Mark Pestronk
Mark Pestronk

Q: The GDS vendors periodically state that they plan to cut back on incentives to travel agencies. Have they succeeded, as far as you can tell? Do you have any facts and figures in addition to your own anecdotal experience?

A: GDS incentives are better than ever, despite the intentions of the vendors to cut back or at least stem the rate of increase. My own experience with the latest GDS contract deals mirrors what the U.S. publicly traded vendors themselves have stated in their latest annual reports filed with the Securities and Exchange Commission.

The cause of the increases is the intense competition for travel agency loyalty. As Sabre puts it, "We must compete with other GDSs and other competitors for their business by offering competitive, up-front incentive consideration, which, due to the strong bargaining power of these large travel buyers, tend to increase in each round of contract renewals." Sabre continued, referring not only to up-front incentives but also to incentives per booking or segment: "Incentive consideration, which often increases once a certain volume or percentage of bookings is met, is provided in two ways, according to the terms of the agreement: (i) on a periodic basis over the term of the contract and (ii) in some instances, up front at the inception or modification of contracts, which is capitalized and amortized over the expected life of the contract."

Next, Sabre admits that incentives are indeed increasing: "Although this consideration has been increasing in real terms, growing in the low single digits on a per- booking basis in recent years, it has been relatively stable as a percentage of Travel Network revenue over the last five years, partially due to our focus on managing incentive consideration."

Although Sabre does not divulge the amounts or percentages by which the incentives have been increasing, the "low single digits" gives us a strong hint. Further, Sabre implies that those digits are approximately the same percentages as the increase in Travel Network revenue, which is mainly the total of booking fees paid by travel suppliers.

That revenue showed an increase of about 13% between 2014 and 2015, but Sabre clarifies that it included the addition of Abacus, the Asian GDS that Sabre acquired last year.

Travel Network revenue increased 2% between 2013 and 2014, and cost of revenue, which is almost the same thing as total incentives, increased 3% during that period. Therefore, we can deduce that incentives increased 2% or 3% and that this seems to be the average annual increase in recent years, excluding Abacus.

Travelport reveals more than Sabre does about the amount of incentives, which it calls "commissions." It states, "Travel agency commissions constitute a large portion of our operating costs and continue to increase due to competitive factors."

Between 2014 and 2015, commissions increased 3% per segment. For the prior year, there was a 2% increase in commission costs per segment. Over a typical five-year GDS contract term, these percentages would add up to 11% to 16% compounded, so you can see why I say that incentives are better than ever.

There is no guarantee that your agency will get offers like these, as they are just averages for all agencies everywhere.

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