Technology GDSs seek standards for unbundling By Dennis Schaal and Michael Fabey / January 06, 2009 Share 1 -- While GDS executives predict that a la carte merchandising by airlines is here to stay, they are also now warning that unless technology standards are developed posthaste, the trend could devolve into the chaos that marked the move to e-ticketing in the ’90s, with each airline going its own way.Throughout 2008, most U.S. airlines — Southwest being the notable exception — made it clear that a la carte pricing and other merchandising tactics would expand as they sought more ways to maximize revenue.Most recently, Frontier’s introduction last month of AirFairs, a branded-fare initiative with three levels of bundled services, highlighted a trend that likely will become the norm in 2009. The GDSs are scrambling to accommodate the airlines’ rush to unbundle “ancillary services” — basically any part of the passenger experience that can be divorced from the base fare and charged for separately — so that each such service can be sold by agents.That is turning out to be a significant technological challenge.In a speech at a recent PhoCusWright conference, Sabre CEO Sam Gilliland likened airlines’ penchant for “one-off solutions” in merchandising to the scattershot and protracted implementation of e-ticketing over a 10-year span.“We certainly don’t need merchandising to become ‘e-ticketing 2.0,’” Gilliland said in arguing for a standardized, industry-wide approach.Frontier joins the partyIn revamping its fare structure into three levels — Classic Plus, Classic and Economy — Frontier joined the ranks of Air Canada, South African Airways, Aer Lingus and Qantas, among others, that have branded and bundled their fares in a bid for differentiation and new revenue.“It’s great to see Frontier taking this step to bring flyers more choice,” said Robert Buckman, director of airline distribution strategies for Amadeus North America. “The news is emblematic of the ongoing ‘retailing revolution’ at airlines, a significant industry catalyst that is leading Amadeus to expand its retail technology portfolio across all airline distribution channels.”Sabre, too, has been enhancing its airline solutions portfolio for the same reason.In what the company labels “a broad-scale, multiyear financial investment plan,” Sabre unveiled in September the SabreSonic Customer Sales and Service solution, which facilitates merchandising options and branded fares, among other products and services, across multiple distribution channels.As part of the plan, Sabre in December acquired London-based EB2 International, which has a flexible booking engine that supports “advanced pricing and shopping capabilities,” Sabre stated, adding that it would be accelerating the rollout of new features for SabreSonic CSS.Characterizing U.S. airlines’ new fees and capacity cuts as “transformational change” and “innovation,” Gilliland told PhoCusWright conference attendees that “U.S. airlines are better positioned for the coming year, and perhaps for the long term, than those outside the U.S., for the first time in a long time.”A la carte pricing likely here to stayRegarding airlines’ new service fees, Gilliland said: “I don’t expect to see those go away ever.” It’s easy to see why.Gilliland cited a National Business Travel Association forecast that airfares will rise 7% to 10% in 2009, “with ancillary fees potentially adding another 5% to base fares.”Ancillary revenue adds up to an estimated $5 billion for the carriers each year, according to some airline estimates.For example, United and Delta have each estimated that they see $1 billion from ancillary fees, although Delta said that not all of this revenue came from unbundled products such as seat assignments or checked bags.American said those extra fees generate “hundreds of millions” of dollars, and US Airways said the fees added another $500 million to the bottom line.At Delta, CEO Richard Anderson told analysts, “Strategically, going forward, a la carte pricing is where we need to go as an industry. At a macro level, yes, it is very sustainable.”The key now for airlines, GDSs and travel agencies will be how these expanded a la carte models get rolled out when industry standards for doing so are under development but slow in coming.In reporting its global survey of nearly 90 airlines, Sabre Airline Solutions Consulting stated in October that 36% of respondents believed that with the exception of fuel costs, revenue growth through pricing action would be the biggest challenge in 2009 and 2010. Many perceived that a lack of progress in merchandising efforts was due in part to technological hurdles.However, agreement won’t be a slam dunk, considering the complexities.“The [distribution and customer service] environment has to be able to recognize what has been sold to the customer, what the rules are and how they are supposed to be fulfilled,” said Buckman. “That is critical. How far can we bring ancillary revenues? Have we considered if you are working with partner carriers in various markets, do they have the same access to your systems? There is an impasse on codeshare, interline, alliances.”And with the airlines’ basket of new branded fares and fees running over, there may be push-back from consumers for more transparency.In that regard, near the end of 2008, U.S. Rep. Robert Menendez (D-N.J.) introduced legislation that would require airlines to post up-front the amount of potential additional fees.From the looks of things, any listing of that sort likely will be lengthy.