By Martin Kelly, Editor, Travel Trends

CHANGE is never easy, just ask Amadeus IT, the world’s largest Global Distribution System.

Amadeus is busily reinventing itself from an airfare intermediary into a total travel technology company through seriously successful initiatives such as its Altea Customer Management System for airlines.

It’s also aggressively moving into other areas of travel through the acquisition and development of companies such as Optims (accommodation IT), TravelTainment (online leisure platform) and Onerail (rail industry IT and distribution).

“We are less and less a GDS and more and more an IT provider,” says former French naval officer Philippe Chereque, now Senior Vice President, Corporate Strategy at Amadeus.

In reality, Amadeus doesn’t have a choice – like the other GDS it has had to evolve or face long-term irrelevance.

The internet has changed aviation distribution forever, giving airlines direct access to consumers, inadvertently facilitating the Low Cost Carrier revolution, while giving them with a bargaining tool that barely existed 10 years ago.

As a result the pressure has been all downward on the fees that Amadeus and other GDS charges airlines to distribute their airfares through travel agents.

Some distribution negotiations have ended in tears, while others remain unresolved.

But at the end of the day, says Chereque, “The airlines cannot live without us”.

Likewise, Amadeus cannot live without the airlines and, when all is said and done, distribution still accounts for 80% of its A$6b annual revenue.

This money is also funding its massive investment in IT, the timing of which could not have been better.

 “Airlines need complex systems but cannot afford them any more,” says Chereque.

Typically built by IBM or Unisys, the ageing mainframe systems which have served as aviation’s IT backbone since the 1960s, are fast coming to the end of the road due to age, expense and new thinking.

These days it’s all about Open Source systems (which allow greater flexibility), outsourcing and the ‘community model’.

Under the ‘community model’ a group of users share a common tech platform provided by a company such as Amadeus where the cost is flexible, determined by the demand rather simply set and fixed.

This new way of doing things has some very influential fans, such as Paul Coby, Chief Information Officer, British Airways, who oversees technology for one of the world’s largest airlines.

“With skyrocketing fuel costs the airline industry is facing a crisis unlike any other. After 9/11 we had a big downward spike in traffic, but it came back, “says Coby.

“This is different … a fundamental shift in how the industry works.

“It is not too late for struggling airlines to shift to … the ‘community model’ that allows carriers to use new technologies on a per transaction basis rather than requiring a large upfront investment.”

BA and Qantas were the two launch customers of Altea in April, 2004, and Amadeus says the early commitment of two such important aviation brands has been a major factor in its success.

“Without out them maybe we couldn’t have launched,” says Jean-Philippe Mesure, Amadeus Director of Airline Solutions.

Qantas recently extended its contract to 2017 and has implemented the Altea reservation, inventory and flight management modules.

It’s now in the middle of cutting over to the Altea check-in and flight boarding system, which appears to going smoothly after some initial teething problems at Sydney Airport.

There are now more than 70 carriers now signed up to Altea with recent converts including Singapore Airlines, Cathay Pacific and V Australia.

Within two years Altea will contribute 35% of Amadeus revenue, up from nothing four years ago.

There’s little doubt that in the long term Altea will dominate the company – both in terms of thinking and revenue.

But, returning to a central theme, distribution remains crucial to Amadeus, which claims it is growing market share faster than its GDS rivals Travelport and Sabre.

However, with those revenues are under pressure, it has lead to two-faced situations such as the one Amadeus now finds itself in with Lufthansa.

After failing to reach agreement over a new distribution fee structure, from July 1 Lufthansa began adding a surcharge to fares sold through Amadeus travel agents.

Meanwhile, their IT relationship couldn’t be sweeter with Luftshansa “flawlessly” cutting over to the inventory management module of the Star Alliance Common IT Platform, which is based on Altea.

Adding further spice is the fact Lufthansa was one of four European carriers – Iberia, Air France and SAS are the others – which founded Amadeus 21 years ago and still has a stake in the company.

Confused? Philippe Chereque isn’t.

For him, they are two completely separate issues. He accepts that distribution costs will come down but says Amadeus isn’t about to cut a new agreement that makes no financial sense.

“Airlines cannot live without us,” Chereque reiterates, claiming the Lufthansa take-it-or-leave-it approach has major limitations.

“It’s ok in an airline’s home market but doesn’t work in weaker markets” where the carrier doesn’t have the same kind of brand recognition and needs their product pushed through travel agents.

“Our processes are under pressure but we have just signed three year agreements with a range of carriers.

“We believe we have the power to push our process around the world. We have a market presence that is creating a certain power for us.”

So there’s little chance of Amadeus backing down in Germany, where it has decided to reimburse agents for the Luftshansa surcharge until the stalemate can be resolved – – but only on a global scale.

For Amadeus, it’s all about the big picture. And that means balancing the past with its future. Change is never easy.

Travel Trends: August 19, 2008

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