The debate over ancillary services and who is responsible for developing relevant technology for it appears to have taken another twist this week.
In a somewhat novel move by a legacy GDS, Shelley Beasley, Travelport’s point person in the Asia-Pacific region, has gone out on a limb and attacked the low cost carriers for not wanting to pay for the custom development necessary to support ancillary services.
Indeed she is suggesting that the LCCs just don’t want to pay for the cost of the development at all.
At this week’s TravelTech conference, hosted by Martin Kelly in Sydney, Australia, Beasley (managing director for Pacific and head of solutions support in Asia-Pacific) went on the offensive.
Following negative comments on GDSs capability to handle advanced services and to keep up with the demands of LCCs by Jetstar and Air Asia in recent weeks in the region, Beasley countered in a spirited defense of the traditional GDS service model.
Describing the adverse statements as “a smokescreen” she says LCCs are reluctant to spend money on developing a system that handles their complex way of selling.
“The industry has not worked to a standard,” she says, adding a common solution “has to happen.”
Presumably this implies that the LCCs should be paying the GDSs for custom development despite having the capability functioning well on their own sites and in their own infrastructure - in many cases on systems owned and managed by GDS companies.
This seems to be a common cry from the GDSs to the point where it would seem they are reading from the same script.
Perhaps this is somewhat of a jaded argument. It would appear that the GDSs have not invested enough into the infrastructure to support a form of product that has been in the market for more than a few years.
This argument also does not hold up in the light of history. In previous major changes to the infrastructure of airline distribution such as ATB – the GDSs did not charge the airlines for this development.
In the end the agents had to pay for the expensive ATB2 printers either directly or via incentive payments from the airlines.
Depending on your view, it could become a chicken vs egg discussion.
The low cost carriers generally eschewed the use of GDS distribution. Indeed the most successful of them all in terms of profitability is Ryanair and it still steadfastly refuses to use intermediaries to sell its products.
It argues that if the product is to be sold that way then the consumer will be disadvantaged.
Other low cost carriers either charge for content distribution, such as Norwegian, or limit the product that is available for distribution by the more expensive channel - for example GOL.
Thus should the GDSs be providing solutions that support ancillary revenues at their cost or do they sit this one out and wait for a standard?
The airlines appear unwilling to wait to support a GDS sponsored standard but instead are coalescing around a standard of their own – the OpenAxis standard.
But the argument does not just affect LCCs. Full service network carriers such as American Airlines and Air Canada have also adopted the same position.
Clearly for the majority of carriers, adopting ancillary revenue product sales is a profit winning solution.
Most estimates for all of 2010 put ancillary revenues in the $5 billion plus range.
Total profits for the whole industry are (per IATA estimates) only $2.5 billion. In contrast, 2010 GDS fees are likely to be in the range of $10 billion to $12 billion range for the whole industry.
Who will be the winners in this battle? There is clearly a lot at stake.
But it would seem that the GDSs are deploying solutions. Amadeus has announced adoption already.
Even Travelport itself has slated release of enhancements in the September timeframe. Therefore it would seem the protests are ringing a little hollow.