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
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
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
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
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.
new model will arrive within six months unless agencies do
something to stop it.
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
is a Washington-based attorney specializing in travel