Perhaps if you want to understand some of the practicalities of the airlines planned change over to direct connect you could look at the current hotel booking model and how it does (or does not) work. To me the hotel model is where the airline industry is heading. Let me explain.
Money and strategy matters aside the consolidated ‘one stop shop’ offering provided by the Global Distribution Systems (GDSs) is perfect for customers and intermediaries alike. You do not have to go to numerous different ‘shops’ to buy your airline product. Shops that have different languages, booking methods, rules and reporting. It is all there for you in one common language package with little diversity or complication.
Now hotels are totally different and far more difficult to package. Each location can be independent, owned by a chain, part of a consortium and sometimes a mixture. Each speak a slightly different version of the same language and they very rarely sell their inventory through a GDS because they are too expensive. Instead they do their own thing via many different outlets at many different tariffs. Frankly it is all a bit of a mess if you want a properly managed travel programme, particularly as they use differing technology.
So what is happening with hotels now and how does it compare with the current GDS system? In the main TMCs must have some kind of ‘connection’ (either direct or via third party) with key hotel establishments and chains. Some TMCs have created their own databases to hold inventory and information that then gets linked up to the GDS air booking screen. It ends up all looking like one source but contains numerous connection types that range from online links to manual entry.
The TMC has to create room allocation acquisition and management systems that doubtless include room close-out periods and price variations by customer and intermediary. These need constant adjustment and repopulation to remain current.
Ultimately they end up with their own mini GDS for hotels with numerous information flows coming from a similar number of independent sources.
OK, back to airlines. They are necessarily a selfish bunch. They don’t want to pay for the current excellent consolidated air booking system any more. They just want to sell their seats in a way that gives them more power/control and less cost. They try and dress it up differently by saying it is what the customer wants which of course is laughable if it wasn’t so serious. I wish they would just come out and say the truth which is that they intend to eradicate this cost or pass it elsewhere.
Where might this end up? Some might call it industry evolution but I would call it going backwards. Instead of efficiency and commonality in air travel it will revert back to the hotel model of individual airlines operating at different speeds with different communication methods. They will deal through TMCs who also vary in skill and flexibility. There will be dual pricing and availability depending on which model you book through and which source you use. That is progress?
I am sure the GDS have explored all avenues to find a solution to being considered bad value for money by their airline customers. I have always thought that if they presented and justified their cost more intelligently, reduced prices strategically whilst building in new markets (such as hotels) they might do a lot better for all our sakes Either that or negotiate their wares with corporations/TMCs in a new and different way? After all people will pay if they see a value and surely it is better than the chaotic alternative illustrated by the hotel market?
The smart TMCs have seen this direct connect war coming. In fact you would have had to be blind not to. They have been building what they call ‘super platforms’ and the like in anticipation of it. I predict it is only a matter of time before the mega TMCs connect their ‘pipe’ to the main suppliers in the air and hotel world. In fact it is happening now. What happens then? Are the TMCs going to distribute inventory at no charge? I doubt it. They will most likely become the new GDS of the future but with broader product reach and more control on who the customer uses and at what price.
Perhaps the GDS and airlines need to get there heads together in more harmony or they may end up creating something that compares with Frankenstein’s monster. Built with various industry parts but likely to murder them!
Anonymous Comment:
Brilliant commentary. Mike has REALLY hit upon something important here.
Love the line about airlines wanting more control and less cost, "They try and dress it up differently by saying it is what the customer wants which of course is laughable if it wasn’t so serious. I wish they would just come out and say the truth which is that they intend to eradicate this cost or pass it elsewhere."
Again, brilliant analysis
Anonymous Comment
As ever Mike hits the nail on the head whilst other so called industry experts have a tendancy to hit their thumb with an oversize hammer. What is being described as more than likely to happen within the industry is in fact already work in progress; and perhaps further down the line than many (on all sides of the equation) would care to admit.
Tampilkan postingan dengan label GDS. Tampilkan semua postingan
Tampilkan postingan dengan label GDS. Tampilkan semua postingan
Sabtu, 03 September 2011
Senin, 18 Juli 2011
Who is the customer around here anyway?
OK, OK, I know. I said I was going to quit corporate travel and disappear into the mists of travel legend…or something like that. But it is so very hard! I am rather like Frank Sinatra was, or Michel Jordan is, where something happens which triggers off a new reason why the lure of starting again becomes too much.
The trigger for me was American Airlines president Tom Horton and a guest article he wrote for ‘The Beat’ on ‘Customizing the Travel Experience’. Right, it was the expected sanitized statement that had no doubt done the rounds of the AA public relations department before release but it made one thing screamingly clear to me. That is, who American Airlines think their customers are.
They are clearly playing their ‘customer’ card. In fact in a smallish statement of circa 800 words they had used the term (and derivatives) at least 15 times before I gave up counting. Reading the words of the article it is also clear that by customer they refer to travellers and the choices AA are offering these individuals. In contrast he used the word ‘corporate’ once (that I saw) and that was referring to ‘travel agents’ customers.
Does this matter? Is it a simple slip? Or does it show a complete lack of recognition, empathy, and understanding with the corporate travel world? After all, do corporations really want their travellers to have all these extra choices at an extra price? Do they want the lack of control that this brings to their travel policy? Do they want the extra expense taken out of their control for potentially both bookings and ancillaries?
Does it matter that the president of AA still thinks of such a key intermediary as a ‘travel agent’ when the corporate service provided is now Travel Management hence the correct and more accurate term TMCs. This may sound like splitting hairs but is it. Or is it more that? Is it AA demonstrating a worldwide apathy amongst airlines to accept that the corporate world is changing around them?
So what is this ‘customizing’ all about? To me it is about the airlines tweaking the evolving business market to their own advantage whilst ignoring the needs/demands of a major sector of their market. Is that such a surprising thing? Probably not but I cannot bear all this sugar coating around what is actually some very unpleasant tablets. Here are some examples:
We don’t want to pay the GDS any more even though it is the medium of choice for those ‘travel agents’ corporate customers. We do not seem to be able to renegotiate a deal with these GDS so let’s provide a direct product. OK it is not what corporates want but hey, think of the savings, the control, the MI and the ancillary selling opportunity.
We have been badly stung by the inroads ‘no frills’ airlines have made in our markets. Fares have gone down and their shares have increased, but hang on, there is an opportunity here. These airlines have reached critical mass to the point where they have to add more charges to maintain growth and survive. They are not the threat they were and we can now use their weapons against them. We too can offer basic core prices and then bolt on all those other ancillaries to mask the true cost.
It seems to me that corporations themselves are helping (or at least not hindering) such strategies. Corporations seem to like unbundling as it works in other spheres of procurement. But does it work in travel? Ah, that is far more complex and has greater ramifications in the supply chain. Cost has a habit of moving, not disappearing.
