GDS contracts vary in vendor's right to raise full-content fee

By Mark Pestronk
Mark PestronkQ: In your Nov. 12 column, "Other GDSs likely to take cues from Sabre's AA settlement," you predicted that there might soon be an increase in the 80-cent full-content fee that the GDS vendors have been charging agencies since 2006. Would such an increase be allowed under existing GDS contracts, and if so, is there any limit on the amounts by which the fees could be increased? Finally, do you think that the so-called full-content fee has brought any benefits to agencies? 

A: The standard Sabre, Travelport and Amadeus contracts in use today all allow the vendors to increase the 80-cent fees during the term of the contract. However, each contract is different, both in the vendor's rights to increase and the agency's right to do anything about it.

For most agencies, the idea of any sort of midcontract GDS fee increase must seem strange, as the vendors have never (to my knowledge) increased any fees midcontract. On renewals, the general pattern has usually been that fees for existing services go down or get waived entirely, and the vendors charge premiums for new enhancements.

Nevertheless, the decades-old pattern of no fee increases may be changing. In Business Travel News' January article "The 25 Most Influential Business Travel Executives of 2012," Travelport CEO Gordon Wilson said, "My personal view is that we're reaching a point whereby the incessant upward march of incentive payments has to come to an end."

One way to halt that march would be to increase the full-content fee, which would be a net incentive decrease for all agencies, as those fees are subtracted from the segment incentives. For example, if an agency earns $2 per segment and must pay 80 cents per segment for full content, then the net incentive for segments on the carriers that offer full content is just $1.20.

Under the standard Travelport contract covering both Apollo and Worldspan agencies, Travelport can increase the fee by up to 10% per calendar year. Compounded annually, the fee could thus rise to $1.29 by the fifth year of a new GDS contract.

Sabre offers a slightly better deal. All fee increases are capped at 5% per year. Another section of the standard contract has been providing that if the full-content fee increases, the agency might drop out of the full-content program, which is a nearly meaningless right because it is still the policy of the major airlines to charge non-participating agencies about $3.50 per segment booked.

Amadeus' contract gives it unfettered power: "All Charges are subject to change upon thirty (30) days written notice to Customer." On the other hand, Amadeus is the only vendor that has been amenable to a partial waiver of the fee under limited circumstances for large agencies.

In return for the 80-cent haircut, the agency community has received no real benefit, except preservation of the status quo in effect for over a generation. In retrospect, the major carriers' threats to withdraw their content was either a bluff or a move that would have backfired.

While most content remains in the systems, agencies and their clients still find lower prices outside the GDS from time to time. These content gaps violate the carriers' full-content commitments, but neither the airlines nor the vendors have done anything about it.

Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at mark@pestronk.com. 
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