WASHINGTON — In his opening address at the annual ARC
conference here earlier this month, ARC CEO Mike Premo made a bold prediction:
Larger and more forward-thinking travel agencies will turn
increasingly from GDSs to direct bookings in coming years to offer the same
selection of ancillary products that airlines are making available in direct
channels, most notably on their own websites.
In fact, Premo said he could foresee a day when the
traditional agency distribution model is bifurcated, with about half the
agencies making many sales through major carriers’ websites while the other
half continue to sell largely through the GDSs.
“I think what we are going to see are larger, more
sophisticated, technologically savvy agency businesses telling the carrier, ‘We
want the content.’ And the carrier is going to say, ‘Use our channel,’” Premo
told Travel Weekly during an interview shortly after that opening address.
His remarks came as the sale of ancillary products, from
checked baggage to seat upgrades to onboard entertainment to fare bundles, have
become a major feature of commercial aviation’s business models. In 2015, the
top 10 airlines as ranked by ancillary revenue generated $26 billion in such
sales, up from $8.4 billion just seven years earlier, according to a study by
the airline consulting firm IdeaWorks.
But travel agents and OTAs aren’t handling the vast majority
of those sales. Premo said that ARC handles just three ancillary sales for
every 1,000 ticket bookings it settles on behalf of airlines and agents, and
97% of those are for seat selections.
Premo predicted that agents, whose clients are often among
the airlines’ best customers, will feel increasing pressure over time to sell a
full slate of ancillary products so they are not at a disadvantage with
But while agents and the GDS companies don’t dismiss the
significance of having ancillary products available in their channels, those
interviewed in the week after the ARC conference tended to disagree with Premo
on how the matter will be resolved.
“Anything you do that makes the booking process longer,
harder or more expensive is not going to be adopted with open arms,” said Chris
Dane, president of the Hickory Global Partners consortium of travel
Direct-connect bookings, he said, will become more common
over time, but not quickly.
Mike Estill, COO of the Western Association of Travel
Agencies, said that the members of that leisure co-op have little incentive to
sell ancillaries outside their usual GDS channel. Carriers don’t pay commission
on such products, so searching for and selling airfares and ancillary air
products through multiple channels would mean more work with no reward.
“You’ve got to come up with some value proposition to help
the agents,” Estill said.
Roger Hale, CEO of Birmingham, Ala.-based Adtrav Travel
Management (No. 42 on Travel Weekly’s 2015 Power List with $261 million in
sales), agreed that airlines will need to share ancillary revenue if they
expect to get much help from travel agents.
To date, Hale said, Adtrav has rarely faced customers
demanding that the agency do more to offer airline ancillary products. On the
flip side, setting up a series of direct connects would be both time-consuming
and expensive for the mainly business travel-centric agency.
“That’s a lot of expense that I don’t need to absorb if I
can just get the GDS and the airlines to get together to improve the foundation
that we have built our business on,” Hale said.
The disconnect between the sentiments of Premo and those of
people such as Hale, Estill and Dane likely comes as little surprise to many
industry observers. When Lufthansa initiated an $18 charge on GDS bookings last
year, the travel agency community almost uniformly rejected the prospect of
booking tickets for the German carrier through a direct channel, even though
doing so would avoid the fee.
Meanwhile, a London School of Economics study that was
released last week showed that a battle line continues to exist between
airlines and travel agents over the future of travel industry sales channels.
Agents, the study found, believe that GDSs will have the largest growth in
importance over the next 10 years. Out of the seven channels shown as options
in the study, direct sales ranked fifth.
In contrast, airlines said that direct channels would have
the largest growth in importance in the next decade while GDSs came in fourth.
Amadeus, a GDS, sponsored the study.
Not surprisingly, Amadeus and competitors Sabre and
Travelport reject the notion that travel agencies will need to make significant
moves toward direct-connect bookings in order to sell full slates of air
offerings. In fact, they said that airlines are making large leaps in the
number of ancillary products that they are merchandising through the GDSs.
In an email to Travel Weekly, Travelport spokesman Bill
Florence wrote that the airlines that signed up for its specialized Rich
Content and Branding Platform, on which ancillary products are displayed,
represent 60% of the GDS’s air content volume.
Meanwhile, Sabre director of product marketing Kathy Morgan
said that more than 80 airlines are selling ancillary and branded-fare content
through its Sabre Red interface.
“This is not about an availability of content in the agency
community,” Morgan said. “This is an adoption issue in the agency community.”
Like agents themselves, she said the best way for carriers
to up their ancillary sales through travel agencies is to offer an incentive.
“They expect to be compensated for offering this type of
product,” Morgan said of agents.