I suggest corporates need to have a much greater influence in the travel industry. Their associations need visibly shift away from their suppliers who they use to subsidise their costs through sponsorship and advertising. These bodies need to push their way to the table which is totally dominated by the major suppliers. They need to be heard and recognised.
Suppliers need to understand that the world has moved on and that the ‘customer’ in the corporate world is the company itself and not its employees. Those intermediaries such as TMCs are not simply booking travel agents but an outsourced arm of their corporate customer. Only then will we have a successful transition to a new model.
The trigger for me was American Airlines president Tom Horton and a guest article he wrote for ‘The Beat’ on ‘Customizing the Travel Experience’. Right, it was the expected sanitized statement that had no doubt done the rounds of the AA public relations department before release but it made one thing screamingly clear to me. That is, who American Airlines think their customers are.
They are clearly playing their ‘customer’ card. In fact in a smallish statement of circa 800 words they had used the term (and derivatives) at least 15 times before I gave up counting. Reading the words of the article it is also clear that by customer they refer to travellers and the choices AA are offering these individuals. In contrast he used the word ‘corporate’ once (that I saw) and that was referring to ‘travel agents’ customers.
Does this matter? Is it a simple slip? Or does it show a complete lack of recognition, empathy, and understanding with the corporate travel world? After all, do corporations really want their travellers to have all these extra choices at an extra price? Do they want the lack of control that this brings to their travel policy? Do they want the extra expense taken out of their control for potentially both bookings and ancillaries?
Does it matter that the president of AA still thinks of such a key intermediary as a ‘travel agent’ when the corporate service provided is now Travel Management hence the correct and more accurate term TMCs. This may sound like splitting hairs but is it. Or is it more that? Is it AA demonstrating a worldwide apathy amongst airlines to accept that the corporate world is changing around them?
So what is this ‘customizing’ all about? To me it is about the airlines tweaking the evolving business market to their own advantage whilst ignoring the needs/demands of a major sector of their market. Is that such a surprising thing? Probably not but I cannot bear all this sugar coating around what is actually some very unpleasant tablets. Here are some examples:
We don’t want to pay the GDS any more even though it is the medium of choice for those ‘travel agents’ corporate customers. We do not seem to be able to renegotiate a deal with these GDS so let’s provide a direct product. OK it is not what corporates want but hey, think of the savings, the control, the MI and the ancillary selling opportunity.
We have been badly stung by the inroads ‘no frills’ airlines have made in our markets. Fares have gone down and their shares have increased, but hang on, there is an opportunity here. These airlines have reached critical mass to the point where they have to add more charges to maintain growth and survive. They are not the threat they were and we can now use their weapons against them. We too can offer basic core prices and then bolt on all those other ancillaries to mask the true cost.
It seems to me that corporations themselves are helping (or at least not hindering) such strategies. Corporations seem to like unbundling as it works in other spheres of procurement. But does it work in travel? Ah, that is far more complex and has greater ramifications in the supply chain. Cost has a habit of moving, not disappearing.
I suggest corporates need to have a much greater influence in the travel industry. Their associations need visibly shift away from their suppliers who they use to subsidise their costs through sponsorship and advertising. These bodies need to push their way to the table which is totally dominated by the major suppliers. They need to be heard and recognised.
Suppliers need to understand that the world has moved on and that the ‘customer’ in the corporate world is the company itself and not its employees. Those intermediaries such as TMCs are not simply booking travel agents but an outsourced arm of their corporate customer. Only then will we have a successful transition to a new model.
Jumat, 18 Februari 2011
Anybody Understand the Corporate Hotel Market?
I spoke to somebody last week about the problems they were having whilst trying to organise a managed hotel programme for their company. He is new to this side of the business and could not comprehend the basic issues he was facing. All he was certain of was that nobody really knew what the company spent and whether they were getting good value. Ok they had a corporate card that most travellers used but nobody seemed to be able to tell him any useful spend detail.
He was also concerned that there seemed no simple, coordinated and efficient way of making, changing or cancelling bookings. There were so many different ways and each with varying processes. Some you could book online and some you couldn’t. Some on the GDS but most not. The majority necessitated a call to an agency which cost too much for such a transaction. He correctly identified that these variations contributed greatly to the lack of proper MI. What he wanted to know from me was what the problem is? Why is it so hard to book hotels in a way that gives him as a buyer what he absolutely needs to do his job? I gave him the basics as I saw them and thought you might like to read them too.
The hotel market is hugely fragmented. There are thousands upon thousands of hotel and most of them act individually. Yes there are major hotel chains and yes there are consortiums but even here a large amount are privately owned. Consolidating a programme becomes very difficult when there are so many different players with different systems and different communications methods and language. This differs hugely from airlines which are not only far smaller in numbers but use the same GDS booking platforms and share similar systems and codes however I did warn him that this may be changing soon!
So how should one make a reservation? It would be good to combine it with the air or rail booking but unfortunately the range of hotels in the airline booking systems (GDS) is tiny compared with the market. Add to that the difficulty of being able to use your own negotiated fares or room allocations and it becomes not a very feasible option.
You could connect to the numerous hotel booking web sites but again can you be sure you will be booking your deal and capturing sufficient detail. You might get one-off savings using their buying power but creating a nightmare in payment, reporting and control terms.
Out of frustration and a desire to save fees charged by agencies many travellers book direct with the hotel but is that what you really want them to spend time doing? And then again you could miss out on consolidated MI for policy measurement, security and negotiating purposes. I can understand why travellers or their administrators want to make hotel bookings personally but in my view you can forget about control if you let them do it. It is also very vexing when they find out the hotel GM is spot selling rates cheaper than your centrally negotiated deal. This is another thing that regularly happens in this industry.
I advised him that I can only see one logical way of consolidating all ones spend items together and that is through a Travel Management Company (TMC). There are not that many yet who can provide a true solution and it does not come for nothing so buyers need to be absolutely committed in order to reap full benefit
You basically need to find a TMC that can deliver a system that seamlessly links the GDS booking system to their own separate hotel booking and management platform. This platform needs to directly connect with the main hotel chains and have the ability to store and manage your negotiated rates and room allocations with them and the others. All this, and other services need to be on one customer friendly booking screen. It would also be valuable to have this screen branded to your company not the TMC.
Taking pre booked room allocations at key locations is essential in order to allow the system to confirm rooms to travellers straight away and avoid unnecessary costly and time consuming middle-man phone calls. These allocations when combined with those negotiated by the TMC themselves often mean that hotels that seem full can still be bookable to you. It also results in your travellers have their own company one stop shop that pulls together their whole journey along with bolt on services such as policy compliance authorisation system and communication opportunities.
