Other GDSs likely to take cues from Sabre’s AA settlement

By Mark Pestronk
Mark PestronkQ: Now that American Airlines and Sabre have settled all their litigation and entered into a new, long-term agreement, will the settlement terms affect other airline-GDS relationships? More importantly for my agency, how will all this affect GDS incentives? Finally, does the settlement of the litigation mean that American is more likely to push Direct Connect?

A:
We now know that, in 2006, Sabre agreed to reduce American’s booking fees in return for promises of full content and American’s promise not to market Direct Connect for at least three years. Under the 2006 agreement, American Airlines had to pay Sabre discounted fees of $2.73 on average for each domestic segment and $6.84 on average for each international segment, according to a statement by Sabre’s attorney in the American-Sabre litigation.

We also know that these fees were “the biggest sweetheart content deal around,” according to Sabre’s attorney, as reported in Travel Weekly’s sister publication, The Beat. That publication’s Jay Boehmer wrote five articles reporting previously unknown facts about the American-Sabre relationship that were revealed during the trial before the case was settled, including the discounted booking fees referred to above.

Finally, we know that right after Sabre and American came to terms in 2006, all the major U.S. carriers struck their deals with each GDS vendor, probably with similar but not as significant discounts. Following those deals, all new agency contracts required an 80-cent full-content fee that effectively reduced GDS incentives for agencies.

In settling the recent litigation, Sabre probably agreed to some further financial concessions. I predict that, in the next year or so, the GDS vendors will follow their usual pattern and extend similar, albeit not quite as beneficial, deals to all major airlines.

If my assumptions are correct, then the GDS vendors will no doubt try to force agencies to take another haircut. It might take the form of a substantial increase in the full-content fee, new fees for ancillary services, cuts in segment incentives or higher fixed monthly charges, but whatever the form, it will effectively mean lower net incentives for agencies.

Many of the sharpest agency owners anticipated these developments and took the initiative to get their vendors tied into long-term contracts that limit the vendor’s rights to raise fees or impose new ones. If your agency did not do so, you probably still have at least several more months to get a new contract before lower incentives take effect.

Direct Connect has been a failure since it was first marketed over three years ago. Although the end of litigation removes a cloud, I do not expect the system to become any more successful, as it is an impediment to modern corporate travel management.

The failure of Direct Connect shows how out of touch with the travel agency business major airlines’ executives have become since the commission cuts. They ignore or place a low priority on the benefits that travel management companies offer.

They were naive enough to believe that if the carrier rolled out Direct Connect, then, as one American executive said during the trial, you could “watch the GDSs cave and the agency deals roll in.” Worst of all, they could not distinguish a viable system from vaporware, and they somehow expected agencies to be unable to do so, either.

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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