Airline services, intermediaries and sharing the wealth

There has been a lotoftalklately about charging for additional service content by airlines. However I think the discussion somewhat misses the point.

There are very today a wide number of costs associated with content access. Let’s just examine what costs are charged out to an intermediary, highlighting three possible scenarios:

Scenario One – Conventional offline agency

• If I am a conventional travel agency with nothing of my own technology in place – then the traditional GDS model of no charges is largely in place. But (except for a few notable exceptions) all contracts have some kind of threshold cost associated with them. So to say there is totally “free” distribution even in this increasingly rare model is clearly not true.

Scenario Two – Consolidator offering B2B services (mostly Europe)

• A consolidator or any agency offering a re-distribution service is paying for technology to “facilitate” access to the content for themselves and their user community. These charges are now rising rapidly driven by two parameters – GDS transaction or technology costs and IT provider costs.

Scenario Three – Agency offering B2C services (including OTA)

• An OTA or any agency offering a booking engine is paying for technology to facilitate access to the content. These charges are now rising rapidly driven by two parameters – GDS transaction or technology costs and IT provider costs. Some of these costs can be quite high - Euro 4 per booking or Euro 2 per segment. These are not uncommon charges.

In addition to these three scenarios, I would also like to point out that all GDSs are now charging developers for “access and certification” type fees. Some of these fees are quite onerous. In turn this fee is charged out to users who are agents and consolidators.

The technology – call them “below the line” costs - are rising fast. This is a worrying trend for any intermediary. Let’s not kid ourselves – the GDSs are searching for ways to increase net revenues to compensate for increasingly high incentive fees and lowered/capped airline revenues.

We cannot ignore that access to content is often charged by intermediaries for content that is specific to some airlines. For example BA’s preferred distributer (Lime Management) in the UK charges a very high per transaction fee for issuing deep discounted tickets.

Finally some airlines – like Norwegian – openly charge for GDS-based sales. There are several airlines who are charging for access to their content via selected contents. Different models abound in different markets some within the same airline. We can all see the impact of the Lufthansa PFP program.

Therefore to say that this is a new phenomenon would be untrue. To say that it wont exist in many areas would be to deny a basic truth.

Ultimately we need to acknowledge that the days of homogenous one size fits all commercial models are dead. Anyone who states or even desires this needs to probably exit the business fast.

There are clearly owners of content charging (or offering a negative incentive) for access to this content. And in my opinion there is nothing wrong with this.

I might not like it, but it is the realistic way of the world. If you have a scarce resource you with raise the price or charge a premium for access to it.

As Cory Gartner said in The Beat last month (no open link available):

I do have a request which is for a manner of the charging. To any supplier or content owner – do not take all the value for yourself and be greedy.

Share the benefit of reduced cost and increased revenue with your business partners. As ancillary revenues are rolled out – it would behove the airlines to share in that nice revenue windfall. But agencies should also not be greedy!