GDS negotiations 2004


Rose HacheThe legal and economic landscape for users of GDSs continues to change, as recent events illustrate. The news that six airlines are joining a ticket-distribution network called G2 Switchworks presages a new GDS competitor.

And now it is being said that the agreements that have brought airline Web fares into the GDS might not be renewed by all airlines when those contracts expire in 2005 and 2006. Some traditional elements in subscriber contracts are also changing.

Some of these older contracts included many services and software that were free, based upon achieving segment-threshold productivity. Probably the most significant change relates to the a la carte service charges imposed on travel agencies, meaning that segments must be produced to pay for each use. It is akin to the older productivity-based contracts but much more specifically usage-based.

It is, therefore, necessary to verify the costs of each service your agency will utilize going forward and delete the services you no longer use: for example, microfiche charges. Unless you delete the services, they are carried over (whether you use them or not), and you are charged for them on a monthly basis.

In many new GDS contracts, shortfall penalties no longer exist. However, shortfall fees usually apply if a threshold is established based on the incentives offered or amounts waived.

Depending on your segment production numbers, a new option not available under the old rules allows an agency owner to explore a promise to use the particular GDS for 80% to 100% productivity and may eliminate any shortfall provision. Depending on your size and GDS provider, a commitment to utilize the GDS on a full-time basis may include a kicker of additional incentive funds.

The lack of shortfall assessment in most new contracts is a significant development for travel agencies currently paying monthly shortfall bills and should immediately be addressed. Depending on the GDS company, your account executive often is not monitoring your production, except when you miss a target with financial consequences.

Economic incentives and negotiability of contractual language depend upon volume, loyalty, timing of the negotiation and conversion prospects.

Agencies producing more than 20,000 segments are advised to obtain an offer from other GDS providers that are serious contenders. One question to ask is the length and depth of any preferred airlines GDS contract.

A new development in this era of GDS deregulation is the ability to negotiate a contract for one year or seven years. If your old reservations hardware (including printers) was donated to you by the GDS company, first verify that it will run the new software necessary to efficiently and productively service clients and determine the cost of the upgrade.

Cash signing bonuses ranging from four to six figures still are available, depending on the number of segments your agency produces.

Check for the latest legal language emphasizing that you pay it back pro rata if you breach the  agreement.

Legal amendments vary depending upon the GDS company and the size of your agency. Co-terminus language protection was deleted from certain contracts after the DOT deregulation last January.

It is recommended you amend the contract addressing the issue of adding new services, locations and/or equipment not extending the contract. Always check for mirror indemnity language, confidentiality and loss of business that would trigger an ability to renegotiate.

Loss of a particular account may still be reason for tailoring a provision just for you. Of course, there are more amendments, depending on the GDS provider and your agencys particular situation.

Everyone should have an ability to at least renegotiate, due to changes in the industry.

Rose Hache is a travel attorney based in Houston. She can be contacted at [email protected].


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