To me his choice is relatively straightforward. He either does what 90% plus of corporations do which is keep their hotel programme separate from air or go the whole hog and combine the two in an online total travel solution which is only now beginning to become a viable solution. I wished him luck and went back to my hotel room…which I booked myself!
He was also concerned that there seemed no simple, coordinated and efficient way of making, changing or cancelling bookings. There were so many different ways and each with varying processes. Some you could book online and some you couldn’t. Some on the GDS but most not. The majority necessitated a call to an agency which cost too much for such a transaction. He correctly identified that these variations contributed greatly to the lack of proper MI. What he wanted to know from me was what the problem is? Why is it so hard to book hotels in a way that gives him as a buyer what he absolutely needs to do his job? I gave him the basics as I saw them and thought you might like to read them too.
The hotel market is hugely fragmented. There are thousands upon thousands of hotel and most of them act individually. Yes there are major hotel chains and yes there are consortiums but even here a large amount are privately owned. Consolidating a programme becomes very difficult when there are so many different players with different systems and different communications methods and language. This differs hugely from airlines which are not only far smaller in numbers but use the same GDS booking platforms and share similar systems and codes however I did warn him that this may be changing soon!
So how should one make a reservation? It would be good to combine it with the air or rail booking but unfortunately the range of hotels in the airline booking systems (GDS) is tiny compared with the market. Add to that the difficulty of being able to use your own negotiated fares or room allocations and it becomes not a very feasible option.
You could connect to the numerous hotel booking web sites but again can you be sure you will be booking your deal and capturing sufficient detail. You might get one-off savings using their buying power but creating a nightmare in payment, reporting and control terms.
Out of frustration and a desire to save fees charged by agencies many travellers book direct with the hotel but is that what you really want them to spend time doing? And then again you could miss out on consolidated MI for policy measurement, security and negotiating purposes. I can understand why travellers or their administrators want to make hotel bookings personally but in my view you can forget about control if you let them do it. It is also very vexing when they find out the hotel GM is spot selling rates cheaper than your centrally negotiated deal. This is another thing that regularly happens in this industry.
I advised him that I can only see one logical way of consolidating all ones spend items together and that is through a Travel Management Company (TMC). There are not that many yet who can provide a true solution and it does not come for nothing so buyers need to be absolutely committed in order to reap full benefit
You basically need to find a TMC that can deliver a system that seamlessly links the GDS booking system to their own separate hotel booking and management platform. This platform needs to directly connect with the main hotel chains and have the ability to store and manage your negotiated rates and room allocations with them and the others. All this, and other services need to be on one customer friendly booking screen. It would also be valuable to have this screen branded to your company not the TMC.
Taking pre booked room allocations at key locations is essential in order to allow the system to confirm rooms to travellers straight away and avoid unnecessary costly and time consuming middle-man phone calls. These allocations when combined with those negotiated by the TMC themselves often mean that hotels that seem full can still be bookable to you. It also results in your travellers have their own company one stop shop that pulls together their whole journey along with bolt on services such as policy compliance authorisation system and communication opportunities.
To me his choice is relatively straightforward. He either does what 90% plus of corporations do which is keep their hotel programme separate from air or go the whole hog and combine the two in an online total travel solution which is only now beginning to become a viable solution. I wished him luck and went back to my hotel room…which I booked myself!
Sabtu, 29 Januari 2011
What happens when TMCs become GDS?
It must happen to a greater or lesser extent if American Airlines create a model that succeeds and then gets rolled out across the industry. The only way that TMCs will be able to give their customers what they want will be to direct connect with every key supplier and, as such, become mini specialist GDS in their own right. It will cost them a lot in time, resource and money despite what some AA loyalists say and you can bet your bottom dollar they will want it back with interest.
So how will such an event impact the balance of power in the travel supply chain? I think it will affect it significantly. Obviously the GDS will not simply sit back and let it happen and I am sure there is intense discussion and negotiation going on as I write.
However let us just pause for a minute and reflect on the following statements:
1) Despite airlines best efforts the TMC world still has considerable value to their corporate clients and will be hard to dislodge unless they do all the things TMCs do.
2) TMCs have been preparing their own strategies by building their own booking platforms that can be directed to be very specific on what choices they offer.
3) If airlines direct connect to these platforms they may be stepping out of the frying pan and into the fire as far as power balance is concerned.
The GDS are too darn expensive and working with a defunct, unjustifiable pricing model. I think many of us believe that and I can see why airlines are getting sick of paying sector fees even for cancellations and suchlike. The only thing is that GDS have a value to them and this value may be provided by TMCs in future. If you receive a value you can expect it to cost you as the TMCs will not give such distribution capability away for nothing. On top of that they will have their own platforms overlaying it which will allow dynamic pricing and availability control.
My message to airlines is to look at the broader implications of their actions. Remember how some thought GDS were great to own once. And how ownership, encouragement and support of OTAs were expected to reduce not increase cost. Not a great track record so far so look at your next step very carefully!
So how will such an event impact the balance of power in the travel supply chain? I think it will affect it significantly. Obviously the GDS will not simply sit back and let it happen and I am sure there is intense discussion and negotiation going on as I write.
However let us just pause for a minute and reflect on the following statements:
1) Despite airlines best efforts the TMC world still has considerable value to their corporate clients and will be hard to dislodge unless they do all the things TMCs do.
2) TMCs have been preparing their own strategies by building their own booking platforms that can be directed to be very specific on what choices they offer.
3) If airlines direct connect to these platforms they may be stepping out of the frying pan and into the fire as far as power balance is concerned.
The GDS are too darn expensive and working with a defunct, unjustifiable pricing model. I think many of us believe that and I can see why airlines are getting sick of paying sector fees even for cancellations and suchlike. The only thing is that GDS have a value to them and this value may be provided by TMCs in future. If you receive a value you can expect it to cost you as the TMCs will not give such distribution capability away for nothing. On top of that they will have their own platforms overlaying it which will allow dynamic pricing and availability control.
My message to airlines is to look at the broader implications of their actions. Remember how some thought GDS were great to own once. And how ownership, encouragement and support of OTAs were expected to reduce not increase cost. Not a great track record so far so look at your next step very carefully!
Kamis, 27 Januari 2011
Better to never have something than see it taken away?
I wrote a few comments in my blog not that long ago about corporate entertaining. I tried to both entertain and inform but there was one particular argument I tried to put across. It was ‘never give someone something and then take it away’ i.e. once you invite someone somewhere regularly and then stop the reaction is worse than the initial benefit. This is exactly what is going on in travel at the moment but in a much broader sense.
Have you wondered why ‘low cost’ airlines like Ryanair manage to sell tickets much cheaper than say British Airways? Simple you might say, Ryanair is much more restrictive in timetable, booking conditions, departure airports etc. Plus they do not have the enormous cost infrastructure the big global giants have. Of course you would be right but it is far more than that, which brings me back to my entertaining analogy.
