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Agencies warn of slow creep of non-transparent airline distribution

The European Commission is being asked to tackle “dangerous developments” in airline distribution around discrimination against so-called neutral channels.

Regulators in Brussels received a letter this week from a large array of travel agency groups and lobbying organisations, such as the European Travel & Technology Services Association which has the GDSs and a number of online travel agencies as members.

In it, EC officials are warned that the recent decision by British Airways to alter its distribution strategy is a sign that large airlines are looking to “make competition a matter of designing clever, non-transparent distribution mechanisms, rather than competing on price and service”.

BA parent group IAG is to introduce a surcharge later this year that will hit bookings that are not made through NDC-based connections.

This followed a similar programme first announced two years ago by Lufthansa to impose a fee on fares bought through GDSs.

The letter says:

“The more large airlines join this practice, the more difficult it will be to sustain an independent and neutral distribution channel where consumers can compare airlines objectively.”

The Commission, the letter adds, has been told that such a situation would only get worse without intervention but for two years there has been no response.

Regulators have the “tools to defend transparency and neutrality in airline distribution”, namely the existing EU Code of Conduct for airline computer reservation systems.

The letter concludes with a plea to enforce existing legislation, adding:

“Those rules were precisely adopted to avoid a situation where large carriers take distribution hostage to promote their own offers as opposed to those of their competitors to the detriment of competition and consumer choice.”

Signatories to the letter include the GTMC, European Passengers Federation, GBTA and ECTAA.

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Kevin May

About the Writer :: Kevin May

Kevin May was a co-founder and member of the editorial team from September 2009 to June 2017.

 

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  1. Peter K

    BTW, it is the GDS companies that need to adopt the new connectivity standards proposed in NDC.

    The suppliers of NDC compliant systems to airlines and others are peripheral. Almost irrelevant in total scheme of things.

    It is the GDS companies that need to lift their game. They are doing a disservice to all who use their systems, both suppliers and users.

    GDS pricing is another matter.

    One has to assume the GDS business model is broken. Why? When providers of high tech systems have to pay their users to use their systems.

    The hedge funds and PE funds are amazed when they fund this out and why the share price of Sabre and Travelport are in the toilet. Very few realise the advantage that Amadeus has in moving to open systems and the huge inroads they are making in airline core system technology. Even huge US carrier Southwest in USA has recently migrated to their PSS platform from Sabre.

    Even though the GDSs are based on old legacy technology and aged connectivity standards of EDIFACT and type B messaging, they are still sophisticated systems and should not be providing it to agents for free, or worse, paying agents to use it.

    This is the core of their problem. It has made GDS fees so high for airlines that they no longer see the value for money and hence taking alternative steps.

    But the bottom line is that the GDS systems are being held to ransom on a treadmill. They would love to get off it, but do not know how to.

    So the agents might in fact lead to their undoing.

    More and more OTAs are direct connecting to airlines.

    And the meta-search are also starting to expose the hidden fees in the OTA pricing. All part of the evolving scene.

    The TMCs will be the last hold outs with the GDS model as it is, but even they must finally succumb to the relentless pressure of technology advancement and ‘the Internet of things’.

    To hold back and impede the growth of modern technology will be to the detriment of all parties. To try and use legislation under a ruse is disgraceful.

    As with all change there will be both victims and beneficiaries.

    The support of GDSs and their business models as they currently stand could lead to many travel intermediaries ultimately being left on the wrong side of the fence

     
  2. Peter K

    Dear Murray Harold

    You.have repeated a word over and over and have obviously no understanding of the meaning of the word.

    The word is AGENT.

    You are an agent of the airline. Nothing more .

    You do not own the customer in the entire travel process. You may be considered to own them for the booking process only. The supplier of the service owns the customer for the elements they provide.

    And this is enshrined in the legalities of your arrangement with an airline and the airline’s legal responsibilities to the passenger (its customer). Legally you are peripheral so why do you make these claims. You are not a re-seller even.

    And you do not own the money that you accept from the customer for their journey. That is not your money and the airline is extending you a line of credit. It is the airline’s money. And they carry a risk on you accepting it on their behalf.

    And if you are a corporate agent, the corporation is paying you for fulfilment of their travel contracts and managing the travel of the company. Hence the term TMC.

