Special Report: The future of airline distribution

The airline-GDS distribution battle threatens growing fragmentation, reports Ian Taylor.

Smaller agents are stuck in the middle of a battle over distribution between airlines and GDSs and being denied access to full fare content while they lack the resources to pay for new distribution capability (NDC) technology that is still in development.

Heavyweight travel management companies (TMCs) and some leisure agencies have signed deals with British Airways, Iberia, Air France-KLM and Lufthansa Group airlines to avoid the GDS charges all three airline groups now impose.

Smaller businesses not only face the GDS booking fees and ancillary charges, but also a lack of information.

Ken McLeod, Advantage Travel Partnership director for industry affairs, blames both airlines and GDSs for the impasse.

He told a Travel Weekly Business Breakfast on The Future of Airline Distribution: “The airlines want the Amazonisation of travel. We understand that and want to be part of it. [But] we want to use a GDS.

“Remember, it’s not just airlines in the GDS – the GDSs have hotels. We book two to three million room nights [a year at Advantage]. They have car rental, rail, all the processes that sit behind the GDS and until someone else offers that commercial solution why would we move?”

McLeod insisted: “All we want is access to content. We’ll sell as many ancillaries as we can so long as we’re commercially rewarded. But that is not available to us now – partially [due to] the airlines but also partially due to the GDSs. Both have a lot to answer for because we’re their customer and we’re pretty much in the dark.

“The airlines are meant to be our partners, yet we get very little cooperation. Most of this [NDC] technology we talk about is not actually working, and that is a challenge. Going back five years even I thought something would have developed to the point where it works [by now].

“It will work, and we understand why airlines want it, but we don’t have a level playing field. Very little information is available and it’s only available to those with deals [with the airlines] in place. There is a group of agents who are the ‘haves’ and a group who are ‘have nots’.”

McLeod added: “The GDSs are able to promote more ancillaries, but it is still a clunky way of doing it. The airlines are forcing the GDSs’ hand and agents in the middle wondering what the hell is happening.

“We know NDC is a game changer. We accept we’re going to have change. We’re very keen to work with airlines and want to work with technology companies. But we will only do it when it works – because we have to pay for it – and when it works within the processes of a system that has been around for 40-50 years.”

Andreas Koester, Lufthansa senior sales director for the UK and Ireland, urged agents: “Don’t wait for the solution. It won’t fall out of the sky. You have to work with us and the GDSs.”
But Deloitte consulting partner Andy Gauld warned: “There is going to be a period of fragmentation across the industry for two, three, maybe five years.”

GDSs reject carriers’ tech claims

Airline claims that GDSs “have not evolved” to allow carriers to sell fares through agents as they do online are “fundamentally flawed”, according to Travelport UK and Ireland managing director Paul Broughton.

He told the Travel Weekly Business Breakfast on ‘The Future of Airline Distribution’: “I may have agreed 10 years ago, but in the last few years that is simply not the case. It’s a fundamentally flawed argument.

“We have a sophisticated merchandising platform that allows airlines to distribute all the unbundled elements of their products through either the traditional channel or through an API.”

An API is an application programme interface which enables data-transfer between IT systems. GDSs currently take low-cost carrier fares via APIs and integrate these with the fares of Iata-member airlines filed with the Airline Tariff Publishing Company (ATPCO).

Broughton said: “Legacy airlines want the ability to distribute through the traditional ATPCO route as well as through API. That adds another level of complexity. API distribution is nothing new for us, [but] every airline that wants to participate in [Iata’s] new distribution capability (NDC) has to build its own API.”

He insisted: “We embrace NDC. We’ve announced our roadmap to deliver NDC, [but] this requires collaboration. We can provide the technology, but it requires the airlines to participate to distribute that content.

Broughton said: “The channel is fragmenting, but it can still be brought together in one platform. Our job is to provide a platform that enables TMCS and agencies to become more effective retailers. Our goal is to present the widest possible content to agencies. The answer is not for everyone to generate their own API connections with individual airlines. That is going back 30 years.”

He added: “One of the reasons GDSs have been so successful is they are not just about search, price, book and ticket. We provide systems that allow agencies and TMCs to manage the end-to-end process and workflow that goes into managing travel.

“What airlines forget to tell everybody is that the intermediary channel drives a much-higher average ticket value – in some cases, up to three times higher.”

Airlines accused of ‘discriminating’

Airlines are “discriminating” against agents and “testing the boundaries” of regulation on the transparency of computer reservation systems.