Nobody gets anything from a low cost carrier unless they pay for it. They never have and never will. What you get is a low cost and a menu of add on prices for everything from bags to card payment to seat reservations. That is the key reason for the low lead price and they absolutely depend on income from ancillary costs.
The big airlines are the complete opposite to this. Their prices are historically all inclusive but now they have to change rapidly to stem the flow of lost revenue to their new ‘low cost’ competition. So what do they do? They start looking at every distribution cost they incur and try to eradicate them. Things like free card usage, credit periods, use of agents and access to special fares. They will in fact ultimately end up pretty close to becoming low cost carriers themselves which is, to me, as worrying as it is welcome, in fact more so.
So the national airlines are starting to take away things they used to give away. Well actually they never gave them away. Instead they built the costs into those high prices they cannot compete with these days. As I implied in my heading, taking away something people are used to breeds discontent and intransigents. Pity the poor big airline, they are getting attacked for taking things away that their low cost competition never gave in the first place and get kudos for not doing so!
The travel world can be a cruel place sometimes. You only have to have a look at what is going on between all the supply chain intermediaries as the pain of this particular change is going on. Have a quick look at the rest of this blog if you want to see what I mean.
Have you wondered why ‘low cost’ airlines like Ryanair manage to sell tickets much cheaper than say British Airways? Simple you might say, Ryanair is much more restrictive in timetable, booking conditions, departure airports etc. Plus they do not have the enormous cost infrastructure the big global giants have. Of course you would be right but it is far more than that, which brings me back to my entertaining analogy.
Nobody gets anything from a low cost carrier unless they pay for it. They never have and never will. What you get is a low cost and a menu of add on prices for everything from bags to card payment to seat reservations. That is the key reason for the low lead price and they absolutely depend on income from ancillary costs.
The big airlines are the complete opposite to this. Their prices are historically all inclusive but now they have to change rapidly to stem the flow of lost revenue to their new ‘low cost’ competition. So what do they do? They start looking at every distribution cost they incur and try to eradicate them. Things like free card usage, credit periods, use of agents and access to special fares. They will in fact ultimately end up pretty close to becoming low cost carriers themselves which is, to me, as worrying as it is welcome, in fact more so.
So the national airlines are starting to take away things they used to give away. Well actually they never gave them away. Instead they built the costs into those high prices they cannot compete with these days. As I implied in my heading, taking away something people are used to breeds discontent and intransigents. Pity the poor big airline, they are getting attacked for taking things away that their low cost competition never gave in the first place and get kudos for not doing so!
The travel world can be a cruel place sometimes. You only have to have a look at what is going on between all the supply chain intermediaries as the pain of this particular change is going on. Have a quick look at the rest of this blog if you want to see what I mean.
Minggu, 23 Januari 2011
The Evolution of Air Distribution – The Story so Far
Now you are going to need to bear with me on this. Blogs are supposed to be brief and incisive but this one won’t. I just think that perhaps too many people assume that everyone knows about air distribution history and, by extension, fully understands the dynamics in play. I am not sure this is the case (why should they) so here is my understanding of how we got to where we are now.
It would take a book not a blog to go into the full detail and rationale so I will content myself and your patience by picking out the key players and change milestones in what will be a summary of what has happened and who are the movers and shakers. I think the customer needs to know the basics especially as they are ultimately paying unless they can do without at least one of the current cogs in the distribution mechanism.
Initially there was not much of an issue. The airlines worked in concert with each other and their supply chain and basically paid for everything required to distribute their product. They paid merchant fees to card companies, commission to agents (no such things as TMCs then) and fees to the GDS. Having picked up all these tabs they then sold their tickets with these costs built in to their fares. All of them did it so there was no problem Simple and reasonably effective in a well regulated, stable and growing travel market where little true competition existed.
As an example (and it varies hugely by area) airlines paid agents 10% commision and between 3 to 30% override, 1.5-3% card fees and 4% to 6% GDS charges.All of that bundled into the end ticket price.
Then things changed. Airlines expanded their route structures and became far more competitive with each other. The first sign of change was when ticket prices started to diversifyfrom airline to airline. In order to attract increasingly fickle travellers a fare differentiation was required. Carriers moved away from simply discounting their standardised global gross fare pricing and introduced corporate nets, yield managed specials and additional one-off deals.In one class alone you could end up with over a dozen fares each with their own restrictions and availability allocations.
The result was twofold. Firstly the ability to interchange tickets between airlines disappeared and secondly the need to mitigate pricing concessions made them look harder at their costs. Their distribution costs to be precise.
They found themselves in a real dilemma. The need to compete and discount was obviously threatening their profits (what there were) and simultaneously two other things happened. Low cost carriers with a totally different price model arrived who had to worry far less about convenience, timetables, airport locations and service which in turn encouraged corporations to view travel in a far more commoditised way. So, on one side they had to compete with carriers with a considerably lower cost base/tariff and on the other, a customer with a much harder stance towards price.
What became clear was that they could not continue paying the full cost of distributing their products whilst competing with new entrant pricing combined with more savvy buyers.Something had to give and what ‘gave’ was the air distribution model. After all, if you cannot beat the no frills airlines and professional buyers then the only option was to join them and challenge elsewhere in the travel merry-go- round.
I think their objectives were a mixture between the sound and the inevitable. The markets had clearly changed and if the end customer really wanted transparency and a lower cost model then give it to them. Whether they really wanted or needed it in the first place is a discussion for another day. Many of the arguments today are revolving around the desire for commoditisation coming head to head with the necessity for flexibility and uniformity of information and access.
There is another key influencing factor which is technology. Part of the reason why the main airlines feel both desirous and capable of change is that, for the first time there are other potential technology solutions out there. That is to say they are there if, and only if, the end users really do expect them to act individually rather than collectively with other provider’s inventory. Hence the current pressures on the GDS who provide all encompassing booking services and charge a high price for doing so. There is no way any individual airline can provide the diversity and product span that a GDS does.
The airlines (individually and at varying speeds) have called time on paying full distribution costs for all services to all customers. Unfortunately I do not see their goal as eradicating such costs. Their objective is to find what they see is the right home for these costs and then try to ensure the savings are not taken away by having to reduce prices to compensate the travellers, who will undoubtedly have to pay. Unless as I mentioned earlier a cog taken out of the distribution wheel. but which one?
So are there any expendable cogs? In some sectors of the market then probably yes. However, only if people recognise what they want and are prepared to accept the consequences and constraints of such. I think the line will be drawn between those corporations that want a controlled, managed and reported programme and others that choose a more deregulated approach where cheapest flights and few management ‘frills’ are acceptable.
