Q: Following Travelport's withdrawal of the Agility program, which would have charged Apollo and Worldspan users a monthly fee in part for features previously provided without charge, Travelport's CEO stated that the overall incentive arrangement between agents and GDSs needed to change so that GDSs "would be able to invest in products that would make agents more efficient and productive. In many cases, that will mean paying for programs that meet that standard." Has Travelport changed its standard contracts to facilitate such charges?
Travelport's new standard Subscriber Agreement, which was apparently issued on March 8, 2012, contains several new and revised legal terms and clauses clearly designed to facilitate payment for both existing and new features. Agencies negotiating Travelport contracts need to be aware of those terms and clauses and try to change them to the extent possible.
Some of these changes are highly technical, and you would have to be familiar with Travelport's confession of Agility "mistakes" in order to appreciate what Travelport is driving at. For example, an "optional service" no longer has to be "enhanced" before Travelport can start charging for it during the term of the contract.
In addition, even before March, Travelport made a major change to the basic business terms of all of its new Subscriber Agreements: It eliminated the decades-old concept of productivity pricing, under which the fixed monthly charges were discounted or waived altogether if the agency made a stated number of monthly or yearly bookings.
For example, under productivity pricing, the agency's fixed monthly charges for service were stated in the contract, but Travelport provided that "the fees for such Products and Services are discounted 100% provided Subscriber is not in breach of this Agreement" or "The fees set forth below are subject to discount based on Subscriber's Segment Commitment ... provided Subscriber is not in breach of this Agreement."
Now, however, Travelport has adopted what I call the Amadeus model, under which the monthly fees are owed regardless of productivity. Each month, Travelport deducts the fees from the segment incentives and pays the agency just the net amount.
Furthermore, Travelport has recently increased its fixed monthly fee for what it calls the "Basic Service Package" from $400 to $500 per agency location, thus effectively reducing the net incentives it must pay under new Subscriber Agreements. Although this fee may be reduced during negotiations depending upon the agency's clout, Travelport has given itself an advantage by starting the negotiating process with a higher price than it had previously.
For agencies with no negotiating leverage, the cost of this "Basic Service Package" is a lot of money compared with standard Sabre and Amadeus charges. It clearly shows that Travelport is already trying to improve its bottom line at agencies' expense.
The good news for agencies is that Travelport has listed all 26 features in its Basic Service Package for both Apollo and Worldspan agencies. These lists imply that the listed features cannot be part of a new package for which Travelport imposes a charge.
Of course, nothing prevents Travelport from charging what it wishes for a truly new feature, and Travelport is no doubt counting on such features for the principal source of new revenue. Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at email@example.com.