Airlines aligned against mandatory GDS distribution

What happens when all of your major customers are aligned against a key component of your strategy?

That’s the dynamic in play as global airline associations, representing “virtually all of the commercial scheduled passenger airlines that fly into or out of the United States,” wrote a letter to Ray LaHood, secretary of the US Dept. of Transportation, indicating their opposition to any DOT proposal mandating that airlines serving the US “distribute all content and services through global distribution systems.”

“Mandating that airlines distribute all of their content through a GDS monopolist will result in significant consumer overcharges,” the letter says. “The proposed DOT mandate will invariably lead to a reduction in competition and technology innovation, while increasing the price of tickets for the end-user consumer.”

The airlines argue that existing DOT consumer rules, requiring airline-bag fee and on-time performance disclosures on airline websites, already provide consumers the information they need “in a timely and coherent manner.”

“Furthermore, we do not believe it is appropriate for DOT to interfere in contractual relationships between airlines and GDSs, particularly at the present time where there is pending litigation in this area,” the letter says.

The following airline associations signed the letter: International Air Transport Association, National Airlines Council of Canada, Arab Air Carriers Association, Association of European Airlines, A4A, African Airlines Association, Airlines Association of Southern Africa, Latin America and Caribbean Air Transport Association and Association of Asia Pacific Airlines.

Jill Brenner, a spokesperson for Travelport, says: “We are reviewing the letter but clearly disagree with the characterizations of GDSs which are completely inaccurate, at least in relation to Travelport.”

Art Sackler, executive director of Open Allies for Airfare Transparency, a group which counts Sabre, Amadeus and Travelport among its members, wrote a letter to LaHood in response to the airlines’ missive and he claimed that the carriers are creating a “straw man argument” because he doesn’t believe any such DOT proposal is in the works.

Sackler wrote that Open Allies does not seek a rule requiring airlines to contract with GDSs or any distribution channel, but once they do “fairness to consumers demands that it share ancillary service and fee data in a comprehensive, transactable and dynamically updated manner through that channel.”

The Open Allies letter continues:

That is, the airline should make all, not some, of the information about a particular itinerary available to the consumer, and enable him or her to buy all, not some, of at least the “core” (baggage, seating, boarding) services associated with that itinerary, through that channel.

Open Allies seeks a new rule, or an expansion of existing DOT rules, to ensure that online travel agencies, GDSs and all other distribution channels “are provided with transparent, transactable and dynamically updated airline fee data, enabling true comparison shopping and consumer choice,” the Open Allies letter says.

 

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Dennis Schaal

About the Writer :: Dennis Schaal

Dennis Schaal was North American editor for Tnooz.

 

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  1. murray harrold

    Actually, I think we agree on a lot. Quite right, a lot of airlines do not participate… and quite rightly, too. They do not need to. Why would a simple point to point, non-interline airline need to be on a GDS? On balance, most agents know this and we already have the tools to point us in the right direction if a cheapo airline flies a certain route… sites such as Skyscanner do highlight any cheapo airlines. So, one agrees that to mandate all airlines being on a GDS is daft.

    BUT for any airline that wants a piece of integrated action, then the GDS is a must. Why the GDS systems exist as a monopoly and they way they do business is the airline/ GDS bit of the industry’s problem. They made their bed… now they have to lie in it.

    I do not think that we believe that if it ain’t on a GDS, it won’t get sold. For reasons stated above, we have easy access to information about cheapo airlines… and given that our objective is to achieve best value for every travel dollar a client has to spend (which is a very long way from “cheapest”) we would be foolish not to engage with cheapo airlines. After all, a fee may be charged, irrespective of booking medium.

    Yes, the US market is for the US – and it’s very irritating. Shock! Horror! What works in the US does not always work for the rest of the planet, in fact, seldom does … which is where many US based airlines and others may be going wrong. In general terms, the biggest issue the US has to face is the same issue we in Europe had to face a couple of generations back…. that the world’s powerhouse has moved. Woe betide you, if you do not recoginse that… and keep up.

     
  2. Timothy O'Neil-Dunne

    Murray…. good perspective as always.

    Let me poke a little hole in your argument – actually also in the DoT’s argument. Also remember that the regulation applies to the USA not to anyone else. So its USA for the Americans (not that it ever mattered to anyone else 😉

    Today GDSs do not have full participation by all the airlines. Shock!!! Horror!!! In fact 30% of all flights are non-legacy and of this number the percentage of products available to GDSs is actually quite small.

    To wit – Some airlines are not fully participating
    To wit – Some airlines do not participate at all.

    Thus when you break through the holistic model of all airlines participating all the time, its a pretty slippery slope down. And we are at that point. The GDSs were not able (or more even did not want to) come to terms with the airlines.

    So if you are not (choice or otherwise) selling all airlines equally then are you fulfilling your role as a customer advocate? There is a pervasive attitude by the TMCs that says if its not in the GDS then it wont be sold. But who suffers in that battle? The customer or the agent. I would suggest both.