If you want travel management you need knowledge and control. In order to do this you need someone to consolidate travel in all forms and package it into controllable chunks from as few sources as possible. At present this is best done through a GDS booking system, a travel management company and a mandated card programme. You take overall control of your travel, accept the price of doing so and form the right balance between value and all the other broader elements that complement your company ethos. Does anybody with a travel programme really want to run around numerous individual online airline sites and compare them when a GDS already does that in a one-stop environment?
On the other side if you want to maximise trip by trip savings there is no reason why approaching the cheapest distribution source and exploiting it until another one comes along is not the right way. To be frank the cheapest booking cost would be by going to an airline direct either independantly or through a TMC which is why carriers like American Airlines, Lufthansa etc are differentiating pricing and availability dependant on where the booking comes from. It does not by any means guarantee that overall trip price will be lower but the reservations element may be.
What I am begining to see happening is that airlines are finally differentiating between varying corporate needs and handling them individually. This part I applaud even though it has taken a long time and has a way to go. They are beginning to see the contrast between travel management and the very different service provided through Online Booking Agencies (OTAs) which, despite all the hype, focus on a different and smaller market that has a different list of demmands. It is this SME market and the OTAs that service them that are taking the brunt of current airline initiatives. The rest will follow.
Before I conclude let me set out the distribution milestones again as I see them:
1) Airlines have mainly eradicated standard agency commission payments but have failed to stop override and incentive payments. Whilst not totally successful it has enabled them to target better those they want to reward to a greater and more productive effect.
2) Agents responded by passing their new costs to the corporations by changing their contracts to management/transaction fees. End result? Most agencies protected their income and some grew it by ensuring remaining income from the airlines stayed with them and not passed on within their client deals. Airlines were forced to reduce prices to compensate customers.
3) GDS/Airline negotiations became far more aggressive. When you look at what airlines have to pay them, even for passenger cancellations and suchlike it is hardly surprising. Some airlines started charging TMCs for certain bookings to gain compensation. TMCs passed these costs on to the corporations but are still incentivised by GDSs which make airlines pretty mad as it is their fees that are funding them.
4) Various airlines changed some of the remaining IATA regulations regarding payment to shorten credit terms with TMCs and escalate penalties for perceived non compliance. A very much hidden cost that again the customer ended up collecting.I find it quite alarming how much cost comes into the chain via IATA and its interpretation of their own rules.
5) Credit/charge card usage has increased because of 4) as individual countries cut agency credit by 50% or more meaning TMC passed on the casflow deterioration to customers resulting in this migration to plastic . Ironic really as this area is very much a top target for airline cost reduction. Cards, like GDS charge wide and varying merchant fees to suppliers and these will be attacked robustly and very soon.
Where will this evolution take us? Airlines will continue fighting distribution costs. Instead of taking them all and then charging travellers through price they will try to dump them and leave the customer to pay separately. Meanwhile they will compensate by offering lower cost alternatives to those prepared to book direct. The battlefronts will be GDS fees, credit card merchant fees, cost of credit, TMC incentives and service deliverables. The customer will get what they say they want which is transparency and a unit price for everything. Currently I do not believe actual cost will go down. It will simply be realigned and will probably go up. If prices go down any further then there will be less suppliers, less choice and devolution not evolution.
It does not make sense that suppliers should pay for everything and then charge a correspondingly high price. Equally it does not make sense that the traveller gets all the bills and tries to negotiate their way out of them. I expect it is the way of the world and will provide yet newer business opportunities but regrettably the same old regurgitating costs.
It would take a book not a blog to go into the full detail and rationale so I will content myself and your patience by picking out the key players and change milestones in what will be a summary of what has happened and who are the movers and shakers. I think the customer needs to know the basics especially as they are ultimately paying unless they can do without at least one of the current cogs in the distribution mechanism.
Initially there was not much of an issue. The airlines worked in concert with each other and their supply chain and basically paid for everything required to distribute their product. They paid merchant fees to card companies, commission to agents (no such things as TMCs then) and fees to the GDS. Having picked up all these tabs they then sold their tickets with these costs built in to their fares. All of them did it so there was no problem Simple and reasonably effective in a well regulated, stable and growing travel market where little true competition existed.
As an example (and it varies hugely by area) airlines paid agents 10% commision and between 3 to 30% override, 1.5-3% card fees and 4% to 6% GDS charges.All of that bundled into the end ticket price.
Then things changed. Airlines expanded their route structures and became far more competitive with each other. The first sign of change was when ticket prices started to diversifyfrom airline to airline. In order to attract increasingly fickle travellers a fare differentiation was required. Carriers moved away from simply discounting their standardised global gross fare pricing and introduced corporate nets, yield managed specials and additional one-off deals.In one class alone you could end up with over a dozen fares each with their own restrictions and availability allocations.
The result was twofold. Firstly the ability to interchange tickets between airlines disappeared and secondly the need to mitigate pricing concessions made them look harder at their costs. Their distribution costs to be precise.
They found themselves in a real dilemma. The need to compete and discount was obviously threatening their profits (what there were) and simultaneously two other things happened. Low cost carriers with a totally different price model arrived who had to worry far less about convenience, timetables, airport locations and service which in turn encouraged corporations to view travel in a far more commoditised way. So, on one side they had to compete with carriers with a considerably lower cost base/tariff and on the other, a customer with a much harder stance towards price.
What became clear was that they could not continue paying the full cost of distributing their products whilst competing with new entrant pricing combined with more savvy buyers.Something had to give and what ‘gave’ was the air distribution model. After all, if you cannot beat the no frills airlines and professional buyers then the only option was to join them and challenge elsewhere in the travel merry-go- round.
I think their objectives were a mixture between the sound and the inevitable. The markets had clearly changed and if the end customer really wanted transparency and a lower cost model then give it to them. Whether they really wanted or needed it in the first place is a discussion for another day. Many of the arguments today are revolving around the desire for commoditisation coming head to head with the necessity for flexibility and uniformity of information and access.
There is another key influencing factor which is technology. Part of the reason why the main airlines feel both desirous and capable of change is that, for the first time there are other potential technology solutions out there. That is to say they are there if, and only if, the end users really do expect them to act individually rather than collectively with other provider’s inventory. Hence the current pressures on the GDS who provide all encompassing booking services and charge a high price for doing so. There is no way any individual airline can provide the diversity and product span that a GDS does.
The airlines (individually and at varying speeds) have called time on paying full distribution costs for all services to all customers. Unfortunately I do not see their goal as eradicating such costs. Their objective is to find what they see is the right home for these costs and then try to ensure the savings are not taken away by having to reduce prices to compensate the travellers, who will undoubtedly have to pay. Unless as I mentioned earlier a cog taken out of the distribution wheel. but which one?
