Mark Pestronk
Q: Because our agency has had so few GDS bookings since March, we are getting gigantic shortfall-penalty invoices from our GDS vendor. Paying them would not be a forgivable expense under the Paycheck Protection Program, so I have no idea how we are going to afford to pay them. After 9/11, didn't the GDS vendors simply waive all shortfall fees for several months? Do you think Sabre, Travelport and Amadeus are going to do the same thing now? If not, what are our options?
A: After 9/11, the GDS vendors waived shortfall fees for the four months of September through December 2001. The GDS vendors may waive shortfall fees this year, too, but there are three key differences between then and now.
First, unlike in 2002, many small and midsize agencies have no fixed monthly or annual quotas anymore. Instead, they have share quotas (i.e., a requirement that 90% to 100% of GDS bookings use that vendor as opposed to the other two vendors or any new-entrant GDS), so a reduction in the absolute number of segments does not trigger a penalty.
It is mainly large agencies that, having received substantial signing bonuses, must pay a penalty for shortfalls. Large agencies may be financially more able to absorb shortfall penalties than smaller ones, so the vendors may be less likely to forgive them.
Second, shortfall penalties are generally much smaller than they were in 2001, when agencies had to pay $2 or so for every segment below a fixed annual quota. Today, penalties generally consist only of a prorated reimbursement of a signing bonus, and the penalty can be as low as 11 cents per segment in some contracts, in my experience.
Third, today's crisis will obviously last longer than the dip after 9/11, so a mere four-month waiver would not do agencies that much good. Agencies will need a year or more to recover, and a waiver for that long a period would be unprecedented.
Fourth and perhaps most importantly, the vendors themselves are in financial difficulty, as reported in Travel Weekly and its sister publication, the Beat. So it is questionable whether their own finance departments and creditors would let them make financial concessions.
Your options are limited, but there is no rush to make a decision because thousands of agencies share your predicament, and there is no way your vendor is going to shut off access to content in the near future or sue for the debt anytime soon.
One option is to try to sign a new GDS contract with no quotas in return for getting the vendor to waive the shortfall penalties. In my experience, vendors are receptive to this approach and are offering good segment incentives, as long as you agree to forego any signing bonus.
Other options are to be bought out by a larger agency with the same GDS and sufficient clout to negotiate a waiver, or to file for bankruptcy to get out of the contract.