Lufthansa to add surcharge to every booking made via the GDS

The “value of the GDS” debate has returned with a bang, with Lufthansa introducing a levy on all bookings made via a GDS after announcing a new commercial strategy.

The Euro 16 surcharge will apply worldwide from September this year on every first issue ticket for Lufthansa, Austrian Airlines, Brussels Airlines and Swiss International Airlines.

The Distribution Cost Charge will not be added to any tickets bought via the websites of the individual carriers.

Leisure agents are being encouraged to book via a dedicated portal, whilst travel management companies will be able to secure tickets online, using their existing negotiated rates.

Lufthansa Group chief commercial officer, Jens Bischof, explains:

“At present, airlines are not yet able to market their services via all sales channels, as it is common in other industries. The contracts and structures have previously prevented any deregulation in many areas.

“We want to change this with our new commercial strategy and take advantage of greater degrees of freedom in our sales activities, providing our customers with the exact tailor-made services that they are looking for and wherever they are looking for them.”

Lufthansa’s new stance came at the end of a lengthy statement from Bischof, outlining what he calls a strategy “to ensure, in future, a greater portion of revenue will be from flight operations; the actual area of service to the customer”.

“Until now, the percentage of revenue generated from the sale of flight tickets by our airlines has continuously decreased.

“While other service and system partners in the value chain are recording increasing margins and returns, our airline’s earnings have been compromised over time, even though they are the actual providers of flight services.

Lufthansa claims the costs for issuing tickets via the GDSs are “several times higher” than other booking channels.

Bischof says this cost of distribution means the airline is now paying a “three-digit million Euro” fee, despite what he claims are services which are “primarily used by other partner sites in the value chain” – namely, online travel agencies.

Amadeus has reacted angrily to Lufthansa’s move, issuing a statement that says Lufthansa’s move “will make comparison and transparency more difficult” to consumers and arguing that “industry overall stands to lose from this distribution model”.

An official adds:

“LHG (Lufthansa Group) has chosen to go in a different direction by introducing charges that will penalise travellers based on the shopping channel they use.

“Travellers will either pay more for the same service or, in the case that travel agencies are forced to accept this new commercial strategy by modifying the way they access content just for LHG, there will be extra IT costs that may ultimately be passed on to the traveller, putting the travel agent, and/or the end consumer, at a disadvantage.”

Lufthansa’s Bischof claims the technology associated with its current sales systems “cannot adequately display the individual offers, with their variety of product components”, a bit of a jab in the eye of the GDSs which have been working to introduce their own merchandising technology to the market over the past few years.

Furthermore, Lufthansa says it is in the process of developing its own booking process to enable third parties to connect their own systems directly to the airline, using the NDC protocols being developed by IATA.

Sabre, in a strongly response issued today, says it is ready to “work with airlines globally that wish to sell and retail their products through Sabre” and the Lufthansa shift “disadvantages consumers and travel agencies”.

An official adds:

“The GDS is the most preferred and efficient channel for consumers and travel agents to shop, book and manage travel, and provides consumers with transparency, choice and the ability to comparison shop.

“We stand behind the significant value we provide airline customers and agencies around the world, and we expect to find a mutually beneficial solution for both Lufthansa and our agency customers.”

Also reacting, Travelport says the move is “not in the interests of the end-traveller or the airline group”.

“We continue to remain focused on providing our travel agency customers worldwide with the broadest possible travel content and providing our airline partners with cost-efficient and highly effective global distribution.

“Many of our airline partners, including the Lufthansa Group, are now also taking advantage of our suite of industry-leading merchandising solutions.

“These solutions allow airlines to connect to us and display and retail all of their content, including their ancillary content, in a flexible way that meets their business needs.”

NB: Lufthansa check-in image via Shutterstock.

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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.

 

Comments

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  1. AR

    NDC is only the shop element, ‘one Order’ is going handle the offer/ order elements and removes the complexity of the PNR and eTicket ie Ticketless as the LLC model is today. I am sure Murray will have even greater concerns about this change, but once this is also in place it will be far better for the customers, and corporates in terms of price and services. It will drive a load of new competition and innovation into the market. Surely that is very positive for the end customers, too many in the travel value chain are happy with the current complexity that they can make money off which the end customer pays for. Change is a good thing and Lufthansa has done the right thing standing up for the end customer is fantastic. Well done.

     
    • murray harrold

      I have not the faintest idea of what you mean by “one Order” and/or “removing the complexity of the PNR” … that could do with some serious explaining. As such, I can make no comment!

