President and CEO of Abacus, Robert Bailey, admits that the rise and rise of low cost carriers will inevitably lead to changes in the 40-year-old business model of Global Distribution Systems. “Low cost carriers will be a catalyst for change,” Mr Bailey said.
“What the change will be I don’t know.” Mr Bailey said low cost carriers now comprise 25% to 26% of the available air seat capacity in Asia Pacific “and this can only grow” with the opening up of new regional markets and city pairs.
But many low cost carriers don’t want to do business with the GDS such as Abacus, Amadeus, Sabre which derive most of their revenue from charging traditional or legacy carriers around US$6 to US$8 per sector to distribute their airfares to travel agents.
This is a major issue for the GDS because 1. their main customers, legacy carriers, are in apparent decline and 2. The fastest growing sector of the aviation market, low cost carriers, in many cases does not want to pay their rates.
Some compromises have been reached with low cost carriers moving up the aviation food chain but fundamental differences remain.
And it’s not just all about cost.
There are also technical and commission issues with the sale of ancillary products such as food, entertainment, even blankets – which is where many low cost carriers make most of their money – through intermediaries.
This attitude is not likely to change any time soon, even among carriers such as Scoot which are using the GDS to distribute.
Steven Greenway, Scoot’s Head of Commercial, recently told delegates at TRAVELtech that: “Everyone still gets commission and I think that is pathetic”.
Despite the challenges ahead, Mr Bailey believes low cost carriers are ultimately a good thing for the travel industry, including the GDS.
“Low cost carriers are going to grow the pie, introducing new travellers to the mix” who will over time become more adventurous and wealthy and begin flying hybrid and full service carriers, My Bailey said.
Mr Bailey remains upbeat about the prospects of legacy carriers in the long haul arena despite some poor recent results from regional giants Singapore Airlines, Cathay Pacific and Qantas.
“I think we are going to see some quite significant growth of traditional carriers,” he said.
However, it’s a tough environment distorted by the presence of government-owned regional carriers without the same financial controls.
“Where you have state-owned carrier competition you will never have a level playing field,” he said.
Mr Bailey was speaking after addressing the Abacus International Conference in Seoul recently, during which he also made the following points:
- By 2025, 32% of the world’s air traffic is expected to originate in Asia Pacific (AP).
- Low cost carriers now comprise 25% to 26% of the available air seat capacity in Asia Pacific “and this can only grow”
- Annual tourism growth in Asia Pacific over the next few years is forecast to at between 6% and 8%.
- “Things are going off the boil a little but is still bit fundamentally sound”.
- Corporate trips were up 6% in the first half of 2012 but the AP business market is a unique beast – “fragmented, not as well developed and advanced as many western countries”.
- Business travel represents 26% of the total AP travel market and presents a “massive opportunity.”
- “There is going to be consolidation and regionalisation of corporate travel businesses.”
- Indian outbound – 12.5m in 2010 – will quadruple to 50m by 2020.
- South Korea is “probably the world’s most wired country” with huge uptake and the most readily available high-speed broadband on the planet.
- Yet he says South Korea’s population have been slow on the uptake when it comes to researching and booking travel, lagging other less tech-savvy nations.
- 61% of Indonesia’s internet usage comes through mobile.
- The new traveller experience is “all about me!”