Thursday, February 01, 2007

GDS angst and speculation

We have some interesting analysis to add to last week’s story about British Airways supposedly intending to slap a distribution tax onto all bookings made through the GDSs.

Senior industry sources tell us that BA is playing a clever – and they would consider, dirty – game.

Unlike the recent airline/GDS negotiations in the US, BA is apparently NOT threatening to pull out of the GDSs if agreement is not reached on distribution fees. That leaves the GDSs without the option of saying “go ahead, if you dare…”.

Instead, our mole suggests, BA is demanding “unfeasibly large cuts” in their GDS booking fees and, if they don’t get these, threatening simply to add the full GDS booking fee to any bookings made through this channel – which would make GDSs the most expensive way to book BA.

And – in fairly short order, you can bet – any other airline.

So what does this mean? Apparently corporations and travel management companies are up in arms. They claim that their bookings (made through the GDSs) deliver BA’s highest yields.

BA is now slapping them with the distribution cost for these yields, our free talking source tells us.

“This is a tax – a huge transfer of wealth from the travelling Joe Public and corporate Britain directly into the BA coffers,” another source complains, adding:

“It’s like being told by Colgate-Palmolive that I must pay more for their toothpaste in a supermarket than anywhere else, because of the cost of getting it there. This is not the way the real world works.

“BA has to stop trampling over the people who make its business work – be they cabin crew members, corporate customers or travel agencies.”
Finally our source reckons BA is putting all GDSs in a position where a significant ‘opt-in’ charge for access to BA’s full range of fares is inevitable.

The GDSs have two options: stick to their guns and risk a situation where travel agencies become the most expensive place to buy BA tickets – and even then there is no guarantee that BA will give them its full range of fares; or stiffen the existing UK opt-in model and ask travel agencies to shoulder an even greater proportion of BA’s distribution costs.

“Either way it sucks – for everyone except BA,” laments our snout. “TMCs and the airline’s corporate customers need to tell BA that enough is enough.”

Kevin May, editor, Travolution

11 comments:

JOHNFRANKS said...

Good stuff, Travolution. To be honest I'm suprised it has taken this long for the GDSs to start talking (albeit kind of discreetly) to the media anyway. They must be quiote annoyed with BA's behaviour.

The other side to the story is so what if BA is enjoying using some of its undoubted commercial power and influence again, after so many years.

Erica Settle said...

Who do you think might follow suit, if British Airways gets its way?

Johnny Cumlately said...

"So what if BA is using its commercial power and influence"?

Here's the thing: the cost of selling its seats is already built into BA's fares. By ALSO adding the cost of its GDS bill to the fares that you and I pay when we buy our tickets through a travel agent, BA would be forcing us to pay this cost TWICE.

It would be different if BA said it was going to REDUCE the base cost of its tickets and THEN add its distribution costs. But, really - what do you think the chances are of that happening?

Lowell Courtney - Lynchpin Tours said...

Read your story with great interest and enjoyed the inevitable whine of outrage, especially the comment that "this is not the way the real world works".

Really?

In my latter days as a retail agent, I well remember BA's wonderful new "let us help you grow our business together" scheme which, despite more bleated assurances from BA than baltis in Birmingham, resulted in the inevitable zero commission.

And you know what Mick O'Leary thinks of agents - and it's mutual - but his shareholders (mainly Messrs Ryan and O'Leary) love him for it.

Now reincarnated as a ground handler, I can assure you on any multi-faith book you care to name that the client will choose the distribution channel which suits his particular needs best.

It won't always be the cheapest - but if leaving a note out for the milkman works for Joe Punter, that's what he'll do. And so, my dear GDS friends, would you.
No-one - but no-one - has any God-given right to any business on the planet: a fact which the BA board recognised some time ago and, having decided that cost cutting would be more important than revenue generation in the short and medium term, they went out and got the best cutter in the business.

That he also happens to be very good at stitching up is incidental.
So you may cry "Foul" as long and as loud as you like but, as the umpire said to the protesting batsman:

"Son, if you look in the paper in the morning, I think you'll find you're still out."

Anonymous said...

I have never understood the travel industry's hand wringing culture to the inevitable coming of zero air commissions.

With airline consolidators and direct net bookings, I have no need to consult a middleman for 90% of my travels, and would be happy to pay a service fee when the complexity or unfamiliarity with the destination arose..

The toothpaste analogy is rubbish, comparing an FMCG good with an air service is naive and irrelevant.

The industry needs to understand the realities of the 21st century, in terms of BA and other airlines changing their distribution to suit the changing market, technology and consumer demand

I would love to see a rational (not emotional) reply with evidence why this is a bad thing for the end consumer (not the travel agent stuck in a timewarp wishing the Y2K bug killed the net and thus meant they didn't have to change their business model)

David Nesbitt said...

Consider the taxes and surcharges on top of the standard airfare that British travellers have to pay to fly somewhere today:

- Airport Departure Tax
- Fuel surcharge
- Gordon’s Carbon Tax (dressed up as in increase in Airport Departure Tax)

And now: BA’s Distribution Tax.

Meanwhile, have BA’s fares come down to compensate for all this? No – of course not. While they have cut regional fares in order to compete with Messrs Haji- Ioannou, Ryan and O’Leary, they have balanced the books by boosting long-haul fares and other revenue lines.

Sorry, ‘Anonymous’. That’s about as rational and unemotional as it gets – and from where I’m sitting it still looks like a bad thing for the end consumer.

BA and its horde of highly-paid spindoctors will inevitably try to paint this move as irrelevant to the end consumer. And for leisure travellers who fly two, three, maybe four times a year, perhaps there is a grain of truth to that argument.

