Editorials Recent events December 18, 2006 Share 1 -- The GDSs were once watched and regulated by the government because it was felt that they wielded market power. And for a long time it seemed that the government had it right, that the GDSs really did have the airlines over a barrel. Recent events suggest that the balance of power has shifted markedly. The airlines entered into negotiations this year to renew their expiring GDS agreements, and they got what they've always wanted -- a price cut.Even though the GDSs are sharing the pain with travel agents in the form of a reduction in incentives of 80 cents per segment, it is becoming increasingly likely that the chain of events won't end there.Not so long ago, the three U.S.-based GDSs were either publicly traded companies or owned by publicly traded travel enterprises. Soon, if current deals are consummated, all three will be owned by private equity funds, the kinds of owners that demand performance. Two of them will most likely be merged.The shift in the airline-GDS balance of power that brought about this year's price reductions may be the same seismic force that is making them ripe for buyout offers and changing the industry's structure. It could be a coincidence that the GDS industry is now poised for a makeover by private equity firms so soon after yielding to airline demands for price concessions, but we don't think so.We also think there is every reason to believe that the GDSs of 2008, 2009 and 2010 will be fewer and leaner and meaner than those of 2006. " " "GDS distribution costs represent just a fraction of the many billions of dollars of costs that the airlines have squeezed out of their systems since 9/11, and while that has been a great achievement, it now represents an enormous challenge going forward.For one thing, there is no longer any low-hanging fruit in the orchard of airline costs, no quick and easy opportunities for further significant savings. Second, fuel costs, the one input airlines have the least control over, now have an even greater leveraging effect on bottom lines because other expenses have been cut to the bone. Fuel, in fact, has overtaken labor as the biggest single operating expense for many carriers.In this environment, austerity as a survival strategy may have reached the point of diminishing returns.And that is perhaps why airlines are looking at new approaches to create value: new investments in passenger comforts and taking a renewed look at mergers and acquisitions.Again, look for fewer and leaner, but maybe not meaner. " " "If you subscribe to the wave theory, you believe that the airlines tend to do things in waves. You have much historical data on your side. You can point to fare hikes, fare wars, aircraft orders, bankruptcies, labor strife and mergers. They all come in waves.The industry appears to be on the threshold of a new wave of airline mergers, and that's OK. We've been mentally preparing ourselves for it. You might even say we're resigned to it.But wouldn't it be odd if there was only one merger? One big airline merger, and then nothing more. Does anyone believe that could happen?We would need a new theory.