Q: Do you think that any or all
of the three largest GDSs conspired with airlines to figure out how
to force travel agencies to accept incentive cuts? If so, wouldn't
such tacit agreements be illegal price-fixing? How else can you
explain that all the airline-GDS agreements appear to have similar
terms and all three vendors forced agencies to accept similar cuts?
A:
Any agreement or understanding between an airline and a GDS vendor
regarding how to force agencies to accept incentive cuts would be
illegal price-fixing, even if there were no specific agreement
about the amount or nature of the cuts. I certainly can see how you
might think that such a conspiracy might have taken
place.
Imagine this
hypothetical conversation between an airline and a GDS:
Airline: "As you
know, we need to cut our distribution costs, so we are not going to
pay such high booking fees under our new agreement."
GDS: "We
sympathize, but we cannot absorb a big revenue loss. We cannot pass
it through to our customers, either, as they have long-term
contracts. So, it looks like we cannot agree to reduce your booking
fees."
Airline: "Wait, how
about this idea: We threaten agencies with an unsurvivable fee of,
say, $3.50 per segment unless they agree to a voluntary program
that you offer with a smaller fee of, say, 80 cents."
GDS: "Of course!
Agencies will take the lesser of two evils. You kick it off, and
then we'll roll out a 'voluntary' program to avoid your fees, and
agencies will jump in our lifeboat."
Airline: "Too
obvious. You go first, announcing that agencies that don't jump in
will have no assurance of avoiding airline fees, without saying
what is coming, so you can claim ignorance when we drop our
bombshell."
GDS: "Agreed. If
the other vendors match, we'll be all set. And I bet they
will."
Unfortunately, I
don't think that there was any such agreement. Even if there had
been, you could probably never prove it, as shown by the fruitless
efforts of bright legal minds following the commission
cuts.
What actually
happened was not a conspiracy but a clever exploitation of agency
weakness by the GDSs, who have known for a few years that the
largest airlines wanted to make agencies pay for GDS service,
directly or indirectly. After all, in the proceedings leading up to
the Department of Transportation's repeal of the CRS regulations in
2004, American had urged the DOT to adopt its zero-booking-fee
proposal.
The vendors also
knew that agencies were too weak to resist financial mistreatment
by airlines. Since 1995, agencies have absorbed blow after blow
with only sporadic and ineffectual responses.
Seeing what was
coming, the vendors took advantage of agency weakness by figuring
out a way not to honor their long-term incentive commitments to
agencies. They developed "voluntary" programs that allowed the
vendors to get away with paying less than their agency contracts
required them to pay. Agencies then had no choice but to accept the
lesser of two evils, even though they were getting nothing in
return that they did not have before.
In next week's
column, we'll cover what laws might have been violated by the GDS
vendors' unconscionable conduct.
Mark Pestronk
is a Washington-based attorney specializing in travel
law.