So are there any expendable cogs? In some sectors of the market then probably yes. However, only if people recognise what they want and are prepared to accept the consequences and constraints of such. I think the line will be drawn between those corporations that want a controlled, managed and reported programme and others that choose a more deregulated approach where cheapest flights and few management ‘frills’ are acceptable.
If you want travel management you need knowledge and control. In order to do this you need someone to consolidate travel in all forms and package it into controllable chunks from as few sources as possible. At present this is best done through a GDS booking system, a travel management company and a mandated card programme. You take overall control of your travel, accept the price of doing so and form the right balance between value and all the other broader elements that complement your company ethos. Does anybody with a travel programme really want to run around numerous individual online airline sites and compare them when a GDS already does that in a one-stop environment?
On the other side if you want to maximise trip by trip savings there is no reason why approaching the cheapest distribution source and exploiting it until another one comes along is not the right way. To be frank the cheapest booking cost would be by going to an airline direct either independantly or through a TMC which is why carriers like American Airlines, Lufthansa etc are differentiating pricing and availability dependant on where the booking comes from. It does not by any means guarantee that overall trip price will be lower but the reservations element may be.
What I am begining to see happening is that airlines are finally differentiating between varying corporate needs and handling them individually. This part I applaud even though it has taken a long time and has a way to go. They are beginning to see the contrast between travel management and the very different service provided through Online Booking Agencies (OTAs) which, despite all the hype, focus on a different and smaller market that has a different list of demmands. It is this SME market and the OTAs that service them that are taking the brunt of current airline initiatives. The rest will follow.
Before I conclude let me set out the distribution milestones again as I see them:
1) Airlines have mainly eradicated standard agency commission payments but have failed to stop override and incentive payments. Whilst not totally successful it has enabled them to target better those they want to reward to a greater and more productive effect.
2) Agents responded by passing their new costs to the corporations by changing their contracts to management/transaction fees. End result? Most agencies protected their income and some grew it by ensuring remaining income from the airlines stayed with them and not passed on within their client deals. Airlines were forced to reduce prices to compensate customers.
3) GDS/Airline negotiations became far more aggressive. When you look at what airlines have to pay them, even for passenger cancellations and suchlike it is hardly surprising. Some airlines started charging TMCs for certain bookings to gain compensation. TMCs passed these costs on to the corporations but are still incentivised by GDSs which make airlines pretty mad as it is their fees that are funding them.
4) Various airlines changed some of the remaining IATA regulations regarding payment to shorten credit terms with TMCs and escalate penalties for perceived non compliance. A very much hidden cost that again the customer ended up collecting.I find it quite alarming how much cost comes into the chain via IATA and its interpretation of their own rules.
5) Credit/charge card usage has increased because of 4) as individual countries cut agency credit by 50% or more meaning TMC passed on the casflow deterioration to customers resulting in this migration to plastic . Ironic really as this area is very much a top target for airline cost reduction. Cards, like GDS charge wide and varying merchant fees to suppliers and these will be attacked robustly and very soon.
Where will this evolution take us? Airlines will continue fighting distribution costs. Instead of taking them all and then charging travellers through price they will try to dump them and leave the customer to pay separately. Meanwhile they will compensate by offering lower cost alternatives to those prepared to book direct. The battlefronts will be GDS fees, credit card merchant fees, cost of credit, TMC incentives and service deliverables. The customer will get what they say they want which is transparency and a unit price for everything. Currently I do not believe actual cost will go down. It will simply be realigned and will probably go up. If prices go down any further then there will be less suppliers, less choice and devolution not evolution.
It does not make sense that suppliers should pay for everything and then charge a correspondingly high price. Equally it does not make sense that the traveller gets all the bills and tries to negotiate their way out of them. I expect it is the way of the world and will provide yet newer business opportunities but regrettably the same old regurgitating costs.
Sabtu, 18 Desember 2010
A Christmas Distribution Story - Timmy TMC
I wrote this sweet little story last Christmas and it is back 'by popular demmand' while I write the next one about GDSs which will be out in a few days.
Tales of Timmy TMC and his search for value– A Christmas Pantomime and work of utter fiction!
Timmy was sad. He had just returned from Agencies Anonymous and admitted to all of them that he was a TMC. He was looking for help to cure this terrible affliction but all the other sad souls took one look at him and agreed he was clearly past his sell by date and revoked his membership.
It had all started so very well for Timmy those years ago when his two benevolent uncles, Colin Commission and Oscar Override, used to send him cheques for doing very little. However recently, having used him for their horrible data mining purposes, they walked out leaving him a penniless orphan. Then even stranger things started to happen as his few pals started disappearing, changing their names and, worst of all, reverting to cannibalism and eating each other up. The stress of it all got to little Timmy and he started wondering if there would be a future role for him in this wacky and homicidal travel supply chain. He was sure he was useful but a little bit sketchy on the detail.
But Timmy was made of stronger stuff and knew, with a little sage advice from his supply chain colleagues, he would discover his value. “I know” he thought. “I will go and see my dear old benefactor Client Hardup”. “Sorry Timmy” said Hardup whilst absently massaging his EBIT, “but I have lost all my profits. I gave them to a nice man from the Fat Cat Investment Bank and he said they had been magiced away by millions of little elves wanting to feed their sub prime mortgages. However he also said that he was prepared to travel the length and breadth of Las Vegas to get it back if Timmy could donate a ticket”. “Sorry” said Timmy “I don’t get free tickets and upgrades any more. In fact the last ones were those First class round the world tickets which went to Mrs Hardup when she coincidently won your office grand draw”.
Hardup was sorry for Timmy. He remembered the days when Timmy used to give him good service, rebate cheques and upgrades. “Go and see my two sisters Pammy Procurement and Charmaine Cheaper-Thanyu” he said. “They may think of something valuable for you to do, although don’t hold your breath as I have just cut their travel allowance again.
Now these two girls hated each other something ugly. Charmaine thought she could do and get things better than Pammy. Pammy thought Charmaine was an undisciplined tart hawking herself around the web without any thought of the infections she could catch like cancellation flu and card chargeitus. The only thing they had in common was they both thought they could do anything better than Timmy who, to them, was an unnecessary downward pull on their sagging assets. They had enough budget stretch marks between the already.
Poor old Timmy. Little sustainable income and not the sharpest pencil in the commercial box. He trudged back to his lonely BTC and implanted himself in front of his PC. He aimlessly rubbed his mouse even though his fairy god mother had warned him his eyesight would be impaired when POOF! Out from the PC sprang the GDS Genie. “I will grant you one wish” she cried. “oh Genie” he wailed “You have told everyone that you know everything so please tell me what I need to do to find my value and make Pammie and Charmaine respect me like they used to when I bribed them.
