Because the Department of
Transportation may outlaw GDS productivity-based bonuses later this
year or early next year, shouldn't we wait until the DOT makes a
decision before we negotiate our new GDS contract?
Aren't we wasting our time now? If not, can we write the GDS
contract in a way as to get around the effects of such DOT
action?
A: No one can predict whether the DOT will
adopt its proposal or when it might do so. Luckily, for the
purposes of GDS negotiations in mid-2003, it doesn't matter one way
or the other.
No GDS vendor will agree to a contract at this time that
circumvents a ban on productivity bonuses. Nor will any GDS vendor
agree to a contract that hedges all bets -- like a deal that you
can terminate at will if you cannot get paid for your bookings.
Vendors are just not flexible enough to anticipate all possible
outcomes.
Therefore, if you negotiate now, vendors will probably present
you and most other agencies with a contract that provides for no
DOT-related contingencies.
Then, if the DOT does not outlaw bonuses, you will be all set.
If it takes the opposite action, you will be no worse off than any
other agency with an existing contract.
Existing contracts may or may not be grandfathered. In 1985 and
1992, existing contracts were affected by new GDS rules, but the
changes did not hurt agencies. This time around, the DOT would
disrupt agency economics to such an extent that existing contracts
might be exempt.
So, we should leave aside the DOT question and address the real
issue: Will the economics of the GDS business make offers worse in
late 2003 or early 2004 than they are now? There is a very good
chance they will be worse.
Between Galileo's Momentum program, Sabre's Direct Connect
Availability discounts and whatever program Worldspan eventually
rolls out after all the noise it has made about the need for a "new
model," average booking fees paid by U.S. airlines probably are
headed south.
The beauty of most GDS contracts is that they lock in agency
bonus levels for three or five years regardless of whether booking
fees go down. Therefore, negotiating and signing now makes sense to
me.
At least one vendor already is at work developing a contract
stating that bonuses can be adjusted if booking fees go down. Get
your deal done before your vendor decides you have to sign such a
contract.
Mark Pestronk is a Fairfax, Va.-based attorney specializing
in travel law. He answers your questions in the TravelWeekly.com
Legal Ease forum. To contact Mark directly, e-mail him at [email protected].