Travelport points finger at airlines over ancillary development

The debate over ancillary services and who is responsible for developing relevant technology for it appears to have taken another twist this week.

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In a somewhat novel move by a legacy GDS, Shelley Beasley, Travelport’s point person in the Asia-Pacific region, has gone out on a limb and attacked the low cost carriers for not wanting to pay for the custom development necessary to support ancillary services.

Indeed she is suggesting that the LCCs just don’t want to pay for the cost of the development at all.

At this week’s TravelTech conference, hosted by Martin Kelly in Sydney, Australia, Beasley (managing director for Pacific and head of solutions support in Asia-Pacific) went on the offensive.

Following negative comments on GDSs capability to handle advanced services and to keep up with the demands of LCCs by Jetstar and Air Asia in recent weeks in the region, Beasley countered in a spirited defense of the traditional GDS service model.

Describing the adverse statements as “a smokescreen” she says LCCs are reluctant to spend money on developing a system that handles their complex way of selling.

“The industry has not worked to a standard,” she says, adding a common solution “has to happen.”

Presumably this implies that the LCCs should be paying the GDSs for custom development despite having the capability functioning well on their own sites and in their own infrastructure – in many cases on systems owned and managed by GDS companies.

This seems to be a common cry from the GDSs to the point where it would seem they are reading from the same script.

Perhaps this is somewhat of a jaded argument. It would appear that the GDSs have not invested enough into the infrastructure to support a form of product that has been in the market for more than a few years.

This argument also does not hold up in the light of history. In previous major changes to the infrastructure of airline distribution such as ATB – the GDSs did not charge the airlines for this development.

In the end the agents had to pay for the expensive ATB2 printers either directly or via incentive payments from the airlines.

Depending on your view, it could become a chicken vs egg discussion.

The low cost carriers generally eschewed the use of GDS distribution. Indeed the most successful of them all in terms of profitability is Ryanair and it still steadfastly refuses to use intermediaries to sell its products.

It argues that if the product is to be sold that way then the consumer will be disadvantaged.

Other low cost carriers either charge for content distribution, such as Norwegian, or limit the product that is available for distribution by the more expensive channel – for example GOL.

Thus should the GDSs be providing solutions that support ancillary revenues at their cost or do they sit this one out and wait for a standard?

The airlines appear unwilling to wait to support a GDS sponsored standard but instead are coalescing around a standard of their own – the OpenAxis standard.

But the argument does not just affect LCCs. Full service network carriers such as American Airlines and Air Canada have also adopted the same position.

Clearly for the majority of carriers, adopting ancillary revenue product sales is a profit winning solution.

Most estimates for all of 2010 put ancillary revenues in the $5 billion plus range.

Total profits for the whole industry are (per IATA estimates) only $2.5 billion. In contrast, 2010 GDS fees are likely to be in the range of $10 billion to $12 billion range for the whole industry.

Who will be the winners in this battle? There is clearly a lot at stake.

But it would seem that the GDSs are deploying solutions. Amadeus has announced adoption already.

Even Travelport itself has slated release of enhancements in the September timeframe. Therefore it would seem the protests are ringing a little hollow.

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Timothy O'Neil-Dunne

About the Writer :: Timothy O'Neil-Dunne

Timothy O'Neil-Dunne is the managing partner for venture firm VaultPAD Ventures– an accelerator devoted exclusively to Aviation Travel and Tourism.

VaultPAD also is the parent company for consulting firm, T2Impact. Timothy has been with tnooz since the beginning, writing in particular aviation, technology, startups and innovation.

One of the first companies to emerge from the accelerator is Air Black Box. a cloud-based software company providing airline connectivity solutions and in production with airlines in Asia Pacific.

Timothy was a founding management team member of the Expedia team, where he headed the international and ground transportation portfolios. He also spent time with Worldspan as the international head of technology, where he managed technology services from infrastructure to product.

He is also a permanent advisor to the World Economic Forum and writes as Professor Sabena. He sits on a number of advisory and executive boards

 

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  1. The real NDC: Decoding the planned (r)evolution in airline distribution by IATA and airlines | Tnooz

    […] It’s true that the supplier must be willing to make the product available in a way the GDSs can use and pay their share of the cost. It takes two to tango, and we don’t know what Air Canada brought to the table. […]

     
  2. GDS Bitesize - service news, agreements, products from Amadeus, Travelport and Sabre | Tnooz

    […] Travelport points finger at airlines over ancillary development [full story] […]

     
  3. Jim Davidson

    Here is a radical idea (and self serving, of course). All the GDS have to do is agree to take airline connect connectivity from the airline’s standardized XML (rather than EDIFACT), go to http://www.farelogix.com and download the open source Hawkeye agency selling application, put their own face on it and start selling ancillary services. Sure there is some integration work, but at least it is all standardized which makes this all a heck of a lot easier than having each GDS go off and develop their own proprietary processes…BUT, we all really know this is not about technology…it is about commercials and who really controls the airline product and offer.

     
  4. Daniele Beccari

    Let’s not forget that GDSs do invest hundreds of millions of dollars in system evolutions every year – and those evolutions are all based on industry requests, not on GDS’ own morning ideas.

    The key problems is that it’s very, very expensive for anyone (GDS or surrounding FOS/MOS/BOS systems in the chain) to develop 400 different solutions for 400 different airlines.

