July 18 2006

New GDS Landscape what does it all mean?

Now that the dust has settled a little are we seeing a trend moving on the GDS fees? Well yes and no.

For the US market the new model is clear. If you want full content (not all airlines) then you have to give up high incentives. Simple? No! So what is wrong with this picture?

The goal of the airlines was 3 fold:

· reduce the overall GDS fees,

· regain control of the distribution model

· open the channels of distribution by signing long term deals that in essence moved the cost of access from the SUPPLIER paid model to the SUBSCRIBER paid model.

Simple enough.

The airlines expect now that despite the NWA aborted attempt 2 years ago that they now have the legal right (deregulation) and the commercial might (it’s a suppliers market out there) coupled with suitable technology options (G2, ITA, Farelogix, Patheo and ACAP-LH Systems). In turn the airlines expect the remaining travel agency market which has coalesced around the OTA and TMC segments to be able to pass on the increased cost to their customers; IE individual consumers and corporations. Sounds simple no?

Well this represents a win win for the airlines. This retains control for them. For those agencies who want to stay in the “Full Content” programs there is no need to worry because they simply up their fees. Those who don’t will now come to the airlines direct. So who cares here? The effect is that the 3 goals mentioned above are all achieved.

For the agency market – they will up their fees but there will be price resistance to this. Remember too that there are now several channels which are able to make this work. BUT and this is a biggie… These alternatives are not quite mature enough to work ubiquitously. Further not all airlines have signed up with all GDSs. Dang it if BA can be had up for market rigging then surely the network airlines are culpable for changing the landscape. I really expect ASTA or someone probably ARTA (are they still around???) to file a case of grievance against the airlines for effectively price fixing. (Well get over it – even that renowned and irascible legal pundit Al Anolik wont tough this one. In the past no agency or group has even won a case like this).

I want to caution everyone on two points.

1. The technology is not there yet. Actually it is – rather it is the operations and processes that are not there to enable a seamless service for neutral access to the entire US product range of airline and supplier products. This is going to take time to sort itself out. It wont be easy. And there will be a lot of heartburn over this one. As a former T2 associate (now at a major TMC) put it… have they no clue about this?

2. The total costs of the distribution channel are actually RISING not falling. As the “hub” moves from the 2^nd tier of the distribution chain to a mixed position between tiers 2 and 3 the cost for provisioning access and service on a consistent level to the supply chain will rise dramatically for the intermediaries.

So this leaves me with 2 final points I would like you all to consider.

A) This is good for T2. We have more experience than just about anyone out there. The intermediary channel is going to be crying out for expertise to fix this problem. Our relationships and knowledge are unsurpassed here. BUT chose your prospects wisely. Many of them simply will not be able to afford the price tag on the transformation AND then when the dust settles they higher operating costs for this will be pretty hard to accommodate

B) The International model comes next. So anyone sitting smugly and looking at this saying NIMBY better think again. There are a bunch of System User Agreements expiring in the next 2 years. Every GDS is vulnerable but the local technology and operational options are not nearly as simple or mature as the US. They are very different and the market needs are different. As a caution remember that ECAC is still likely to head to sunset in the next 12 months and that GDS contracts have a maximum life of 13 months.

BUT DON’T FOR GET THE CONSUMER. THEY WILL FIND THEIR OWN WAY. WOE BETIDE ANYONE WHO FORGETS THAT!

So your mission – is to go out and spread the gospel and bring in some T2 business on this subject.

Comments and questions… you know where to find me

Cheers

Timothy

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Timothy J O'Neil-Dunne
Managing Partner - T2Impact Ltd
Global Travel eBusiness
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