    But at the end of the day no-one truly “owns” and customer. They are not slaves. They own themselves.

    You cloud the matter with spurious history that is revisionist.

    I am not totally anti-agent. They have a definite role to play. I also happen to know a lot about agency technology and agency economics and work practices, whether they be retail, corporate or wholesale.

    The fact that you have tied your internal systems and work flows to GDS search engine technogy does not give you licence to hinder other more modern technogy developments and airlines also have the right to not deal with you if they wish.

    And similar to credit card fees, they have the right to recover from the customer the additional cost of dealing through a particular channel that uses a very expensive system when there are other options available. It is their commercial risk to surcharge.

    But your arguments are flawed in many ways regarding content and best fares.

    The primary one is that GDS’s do not cover all airlines and all fares, Only those that choose to distribute via GDSs. So the systems you use are not revealing to the customer all of the options and prices they have access to.

    The only search engine aggregators that access all content are currently the mete-search engines.

    But I realise that because of your current dependencies on GDS that this does not fit into your workflow. But that is your fault and you should not exhibit Luddite tendencies to try and use legislation and spurious arguments to force airlines to maintain your anachronous practices.

    And it annoys me to see NDC misrepresented as if it is a Trojan horse. Agencies have indulged in scare mongering in the extreme.

    It is simply an attempt at a more modern connectivity standard (above the current antiquated old CRS and GDS standard of EDIFACT and type B messaging that are very limited.

    NDC is not meant to be a bypass mechanism. It is meant to be a mechanism whereby airlines can deal via third parties (agents) and provide richer content and be able to reach through to their customer and provide a level of service and recognition at a level equivalent to if the customer was dealing direct. Especially its high value customers who expect this recognition.

    And all you want to do is hinder it. Why?

    And you fail to see that this connectivity can only come in when the airline has already been chosen/selected.

    It would be a technical impossibility for any aggregator system to provide variable pricing by individual customer in a neutral aggregated display. So an airline must continue to publish its competitive best fares for pricing comparison or else it and others are deluding themselves.

    And furthermore would create an impossible unmanageable situation in airline pricing and inventory management areas. The variables are likely to be in the areas of ancillary sevice offers and benefits. Not base pricing. Other wise it becomes massively dilutionary for no real benefit. And it also has to manage its dealt/contracted fares.

    I am not railing against agents per se, but instead against the arachonistic and crooked thinking that is being used to bar progress, and the misleading and deceptive conduct and conspired alarmism that is being deployed to stymie progress and protect self interest

     
  3. Martin Cowley

    Tnooz listen up. These pages have become the garbage dump for the mindless ranting and vitriol of a small number of tired ‘yesterdays heroes’ who take advantage to your publication to air their bitter, twisted, “one eyed” and often fallacious and hypocritical views. Describing the commercial terms negotiated between travel agents and gds as ‘bribes’ is beneath contempt. Calling agents ‘luddite’ is just as pathetic as when IATA referred to the gds as leeches and the EK CEO referred to intermediaries as parasites. Schoolyard stuff at best. These people are either vendors who have a solution to push or ‘has beens’ with an axe to grind- or both. Your choice, Tnooz but I sense that you can and should do better.

     
    • Peter K

      Martin Cowley, you are a confused and it seems revengeful person. I read your recent biased and unnecessary attack on BA.
      I have been advised that you are known to be a disaffected yesterday’s man with an axe to grind and little real knowledge. This seems to be verified in everything you write.

       
  4. Murray Harrold

    Remarkable response by Peter K which may only be described as, at best, rather naive. A response which shows a meagre understanding of how agents work and, indeed, of how travel works.
    Travel and Travel agents, it could be said, embraced tech long before “travel tech” as we know it today (that is, tech paying money to discover things about travel which, if they had asked any agent, they could have found out for free, wrongly diagnosing the issues and applying totally inappropriate solutions) – but I digress. Travel tech first started, perhaps, with a chance encounter between an IBM salesman and the then president of American Airlines, on a plane, in 1953. In 1958 Sabre was born and by 1964 Sabre was in use. Agents embraced Viewdata when it came out, lived through expensive leased lines and today, make more use of the internet than perhaps, one imagines. Calling us “Luddites” demonstrates a rather challenged mind when it comes to appreciating the actuality of travel.