    In my view this is the harsh reality. Forcing Airlines participation in the GDS is ludicrous. Is the USA going to mandate ALL airlines to participate ALL equally? Is it possible, it is actually desirable? Is it legal for them to do so. What is a GDS – the big 3 monopolies? What about anyone else who wants to join the market? Almost as mad as some of the onerous contracts the GDS have in place with both Agents and the corresponding contracts with the airlines. And please don’t get me started on the insane idea of paying your customers to do business with you. I believe in some circles that is regarded as bribery and racketeering.

    I submitted a dissertation on this subject to the DoT last year pointing out these basic facts.

    Whether you like my point of view or not, the tenets of competition will be harmed if the participation is forced. But since the DoT has proved itself so adept at riding roughshod over consumers and competition in some self anointed role to “protect the industry” i am not convinced that they will understand these points.

    Cheers

    Timothy

     
  3. murray harrold

    Fair enough. Capitalism – at least, raw capitalism – does not work. Then again, neither does raw Socialism… my view has always been that the answer lies somewhere in the middle. e have seen it here in the form of privatisation, which has meant that many public services are run for everyone, save for the public. But I digress.

    I agree that a product or brand is there for the product or brand owner to do what they will. But that does not always mean that the product or brand owner understands their product nor that what they do with it, is best. That said, it is a very brave company that believes it can do what it likes, without taking heed of its customers.

    I believe the US skews the market. Americans are guilty of having a “be reasonable, do it our way” approach to things and American firms, in many industry sectors, not just travel, are good at management, management thinking, sales and marketing. Trouble is, being bogged down in endless labor laws and what-not, they are terminally hopeless when it comes to producing goods or actually providing a service. Which is why the I-pad/ phone etc is made in China.

    Now, I accept that many more ticket are sold direct. Question is – what sort of tickets? Even we agents, if faced with a client who wants a very simple A to B ticket may say – Do your self a favor, go and book it online. Agents have changed. We service firms (because, for example, they want travel policy policed, because they have complicated stuff…. because they want a car hire and a hotel they can cancel 12 hours before, but mainly because they pay their executives to land them multi-million dollar deals and they pay the PA’s to help their exec’s land multi million dollar deals and they do not pay them to work out to get them around the place at a ticket price which represents the best value for every travel dollar they have to spend.

    In other words, we agents/ TMC’s whatever – we do the good stuff. And I mean the really good stuff. In order to produce the good stuff, we need the GDS (by “we” I mean all stakeholders) . It have been around a while, but it works and from a doing the job point of view, it’s not broken, so we are not trying to fix it.

    The market is changing. Rather, the market is evolving. It is not airlines that have driven that change, it’s the market just, well, evolving. Agents don’t bother with cheap stuff and have developed (in case no-one has noticed) into a pretty lean and mean, highly efficient, holistic travel partner…. firmly on the side of the customer. Believe it or not, the customer, it could be argued, needs an agent more these days, than before. Certainly from a business travel perspective, apart from the really, really simple stuff the most inefficent and least cost effective way of booking a ticket, is direct with an airline.

    Anyway, the US airline business will bumble on in it’s own clunky way. Weighed down, like Marley, with their union chains and pilot’s shackles but mainly by their “we are American and therefore right” perspective … We shall see!

     
  4. Timothy O'Neil-Dunne

    Thank goodness we have a dose of reality from Murray. I dont agree with him but its good to hear the point of view from someone in the trenches.

    Why don’t i agree with him? It is not from the consumer perspective, as one who travels a goodly number of miles a year – I find the fare unbundling annoying at best. However from a macro economic view, I have to see it another way. Two major factors come into play.

    1. Its the airlines product. Its theirs to do with as they see fit.
    2. The concentration of power (particularly in the USA) means that there is no need to pay attention to things like consumer benefit.

    AKA Capitalism at work.

    For this, the finger of suspicion has got to point to the politicos. They allowed the JVs (aka merger in all but name so we can make money) as well as the actual mergers (DL+NW, UA+CO) to take place. The policy of too big to fail is essentially a slap in the face of competition and consumerism. The resulting oligopoly is as a direct result of the regulators interfering with the economy.

    The debate over whether US should take over AA is really academic. I would like to line the Dept of Transportation mandarins up and ask them a few choice questions such as… why they allowed mergers and JVs to take place that were clearly not in the interests of the consumer – the very person they were sworn to protect. The average yield on a ticket not including ancillaries has soared in the past 2 years. Quite simply because the airlines got their Mojo back and have pricing power.

    The current occupant of the Secretary, Ray Lahood is (in)famous in my book for allowing the airlines a basic get out of jail free card by allowing an international airline to repudiate a website mistake and cancel thousands of reservations made for flights to India.