      … that said, I am always amused by these comments such as “driving business” and how XYZ is going to be “positive for the customer” – given that we have no idea at all what “it” is, one can neither judge nor make any comment, good or bad.

       
  2. murray harrold

    … Oh! And whilst we are on the subject of modernisation and new systems… perhaps we could,say, get rid of the outdated “Saturday Night” rule for flights across the Atlantic (and elsewhere) and airlines in America could stop trying to prevent really open skies … or “Grandfather rights” for landing slots …. or having fares with ridiculous rules and not allowing refunds on anything but the most expensive fares or charging $300 to change a ticket …

     
    • Henry Harteveldt

      Murray, there are still fares that require the Saturday night stayover, but I believe they account for a smaller proportion of discounted fares today than in the past. A substantial number of discounted fares are now sellable on a one-way basis.

       
      • murray harrold

        Really? Across the Atlantic EVERYTHING is “Saturday Night Rule” – plus pretty much anything long haul from Europe. These may be a “smaller proprtion of discounted fares” mainly because, errr…. they are not discounted. And what about “Open Skies”?? “We will have open skies as long as those open skies do not mean that they are open for anyone else apart from us” – which is the banal American view.

        You want to “modernise” air travel – well, start with the arcane systems, Spanish practices and backward thinking about fares which costs customers a lot more than mucking about with how someone books a day trip to Boston. It is these old fashioned, retrograde dug-in-deep ideas that need to be disrupted.

         
  3. Timothy O'Neil-Dunne

    Murray. It is not an either or… its an “and”. IMHO the issue is now that there is a technical misconnect between what is possible only via the Airlines’ dot com websites and the capability via the agency channel – GDSs. That delta must be addressed. In your world – this requires constant interaction with a live PNR. That capability need can therefore be used to complete PNRs totally within the agency environment rather than the increasingly kludgy way things are done now. (Mixture of GDS, airline calls and Airline website interaction).

    You may have a niche that works with the GDS solely. But the true role of the agent has to be omnibus and serving their customers completely. That is no longer possible via the GDS exclusively.

    Cheers

    Timothy

     
    • murray harrold

      Oh! I dunno… I can do air, hotels, car and train- indeed just about everything very well on my Sabre set, thank you…. For air, we are selling the higher fares (so why penalise??), hotels get a much better room rate than what they get by flogging rooms on, say, booking.com and ditto ditto cars (so that’s win-win, as well). Rail is getting easier, too (needs more attention, though). Cheap (air) stuff most of us can either a) suggest the client does it themselves or b) We very often use an airline website (and if you make an agreement with someone who has an affiliate link – then you even get thrown a bone for doing it).

      If an agents calls an airline, there is invariably a damned good reason for it … though not helped by certain airlines having clueless East-of-Suez troops …. So, hardly kludgy – and if it is kludgy, it could be made less kludgy by airlines fares and their -ahem!- “taxes and charges” being not quite so less-than-transparent and antiquated. You are not going to get rid of the kludgy factor through NDC … seems to me the beam needs to be taken out of the airline’s eye before they worry about the splinter in the agent’s … or for that matter, the GDS’s …

       
  4. murray harrold

    With respect – rubbish. The GDS was primarily designed as a means of communicating raw information – so to lambast the GDS for whatever reasons is banal. Now, instead of talking to the GDS systems with a “this is what we have, but our vision is now this” type attitude, there is a feeling that the GDS systems are something to be avoided at all costs. What NDC has to bear in mind, is that it has to replace something that is proven and works remarkably well – and has done so for a good many years without too many issues, with something which is embryonic, unproven and to date has been nothing more than hot air. Neither I, nor many of my colleagues this side of the blue screen are, I am sure, “sceptical” about NDC – all we say is “put up or shut up”

    There seems to be a total lack of understanding of what TMC’s and Travel Agents do – our function has changed very dramatically. We work on fees, not commission (which is more than can be said for many online systems which work on a de facto commission model – said to be “outdated” – that commission being dressed up as “bounty”). Further it is not a question of “adding value”; agencies do what airlines CANNOT do – you trying approaching Lufthansa, through whatever medium you choose and try and do LHR > FRA > ADD > LAD > JNB > LHR. Then you try and hold that reservation whilst a business type finalises some meetings, then change bits of it… wait again, fine tune a few bits … An airline simply cannot do that – and neither can an online system – then try and deal with some on-the-hoof changes and a bit of a refund.

