Q: Within the last month, American and Continental have sent letters to every travel agency warning them to get prepared to pay for some GDS content and to seek cheaper ways of making reservations. Are these letters just the latest negotiating ploys in the airlines attempt to drive GDS booking fees down or are they real warnings? Also, within the last few weeks, the same two airlines struck five-year deals with Worldspan under which agencies will allegedly be offered new opportunities. What do these cryptic statements mean?

A: At first, I thought that the letters were just the airlines way of positioning themselves to make their GDS-dropout threats more realistic and thus obtain lower booking fees.

At first, I also thought that the Worldspan-related statements were just the airlines way of declaring victory even as they were forced to continue the existing GDS fee model.

However, when you couple the letters with the press releases, something much more ominous has become apparent: The two carriers are signaling to other airlines that Worldspan has given them the opportunity to change the fee model to one where the agency pays the GDS and the airline compensates the agency by paying something in the nature of a commission designed to make the agency whole.

The two carriers are implicitly asking the other major airlines to demand a similar opportunity to implement similar models when they finalize their GDS deals.

Once all the airlines have such deals with Worldspan, they will be in a position to demand and obtain similar terms from Amadeus, Galileo and Sabre.

The major airlines will then undoubtedly offers incentives to agencies to switch to the new model, probably starting immediately. Even if you have a long-term contract in place, your GDS vendor will certainly allow you to change to the new model, as they will probably be required to do so by the terms of their new airline contracts.

Even if the airlines promise to pay agencies a commission and make agencies whole, the new model will be a terrible development for travel agencies, for three reasons.

First, as every agency owner knows, GDS incentives are more or less guaranteed throughout the life of a three-year, five-year, or longer contract. This is the only economic certainty left in the agency business.

On the other hand, I am positive that no airline will offer a multi-year contract, so you could be whole in 2007 but halved in 2008.

Second, under the new model, agencies will need to seek a separate deal with each airline, which will be tough, as agencies have always had much more clout with GDS vendors than with airlines.

Third, and perhaps most importantly, the airlines long-term goal is to reduce distribution costs through gradual elimination of all incentives. You will be putting your fate in the hands of a partner that plans to do you in.

Nevertheless, the new model will arrive within six months unless agencies do something to stop it.

Every agency executive who has a relationship with an airline executive needs to send an e-mail as soon as possible opposing any new model and stating that the agency will not accept it regardless of how attractive it may appear at first glance. Please do it today.

Mark Pestronk is a Washington-based attorney specializing in travel law.


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