    Actually, we agents do “own” the customers – and there is a very good reason for that. No one else in the supply chain bothers to do so. True, a lot of information may be collected and processed, mainly so any given supplier can flog the client something else, deluge them with unwanted emails and irritate the hell out of them with unwanted texts. That is not “owning ” the customer. Agents own the customer because agents are the only people that actually talk to them, really try and understand what they are after and all with a view to finding the customer the best value for what they want, rather than what supplier wants to sell them.
    Agents are quite happy to go along with NDC – that is, when it has finally proved itself; rather, when it actually produces something. There are companies around that offer NDC solutions – trouble is, they do not say what the solutions are (unless you are able to translate travel-tech-bellocks-speak) and all do not offer anything an agent can test. Agents will not use anything until such time as they are 100% sure whatever it is they are using, works. The GDS systems do work. If I book a flight from anywhere on the planet to anywhere else on the planet, with hotels and cars thrown in on my Sabre (or Amadeus or Gal) then I know that whatever it is I have booked will happen. If it does not happen, then it is more likely to be me (or more often, a supplier) than the GDS. Agents are hyper-cautious. We have to be. If a travel tech type gets it wrong, they can fiddle with a bit of code and try again. If an agent gets it wrong, we have an irate person in Singapore who should be in Los Angeles. Agents do not have the luxury of failure (the supposed virtue of which, it would seem, tech seems, for some unfathomable reason, to be quite content) and this promotion of the “Okay to fail” maxim in tech quarters does little to re-assure us. Neither does it go any way to mitigate the ire of the thousands of people tech left standing at London Heathrow Airport during the last public holiday.

    So. if you want to integrate “better” tech into travel, prove it works, prove it works all of the time, every time and we agents will embrace it. Otherwise, tech may be wise to take its head out of its nether regions and start trying to understand travel, rather than pontificate on the attitude of those at the sharp end of the business who are getting just a little tired of these, frankly, banal attitudes.

     
  5. Timothy O'Neil-Dunne

    While this debate will continues to rage – we need to just sit down and examine the situation clearly. The facts are straight forward.
    From a regulatory perspective there are no price mandates in the European Community – I would argue that EU airline behaviour is governed by TFEU Articles 101 and 102. Airlines and Agents are free to charge what service fees they like. The question of Transparency in this context is clearly false, it is also pretty out of date. Several airlines have been charging a differentiated fee or differentiated contracts for more than a decade.
    As this debate is now out in the open, should we also not only look at these charges but at the GDS fees and the incentive fees (aka “bribes”) that the GDSs are paying to agencies as well? Not only that – let’s go the whole hog and look at the restrictive contract provisions (Full Content Agreement) that effectively set higher prices through a “tax” guaranteed and placed on to the consumer.
    Any argument about transparency with regard to fees from ETTSA (funded largely by the 3 US/EU based GDSs) has to be spurious. The GDSs have had their fingers in the cookie jar for a very long time and now they have been found out. They are hoping by obfuscating the argument – no one will notice that in fact they are guilty of the very thing they are accusing the airlines of!
    Whether by stick (DCC type such as LH and BA/IB) or carrot (as AA is doing) the solution for consumers to have the ability to get to the highest value channel for their particular needs is – now a lot easier. If only the GDSs had invested in new technologies just percentage of the money they had given away in “bribes” we could have had a better distribution system years ago. GDSs put several companies who tried to bring in new technologies at lower price points out of business through their restrictive practices and questionable tactics.
    Let’s stop the BS.
    GDSs cannot provide the depth and breadth of a differentiated airline product lines to the consumer with their current legacy technology platforms. It is clearly cheaper and easier for them to make this noise rather than actually go and solve the problem of their ancient technology platforms. Further the notion of Travel Agents as the source of neutrality is a myth – up there with the Loch Ness Monster. Yes there are a lot of hardworking agents but neutral? It is very straight forward. The significant majority of distribution via intermediaries is not fully neutral and has not been for a very long time. Nor does it need to be. We really need to retire the 1970s thinking and get on and fix the more pressing problem of how we give the consumers what they want when they want, in a form they want – and deserve.
    Cheers

     
  6. Peter K

    They critics seem to be completely overlooking meta-search engines that are much better at aggregating and comparing.