But the elephant in the room is the business traveller, and the companies who pay hundreds of millions of euros, Pounds, Dollars, Yen and whatever else to fly their executives around the world. I doubt they’re going to be as sanguine about footing the bill for British Airways’ distribution costs. Because that’s exactly what BA is banking on happening. I’m a corporate travel manager (not a travel agent), and I’m telling you that this transfer of wealth won’t be happening on my watch.

My old Grandfather – a Yorkshireman who also happened to be a cricket umpire – was fond of telling me: “Tha’ll get nowt for nowt, lad.” If BA wants to sell its tickets direct via its website – fine. More power to them, and they’ll get no argument from me. But I want my company’s travel booked and managed through my (exceedingly capable) travel management company. And if BA wants my business, it will have to do so through my TMC and its GDS. And it will have to pay its own costs for selling to me this way because, as my Grandfather also used to say: “I’m buggered if I will.”

Anonymous said...

RE Above comments

BA distribution tax is only if you go through an agent or "corporate travel manager" if you want to split hairs (the phrase "middleman" applies to both, lets use that..)

You use a middleman, you pay more, welcome to the 21st century of big business, the internet and new channel distribution. To some extent, you can find similar instances in telecommunication, athletic footwear and apparel, computer hardware and software, finance (but apparently not toothpaste).

Yeah it sucks that you used to be able to get a middleman to do all the work for you for the same price, and you used to get full service carriers at prices that are now only LCC service. That being said, we don't have people filling up your tank at the petrol station anymore, secretarial admin staff and typing pools are a thing of the past for all but top execs and the list goes on..

The days of BA cutting on short haul but profiteering on long haul are fast dissapearing as long haul LCC business models start to gather steam.

I would expect the advantages of a corporate travel manager will become minimised in the future as two themes come into play
a) The internet automates the ability to easily plan and book 80% of corporate travel needs using consolidators to guarantee maxiumum value. The remaining 20% pay a premium for the perosnal service
b) Companies continue to cut corners and force their staff to organise all their own travel planning using agreed/preferred direct channels (it doesn't cost them extra to slave their staff a bit more, at least that is what they would think)

Not saying its fair, not saying it gets the best outcome all the time, just sayings its a reality and the sooner the travel "middleman" sector is able to define their role in this new game and present their value to their customers, the less pain they will experience as this becomes more and more prevalent..

David Nesbitt said...

ucprfHey, 'Anonymous' - read my comments in the context of who I am. I'm nobody's middle man. I'm a corporate travel manager. I manage the travel policy and requirements of a FTSE 100 company.

What I'm saying is that I completely understand BA's desire to bypass the middle man. It makes good business sense.

But like Lowell Courtney said: nobody (BA included) has any God-given right to any business on the planet. And like he said: the client will choose the distribution channel which suits his particular needs best.

Just so happens that I want (and need) my organisation's travel to be based around a central travel policy, overseen and managed by my organisation's TMC.

Now - if BA wants my business, then fine. But only if it sells to me through the channel I choose. And I repeat - there's no way I'm going to be paying BA's costs for doing that.

That, my friend, is consumer power.

Anonymous said...

^ Thanks David,

See your point, didn't realise you were an employee of the company in question wanting the travel, not just a contractor (middleman) with a fancy title..

I don't for a minute underestimate the volume of travel that large businesses require, or the yield and return they provide to the airline - the day must surely be coming soon where airlines and other end product owners will provide you with a system that bypasses GDS and provides you with a direct purchase at an agreeable price and level of service?

My beef lies more with a head in the sand agent culture - not looking to tar everyone with the one brush, but if I have to go to another industry event where hand-wringing, denial and "its not fair" are the main themes of counter argument.....

Cheers, no offence intended :)

David Nesbitt said...

Personally, I think the idea of a world full of direct connections between corporations and airlines is a pipe-dream indulged in by airline execs who have lost sight of what I - the customer - actually need.

Who would be responsible for checking all these direct connections to make sure I was constantly getting the best deal and not being shafted by some airline or other? Me? Forget it! My travel management company? Forget it - way too expensive.

I would need some technology to make sure that I could see all available fares in one place. It would be handy if such a system could help me manage my travel programme as well, providing reports and such. Could be useful if the system would tell me where my staff were around the world at any given moment. Hmmm... Now where could I find such sophisticated technology? Oh - guess what? It exists already! It's called a GDS!

Of course, an airline could build such a system for me. Oh shucks - I forgot! Isn't that how the existing four GDSs came into being in the first place? Does BA or any other airline really want to get into the business of travel technology? I thought the emphasis was on cost-saving, not shelling out squazillions to re-invent a perfectly functional wheel.

Personally, Anonymous, I'm with you on the whinging front. The travel agency community has a perfectly good and solid business case to combat this (alleged, by the way) attempt by BA to stick me with its distribution costs. Their arguments should be based on the needs and requirements of BA's most important - and influential - customer base. Not on their own vested interests.

But if I have to pick a side in this scrap, I'm on the side of the travel managemenmt company. If BA wants my business it will have to continue making ALL its fares available through the GDS, WITHOUT expecting me to pay its costs for doing so.

Anyway - that's it from me on this blog. Places to go, battles to fight. Thanks - it's been great.

Private-i said...

Airlines needed GDSs a few years ago, but with migration to the web, they don't need them any more and they don't see why they should pay a fee to a third party.
There is an alternative for agents - book on the web or use BA's corporate booking tool and charge a fee, which is what most travel management companies are doing anyhow. End of story.