GDSs are a drag on consumer choice

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Nicholas E. CalioIf we have learned anything from the evolution of the smartphone, it's that we -- that is, all consumers -- like to have choices. We like to pick our phone, our apps and our data plans and customize them to best meet our needs.

And we like the fact that we have multiple options when it comes to where to buy our phone and services, understanding that we benefit from competition, technology and the free market at work.

The same is true of air service.

Customers no longer make their travel decisions based solely on schedules and fares. Rather, they now can customize their experience based on what they value and need, opting for choices such as in-flight WiFi, priority boarding, premium seating, meals or doubling their miles, among other criteria.

Airlines, taking a page from Internet-savvy companies such as Amazon and Apple, are tailoring travel options based on a passenger's individual travel habits.

But these evolutionary efforts are being opposed by a GDS duopoly that has long dominated the distribution of airline services to travel agencies. The same duopoly -- Sabre and Travelport -- continues to insist that airlines use the outdated GDS distribution paradigm and pay exorbitant fees to do so, which drives up the cost of travel for all.

Online and traditional travel agencies account for some 60% of airline ticket sales, meaning that the GDSs control the distribution of a significant share of airline services and products.

It's as if the GDSs are playing a scene from the movie "The Godfather." Together, Sabre and Travelport control 90% of the GDS market in the U.S. They have purchased the loyalty of travel agents to their own distribution systems, providing incentive for them to ignore technology-driven, efficient solutions and making it virtually impossible for agents to use alternative distribution sources.

In the process, they are driving higher costs for airlines and consumers. Talk about an offer they can't refuse!

Airlines, like any other business, should be free to sell their products to consumers and travel agencies through what they deem to be the most efficient, cost-effective and innovative channels. Similarly, travel agents should be able to utilize whatever distribution sources make sense for them.

While technological advances and price competition have given consumers more choices at more competitive prices in a number of industries, this has not occurred in the GDS market. A key reason for this is that GDS technology has not yet evolved to enable the kind of customer-focused and customized shopping that other industries have embraced.

And yet, even with this technology lag, the U.S. airline industry pays billions annually to this duopoly, which ultimately must be reflected in the price of a ticket. The average cost of booking a ticket through a GDS is about $12. That is more than three times the cost of booking a ticket through an airline website or through promising new distribution technologies that can connect agents directly to airline reservations systems or indirectly through a GDS.

The GDS industry is lobbying the Department of Transportation (DOT) to protect its market dominance. Their plan is to have the DOT force airlines to give them, free of charge, the ability to sell optional services such as checked bags, seat upgrades or club access. Their argument? They need to sell these services so consumers are not surprised by additional costs when they travel.

That claim just doesn't hold water.

Airlines believe that customers always should know what products and services they are paying for, and today, consumers have full transparency into airline prices and fees. Further, the most recent DOT consumer rulemaking ensures that all fees are prominently displayed on the carriers' websites.

Government intervention is not needed simply because GDS companies are overreaching and would like to mark up these optional services for their own financial gain. The airline-GDS relationship is a commercial relationship governed by market forces. Left alone, they will hammer out a mutually acceptable commercial arrangement.

Last year, the DOT wisely refrained from issuing new rules that would require carriers to make optional products available through the GDSs. That was the right decision. Airlines, like all businesses, must be able to determine where and by whom their products are sold, and at what price. That is how the free market works, and that is how consumers win.

Airlines support consumer choice and full transparency, which are best achieved through innovation, not regulation.

Nicholas E. Calio is president and CEO of Airlines for America (A4A), the trade association for the country's leading airlines. A4A's members and affiliates transport more than 90% of all U.S. airline passenger and cargo traffic.

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