    The meta-search pick up Airlines that do not distribute via GDS as well as those that do.

    A very convenient oversight.

    The pro-GDS argument is fraudulent misrepresentation.

    The pro-GDS group simply trying to protect their GDS incentive commissions which are the core of the problem. It is this cost to the GDSs that makes their fees to airlines unacceptably high.

     
  7. Peter K

    What a load of rubbish. The CRS code of conduct related to airlines owning GDSs not to favour them selves at expense of other airlines they were distributing.

    It is simply market forces prevailing what airlines are doing and there is tranparancy

    This is simply some travel agencies wanting to hold on to to old legacy systems lacking functionality because they are paid large incentive fees by GDSs.

    If airlines did not have to carry the cost of these large incentives to agencies in their GDS fees, then airlines would be far more predisposed towards using the GDS channel. And GDSs and agencies should be supporting NDC which at the end of the day is a modern connectivity standard to replace the very old EDIFACT type B messaging standard that cannot support rich content. The NDC standard at the end of the day is to enable airlines via the GDS channel to provide richer content and reach through to the customer via this channel to provide similar levels of service and customisation as what it can provide to customers who deal direct.

    The Luddites are the travel agents pretending they are looking after their customers. What a load of cods wallop. Most travel agencies do not even provide a contact in the passengers booking to enable the better airlines disruption management systems provide a far better service and advice to travellers should there be a major disruption.

    About time most travel management companies and travel agents came out of their closet and became more transparent. They have deceived their customers for about fifty years now and do not like it when these days they are being caught out. And not willing to disclose their hidden fees and charges. The latter particularly applies particularly to OTAs.

    Remember, you are an agent of the airline. They are not forced to deal with you. So good on you Ryanair for telling many agencies and tour wholesalers: “We do not want to deal with you agent X, and we do not need need you and we choose not to deal with you.” It is their prerogative as to who they deal with. As it is the prerogative of any airline. Just as it is in business generally with an agent/supplier relationship.

     
    • David Bishop

      I agree with most of what you say Peter K…albeit I wouldn’t have used words like luddites! But, the underlying narrative makes perfect sense here

       
    • Glenn Wallace

      “And GDSs and agencies should be supporting NDC which at the end of the day is a modern connectivity standard to replace the very old EDIFACT type B messaging standard that cannot support rich content”

      GDSs use all kinds of messaging. The argument that they are stuck in EDIFACT is not true. Take a look at the rich ancillary products from Amadeus and Sabre. There is XML messaging for payments and seats.

      “If airlines did not have to carry the cost of these large incentives to agencies in their GDS fees, then airlines would be far more predisposed towards using the GDS channel.”

      You say they are large, but who knows what they are really? I would agree that the traditional flow of funds may cause the airline to fear how large the incentive payments are, but remember this, the agencies find the customers, and the GDSs fulfill and provide the tech to service the transaction. Isn’t that why the airlines participate in the GDS?

       
      • Martin Cowley

        Exactly, Glenn, but the anti gds brigade would never let the facts get in the way of a good story. Would they?

         
        • Peter K

          Martin.

          You continue to miss the point.

          The GDS technology was magnificent technology in its day. It was advanced in its day. Real time processing of vast numbers of transactions. It had to be written in almost machine language to achieve this. TPF. And banks used similar technology for yonks until they came to the realisation that they had outgrown it and then spent billions and millions of man years to move away from it. And many have not been able to afford to do it and suffer a major disadvantage as a result. But these are their own systems..

          But the GDS stuck with the old tech. All but one (Amadeus) that is now about 95% on open systems. But even they still continue to use legacy applications. But they are well poised to be able to move if and when they want to. And they do not have copy PNRs. Only one booking record. But the others are not. Travelport in fact is stuck with 3 separate CRS systems.

          It was great technology, but it is old technology. It is late 1960’s early 1970s technology in its core systems in all but one GDS as mentioned above. And that GDS is beginning to dominate and will continue to do so because the differences will soon become more apparent.

