The punter always pays

ABTN's resident business travel expert Stanley Slaughter looks at how airlines' bid for GDS independence may not be in the best interests of the business travel buyer.

Anyone even vaguely familiar with the world of gambling will know it is the punter who invariably pays. There might be a few much remembered victories, but at the end of the day, most of the money has steadily moved from the better to the bookie.

It may be a loose analogy to compare a hotel chain or an airline to a bookmaker, but the common factor is that in their battle with the consumers, it is these major suppliers which largely come out on top. The losers are the travellers and their companies and, to a lesser extent their agents, the travel management companies (TMCs).

One clear example which comes to mind is the issue of dynamic prices by hotels. Six years ago, most travel managers were vocally opposed to the introduction of this programme, rightly seeing it as a complicating factor in their need to work out costs and do valid deals with hotel chains. Despite assurances by hotel executives that it would never be imposed without the consent of the buyers, the scheme is now firmly ensconced and flourishing. There is even talk now of hotels imposing dynamic pricing on rooms, let alone days of the week.

But such chutzpah pales, even fades away, when compared with the sheer cheek of the airlines. It is reasonable to extend a degree of sympathy to some carriers. Many are burdened with a model that does not work, all are saddled with sharply rising fuel prices and suffer an intense vulnerability to the vagaries of the world economy.

But this feeling ends rather abruptly when their utter determination to have things all their own way is considered. A couple of years back, the International Air Transport Association (IATAThe International Air Transport Association: IATA represents and serves the airline industry, with a membership made up of around 230 airlines. The association seeks to raise awareness of how aviation benefits the economy, fight for airline's interests and ensure industry regulations are sensible. IATA helps its members directly by offering advice on reducing costs while improving efficiency and on improving safety standards. It also provides professional support in the form of publications, training and consulting. ), the cartel which represents the interests of most major carriers, was hell bent on pushing through new rules demanding agents pay airlines on a weekly basis, rather than, as normal in business, on a monthly one. This would have seriously damaged many small TMCs. Fortunately the scheme was never fully enacted.

About the same time Lufthansa and SWISS were imposing their preferred fares scheme which made it less expensive for clients to buy directly from the airlines rather than go through GDSs. Both these events caused widespread anger among agents

There are now two more current examples which again indicate airlines’ determination to have things their way – which is not necessarily for the good of the industry. 

The first is the decision by airlines in the Lufthansa Group, among them Lufthansa, Bmi, Brussels Airlines, SWISS and Austrian – a considerable swathe of the European industry – to charge for credit card bookings made through agents. For example, bmi will add £4.50 to all UK flights, although business class fares and flexible economy tickets within the UK are exempt.

Lufthansa’s own charge will be variable, with €8 added to flights from Frankfurt to London and €5 to domestic flights and €18 to long haul trips. According to Bmi, the new charge will apply to all bookings for flights departing from airports in Germany, Belgium, Finland, the UK, the Netherlands and Switzerland, again a large slice of Europe.

As if by magic, the Airplus Group announced at the same time as this news became current that it was launching its AirPlus Debit Account, specifically aimed at corporations which pay by debit rather than credit account, and so avoiding the Lufthansa Group’s extra charge. Debit accounts mean the money is taken immediately from the account – IATA would recognise it.

The airlines which have so far signed up to this scheme to waive the extra charges are Lufthansa, SWISS and bmi. There simply is no need to add that AirPlus is owned by the Lufthansa Group.

Agents are to be charged for paying in the way that many companies do – by credit and if they want to avoid the extra charge all they have to do is sign up to a scheme run by the very group imposing this extra charge. It makes the Honest Joes of the bookmaking world look like rank amateurs. At least the horses have some say (hopefully) in the result of a race.

The second example is American Airlines’ (AA) Direct Connect wheeze. AA, like most airlines, does not think much of the prices levied by the GDSs to display full content and would much prefer that travellers booked directly through their website. Nothing is wrong with either of these views. However business travel, which provides carriers with the bulk of its premium travellers and is therefore a significant contributor to their profits, does not work like that. Most business travellers book through TMCs in accordance with their company’s travel policy and in adherence to deals negotiated by their buyers.

AA, which describes Direct Connect as “a direct link into AA’s host reservation system for the facilitation of availability, shopping and pricing, booking, ticketing, and post-ticketing servicing transactions”, is therefore encouraging agencies to sign up for this scheme. The danger is that the more who do sign up, as HRG is now contemplating, the more AA will be in a position to dictate the level of fares.

Agencies could thus be faced with paying these higher fares or launching a search for more competitive fares which could lead to higher charges for the corporate. This is in terms of the cost of the search and subsequent transaction fees.

The danger was laid out in a statement by the Business Travel Coalition in May. It identified five areas where the corporate faced hidden costs. The most relevant one is: “Travel Programme Support: corporations no longer have access to a growing portion of content (fees), including rebundled packages aimed at business travellers.

"Fragmented content undermines the integrity and cost effectiveness of managed travel programs as well as traveler support.”

Basically if airlines – and AA  is not the only one here – succeed in persuading clients to go directly through them, choice and price will be limited and the rising costs will surely land on the corporate’s desk.

Once again it will be the punter who pays.