In the last month,
executives of two GDS vendors have stated that the GDS "financial
model" needs to change. That model is the charging of high booking
fees to airlines and other suppliers in order to subsidize the
payment of booking bonuses to travel agencies.
Do you think change is coming and, if so, what can my agency
do to lock in a steady stream of good bonuses?
A: I am highly skeptical that there will be
much of a change, for several reasons.
First, the model cited by the executives is largely fiction.
Most agencies get no or very small booking bonuses, as they do not
have the productivity, clout and size to obtain the attractive
offers larger firms do.
Even the amount paid out to the larger firms probably is tiny in
relation to the GDS vendors' total booking fee revenue.
Second, the four vendors and their predecessors have been
engaged in fierce competition for a generation, and there is no
reason to think that rhetoric will turn into action as long as one
vendor decides to adhere to the status quo.
Every few years, one vendor proclaims there will be no more
signing bonuses for renewals, and then reverses itself after six
months due to the loss of market share.
Third, there is no meaningful alternative to GDS service and I
doubt there ever will be, despite suppliers' efforts to develop
"direct connections."
Agencies want and need a single portal for all suppliers -- not
a desktop icon for each supplier. Why the technology experts don't
understand this is a mystery to me.
Nevertheless, I could be wrong, so it would be prudent for
larger and highly productive agencies to try to lock in new
five-year contracts at today's bonus levels.
For example, if you have two years to go on your five-year
contract, consider starting now to negotiate a new contract, rather
than waiting a year.
If you have just a year left, plan to expedite your
decision-making rather than taking the whole year to make a
decision and sign a contract.
Also, consider five-year rather than three-year terms, in case
bonus plans are not as good in three years.
If you run into booking shortfalls in years four and five, the
vendors would probably renegotiate, and if you go out of business,
it probably will be just as easy to terminate a five-year contract
as a three-year deal.
Mark Pestronk is a Fairfax, Va.-based attorney specializing
in travel law. He answers your questions in the TWCrossroads Legal Ease forum.
To contact Mark directly, e-mail him at [email protected]