To start: a primer on the interplay among global
distribution systems, airlines and travel management companies. TMCs, on which
many corporate travel programs rely, use GDS infrastructure to shop for and
book airline tickets. The GDSs, in turn, offer financial incentives to travel
agencies for booking through their channels. The GDS operators also charge
airlines for each transaction the GDSs facilitate.
The GDSs want access to airlines' full collection of
content, and they want the prices listed to be the same as those offered for
display on other distribution channels, a concept known as fare parity.
Further, GDSs seek assurances from airlines that airlines will not surcharge
GDS bookings or otherwise discriminate against that GDS's users. So, when an
airline participates in a "full content" agreement, a GDS in exchange
will discount the transaction fees it charges the airline.
One by one, though, Europe's three biggest airline groups
have veered from this long-running structure for legacy airlines. Each of the
three has implemented a surcharge on bookings made through the GDS and opted
out of their full content agreements. That surcharge is to be paid by travelers,
or ultimately their companies, when booking tickets through travel agencies
that access content from the GDSs. Lufthansa's 16 euro per-ticket fee took
effect in September 2015. International Airlines Group's British Airways and
Iberia enacted their own surcharge on Nov. 1 that amounts to $10 per fare
component, generally defined as a one-way ticket or half a round-trip. And Air
France-KLM has just joined the club, planning to launch its 11 euro per-way fee
in April 2018. Ultimately, because these airlines no longer commit to full
content, they lose the discounts GDSs had given them, but they also now are
free to control the "merchandise" they put out and to levy surcharges
on GDS bookings.
Airlines have explained that their surcharges for GDS bookings
basically cover the premium it costs airlines to distribute via GDSs. For
example, the new structure means IAG airlines now pay GDSs more per booking. "We
are clear that the transition involves an increase in costs," IAG CEO
Willie Walsh said. "This is in the short to medium term not a
cost-reduction issue. In fact, it will add to our costs."
For the most part, many airlines prefer customers book on
the airlines' direct channels, such as their own websites. Here, airlines say,
they have better capability to sell ancillaries to customers, can exert greater
control over bookers' experiences, can glean better data on their customers and
can facilitate a more direct relationship with customers.
The International Air Transport Association has developed
the New Distribution Capability standard to help airlines close the perceived
gap between their direct and indirect channels. In other words, NDC-based
connections—which could be adopted by travel agencies, content aggregation
companies or the GDSs themselves—can give airlines that kind of control even
via indirect distribution channels.
Got it? Now here's what's happened lately.
Air France-KLM Joins Lufthansa & IAG's Club
Air France-KLM's surcharge on GDS bookings, announced this
month, will apply when Air France, KLM or the group's Hop carrier participates
as a marketing carrier on an itinerary. In January, the group will launch its
NDC-based application programming interface, and on April 1, the day the
surcharge takes effect, it also will release an online direct booking portal.
Both are channels via which travel agencies can make bookings without facing
the GDS surcharge.
Air France-KLM noted the distribution surcharge will cover
the cost of distributing and making a sale via the GDS versus the cost of a
direct sale. Its commercial and distribution costs rose from 690 million euros
for the first three quarters of 2016 to 701 million euros for the same period
this year. CFO Frederic Gagey said: "There is an immediate effect, which
is that we pay more to the GDS. This is compensated by the GDS surcharge."
Air France-KLM also anticipates that switching some business to other channels
will offset the higher fee it will pay the GDSs for each GDS booking. "All
in all ... it is neutral in year one and positive in year two." Similarly,
Walsh said IAG's distribution strategy is "an investment in the first year
and return from the second year onwards."
According to Air France-KLM's third-quarter investor
presentation, switching to NDC means "taking back control of [the] offer
for all channels, allowing creation of personalized offers, dynamically built
product bundles [and] rich offers and content."
After All That, Though, BA & Iberia Are Waiving the
GDS Surcharge for Some TMCs
British Airways and Iberia enacted their surcharge on Nov.
1. Yet some large corporate TMCs are empowered to continue to book on GDSs
without paying a fee.
Around the time BA enacted the fee, it arranged to waive its
surcharge for select travel agencies when their clients book through GDSs that
agree to the arrangement. Amadeus was the first of the three major GDS
operators to buy in to this "private channel" model. Sabre followed
this month, and at press time, Travelport also was poised to support agencies
under the model. American Express Global Business Travel, BCD Travel, Carlson
Wagonlit Travel, HRG and many of the biggest U.K. agencies are among the TMCs
participating. Essentially, these TMCs gain access to the airlines'
surcharge-free content while agencies that aren't in the private-channel club
do not.
The fact that this private channel is available only to some
agencies led one travel buyer to say, "The surcharge is only going to
increase the skepticism of buyers that its NDC strategy is all about cost of
distribution rather than the claimed benefits of enhanced content,
personalization and working in a very different way with corporate customers."
Still, there are other ways for agencies to avoid the
surcharge. BA and Iberia have developed cloud-based tools, including a
corporate booking portal for corporate clients and a tool for TMCs. Through
those portals, IAG is offering the ability to book, change and cancel BA and
Iberia tickets, including negotiated fares. BA and Iberia's portals also
support corporate policies and provide corporates access to ancillary products.
Further, the airlines are providing "a standard XML feed for agents to
integrate to their mid- and back-office systems." Lufthansa similarly
offers an agent portal and, as mentioned, Air France-KLM's is in the works.
Yet another way to avoid the surcharge is to book IAG-operated
flights through codeshare partners, including American Airlines. This is true
of Lufthansa and Air France-KLM, as well, where codeshare bookings are not
subject to the surcharge.
Ultimately, the GDSs themselves have embraced NDC. Each of
the major GDSs has put time lines in place for full NDC compatibility. All say
they will be NDC-certified at the highest level by the end of next year, which
means the technical capability will exist for airlines to control the content
they distribute via GDSs. What economic models will emerge among airlines, GDSs
and TMCs, then, remain to be seen. According to IAG's Walsh, "We'd like to
have a relationship with the GDS, but we think the traditional model is no
longer fit for purpose, and we need a model that works to the future and not
one that is structured around the past."
—Reporting by Jay Boehmer & Amon Cohen