The annual war between airlines and GDSs: isn’t it time it stopped?

If it is spring, there must be writs and threats of lawsuits flying between airlines and GDSs, muses veteran business travel reporter Stanley Slaughter...

About every time this year, the row between airlines and global distribution systems (GDSs) over fees, full access and anything else the two sides can throw at each other hots up. Most are settled relatively quickly and quietly, although a few veterans will remember the bruising punch up in 2006 between American Airlines and Sabre which stretched out into the summer. The blood is still not entirely dry from that bitter encounter.

Unsurprisingly both AA and Sabre are at it again, although this time round, the US carrier is suing Travelport while Sabre is being sued by US Airways.  Both are over allegations of “anti-competitive” practices. This is access to an airline’s full inventory and the price airlines pay GDSs to put this and other information up on their systems.

The annual row boils down to a simple proposition: carriers, while acknowledging that the GDSs provide a good service, feel the GDSs overcharge for this. Before the days of the internet when the GDS had power over airlines and their distribution processes, they could - and did - charge a lot. Since the coming of the internet and with it airline websites offering direct booking, the balance of power has shifted away from the GDSs and towards the carriers.

But airlines are still not satisfied and not above a bit of arm twisting to force both GDS prices down and to persuade more passengers to book directly. While leisure travellers are happy to do just that, business travellers’ flights, hotels, car rental and rail tickets are generally booked by travel management companies (TMCs) using their chosen GDSs. Kevin Mitchell, chairman of the Business Travel Coalition, estimates that 80% of the business travel market still goes through the GDSs.

But in an article in ABTN last month, Mitchell, a fan of the GDS system, conceded that their share of the US airline ticket distribution has fallen from 75% in 2004 to about 50% now. (At the same time, airline fees to the GDSs have dropped by 35-40%).

The coming of the internet has spurred many analysts in the travel trade to predict the end of the GDSs or at least claim that the model, not much changed since Sabre first arrived in the early 1960s (having been developed, of course, by AA), is broken.

Joshua Norrid, VP of Travel and Leisure at Progress Software, told ABTN in March that he believed the GDSs’ future lay not in its role as a ticket reservation system for airlines but as an aggregator for products which are ancillary to air, like car rental, trains and hotels. 

This pre-supposes, probably quite correctly, that airline passengers will increasingly use airline websites to book directly. These are likely to be leisure travellers or independent business travellers.  It is also quite possible that schemes like Direct Connect, launched by AA to enable TMCs to book directly through them and thereby by-passing the GDS, will appeal to TMCs. It would depend on what incentives airlines offer for such a switch.

But there is a flaw in this argument. Most car rental companies, major hotel chains and rail companies like Eurostar have direct booking facilities just like airlines. Why would TMCs move air transactions from one provider to another but stay with its GDS for other services. This would just increase the agent’s workload. This scenario also highlights one of the great strengths of the GDSs; it amounts to one stop shopping.  But Norrid is not worried on this score. While accepting that it is often easier to do everything on the GDS, he points out that many TMCs have invested in technology to provide in effect one stop shopping themselves.

But he also offers another scenario which could cause headaches for the GDSs: the airline alliances. This is what he said: “What we’re seeing is a compound annual growth rate of about 19% on travel alliances. So if you look at 2008, 2009 and 2010, that’s the rate the alliances are growing.

“What that means is that it’s only going to get better for a direct connect scenario to play itself out – i.e. airlines are connecting to more airlines, and by way of connecting to any one of them, you get the benefits and the routing network of all of the ones that are in the alliance. I think the alliances may end up somewhat working to supplant the GDS network of today.”

This seems a little far-fetched. Many well-used carriers, ranging from LCCS, through niche carriers like Virgin Atlantic to the large Middle East airlines, are not members of alliances. All are heavily used by business travellers.

The solution does not seem to lie in finding a new role for GDSs. If they have no useful role, the market will see them off. It seems to lie more in increasing their efficiency in their current and vital role.

It would seem obvious that the best way to achieve this is for the various parties to sit down and talk to each other, to work out a system which suits and benefits all parties – the GDSs, the airlines and the TMCs. This must be better than throwing insults at one another and enriching lawyers in the process.