the way of all flesh (well, actually, they are on borrowed time now) when people see through the Emperor’s clothes of say, business class fares (£5,000 across the pond – to put it another way £700-odd an hour to sit in a seat and do nothing when there is a bloke down the back, who gets to the same destination at the same time and is paying £60 an hour. What do you get for the extra? Yup a bigger spot to plant your backside and a bit better grub. Hmmmmm….)
Anyway, suffice it to say all this AA stuff is total twaddle. There is no good putting fancy new windows on a house when they foundations are crumbling.
I can’t keep up with all the comments, and I really don’t want to be totally self-serving…but, I do think we at least need to be factual whenever possible. The notion that the GDS is the only system that can process interline connections and manage minimum connect times is not accurate. As far as the other comments and opinions, I think they are absolutely great and these types of debates are necessary to keep our industry sharp, innovative, and cost efficient…and we still have plenty to do.
Jim Davidson
Farelogix
I am sure that such as Farelogix are wonderful. Once, that is, one manages to translate the website into English. I don’t know who it’s aimed at, but it sure as hell isn’t aimed at travel agents. In any event, these “pudding” systems need a source which is, what boils down to, the GDS.
The other issue is that agents themselves need to be given some respect for what they do. A lot of the metasearch style systems only couple together what any self respecting, well trained agent would know anyway (or at least, would know where to look). Why dumb down the agents role – and I have seen “pudding” systems come up with solutions which are based on rather dubious notions. It is rather insulting that technology providors assume we agents are incapable of doing our job. We find solutions being evolved for problems which do not exist, which have been analysed incorrectly (mainly because techy types are used rather than agents) and the have solutions trumpted which are more likely to win awards rather than be of any practical day to day use. The interpreter of information is the agent – and good ones are very good at it, much better than any system can be – and the information we wish to have to process is its most pure (and “raw”) form. This is fundamentally why agents prefer the old fashioned code input systems.
So, we do not want people – or systems – to muck about with the information. The focus should be on making sure that the interpreter has the skills to correctly process the information. I cannot let this slur pass.
The fact of the matter remains that if airlines started to focus more on solving their real problems (pension fund deficits, overpaid staff sectors, union and working practice issues, crazy networks)this may be more finacially stimulating for them, rather than tinkering with bits of the system which are not broken (and they least understand).
Take networks. Why? A suggestion: Okay, so “low cost” ailines want to cherry pick high volume, short haul routes. Let them. The legacy airlines could focus on their medium and/ or long haul routes and then run those short haul sectors needed as direct feeders for these services. After all, the low cost jobs don’t interline, so they are of no real use for connections. This requires a radical re-think of a (legacy) airlines overall objectives and would focus the airline mind on who thay are and what they do. This further needs, of course, to be integrated with the alliances but at the end of the day, the radical thinking needs to be applied to the airline’s core strategy – trying to be clever with the bells and whistles stuff is not going to allieviate the core problems.
I have read this thread and waited a little while before responding. I think that Murray wants to return to that nice idyll where everyone is happy. This is not realistic nor is it even remotely viable.
The GDS companies have done a pretty good job up till now in meeting most of the needs of the supply and the distribution side. But they have – whether by design or by circumstance – retreated from the one size fits everything model. As such the airlines have to take much greater control of their own distribution and the intermediary market needs to take more control of their supply chain. Fragmentation didn’t occur overnight but it is very real.
But I come neither to bury nor praise Caesar. The one-size fits everything is dead and has been for years. The GDSs can and should take an active role in distribution. They are just not the exclusive purveyors of this capability. I believe that TP is moving more into this heterogeneous world and that the other GDSs will too. This is the lowering of the barriers all round new technologies and more realistic market commercials will drive this change. AA is just acknowledging that in their way. It is their prerogative to do so.
And just to correct something that Murray focused on. The GDS model doesn’t work incredibly well. Far from it. But it does work.I don’t think it is either wise or appropriate to hold the whole marketplace to ransom for low level usage capabilities. Specifically Interline! The use sale of domestic interline has been less than 2% for over a decade. International interline is not that much greater. And if I am a betting man I would say the majority of interline will/is now booked via Alliance carriers and code shares thus making interline largely redundant.
At the end of the day – the consumer will decide for himself. If there is value in interline he will go there. If not he will not do it. The consumer has voted with his feet and we have the results clear to us.
Cheers
I would simply and humbly suggest a caution about lumping all alternative GDS and related systems and products as “pudding” systems. Otherwise we run the risk of trivializing the efforts of the hundreds of travel agencies/TMCs that are collectivity investing tens of millions of dollars (my estimate) each year in developing and maintaining innovative systems (hopefully not “pudding” ones). These systems and products seem to be designed to improve the agency’s productivity, increase their competitive advantage and customer loyalty, and reduce their overall cost to serve.
And yes, many of these proprietary travel agency/TMC systems have been developed and deployed due to technical or commercial limitations of their respective GDS offerings. Otherwise, why would they keep making these significant investments?
OK, back to my day job. JIM
Yes, of course I want to return to an idyll where everyone was happy. It is rather sad that some don’t!! I cannot speak for USA domestic flights (or the USA). What I do know is that 6,000 odd travel agents (not to mention airlines)cannot be wrong when they have managed to (very successfully) operate using the GDS system since – what – the late 1970′s? Moving a human from one point on the globe to another, simply, reliably and clearly seems pretty good to me.
I have said elsewhere that there are airlines that do not need a GDS – eg the cheapo outfits who only have simple point to point, short haul stuff. For them, a website works well. Where things go wrong is when an airline falls between two stools, that is, they want to tap into the wealth of higher value corporate travel by making themselves available on the GDS, but do not interline.
