In appeasing airlines, GDSs may try to cut agent incentives

By Mark Pestronk
Mark PestronkQ: Several of the major U.S. airlines' GDS participation agreements expire in 2013, and I think it is inevitable that the GDS vendors will offer the carriers some new discounts on their booking fees in order to induce them to sign new, long-term agreements. I also think that the antitrust suits brought by American and US Airways will settle in 2013, and the terms of settlement will probably include some new booking fee concessions for American. All this means that it is probable that the GDS vendors will try to compensate for the discounts by attempting to lower agencies' incentives, even for agencies under contracts extending beyond 2013. Which vendor's contract gives it the most unilateral power to cut incentives? Should we sign just a short-term contract within the next year, so that we can see how things shake out before committing long-term?

A:
The standard contracts for all GDSs marketed in the U.S. allow the vendor to cut incentives if airlines pay lower booking fees. However, you may be able to negotiate changes that will tend to deter the vendor from making these cuts.

Travelport's contract for both Apollo and Worldspan systems states: "If the Average Supplier Payment declines by 10% ... Travelport reserves the right to reduce the financial assistance under this Agreement by the percentage amount commensurate with the reduction in the Average Supplier Payment ... effective 30 days following the notice, unless otherwise mutually agreed in writing by the parties. ... Average Supplier Payment means the average per reservation Participation Fee payable to Travelport by travel suppliers for all Segments with a U.S. point of sale."

Amadeus' contract provides that "If there ... [are] changes in pricing ... offered by us to our Suppliers that affect the economic benefits of this transaction to us, we may notify you to propose any changes to this Agreement which we think are appropriate, including, but not limited to, early termination of this Agreement by us. Unless you provide notice to us objecting to such changes within 30 days ... the changes shall be deemed accepted. If Customer and Amadeus are unable to agree upon changes in the Agreement within 45 days ... then at our discretion we may terminate this Agreement ... by giving you 30 days notice."

Sabre standard contract states: "Sabre reserves the right to modify the Incentive Schedule with 30 days written notice due to a reduction in Participant booking fees or airline participation levels within Sabre. ... Customer may, within 30 days of the effective date of the incentive decrease, terminate this Agreement by giving 30 days written notice to Sabre."

So, whose contract is the most one-sided and whose the least? Amadeus can reduce any agency's incentive by any amount whenever there is any change in any pricing offered to suppliers. Travelport has to wait for a 10% reduction in booking fees, but can then do the same thing. Only Sabre gives you the right to terminate if you don't accept the cut.

Rather than settle for a short-term agreement, you should try to increase your rights in the face of cuts, which would tend to deter the vendor from attempting to make them in the first place. Under a short-term agreement, the vendor has complete flexibility to offer lower incentives with each renewal.

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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