In recent months we have seen several airlines ratchet up their rhetoric against the global distribution systems (GDSs), namely, Amadeus, Sabre, Travelport, and Travelsky.
In particular some airline CEOs have spoken strongly against the GDSs -- tagging them as, in the paraphrase of Emirates’ CEO, “not fit for purpose”.
Sir Tim Clark (Emirates) and HE Akbar Al Baker (Qatar) have been critical, despite the fact that the significant majority of these two airlines’ bookings come via GDS.
Perhaps it is time to examine GDS claims and evaluate whether or not the GDSs are able to deliver on their promise that they are the best distribution channel for an airline.
To be clear, the question has to be qualified in their role in the supply chain management system for the travel industry. The question could easily occupy a volume of books.
So, for simplicity’s sake, this analysis will focus on seven criteria related to the parts that are valuable to the user community, meaning, airlines and intermediaries like travel agencies.
Criteria 1 – Giving agencies/intermediaries access to all airlines.
In general the airlines do a good job here. The percentage of airlines who have some presence in the GDSs is very high by various measures. Some airlines that had spurned the GDSs, like Ryanair, have lately come back into the fold.
That said, there are many airlines who are quite sizeable who do not publish their content at all in the GDS, such as Southwest Airlines -- one of the largest US airlines by domestic passenger volume. It is important to recognize that “participation” is no guarantee of quantity or quality of the content provided.
Conclusion: Mostly TRUE.
Criteria 2 – GDSs show airfares correctly
To assess this question we have to make a few assumptions. Each GDS charges differently to its airline customers (i.e. the people who pay them). Each airline can choose from a bewildering array of charging mechanisms.
The Company Dime’s reporting from the Sabre/US Airways trial in a New York court suggests, by way of example, that in 2012 Sabre was charging as much as $9 per ticket, of which an estimated $4 was passed along to agents as incentives. Indeed I believe Travelport has a similar number for its international segment charges. It is rumoured that Amadeus charges at least the same to some of its customers.
The airlines agree – under their standard participation agreements – to guarantee the fare sold via each GDS is 100% accurate. That guarantee is then passed onto the travel agent.
A simple review from each GDS of fares shows that each GDS uses different logic, and the prices returned from each of them is different the vast majority of the time. This is not to say one is best at delivering the lower price, as individual GDSs sometimes claim. The fact is that the prices are different and thus there are multiple versions of the “truth”.
Conclusion: Somewhat TRUE.
Criteria 3 – GDSs provide full access to all products (fares, ancillaries, etc.) that an airline can offer.
In comparing the airlines’ own products, as represented via their websites and versus what is in the GDSs – clearly the latter cannot provide the same level of products and information. For example, is there a “green screen” (standard travel agency display) that shows the airlines’ price per seat on that screen?
GDSs tout the number of airlines who have signed “Full Content Agreements” (FCA). But this is a misnomer. Some airlines withhold some content, some do not have the technology to fully share their content via the GDSs the same way they do on their own channels, and GDSs do not have the technology to display airline content as the airlines would want it, a common refrain from the airlines.
In short, GDSs do not have all the content and the content they do have is not displayable via all GDS outlets.
Conclusion: Somewhat FALSE
Criteria 4 - GDSs are the most cost-effective channel for airlines to distribute their product
Clearly the airline’s own internal channels are cheaper. As per the above example, the US Airways case states estimated its cost of direct distribution was about 50 cents per ticket plus any incentive fee it might give to agents to compete with GDSs, which would add about $4 at ticket – compared with $9 per ticket Sabre allegedly was charging.
Lufthansa’s happy commitment a year on to adding a Euro 16 fee to tickets booked through GDSs shows that the economics of direct distribution can be favorable.
Recently we have seen a number of GDSs – attempting to divert attention away - point to Google as the bad boy of distribution (meaning the most expensive channel).
GDSs are expensive and their prices are continuing to rise. Let us examine one particular case to see if that is true. If we take Travelport’s latest numbers (2016 Q3 Travelport financial reports), an international connecting itinerary (four segments) will generate an AVERAGE of $24.81 per reservation.
Perhaps another interesting question arises as to why the price for the product has to be the same if one channel is more expensive than another? Clearly this has been the logic that drove Lufthansa to implement its Distribution Cost Charge (DCC), and the German flagship carrier is not alone – several other airlines (EasyJet, Norwegian, and Gol) already did this before LH’s DCC debut.