    Actually the US airlines are raising a very real issue. There is a proposed rule and its been on the cards for over a year now. So this is not new news. What is new is that the process is getting closer to fruition. As I noted above the DoT has been at the forefront of dabbling in macro economic matters by essentially closing the market. If the rule proceeds it will result in ensuring that the GDSs have their cake and eat it for ever. All this on the rather unsound theory that Agents would not have access to all fare and availability information. This has sadly been driven by a lot of obfuscation arguments which have little to do with the reality of what actually happens.

    However…

    The GDS market share in the USA has been falling steadily for years and is now hovering in the 40s% of all tickets sold. The GDS and their customers OTAs and TMCs (there is basically no one else), dont want to have to develop consumer facing technologies that work. Its cheaper for them to lobby than to fix their product. The consumer is voting with his feet driven in part because he has only a few choices to make and therefore he prefers to buy direct.

    That may sound illogical at first but if you think about it you get the point. GDSs are not that necessary. What holds them in place seems to be old clunky technology and good people like Murray who are quite happy to do the same thing they have done for years and years.

    What’s my point? The DoT is playing God. It allowed big mergers to take place and its solution to protect the consumer is to force them to provide all their info to the very chaps in the middle who have consistently been profitable in good and bad times. It clearly has no clue about how markets work, or perhaps more sinister it doesn’t want the market forces of free competition to work.

    There will be howls of protest from the GDSs about their sleek new technology and how wiz bang it is. However what the agents use underneath has hardly changed. The price (GDS charges)however has continued to rise and therefore the question of economic value comes to the fore. If the DoT should legislate inf favour of compulsory participation by airlines in the GDS, then it is logical to expect at least two things to happen.

    1. GDS incentive fees to Travel Agents will fall but the charges to the airlines will not fall.
    2. GDSs will get more lazy and will have less incentive to develop better solutions.

    Be careful what you wish for… those of you who are lobbying for this rule. It may just happen, and in my book there will be tears.

    Cheers

    PS a small aside. The conflict between the Dept of Transportation (who tends to favour Big Airlines and Big GDSs) and the Dept of Justice (who tends to favour the consumer) continues unabated with the revelation that the DoJ has started expanding its investigation into the GDS by serving up at least one civil investigative demand (CID).

     
  5. murray harrold

    I am always faintly amused by all this. Airlines disappearing down an alleyway which, apart from being a dead end, is unlit and full of all sorts of nasty things. Then again, airline executives never were exactly the sharpest tools in the shed. They have opened the Pandora’s box and all sorts of Trojan horses are jumping out. Let’s move back a bit.

    This all got started when this stupid idea of reducing the fare element and then airlines tried to claw revenue back by inventing all sorts of fees. Some rather silly people even started to give this a name (presumably to give it an air of respectability) and called it unbundling. The net upshot is that one has a fare of £10.00 – and the errr…. taxes and charges which come to, say, £200. One then tries to get more revenue by all sorts of brainless wheezes. All one manages to do, however, is upset the punters. Of course, tarnsparency goes out the window. Mind you, it was never in the window. After all, how many people know what those two letter charges mean?

    Now, with a simple point to point and no more low cost carrier, one can inflict this harsh regieme on the punters. When we are talking about mainstream mix and match airlines, things are different. For business travel (and for proper travel) to work, you must be able to complete an itinerary using one source of information, combine an itinerary into one booking and be able to produce one ticket – and there must be uniformity in all the bits and bobs that go around that booking. The system must be secure and must tie up all the relevant information with all the carriers. This is a simple and blatant fact that cannot, in any way, be got around. Don’t mind how you do it – but however you do it, these features must be present.

    Up till now and, I may add, since the 1980’s this has been achieved through the medium of the GDS. They have done the job well and efficiently. Countless millions of tickets – itineraries – have been successfully sold this way.

    Now, as soon as you take out certain elements which are fundamental to how travel works and try and make them “optional extras” then things start to fall apart. Especially when in the mix, those optional extras may be optional with airline “A” but not with airline “B”. The thing becomes unworkable – BUT – take away the GDS type of distribution and try and get people to book on one (airline) website and, well, travel become unworkable – indeed, we are back to pre-GDS days. A horrible and impractical way of organising travel.

    So, what needs to happen here is (along with some banging of heads together) is to get back to a reasonable fare; which fare must contain all those elements the “Man on the Clapham Omnibus” (as we say in the UK) may reasonably expect to be included in a fare. A seat, 23kgs of luggage, a cup of tea and a biscuit …. and some snap on longer journeys. And that commonality should exist across all carriers, unless they are simple point to point, non-interline services.

    The thing is, the desire to increase occupancy in the very cheap end of the fare food food chain is having a very serious effect mid-fare-food chain. After all, even though I sit in the Cattle class cabin, transatlantic, I can easily have paid £900 to sit beside someone who has paid £100 – and have no greater privileges. That is fundamentally wrong, given that, if you add on all the extras you may only be talking about an additional £50. Better, add the £50 on to all fares and stop giving the punters a load of hassle because they have a make-up bag that is 4 inches too big. In other words, airlines, lighten up. Get back out of this alley and have a complete re-think.

     
 
 

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