That is the view of Christoph Klenner, secretary general of the European Technology and Travel Services Association (ETTSA).

Klenner told the Travel Weekly Business Breakfast: “A breaking point has been reached. Some airlines have tested the boundaries of the regulatory framework.

“We see airlines discriminating against independent distributors. We see GDS surcharges. We see increasing content discrimination, and we see protocols such as NDC. If applied as a standard, NDC is not a bad thing, but if you leverage a protocol to discriminate that may be a problem.

He noted: “The big airline groups [in Europe] are indicating there will be content discrimination.”

Klenner reported a study commissioned by Ettsa on the impact of airline consolidation on consumers and said: “The bigger an airline gets, the more it is incentivised not to disclose all information to the independent channel. A carrier with strong market power has an advantage in hiding certain content.”

A second study on “the true cost” of direct and indirect distribution rebutted “ludicrous claims about the costs of indirect distribution”, he said.

However, Klenner added: “The political response has been strong. In October, the European Parliament held a plenary debate – and that does not happen very often – on air fare transparency and discrimination. Politicians across the spectrum are clear on the importance of allowing consumers to compare [prices].”

NDC requires greater functionality

Widespread adoption of Iata’s new distribution capability (NDC) depends on “fixing post-booking issues” for travel management companies (TMCs).

This could happen as soon as this year, according to Caroline Strachan, managing partner of travel management consultancy Festive Road.

Speaking at the Business Breakfast, Strachan said: “We’re going through an adoption curve. Those consuming [airline content] through APIs are early adopters. We’re moving to mass adoption.

“At the end of 2017, 50 airlines were NDC certified and at the end of this year all three GDSs will be certified to NDC level 3. The technical capability will be there.”

However, Travelport vice president and Northern Europe managing director Simon Ferguson questioned whether airline “API offerings” are “production ready” for TMCs.

He said: “Many airlines think the process ends when a booking has been made. For many companies that is when the process starts. They manage complex travel itineraries and early versions of NDC API simply have not had the functionality agencies depend on. They have not been able to handle interlining, they have not been able to handle complex fare types.

“Many airlines start down the API route and then find the costs [too high] for the capacity required to handle the amount of searches the GDSs shield them from today.”

Travelfusion chief executive Moshe Rafiah disagreed, saying: “The airlines are delivering API and rich content to anyone willing to consume it.

“There is a bottleneck on the TMC level. The TMCs need to reconsider their infrastructure and the tech they are using. They need to become less dependent on a single source of technology, to accept content from multiple sources.”

Deloitte consulting partner Andy Gauld, a specialist on airline IT, conceded new distribution technology “isn’t working” at present but insisted: “It is available to work.”

Gauld said: “I appreciate the technology isn’t working, but the technology is available to make it seamless for any part of the supply chain to work together.

“Airlines are working on it. It is the wider business issues that need to be solved.

“Retailers look at the travel industry and ask, ‘Why are you so far behind?’ The technology has been proven, not necessarily in travel but in other sectors that allow the connectivity.

“There are new ways of working that the travel industry is quite far behind on.”

GDSs: a brief history

GDSs, or computer reservations systems (CRSs), date from the 1970s-80s, having been set up by airlines and made available to agents.

United Airlines established Apollo. American Airlines developed Sabre. A consortium of US carriers including Delta set up Worldspan. BA and KLM set up Galileo. Air France, Lufthansa, Iberia and SAS created Amadeus.

Airlines and GDSs became separate businesses under pressure from regulators for the neutral, unbiased display of fare information to agents.

EC Regulation 2299/89 established a CRS Code of Conduct to ensure “services by all airlines are displayed in a non-discriminatory way on travel agencies’ computer screens”.

Travelport subsequently combined Apollo, Galileo and Worldspan – leaving it, Amadeus and Sabre as the world’s leading GDSs.

Iata approved development of a New Distribution Capability (NDC) data-transmission standard to open new distribution channels in 2012.

Lufthansa imposed an £11.30 fee per GDS booking in September 2015. BA and Iberia imposed an £8 GDS fee per fare component last November Air France-KLM introduced a GDS booking fee of £9.64 one way this month.

The EC Code of Conduct was last updated in 2009 (EC 80/2009). It stipulates that a carrier “shall neither directly nor indirectly discriminate in favour of its own CRS”.

The European Technology and Travel Services Association (Ettsa) has filed a complaint with the EC, asking: “If an airline operates a distribution system to agents and discriminates against neutral distribution systems [GDSs] is that airline bound by the rules that regulate the GDS.”

An EC ruling is expected shortly.

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