Mark Pestronk
Mark Pestronk

Q: British Airways' and Iberia's new $10-per-fare-component fee for GDS bookings creates a real dilemma for our agency. We have no idea whether to try to avoid those carriers, book outside the GDS or pass the fees onto clients. Do you think such fees are going to be adopted by the major U.S. carriers?



A:
The fee announcement is the latest salvo in the war between airlines and GDS vendors that has been dragging on for 15 years. The airlines are doing whatever they can to fight what they perceive as too-high GDS booking fees, and the GDSs are doing what they can to hold the line.

The airlines see the economics of the agency-GDS relationship as "contrary to the laws of economics," and they see incentives for agencies as "kickbacks," to quote US Airways' brief in its suit against Sabre.

History shows that most if not all the airlines' attempts to force agencies to book outside the GDS have been unsuccessful. For example, in 2002, the airlines tried to get the DOT to outlaw segment incentives, but the government adopted a hands-off policy.

In 2004, Northwest Airlines announced that it would adopt a fee of $3.75 per one-way and $7.50 per roundtrip ticket for GDS bookings, but when no other carriers matched, Northwest never implemented it.

In 2006, the carriers forced the GDSs to roll out an 80-cent "full content" fee, effectively lowering the net segment incentive for agencies.

This did nothing to change the GDS-agency system, and net incentives have been better than ever.

Starting about 10 years ago, the carriers have been trying to develop GDS alternatives, but they have had no noticeable successes.

The latest attempt, IATA's New Distribution Capability, seems to have had very limited success and apparently works with just a few very large agencies.

The trouble with this war is that agencies are hurt by every new development. For example, with the $10 fee, the options for agencies are limited to bad ones.

On one hand, if agencies try to avoid booking those carriers, they cannot offer unbiased, best-fare advice to clients. On the other hand, if agencies use the GDS and pay the fee, they have to pass on the cost to unhappy clients.

To make matters worse, if agencies try to book those carriers outside the GDS, as the carriers would like, they lose GDS segment incentives, may incur a penalty for booking shortfalls under their GDS contracts and create mid- and back-office integration problems for their accounting and management reporting systems.

The lesson from the history of the war is that penalizing agencies does not work to change the system.

One way or another, agencies find workarounds that keep the agency-GDS system largely intact.

What would work to break up the agency-GDS system are meaningful incentives instead of penalties. However, with a few reported exceptions for mega-agencies that apparently get paid to book outside the GDS, it apparently never occurs to carriers to offer carrots instead of sticks, and it probably never will.

By now, the major U.S. carriers must know that penalizing agencies will not break up the agency-GDS system, so I predict that they will not try to match the new fee. British Airways, Iberia and Lufthansa will remain as outliers futilely trying to change the system.

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