“Blooming Heck” said Genie, “that’s a tricky question. How should I know? I have enough problems of my own dealing with that terrible ogre Amerimonster from IATAland. He wants me to get my sectors off for next to nothing. And then there is that green monster Olearymouth. He has been clambering down his beanstalk lately threatening you, me, in fact everyone he claps eyes on. So don’t bother me with your pathetic questions! And leave that mouse alone.”
Timmy was shocked and saddened. He had tried his colleagues, his clients, suppliers and even a fellow intermediary without a sniff of finding his value. Off he wandered into the pre Christmas recessionary gloom. Even his Blackberry had stopped talking to him and his Mobile phone, instead of saying “how are you” when switched on now said “Book Direct” instead. It was almost enough to make Timmy give up and become a consultant like everyone else.
Just as all seemed lost a jolly faced lumbering giant in a Santa outfit scooped Timmy up, clutched him warmly to his chest and squeezed him tenderly by the throat. “Giant Major Airline Timmy wheezed”. “Never fear Timmy” boomed Major. “You can trust me and I will look after you just sign this binding agreement and all your troubles will be over - well at least for a month or two”. “But that is what you said last time” said Timmy, “before you started smacking me about”. “Now, now” said Major “let’s forget about the past”. “That is also what you said last time” replied Timmy.
“NOW SEE HERE” boomed the Major with an inscrutable look on his face, Have you got any other options?
“Oh Major” said Timmy, “it is so good to be home. I’m hungry. Got any commission?!”
And they all lived happily every after – Or did they?
Tales of Timmy TMC and his search for value– A Christmas Pantomime and work of utter fiction!
Timmy was sad. He had just returned from Agencies Anonymous and admitted to all of them that he was a TMC. He was looking for help to cure this terrible affliction but all the other sad souls took one look at him and agreed he was clearly past his sell by date and revoked his membership.
It had all started so very well for Timmy those years ago when his two benevolent uncles, Colin Commission and Oscar Override, used to send him cheques for doing very little. However recently, having used him for their horrible data mining purposes, they walked out leaving him a penniless orphan. Then even stranger things started to happen as his few pals started disappearing, changing their names and, worst of all, reverting to cannibalism and eating each other up. The stress of it all got to little Timmy and he started wondering if there would be a future role for him in this wacky and homicidal travel supply chain. He was sure he was useful but a little bit sketchy on the detail.
But Timmy was made of stronger stuff and knew, with a little sage advice from his supply chain colleagues, he would discover his value. “I know” he thought. “I will go and see my dear old benefactor Client Hardup”. “Sorry Timmy” said Hardup whilst absently massaging his EBIT, “but I have lost all my profits. I gave them to a nice man from the Fat Cat Investment Bank and he said they had been magiced away by millions of little elves wanting to feed their sub prime mortgages. However he also said that he was prepared to travel the length and breadth of Las Vegas to get it back if Timmy could donate a ticket”. “Sorry” said Timmy “I don’t get free tickets and upgrades any more. In fact the last ones were those First class round the world tickets which went to Mrs Hardup when she coincidently won your office grand draw”.
Hardup was sorry for Timmy. He remembered the days when Timmy used to give him good service, rebate cheques and upgrades. “Go and see my two sisters Pammy Procurement and Charmaine Cheaper-Thanyu” he said. “They may think of something valuable for you to do, although don’t hold your breath as I have just cut their travel allowance again.
Now these two girls hated each other something ugly. Charmaine thought she could do and get things better than Pammy. Pammy thought Charmaine was an undisciplined tart hawking herself around the web without any thought of the infections she could catch like cancellation flu and card chargeitus. The only thing they had in common was they both thought they could do anything better than Timmy who, to them, was an unnecessary downward pull on their sagging assets. They had enough budget stretch marks between the already.
Poor old Timmy. Little sustainable income and not the sharpest pencil in the commercial box. He trudged back to his lonely BTC and implanted himself in front of his PC. He aimlessly rubbed his mouse even though his fairy god mother had warned him his eyesight would be impaired when POOF! Out from the PC sprang the GDS Genie. “I will grant you one wish” she cried. “oh Genie” he wailed “You have told everyone that you know everything so please tell me what I need to do to find my value and make Pammie and Charmaine respect me like they used to when I bribed them.
“Blooming Heck” said Genie, “that’s a tricky question. How should I know? I have enough problems of my own dealing with that terrible ogre Amerimonster from IATAland. He wants me to get my sectors off for next to nothing. And then there is that green monster Olearymouth. He has been clambering down his beanstalk lately threatening you, me, in fact everyone he claps eyes on. So don’t bother me with your pathetic questions! And leave that mouse alone.”
Timmy was shocked and saddened. He had tried his colleagues, his clients, suppliers and even a fellow intermediary without a sniff of finding his value. Off he wandered into the pre Christmas recessionary gloom. Even his Blackberry had stopped talking to him and his Mobile phone, instead of saying “how are you” when switched on now said “Book Direct” instead. It was almost enough to make Timmy give up and become a consultant like everyone else.
Just as all seemed lost a jolly faced lumbering giant in a Santa outfit scooped Timmy up, clutched him warmly to his chest and squeezed him tenderly by the throat. “Giant Major Airline Timmy wheezed”. “Never fear Timmy” boomed Major. “You can trust me and I will look after you just sign this binding agreement and all your troubles will be over - well at least for a month or two”. “But that is what you said last time” said Timmy, “before you started smacking me about”. “Now, now” said Major “let’s forget about the past”. “That is also what you said last time” replied Timmy.
“NOW SEE HERE” boomed the Major with an inscrutable look on his face, Have you got any other options?
“Oh Major” said Timmy, “it is so good to be home. I’m hungry. Got any commission?!”
And they all lived happily every after – Or did they?
Rabu, 08 Desember 2010
You don’t get ‘owt for nowt’ in travel distribution.
For those that do not speak Yorkshire English that means anything for nothing and never has that been truer than in corporate travel. The only trouble is that this is exactly what many stakeholders are trying to achieve with alarming and inharmonious results.
Now people sometimes call this the pain of change or evolution but I think it is much more basic than that. I believe very little is changing other than people trying to offload cost to others as they rightly (or wrongly) believe that it no longer belongs with them. This has only recently started because now they cannot increase their charges to absorb this expense as the end customer wont stand for it. Lead price now seems to be everything so everything has to be stripped to the bone. This type of commoditisation is fine if you are prepared to do without something but not if you still demand your content, your credit, your data and all.
So everybody tries to find cheaper and more self serving alternatives. Some even see it as an opportunity to make more money by separating out a product and charging more for it than it costs. For example those suppliers who are now charging extra for GDS booking options and credit card usage. Is the price they are currently paying more or less than what they are going to charge the rest of the supply chain who want these services? Just look at TMCs and you will see how many turned a potentially disastrous commission cut into a more profitable business model.
