Distribution, GDSs and low cost carriers - a view from the sharp endNewsBy Viewpoints | June 7, 2013Share This article was originally published on NB: This is a viewpoint from Bill Maloney, founder of FeeZing.Having worked a long time for a global distribution system, I had heard every complaint suppliers have had about the cost of distribution.But I also saw the power that distribution could bring. Later when I went to work for a new low cost carrier, I assumed I could bridge the gap. Despite good intentions from many companies, it wasn't so easy.Here's a tale from someone who has worked at both ends of the issue.1. Setting out the ideaSix months after Vision Airlines started flying scheduled service, Sabre came to our offices in suburban Atlanta. It presented a perfect end-to-end solution for our reservation systems and distribution needs.Everything it offered sounded like a dream come true to our small team and exactly what we needed at the time. There were only two problems -- the same problems many companies inside and outside the travel industry encounter on new projects: time and money.A migration to the system would have taken more than a year and we didn’t have the funds to pay for it. Amadeus also offered some interesting solutions, but like our situation with Sabre, nothing realistically fit within our budgets or timelines.The wooing by both companies was a microcosm of our distribution challenges at Vision Airlines. Many of the biggest names in the industry wanted to work with us, but few had ideal solutions that met the needs of a fledgling supplier making the transition from charter to scheduled passenger service.2. Vision’s value proposition and the dilemma of the key players in distributionGDSs, OTAs, and all the other companies that enable travel distribution and third-party sales have seen plenty of suppliers pop up on the scene, make some noise and then dissapear.When we first began our discussion with technology companies, travel sellers and OTAs, we always said: "We want to be like Allegiant Airlines... only with distribution."Share this quote While I am sure there was a healthy dose of skepticism on the other side of the conversations when we made the Allegiant comparison, the problem for any of these companies is that they didn’t truly know what Vision would become.They could not out and out dismiss a new supplier (although some did), yet they don’t want to waste their resources catering to every little guy that wants to sell something to travelers.However, if the GDS and OTAs don’t engage a new entrant, they risk that entrant becoming self-reliant. At Vision we embraced distribution because we wanted to grow quickly and fill lots of flights and planes. Some other LCCs have spurned third party sales and grown quite successfully.3. Infrastructure challengesOnce we had gotten the attention of a number of third parties and onto their respective development calendars, we faced a few critical infrastructure issues.The version of our reservation system we were using didn’t allow for Type A messages. We also didn’t want to use ARC for ticketing (mostly because of the added costs). While some OTAs were willing to let us ticket ourselves like other LCCs had done in the past, the biggest OTAs needed full e-ticketing.4. Critical supportWe found a workaround for the e-ticketing issue with Hahn Air. The German carrier was able to quickly set up an interface with us and enable e-ticketing on most of the major US OTAs.While Vision found cooperation with various companies, a few like Hahn, FarePortal, ATPCO and Innovata really helped us slog our way through the distribution process. That level of support (or call it hand holding) was critical to our move into selling to through third parties.5. The economic impactMost of the generalities on the cost of distribution held true. A ticket sold through a third party was much more expensive to Vision than selling it ourselves.But in most cases the yield on those tickets was higher than what we sold ourselves. The net revenue was still more favorable in our own channel, but the difference wasn’t drastic.Had we had more history in the city pairs we flew and built up our own customer databases, we probably could have sold more seats at a better yield directly, but we didn’t have that luxury.Distribution -- although expensive -- helped fill some gaps.But that difference in channels should still be a concern for all the companies that enable supplier sales. All new entrants face these difficult decisions because the other channels become so expensive.If more providers had better solutions, all new entrants would embrace distribution from the outset.If every new travel company embraced distribution from the beginning -- regardless of if the supplier is another flame out or the next success story -- that company is in the distribution game and growing with their partners.And they are dependent on those partners and would never thinking of scaling back or abandoning distribution.ConclusionSince its move into distribution, Vision has dramatically scaled back its scheduled service offerings (for a variety of reasons). At our peak, over a third of Vision’s tickets were sold by third-party companies.Those tickets opportunities wouldn’t have been enabled without the cooperation of some very patient partners. Would easier and cheaper distribution solutions have kept Vision’s scheduled service around longer?Probably not, but just because we were another company that swung and missed, doesn’t mean the entrenched players shouldn’t rethink how they work with new entrants.In most cases within the travel industry, new suppliers are taking incredible risks based on the costs of entry alone. Those same risks are much rarer in distribution.However, the company that takes a risk on a new technology that finally works or a new business model that leaves both sides happy, may finally get new and old suppliers embracing distribution.NB: This is a viewpoint from Bill Maloney, founder of FeeZing.