    If everyone quickly agrees on a standard and a business model, the shared costs are small and things can get done without too much fuzz – think e-ticketing. That’s the very first reason GDSs have been started by airlines – cost mutualization.

    I think that with the EMD definition things will go quite fast now.
    (for the record, OpenAxis IS based on the IATA EMD).

     
  5. Graham

    I think we need to go back to the start and remember why LCCs have never wanted to distribute via the GDS model in the first place- they don’t have to. They have access to consumers on their own, something not possible when GDSs were first developed. Things have changed a bit, the role of the agent is changing as well.

    Bottom line: Whoever benefits the most would have to pay. Personally, I think the GDS would benefit more from the extra inventory than the LCC would from another distribution channel. There was one comment I didn’t include in my post about the rant at TravelTech regarding a development standard. Beasley said it wasn’t unrealistic, it was essential. I wonder if she meant for LCC or the GDSs?

     
  6. Dan G.

    Jerry,

    yes I totally agree. The reason I raise cost in particular is that I think we have a clearer view of the financial value of a booking direct online vs indirect offline on a per ticket basis. Even though, as you say, value isn’t just the per ticket price.

    Cheers,

    Dan G.

    [not an officially sanctioned view etc…]

     
  7. Jerry Dunn

    Just to clarify previous post, I mean ancillary partner products such as hotels, insurance and car rental would be sold on an airline website, whereas flight related ancillary services such as priority boarding, hold bags etc would also be sold via GDS.

     
  8. Marc Rosenberg

    Dennis:

    Travelport did launch Agencia a travel agency product that allowed for easier merchandising and selling then the traditional GDS. I would suggest to you that Travelport has moved forward although I would have liked it to move faster.

    I cannot state for a fact what one airline would pay versus another for GDS development costs however it is my opinion that for many years several of the GDS probably did not want to see an acceleration of the merchandising model.

    Now that merchandising is here in full force the GDSs have a lot of catching up to do.

    In most business models if you want to retain your client base and market share you take on the responsibility of improving your product line and you do so at your own cost.

     
  9. Jerry Dunn

    Dan, if you are trying to calculate the cost of different distribution channels then don’t forget the value.

    By which I mean a customer booking direct at an airline website is more valuable to the airline than if they booked through a travel agency because they may purchase ancillary products and the airline has the opportunity to promote directly to that customer for future bookings.

    I agree with Wing Tip that it is the GDS who have to build/pay for their own distribution infrastructure while the airline should pay for their own website infrastructure.

    As mentioned by Timothy, airlines may cover any distribution costs by adding a surcharge for bookings made via GDS channels.

    I should also mention that GDSs have already made good progress in facilitating the sale of ancillary services in their LCC booking solutions, e.g. Amadeus Ticketless Access and Galileo LCC Booking Solution, though for legacy carriers these are not so relevant.

    [Disclosure: I work for easyJet but this isn’t an officially sanctioned view!]

     
  10. Dennis Schaal

    Dennis Schaal

    Marc: Since Air Canada’s well-documented dispute with Sabre over Air Canada’s fare families and who would pay for the development costs to get them in the Sabre GDS, Sabre has implemented optional services like premium seats with a few carriers, including United.

    In these cases, do you think the airlines agreed to pay a share of the GDS development costs?

    Is that one reason it has taken so long to get optional services into the GDSs?

    Travelport’s statement makes it appears that not much progress has been made since Air Canada first raised the issue all of those years ago.

     
  11. Marc Rosenberg

    Ah of all the GDSs to make such a statement I am somewhat surprised it came from an individual at Travelport. They of all the GDSs have been the most progressive in working with carriers in this arena.

    That being said it is approaching 9 years when AC first approached the GDSs to work with us when we wanted to go down this route. You would think by now they would have a clearly defined strategy and articulation of a cost model or policy as to who pays what.

    Well we all know why that is not the case………….. Good for the airlines to move their own standards efforts.

     
  12. Wing Tip

    The argument is absurd. Does the laundry detergent maker pay for the shelves at the supermarket? Does the grocer pay for the tables at the restaurant where his produce was served? If the GDS wants to sell these products, assuming the airline is interested in selling those products via the GDS (which many are not), then the GDS better start building that infrastructure on its own dime.

     
    • Nadav

      Actually, in the case of laundry detergent makers and supermarkets – the answer in many global market is YES…

      It’s a question of who needs whom, not what’s fair. it’s business. However I do agree that at this stage the airlines may need the GDS a little less than the GDS seem to think.

       
  13. Dan G.

    Hi Timothy,

    I’d like to hold this statement up to closer scrutiny:

    “or limit the product that is available for distribution by the more expensive channel”

    By which I presume you mean the GDS? This is one of those things people repeat without thinking. But, with so little data on the true cost of online direct distribution, you’d have to say that this assertion is at least “untested”. If you consider $25 – $30 per ticket to be a realistic figure for buying keywords alone then the question “which is the most expensive channel?” becomes murkier still.

    As I said on a previous post, I’d love to see an analysis of the total cost of receiving a direct booking on a website. You’d need to look at the maintenance cost of running a website, the cost of SEO and keyword costs at a minimum. You’d also like to factor in call centre costs.

    Cheers,

    Dan G.
    [Disclosure: I work for Amadeus but this isn’t an officially sanctioned view.]

     
  14. Graham

    I’m not going to lie, that was fun to watch. I don’t think Martin (Who was hosting the event) even expected a response from Shelley. Really entertaining stuff!

     
 
 

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