Interline is crucial in European/ Global travel. I do wonder where some of these figures come from. (probably the likes of SITA, which explains everything…) I have been booking bulk business travel for pushing 25 years and without interline, a lot of it would have been wholly impractical. It seems that many are talking from the USA angle and as, on this side on the pond, with respect, we know that people in the US tend to think that life does not exist outside the New World Colonies and that what works for them – or what they think should work for them – should work for everyone else. (Actually, this is big problem for America and applies across a lot of businesses – especially with regard to the Far East).
Right, positive: I agree that the GDS should evolve. I agree that airlines need to understand and have a better grasp of their end user point of contact. I do not, however, believe that we need to have technology simply for technologies sake and that technology is a panacea. I also beleive that airlines should take stock of what business they are in and BEFORE they tamper with the distribution system, that they should understand it. Airlines are rubbish retailers and know little of travel distribution – they never had to, it was done for them. If they want to get involved – fine, but make sure you have in place the right skill sets.
What we have seen is this knee jerk reaction simply because airlines cannot work out what is wrong (at least some can’t – many such as EK SQ and others know exactly what is wrong – and they are not telling) To many, it is clear what is wrong (I reapeat) union issues, working practices, overpaid pilots, route networks that may have been okay but now are millstones and need rethinking, pension fund issues, senior management not up to the job – the list goes on. My point is that these are the nettles that need to be grasped and settled once and for all, it is no good tinkering around the edges, whinging, moaning and blaming everyone else in the good old US tradition of “if something happens to me it must be someone elses fault”
It is no skin off my nose if I no longer sell travel. I am a retailer. At present I choose to retail (partly) travel – and, frankly, travel (through the conditioning it gives one of having to do things now, of customer care etc) produces some damn good retailers – to the extent many can retail anything they damn well please. Believe me, there are an awful lot of other things one can retail that come with much better margins and a lot less fuss. So fine, if there is no money in travel for agents and others we will go and do something else. Agents do not owe airlines a living.
I’m a novice compared to all you guys but I really enjoyed your discussion & have a few questions I was hoping you could answer.
1.If a travel agent were integrated into the top 4 GDSs would they be able to offer there customers 100% of all global airline options & thereby customers would find better prices & more connections? Who are the the top 4?
2. How are fees to travel agents determined by GDSs? Do they pay based on percent of flight cost or flat rate?
3. Do you think web services will become the way GDS integrate over the next 3 years?
Pat – happy to answer this directly – please contact me timothyo@t2impact.com
Cheers
Timothy
The clue is in the GDS bit – Global Distribution System. We need to understand what the GDS is about. It did not just pop up overnight. What the GDS is about is what business travel is about. Now, as far as leisure travel is concerned, there is no reason why it cannot be sold any way you like and the web does it quite well – as witness the likes of the multitude of low cost carriers. That said, there is a huge difference twixt Aunty Flo visiting her nephew for a few days and keeping a £160,000 spend a month (and many bigger) firms on the go. Here, we are no longer talking point to point. We are looking at multiple trips across several airlines, several continents. The airline are simply a means to an end, they are not a purpose in themselves.
This cannot be done unless there are certain basic rules and systems – Minimum Connecting Times being one and the ability to interline being the other. What the GDS does is to present connections in a very simple and straightforward way – without any embelishment. The last thing one wants, when doing business travel, is having to muck about with pages and pages of stuff advertising this or that and/ or having to go through endless pages of stuff xyz airline wishes to add on.
The skill of the agent lies in being able to read the raw information as given, interpret it and put things together in the way that presents the best value for their client’s travel dollar. Believe me, “best value” is a very long way (more often than not)from “cheapest”. The GDS, therefore, provides that fundamental raw material. Perhaps this is why we agents all use the so-called cryptic entries. They are faster, more efficient and enable to get at what we want quickly without having to go through a load of add in marketing stuff.
The main GDS systems are (not in any order!) Sabre, Amadeus, Galilleo and Worldspan – and if you ask 4 travel agents which one is best you will get 5 different answers. To accopmplish business travel with having to use websites would be impossible. If you have a clever website that can draw the information together, fine, but it has to be done very, very quickly and be in its purest, raw form without embellishment (so you would have a GDS mark 2).
We cannot offer 100% options because airlines are getting a bit silly about things and want to re-invent the wheel. The GDS is a bit of late 1980′s kit that no-one has been able to improve on – mainly because it is highly efficient in terms of information presentation and means that we can securely and safely book some one from one point on the planet to another in the certain knowledge that something will happen. techy types find this very, very irritating and waffle on about “old business models” mainly because they can’t think of anything better. They find it very frustrating. Better too, if airlines were to say – “This is a ruddy clever system. Let’s keep it and do something about overpaid pilots instead”
Some websites do offer – or try to offer – 100% connections and wind up doing legacy airline to low cost airline type connections – which are downright dangerous. Especially given that, no matter how much you explain the ramifications of what such a connection means, you (the agent) are still responsible when it all goes pear shaped.
So, “better prices” is a curious concept. This should be replaced by the term “best value for every travel dollar that needs to be spent”. We agents have the tools to do that – even if it means using “tools” that were designed to sell tickets, rather than, well, be a “tool”. The more airlines try to draw the client in, the more vital the agent’s role becomes. There are a lot of things going on that no-one has spotted that are adding huge amounts to business travellers budgets and it is only the experienced agents that are able to spot this and deal with it.
Business travel supports airlines, business agents support business travellers and the GDS supports the business agent. Agents are not interested in leisure tickets and in a way, are pleased that a lot of that sort of traffic has gone online. How airlines wish to manage the back of the bus – fine let them get on with it!
Oh! By the way, I am a business agent so as far as question 2 is concerened – that would be telling and question 3 they can integrate as much as they like but we will still need to have the green screens for a while yet.