Over the next five years, travel agencies
will continue to face the prospect of content gone missing from
their GDSs as airlines bolster their ability to offer exclusive
products on their Web sites.
The new batch of
airline-GDS agreements, while tightening some aspects of full
content, contain provisions that enable airlines to continue
shoring up their Web sites and other direct channels with exclusive
promotions. These include fare sales to groups of travelers, travel
club memberships, mileage rewards and upgrades that will not be
available through travel agents.
In interviews with
insiders across the industry, Travel Weekly pieced together the
broad outlines of the closely guarded GDS-airline contracts. Many
of these details, including economic provisions related to a
descending fee structure, are being published for the first time
here.
Each contract
between Sabre, Galileo or Worldspan and their participating
carriers assuredly varies from each of the others (Amadeus
continues to negotiate with several major airlines), but the
provisions described below found their way into most of the
agreements.
In the first year,
the segment fees the airlines pay the GDSs drop from the high $3s
under the contracts penned in 2003 to the low $3s, depending on the
airline. The fees 
will further decline in
2007-2008 to the upper $2s and dip progressively to the mid-$2s by
2011, when most of the agreements expire.
The prospect of
declining revenue could set the stage for GDSs to further reduce
agency incentives beyond the current 80-cent hit, but that appears
to be unlikely.
Galileo said last
week that the 80-cent fee for agencies in its Content Continuity
Program will not increase during the term of its agreements. Travel
attorney Mark Pestronk said Galileos agency contracts actually bar
it from increasing the 80-cent fee.
Sabre said it
doesnt have any plans to change the economic terms of its Efficient
Access Solution program for agencies. The company said EAS takes
into consideration the economics/booking fees of the participating
airlines over the full term of those agreements.
According to
Pestronk, Sabre contractually can increase the agents fee if Sabres
economics materially decrease. He said Worldspan can modify
incentives after 30 days notice.
Full content
The agreements
clarified and tightened previously ambiguous definitions of full
content, including language about published, Web and bulk fares.
The agreements also secured, for the first time, parity among the
GDSs regarding negotiated fares.
But the agreements
also continue to allow airlines to offer exclusive promotions on
their consumer Web sites. The carriers cant offer across-the-board
fare sales to Web shoppers unless the GDSs have access to them, as
well. But the airlines can continue to offer exclusive promotions
on their Web sites to what one official termed a subset of a subset
of travelers. For example, airlines could offer promotions to
Chicago-based passengers who have flown to Los Angeles or have
achieved a certain frequent-flyer status.
Airlines can
continue to develop their travel clubs without providing similar
perks through the GDSs. For example, United offers membership in
its Silver Wings Plus club to travelers age 55 and older and can
continue to offer exclusive membership benefits to these travelers
without making them available through the GDSs.
The airlines can
offer exclusive mileage credits, upgrades and airport club passes
when corporations book directly through the carriers corporate
portals. These incentives can be offered above and beyond the
framework of the negotiated agreement between the airline and the
corporation.
Some airlines won
what might be called an Air Canada clause: They have the right,
with certain limitations, to offer exclusive products and fares on
their Web sites if the GDSs lack the technology to display and sell
this inventory in a manner the airlines desire.
Although the GDSs,
under deregulation, have the right to bias airline displays, as
major online agencies do today, the airlines won protection against
such bias in the new agreements. Although airlines will be able to
purchase advertisements for fare sales, they will not be able to
pay for positioning in GDS displays.
So, with the
yearlong round of airline-GDS content negotiations nearly
concluded, it is clear that the carriers and their chief
distribution partners reached a broad accommodation, with both
sides getting a lot of what they needed.
Travel agencies
didnt fare as well.
Agencies generally,
and there are many exceptions, have to pay, on average, a $2 fee
per trip (2.5 segments at 80 cents per segment). Agencies did avoid
massive content fragmentation, which was good for airlines as well
as agencies, said Tom Klein, executive vice president and group
president of Sabre Travel Network and Sabre Airline
Solutions.
The game wasnt to
whipsaw the airlines into giving us something, said Klein. The game
was to get the airlines to understand that having all the fares in
one place was good for them. We didnt think it was good for the
airlines to be so fragmented.
Klein said Sabres
new airline agreements were more comprehensive than prior pacts,
and that we closed some gaps.
Who blinked?
The impasse between
the industrys two titans, Sabre and American, captured much of the
industrys focus in late summer. American balked at joining Sabres
EAS program, withstood weeks of paying inflated GDS fees after
their contract had expired and leveled charges that a Sabre joint
venture had actively sought to sell passenger data to
airlines.
Travel Weekly
learned that Daniel Garton, executive vice president of marketing
at American Airlines, made a phone call to a top Sabre official to
get the stalled talks rolling just days before the Sept. 1 deadline
that Sabre gave agents to decide on EAS participation. Until then,
David Cush, Americans senior vice president of global sales, had
spearheaded the negotiations for American.
Klein wouldnt name
names.
I wont say who made
the first call, but it was a senior-level call, and we both thought
we should take a fresh run, Klein said. We werent sure on either
side if it would lead to a resolution, but both of us thought
resolution was the best thing. I know that sounds wishy-washy, but
sometimes thats how deals get done.
Both sides were
under tremendous pressure to settle, and they announced an
agreement midday on Sept. 1. Sabre had faced the disruption of not
having the worlds largest airline in EAS, and American got hit with
exorbitant GDS fees and had rival airlines tossing around huge
signing bonuses and packages as they wooed Americans largest
corporate clients.
Most industry
observers said American and Sabre compromised and got what they
needed, although both parties fell short of getting everything on
their wish lists.
AA, like every
airline, and consistent with what airlines have done traditionally,
wanted the ability to come out with some promotions outside the
GDS, and weve granted them some flexibility to do so, Klein said.
That said, EAS has tighter definitions of full content than any in
the history of the industry, and we think thats good value for
travel agents and corporations.
Given the rancor of
the public dispute with Sabre, American declined to comment for
this article.
Unfortunately, the
emotions of negotiations drove a much more public debate than
either of us would have liked, Klein said. In the end, were very
much aligned on principles about privacy. Ill use this forum to say
were aligned that data security and data privacy are both high
priorities and in our best interest.
Rational compromise
Regarding Sabre and
American, Henry Harteveldt, Forrester Researchs principal travel
analyst, said, I dont think either party blinked. A rational
compromise was reached that was beneficial to the discussions. As a
result of that compromise, Sabre got about 98% of the content it
sought, American secured the right to continue to attract consumers
to direct channels and both sides got economics they could live
with, Harteveldt said.
The economic terms
still arent low enough for airlines to get to that sweet spot of $6
per booking, but the savings are substantial enough to dampen the
carriers prior interest in developing direct-connects with non-GDS
distributors, Harteveldt added.
However, Harteveldt
said he expected that the airlines would continue to work with
new-entrant distributors like G2 SwitchWorks, ITA Software and
Farelogix and that the carriers would maintain whatever kind of
leverage they have because it is in their economic
interest.
American and Sabre
were the ones that brought things to the state of a nuclear
distribution war. But it is my understanding that cooler, calmer
heads prevailed, he said.
To
contact reporter Dennis Schaal, send e-mail to [email protected].
Travel Weekly
Editor in Chief Arnie Weissmann contributed to this
report.