    There is disruption required to the online travel model, which relies on the out dated “bounty” (aka commission) payment system where online adds no value at all to a booking. Indeed, given the inability to obtain refunds (we all know one well-known online site that just doesn’t bother offering refunds) and big problems with on-the-hoof changes – online actually takes away value.

    Whatever a surrogate GDS may try and do, it has to work seamlessly for both agent and more importantly, the client.

    So don’t talk about “GDS gravy trains” as one clearly has no practical understanding of how travel really works – and it is clearly these sort of people, who have this complete lack of understanding who are trying to steer distribution.

    What is needed, here, is for airlines to have a little more respect for how things work, the elements (and people) involved and then to try and find a meeting of minds about the future of distribution.

     
  5. Shawn Richards

    The difficulty is going to be achieving critical mass, which governs the progressive stages from a single defection to an uprising to a revolution. NDC might be delivering very little on the ground so far. But the standard itself cannot drive anything. It is the genuine business desire to transition from a comfortable model that works to a cheaper one that has no footprint yet. A visible prize is cost reduction. A less visible one is a more dynamic market.

    IMHO, GDSes jumping into NDC weakens it from within. It becomes another bolt-on protocol instead of something that democratises the publishing of availability.

    True change is within the grasp of the airlines but it takes more than technology. It takes guts. And probably more money to transform than would initially be saved.

     
  6. AB

    Completely agree with Timothy. Some others have always been negative and sceptical on NDC etc but are far away from reality.
    I beleive LH did this about a decade ago and pulled out (reversed the GDS surcharge) in weeks.
    This time on, if other airlines foloow suite, it might work.
    Certainly going to get very hot, this one.

     
  7. Henry Harteveldt

    Oh, hello 2002. it’s nice to see you again.

    The primary surprise in this is the inclusion of the TMCs. The rest is “okay, here we go again.”

    The travel industry is the only one where the supplier, rather than the consumer, bears the cost of distribution. Although they have denied the need to do so for years, Lufthansa Group’s initiative is a shrill wake-up alarm to the GDS operators. The third-party distribution cost business model must change, and that process must begin now if GDSs want to remain part of the distribution mix.

     
  8. Timothy O'Neil-Dunne

    I would love to join in this battle but frankly the fact that ANYONE is surprised by this surprises me. It comes down to the commercial model and the market. If the airlines are operating load factors in the high 80s and 90s then this is a supply side market. Whether anyone likes this issue or not – this is the core matter. Whether travel agents add value or not is no longer of relevance to an airline.

    One needs to read the entire release to get a sense of why and the how. Further if anyone thinks that the gravy train of GDS incentive fees would last forever – that was clearly an unnatural act.

    From the innovation side – differentiation is the task at hand now and the GDS model works against that. The catch-22 of either pay boat loads for differentiation that then becomes no more differentiation OR withhold and be in breach of your contract. That is where all the GDSs must bear the blame for not investing in their product and preferring to invest in “buying” business. Some more than others. The customer is just a pawn in this game. For that all the parties must share the blame.

    Cheers

    Timothy

     
  9. murray harrold

    Quite so, Claudio! The gloves are not off – this is a rather childish example, demonstrating that the last brain cell is about to leave an airline boardroom. As regards NDC – fine – produce it and let’s see what it has to offer. So far, it has been hot air, with very little to show and even less promise. Frankly, one does not mind how the cheap fares are distributed – it is really no skin of any agents nose as we work on fees in any event. Where this will come in, is with the top end business and first class passengers – the sort of customers that really matter and the sort of customers that online channels find hard to accommodate. Firms pay their executives (and the PA’s for those executives) to land multi-million pound deals for their firm – not to spend time trying to work out what is the best way of getting to 4 destinations, in good time.

    All this talk of “services offered” and what not, is a complete red herring. If a client has to be at a destination by 10:00, then a flight that arrives at 11:00 is no good – even if it does offer a free bun and a bag. The best airline in the world, is the airline that gets you where you need to be, when you need to be there. Airlines are (now) simply a very fast bus. Time they woke up to that.

    Having chosen to work with anyone as long as it is not someone who is trained and devoted to selling any airlines product, this is an example of an airline now saying they will work with any channel for distribution – as long as it is not a channel primarily set up to distribute that airlines product. Bravo!

     
  10. RobertKCole

    The gloves are finally coming off, but it won’t get really interesting until they bring out the brass knuckles and tire irons…

    This is going to get ugly.

     
  11. claudio

    Just received on italian market as well.
    Let’s see what happens with exchange…..refunds….when many airlines are involved.
    …it will be a hot summer….

     
 
 

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