NB: This is a guest article by Michael Miller, vice president of strategy for the American Aviation Institute (on behalf of Take Travel Forward).
Today, airlines distribute and sell their products in two ways: through their websites/call centers (direct channel) or through travel agents and online travel sites (indirect channel).
Of the one billion or so airline tickets sold globally each year, it is estimated that more than 60% are sold through the airline indirect channel.
In the vast majority of the world, Sabre, Amadeus, and Travelport control the distribution of the airline product for the indirect channel.
The GDSs charge the airlines for each ticket sold through their systems, with the average charge being in the $12 per ticket range.
Multiply that $12 by 600,000,000 tickets per year and you get about $7 billion dollars. From these funds, the GDS pay the travel agency or online travel site a financial assistance incentive.
As a general comparison, it costs airlines about $2 to $3 per ticket to sell through their own websites or using new direct connect technology available to them, their travel agency customers and even to the GDS.
This provides an estimated 80% savings over the cost of the indirect channel. If the airline is paying $10 more per ticket to sell through the indirect channel, ultimately it’s the consumer that pays for that higher cost.
To quote leading business analyst Zvi Bar:
"...any resulting changes to the current GDS business model should lower prices to consumers and/or streamline the industry… The long term result should likely be a net positive for consumers."
Clearly, the GDS companies are critical pieces of the travel supply chain and it is foolish to suggest they go away.
However, it is also fair to advocate for use of lower cost technologies and modernized business models that can lower costs across the board, including for consumers at the proverbial ticket counter.
This infographic simplifies the argument:
NB: This is a guest article by Michael Miller, vice president of strategy for the American Aviation Institute (on behalf of Take Travel Forward).