week ago in this space we said
American's EveryFare program deserves serious study. We gave it
some serious thought, and we've come to this conclusion: The
program has some good points, but for most agents American's
initial offer is a bad deal.
The good points about the program are twofold: It puts Web fares
in the GDS, making the GDS more useful to agents. Also, the
cost-sharing deal makes the GDS more attractive to American. That's
good, too, because it's in agents' best interests for airlines to
feel good about the GDS sales channel.
We've heard agents say that American's GDS costs are "not my
problem." Maybe not. But if airlines start abandoning GDS
distribution because of rising costs, many agents may have many
So to the extent that the EveryFare program addresses those
issues, it is good.
But it's not good enough.
For starters, the five-year contract is too long. The only
benefit to agents -- access to Web fares -- addresses a problem
that may be short-lived. In five years, some confluence of
regulatory and competitive pressures might put Web fares into the
GDS anyway, or make both of them disappear.
There are many other things that American could offer to its
agents in such a deal, including guaranteed access to all products
or a promise not to undersell the trade. But it drew the line at
If the contract is too narrow in what it offers to agents, it is
overly broad in what it gives to American: Agents are to subsidize
not just the GDS costs of American's Web fares, but all its other
fares as well.
And some of the contract terms seem harsh and restrictive.
Section 7, to take just one example, prohibits agents from adding a
service fee to AA fares that is higher than the fee for "any other
airline." Understandably, American doesn't want its cost-sharing
deal to result in extra service fees on AA tickets.
But the broad wording prohibits AA-specific fees for any reason.
If American or an AA code-share partner adopts some new procedure
that raises agency costs, quite apart from EveryFare, agents could
not add a carrier-specific service fee to offset it.
American claims that travel agency sales account for 70% of its
revenue, and it claims that it pays $400 million a year in GDS
fees, a figure that it wants to cut in half. To put that in
perspective, American's revenue last year came to about $19
billion. If agents generated 70% of that, we're talking $13.3
billion, which makes the GDS fees about 3% of agency revenue.
We are sympathetic to any corporation's desire to turn a $400
million cost into a $200 million cost, but if a cost item is 3% of
its associated revenue, it's going to take an extraordinary effort
to get it much lower.
It seems to us that if American wants to make agents its
partners in that effort, it's going to have to sweeten the pot.