Lufthansa Group faces two challenges in its attempt to foist
GDS fees onto travel agencies: opposition from travel management companies
(TMCs) and a lack of anything more than verbal support from other airlines,
especially U.S. carriers.
On Sept. 1, Lufthansa will add a 16 euro “distribution-cost
charge” to every GDS booking it receives. It will waive the fee for tickets
purchased directly from its airlines’ websites, ticket counters or from its
booking portal for travel agencies.
A Lufthansa spokeswoman denied that the airline is shifting
distribution costs to agencies, but her reasoning is not likely to give comfort
to the retail channel.
“The customer is the one who has to pay the added costs,”
she said. “However, the customer has alternative choices, and thus, ultimately,
it is the customer who decides in the end which way to go.”
TMCs have foiled similar efforts in the past, notably with
Northwest Airlines’ 2004 attempt to share GDS costs with agencies. And while
the CEOs of many airlines attending the IATA Annual General Meeting in Florida last week cheered Lufthansa’s
announcement, industry experts said that verbal support did not mean they would
be following suit.
“Cheering and actually being able to do are two different
things,” said Al Lenza, former vice president of distribution for Northwest and
one of the architects of that airline’s unsuccessful attempt to equalize
One reason U.S. carriers are unlikely to follow Lufthansa’s
move is that they have successfully reduced their GDS fees in recent years
through negotiations. U.S. fees per booked and flown segment hover around $2.75
in the U.S., while they can be as high as $8 per segment overseas.
“I would be surprised if any of them would do anything,”
Lenza said of U.S. carriers.
GDSs provide services that are crucial to TMCs: linking
bookings with back-office systems, performing mid-office quality control,
interline agreements, managing scheduled changes and cancellations, and
facilitating duty-of-care agreements. GDSs are also robust enough to handle
rebookings generated by flights that are cancelled for weather disruptions or
other reasons, whereas airlines’ own websites can be overwhelmed by that kind
The Global Business Travel Alliance (GBTA) also said last
week that Lufthansa’s portal would limit comparison shopping.
Bob Offutt, senior technology analyst for Phocuswright, said
Lufthansa could offer sweetheart deals to agencies to encourage them to use its
portal, calling it a “lock-in strategy, where comparative shopping is almost
One reason U.S. carriers are unlikely to follow Lufthansa’s move is that they have successfully reduced their GDS fees in recent years through negotiations.
But TMC-GDS relationships are not just about functionality,
“You could build the best technology in the world and it
would be unacceptable because of the millions of dollars of inducements that
are shared with them by using the GDSs,” Lenza said.
Atmosphere Research analyst Henry Harteveldt said U.S.
airlines are also holding back to see what IATA’s New Distribution Capability
(NDC) will bring. NDC lays the groundwork for airlines to sell ancillary
products and services through third-party channels.
Some U.S. carriers have successfully shifted their GDS costs
to travel agencies. U.S. agencies can integrate their Southwest Airlines Web
bookings into their workflow using BookingBuilder. But that won’t work for
Lufthansa, according to Seth Perelman, founder and CEO of BookingBuilder, who
pointed out that Southwest flights are often
point-to-point, while Lufthansa operates globally.
“Because we’re in the business of helping with non-GDS
content, people expect us to have a positive reaction,” Perelman said of the
Lufthansa proposal. “That experience tells us that this is something that is
going to be extremely difficult for Lufthansa to implement. There are many,
many moving parts here.”
Still, Offutt said, Lufthansa is betting that it can build
channel loyalty and have people bypass GDS-based channels such as agents and
OTAs. Whatever challenges lie ahead, Lufthansa’s move could presage changes in
the airline/GDS model to realize some sharing of distribution costs. Shane
Downey, director of public policy for the GBTA, said the group is willing to
act as a mediator in finding an alternative solution.
Harteveldt proposed special fares for agencies that would
enable them to absorb some distribution costs and still offer competitive
pricing. Lufthansa said that besides sharing costs more equitably, it wants to
build a modern distribution system that enables more innovative booking. Its
spokeswoman said it continues to work with the GDSs.
Nonetheless, Lufthansa has put itself in a tenuous position.
Harteveldt said that travel agencies and GDSs generate a disproportionate
amount of high-margin, front-of-the-plane and premium-economy tickets.
But Lufthansa’s spokeswoman said that already today, a lot
of bookings are not made through a GDS. This is particularly true in markets
outside the U.S. She said that low-cost carriers are not all in the GDSs
(although two major European low-cost carriers, Ryanair and EasyJet, are) and
that even GDSs do not provide full transparency.
“We ask our [travel agent] partners to be open to new
solutions for everyone and are ready to support them in this attempt,” she
But that could prove tough. Joe McClure, president of
Montrose Travel (No. 41 on the 2014 Travel Weekly Power List), said, “Lufthansa
did this to cut costs, and they are hoping — betting — their cost savings will
exceed the business they are going to lose. I’m not sure I would make that bet.”