Under a new arrangement that IAG has negotiated with Amadeus and Sabre, selected companies aren't subject to the $10 per one-way GDS surcharge that the IAG airlines British Airways and Iberia implemented on Nov. 1.



But while the so-called private channel, as the arrangement is called, could present an acceptable alternative for travel agencies that are troubled by the rise of GDS surcharges among the largest European airline groups, the creation of bifurcated channels within the GDSs also has the potential to create an environment of haves and have-nots within the agency community.

"I do think that is something that is to be watched through this process," Wade Jones, president of Travel Network for Sabre, said of a bifurcated system.

So far, Amadeus and Sabre have negotiated agreements with IAG that set the framework for private-channel content. Travelport has yet to complete such a deal.

Amadeus, which declined an interview request for this report, was the first to reach a deal.

IAG also declined an interview request, but it confirmed via email that it had agreed on terms with the two GDSs.

In an interview about the private-channel arrangements, Jones provided a broad sketch of how they work. To start with, agencies that enter into their own private channel agreement with IAG are not subject to the $10 per one-way GDS surcharge on British Airways and Iberia bookings. Beginning Dec. 1 on Sabre, those agencies will also be offered differentiated content by British Airways and Iberia that won't be available in the general GDS channel.

Those are the carrots.

On the other hand, Sabre will charge IAG a smaller segment fee on private-channel bookings than it charges carriers, including IAG, on bookings through the standard GDS channel. While Sabre doesn't reveal segment fees, they're typically about $4.50 per segment, according to industry analyst Bob Mann. IAG says that its $10 per one-way surcharge covers its cost for doing business through the GDSs. 

To make up for the smaller private-channel segment charges, Sabre will not turn over a portion of booking fees to agencies in the form of incentives. For agencies that use the private channel, the loss of those incentive fees is the stick.

Jones described the private-channel arrangements as the first time there has been a break in the standard full-content agreement business model between airlines and agencies within the GDSs. It's also the first time there has been a bifurcation within agencies on the GDSs, he added.

"We see airlines in the European market experimenting with new models," Jones said. "That experimenting gets a lot of attention, but it's important to remember that the vast majority of airlines in the world are operating in a traditional manner with full-content agreements."

Analyst Henry Harteveldt said the development of the private channel arrangements is a reflection of creative thinking on the part of the disparate parties involved.

"It really addresses some of the core complaints that airlines have had through the GDS channel," he said.

The airlines especially dislike the segment fees they pay for GDS bookings, he said. Those are largely what drove Lufthansa two years ago, then IAG, and next spring Air France-KLM to implement the GDS surcharge.

But other parties gain from the private-channel arrangement as well. For the GDSs, the benefit comes in getting to keep full content from an important player like IAG, which in turn helps them keep agency subscribers.

Meanwhile, agencies in the private channel can make up for losses in segment rebate fees by charging for the better service they can provide as a result of their access to differentiated content offerings.

At least in its early phases, IAG is focusing its private-channel agreements on large TMCs, among them Carlson Wagonlit, Hogg Robinson Group (HRG), BCD Travel and Amex GBT.

Mike Qualantone, GBT's executive vice president of global supplier relationships, said that British Airways approached GBT to find "a path that doesn't have to be one-size-fits-all, a path that doesn't need to have a surcharge for everyone," like Lufthansa's non-direct booking surcharge.

Three things were important to GBT in forging its agreement with British Airways, according to Qualantone: ensuring the content was available via the GDS, an efficient search tool; ensuring GBT has access to full content; and not having a surcharge on bookings.

"We've said publicly that this will not impact our customers in any way, so we were able to get a solution that doesn't affect us in a manner that we have to charge our customers," he said. "That was very important."

Qualantone said he does not expect private-channel agreements to become the norm within the industry.

Indeed, to date, Lufthansa hasn't used them, and it remains to be seen if Air France-KLM will adopt such a model. Meanwhile, no U.S. airline has talked publicly about even implementing a GDS distribution charge.

Still, IAG's private-channel model has caught the attention of ASTA, according to Mark Meader, the Society's vice president of industry affairs and education. In an email to Travel Weekly, he said that ASTA has questions about whether agencies of all sizes can opt into a private channel agreement, and it's also not clear yet if pricing could vary by channel.

"ASTA remains concerned this change presents complications to our member companies' business operations," Meader said. "Making it difficult to comparison shop coupled with, to date, little to no compensation from carriers when the agent upsells a customer or sells and markets various ancillary products now available by carriers, make for difficult agency business choices. Ultimately, disservice to the end traveler is of concern."

Travel tech analysts, meanwhile, differ on the question of whether the private-channel arrangement is truly groundbreaking.

Phocuswright technology analyst Bob Offutt said he does not think the private channel is much different than the longstanding airline practice of making a set of negotiated fares available only to specific travel agencies through their pseudo city codes.

Still, he speculated that IAG could view the private channel as a step in the direction of an ultimate goal of using IATA New Distribution Capability (NDC)-supported direct connects to bypass the GDS channel entirely.

"I think this is the first step in a disintermediation play," said Offutt, who added that it's not clear if IAG's competitors will adopt a similar strategy.

"I think the airline community is very fragmented on what they want to do on NDC and full content and fees," he said.

Harteveldt, while generally supportive of the private channel concept, expressed concern that IAG and the GDSs could create a separation between "haves and have-nots" within the agency community.

"Is the unintended impact of this that it leads to a discriminated environment?" he asked rhetorically. "If the long-term impact is that this becomes a private club for IAG-favored agencies, that creates an issue."

Qualantone said that Amex GBT does not want to see bifurcation between stronger and weaker agencies in the GDS channel.

"When it comes to distribution, we think that broadly having content available is good for the industry," he said. "This is not an area where we're looking to get a competitive advantage per se. However, if we have to do certain things to protect our customers, to protect our booking environment, to protect our costs, we're going to do that."

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