Criteria 5 – GDSs are easy to use whether via an agent terminal or via an API.
This is a big fail. The access to the content via the GDSs’ APIs is just not there.
It is impossible to gauge the extent to which the content is available but I estimate this to be less than 60%. It would be a good challenge to pit a good travel agent against the API of any GDS.
Good agents have the ability to make the GDS sing. However good agents are retiring in faster numbers than they are being replaced, and there has been a huge attrition of agencies who have just gone out of business.
Today the majority of GDS bookings now require an agent to interact with a system outside of their basic GDS, either with the airlines’ websites or an independent source of information and content.
Criteria 6 – GDSs are ideal for complex itineraries such as interline and code-share bookings.
This has been the bastion of the GDS defense: they can handle the complexity of the interline itinerary and no one else can.
After nearly 40 years of interline and a little less for the code shares, the products between airlines are not aligned and the services offered by the GDSs do not permit the functions to work well.
To be fair, this is not only the fault of the GDSs. But if you are to serve your customer you need to find ways to deliver the product the way he or she needs it.
Just ask any travel agent how easy it is to get a seat assignment via code shares.
With the airlines now moving to paid-for seats, the function is just not deliverable via the GDS channel.
Some agencies may say, the GDSs are the worst option around except for all of the others. They may say that the GDS channel is the ‘least inefficient’ path for handling corporate bookings and complex itineraries like interlining.
It’s true that agencies use GDSs in part because the platforms shave off the labour-cost-per-booking, versus other methods avialable today. But it’s a Catch-22. The alternative paths available today are inadequate because of GDS dominance discourages their development.
In other words, saying that the GDS system is the lesser of several evils does not prompt the GDSs to fix their problems.
Frankly, GDSs should be embarrassed of themselves. The GDSs are making enough money by using the captive system of paying incentives for agencies and airlines not to move (or complain publicly) that they could afford to innovate. Instead, their model keeps the industry in stasis.
In brief, today’s GDSs are not ideal for complex itineraries when one considers how other industries are using today’s technology knowledge to tackle analagous problems.
Criteria 7 – GDS technology is improving all the time.
There is now a significant and fast-increasing cost to just maintain the legacy links that sit behind the GDSs, i.e., the links that go from the airlines to each GDS.
These links are, in many cases, also very restrictive because they use legacy technology standards such as EDIFACT when the rest of the world has moved to higher functionality and richer content linking.
In turn, major airlines have upgraded some of their links. In particular, the airlines have had to invest heavily in complex technology infrastructure to link their systems for customer management and advanced ancillary functionality.
Who is responsible for this legacy part of the infrastructure? The trouble is that creating new connections between the airlines’ full product suites and the GDSs will require massive expenditure (on both the airlines’ and the GDSs’ parts).
Then making that available downstream to traditional agents and API users also will require significant expenditure on IT. Is it worth it?
GDSs counter that it takes two to tango, so to speak – that many airlines aren’t innovating on their own sides, limiting the potential for the ecosystem to innovate.
But why do GDSs adhere to the ‘lowest common denominator’ model. Why can’t there be at least two-speeds – one for airlines ready to innovate, and a basic level for the stragglers? Because GDSs want to dictate the terms and not make the changes that need to be taken.
GDSs may counter that they have been creative in handling ancillary upsells and more complex products with airlines that want to experiment, like United and American Airlines. But some airlines privately grouse that the GDS technology is actually failing to keep pace with innovation in comparable SaaS-like industries.
It is time we must see that the GDSs have at best a mixed record. Their claim to be the only acceptable fit for airlines is bogus, at least from the technology perspective. (Commercial considerations and airline R&D spend cycles complicate matters.)
As an industry we have a responsibility to do right by the customer. The increasing cost of distribution via the GDS-controlled intermediary channel amounts to a significant tax that the customer is paying, albeit obliquely.
That needs to become transparent, as Lufthansa’s move has illustrated in one possible manner.
We can no longer hide behind the “this is the way it has always been” and “this is the only acceptable methodology as a service to the customer” when that statement is so clearly no longer true.
Thank you for reading.
Editor's note: This is, of course, just one perspective on the GDS sector... So we would obviously welcome counter points-of-view in the comments below or by emailing suggestions to the usual address.
NB: Image by Alexsnail/BigStock