Promiscuity Disrupts Marriage of Convenience

By Martin Kelly

AIRLINES and the GDS. Hardly a marriage made in heaven, more like a union of convenience, but one which has reaped significant benefits for both parties over many years.

Yet now one of the partners is getting restless, and it’s not the GDS. The airlines are pushing for change, throwing money at younger, sexier companies who reckon they can do it – distribute airfares to travel agents, that is – for much less.

And while most of the preliminary skirmishes have been fought overseas, the show came to Sydney last week, when Star Alliance CEO Jaan Albrecht declared: “We want to bring new players into the market.”

In a wide-ranging speech packed with Darwinian analogies – only the fittest will survive etc – Albrecht told the National Aviation Press Club that the Star Alliance is working with the new players to come up with web-based GDS alternatives.

Broadly speaking, these entrant companies offer airline inventory direct to travel agents through internet portals at a fraction of the distribution cost charged by GDS.

For example, ITA Software has claimed it will charge airlines just 50 cents per segment. Compare this with Star Alliance estimates that the average GDS charge per ticket is more than $16.

“By exploring the potential of so-called new entrants, Star Alliance member carriers will be able to break the dominance, cost structure and poor flexibility of the Amadeuses, Galileos and Sabres,” Albrecht said.

“Welcome, good old GDS, to the world of competition. It seems to be time for you, to evolve as well.”

The response of local Galileo boss, John Guscic, was equally Darwinian.

“It took an asteroid to wipe out the dinosaurs, but it will take more than gum flapping to undermine the value that the GDS brings to travel agents,” Guscic said.

Managing Director of Amadeus, Tim Russell, said there would be room for both players, something Albrecht agreed with.

“In a nutshell, we have a healthy respect for them and Amadeus is looking at how we can serve that market,” Russell said.

By “that market”, Russell said he means simple point to point travel.

His comments also highlights the inevitability of the GDS getting involved in web-based distribution alternatives, either developing their own or buying into one of the new players like G2 SwitchWorks, ITA Software and FareLogix.

All this debate follows moves in the United States, where seven of the largest carriers have signed with G2 SwitchWorks “as a provider of choice for alternative-GDS distribution services between them and key agency clients”.

Five of the carriers – American Airlines, America West Airlines, Continental Airlines, Delta Air Lines and Northwest Airlines have also agreed to pre-pay distribution fees, of up to eight million tickets, in exchange for transaction discounts and the opportunity to acquire a minority stake in G2 Switchworks.

So, as you can see, it is more than just posturing by the so-called Legacy Carriers, fired and challenged by the success of Low Cost Carriers distributing direct to consumers through the Internet.

They have clearly targeted distribution costs as a manageable expense – unlike oil prices – and are doing everything they can to bring them down.

However, come what may, you can be sure of one thing – while the boundaries within the marriage of convenience between the airlines and GDS might shift, the relationship will most certainly endure.

Better the devil you know, right?

Ends.

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