          The core system connectivity is still EDIFACT type B messaging. It is only peripheral functions that move away from this standard. But they are all capable of moving away from this old connectivity standard and try to leave the core untouched as much as possible. But it is a massive investment in front end systems and connectivity tech to do this and also not a simple matter.

          The GDS’s started out as being real value for money to distribute airline services.

          But over time with their internal competition with each other, they lost their way to gain short term advantage and in the the process they destroyed their business model. And they milked the system for all it was worth. And went to the airlines to pay the bill.

          Now they realise that it is a real problem, but do not know how to get out of the clutches of the agents who no longer care about the differential functionality between the GDSs and just chase the money offered.

          Take a look at Travelport’s financials last year. They won over a large agency group and paid them the financial incentives up-front. Tens of millions of dollars. And the agency group soon after became insolvent. So Travelport received no segments and suffered a massive loss. Certainly sounds like a broken business model to me. And the hedge funds and PE funds all agree with me. The equities market also agrees.

          So maybe it is the agents that will finally kill off the providers of their systems. And when you have one provider only, I am sure that one of the first things to go will be elimination of agent segment incentives and probably a reduction in airline segment fees to try and arrest the airline moves and to regain the faith of the airlines who used to be far from anti-GDS. But times and technology have moved on and airline margins have reduced. And so have agents margins.

          Do you know how much the going GDS price to an airline is in GDS fee per passenger per segment? Over US$8.

          Some airlines with power have restrictive full full content agreements that reduce this fee in their home markets. Most airlines have nil and if they do have such an agreement they receive very minor reductions. So their GDS distribution cost is huge. And for short haul airlines it is a very large percentage of the ticket price, let alone the impact of various taxes fees and charges added to the headline price that have to be collected by the airlines on behalf of third parties and governments.

          And airlines even have to pay for cancelled segments and passive segments and no-show segments. And guess who causes most of these?

          And what are the agency incentives being offered? Around 3 and 4 dollars per passenger per segment. And agencies are dependent on this income. The profits of most TMCs are simply about equal to their GDS segment fee commissions. So many of them have a broken business model as well.

          So they (the agent industry) are desperately trying to hold on to this revenue, even if it means impeding technology advances. Even if means less customer service. But you can hardly blame them for their self-interest.

          And soon the major airlines are going to get mightily pissed-off with the GDSs doing deals with the LCCs at much lower rates to get their content, and excluding those LCC segments as being subject to inventive commissions. And the big OTAs are looking after themselves with direct connectivity to the airlines and merging it with other GDS content.

          So none of this is a good story at the moment, no matter which way you look at it.

          And legislation to protect agent’s interests is not the way to go. A dishonest and fraudulently misleading argument is being put forward at the moment to the EC based on misinformation and focussing on a so-called competitive transparent pricing argument. It is a flawed argument because GDS’s only have access to a cross-section of airlines (a lot , but not all) and do not have access to all fares available.

          But there is one rapidly emerging aggregator than can provide access to all. The Meta-search companies. But the agency groups are of course silent on this as it shoots a massive hole in their argument.

          But of course using meta-search does not suit their work-flow. It is true.

          But it does not mean that current airline practices disintegrate true price comparison shopping. Their practices are not anti-competitive. It is simply evolution and the result of a good thing (GDSs) over exploited by some parties, while the airlines foot the bill. Surely you can see this?

          But of course you are an expert on all of this. Not.

           
  8. David Bishop

    There is neutrality and independence for those TMC’s that invest in high value add technology to aggregate content from multiple sources. I’ve looked back and I can’t see any similar letters aimed at the Hotel chains viz their relationships with the OTA market? Why is this different?

     
    • Roy

      I’m not aware of any hotel chains that are **charging OTAs a fee** to book via the GDS and telling OTAs that to avoid the fee their only option is to ‘direct connect’ the OTA’s platform to the hotel’s own proprietary API. That is what the airlines are doing. Hotels are simply promoting their own websites and giving end-customers special offers to book there. That is the difference as I understand it.

       
    • Martin Cowley

      Oh dear (2). Move aside @professorsabena. Your place at the sharp end of the anti-gds crusade has been usurped by Mr Peter K (??). Or is it still you but in new clothes????

       
 
 

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