I think we all have to go back to basics again and ask ourselves what we want and essentially, what we really do not need. Having done this we should look at all these component parts and ascertain who is currently paying for them and whether we could do it cheaper and more efficiently if we took control and accountability ourselves. I definitely think TMCs could play a broader role in managing these costs for corporations than they do at present. They are after all supposed to be an outsourced consultancy arm of their clients.
The travel distribution model is in a mess and stuck in a previous era. Low cost airlines and commoditisation completely shook up the market but the original infrastructure still remains despite attempts to shift it. Cartels like IATA still hold sway and bodies such as ACTE/NBTA/ITM have not really yet driven constructive dialogue to broker a badly needed repositioning. To my mind these groups need to get together and call a proper summit on these issues which would surely be more constructive than the same old glad handing bi annual conferences.
Everyone is in defence mode. Some people’s idea of defence is by attacking first. Others try the old head in the sand technique favoured by Ostriches. Most have tunnel vision. We need some clear thinking before we all end up as aggressive poor sighted flightless birds!
Now people sometimes call this the pain of change or evolution but I think it is much more basic than that. I believe very little is changing other than people trying to offload cost to others as they rightly (or wrongly) believe that it no longer belongs with them. This has only recently started because now they cannot increase their charges to absorb this expense as the end customer wont stand for it. Lead price now seems to be everything so everything has to be stripped to the bone. This type of commoditisation is fine if you are prepared to do without something but not if you still demand your content, your credit, your data and all.
So everybody tries to find cheaper and more self serving alternatives. Some even see it as an opportunity to make more money by separating out a product and charging more for it than it costs. For example those suppliers who are now charging extra for GDS booking options and credit card usage. Is the price they are currently paying more or less than what they are going to charge the rest of the supply chain who want these services? Just look at TMCs and you will see how many turned a potentially disastrous commission cut into a more profitable business model.
I think we all have to go back to basics again and ask ourselves what we want and essentially, what we really do not need. Having done this we should look at all these component parts and ascertain who is currently paying for them and whether we could do it cheaper and more efficiently if we took control and accountability ourselves. I definitely think TMCs could play a broader role in managing these costs for corporations than they do at present. They are after all supposed to be an outsourced consultancy arm of their clients.
The travel distribution model is in a mess and stuck in a previous era. Low cost airlines and commoditisation completely shook up the market but the original infrastructure still remains despite attempts to shift it. Cartels like IATA still hold sway and bodies such as ACTE/NBTA/ITM have not really yet driven constructive dialogue to broker a badly needed repositioning. To my mind these groups need to get together and call a proper summit on these issues which would surely be more constructive than the same old glad handing bi annual conferences.
Everyone is in defence mode. Some people’s idea of defence is by attacking first. Others try the old head in the sand technique favoured by Ostriches. Most have tunnel vision. We need some clear thinking before we all end up as aggressive poor sighted flightless birds!
Minggu, 07 November 2010
GDS/Airline issue. Coming to a head?
This whole issue is not only becoming a little tedious but also beginning to build like a volcano about to erupt. We have had quite a few years of the dormant stage but now the tremors are getting longer, bigger and more frequent.
The first sign of life started 5/6 years ago when airlines like British Airways started charging TMCs fees for booking their lower promotional or short haul flights via the GDS. Their logic seemed to be that, as their profit margins were lower then so should their cost of sale. The point having been made most of those airlines then went to their top TMCs and found a way of giving most of the charges back. Meanwhile the GDS also went to the same all important TMCs and compensated them for the cost through their incentive agreements.
Are there GDS/TMC incentive agreements? Yes there are. Or certainly were and I am practically sure this has not changed in the last couple of years. You see, despite what you may read in the AA Distribution Blog the GDS are locked in a battle with not just the airlines but each other as they make sorties into others markets and buy themselves in. Alongside this all GDS want to be sure that they preserve their near monopoly over unbiased content within the business travel sector, and they are prepared to pay to do so.
These GDS incentives must drive the airlines mad. A key reason for taking commissions and some incentives away from TMCs was because those TMCs used the money to pay their own incentives to clients as well as subsidise necessary unprofitable transactions (rail, car etc.) elsewhere. Now they are dealing with the same thing with the GDS to whom they pay a very large fee only to see big chunks of it passed down the supply chain in incentives to win/keep business.
The problem is how they solve the problem. Like commissions and everything else whatever they do is going to have implications down the line. If you take something away from any intermediary the balance will be rectified somewhere else. Rather like pressing a balloon full of water and finding it bulges elsewhere to compensate for the displacement. The only way cost can be truly saved is if what is taken away does not need to be replaced and we are not quite there yet in travel however much the airlines wish it so.
There has been one major tremor which happened shortly before I retired. The not so shy and retiring Lufthansa decided to break the mould but only in their home market where they enjoyed an unusually dominant position. Much to the howls of GDS, TMCs, corporations et al they started making bookings more expensive if they were not transacted direct or through the certain GDS who had reduced their fees. They ‘enjoyed’ mixed fortunes and their success, or otherwise, depends on who you talk to. From what I saw they lost significant business in certain sectors, antagonised people who were once partners and ended up paying much back in different ways. Talk to them and I am sure they will say it was all wonderful!
As soon as I saw that American Airlines had introduced their own distribution blog I knew that something was going to happen. It is certainly a tremor and could possibly become a significant eruption. To do something like they are planning they had to have an outlet to put out their justifications and propaganda. It started relatively brightly but now anybody can see it for what it is.
From my observations the first rumble has come with AA removing the ability for Orbitz to issue their tickets. In a strange way it made me smile. After all it was not that long ago that airlines around the world seemed to see these OTAs as the answer to combat TMCs. They persuaded themselves that it was just what corporations wanted and expected vast volumes of business to transfer over to these new players. It simply did not, and will not happen for all sorts of good reasons. Now, having lovingly introduced and supported these OTAs they are trying to damage them. Rather like a female praying mantis with it’s mate Make love then eat it.
So. Back to our volcano. Is it going to erupt or not? I think it will but not immediately. Something has to happen as these airlines cannot go on paying this level of fees to the GDS indefinitely and there are now growing alternatives, however basic (and costly to others) they may be. Every other part of the supply chain has reinvented themselves so as to respond to enabling technology, new players and changing clients but not (that I can see) the GDS. They have to adjust prices and action new ways of making money just like the TMCs did. Staying as they are is not an option. Meanwhile they should brace themselves for some variations of the Lufthansa model.
To end with my volcano analogy I would say that there will be no big explosion but more a growing flow of lava that will cover and impact the rest of the chain. GDS cost will be taken away, or at least significantly reduced but will pop up again elsewhere until it finally rests with the customer and their employers. They won’t like it and will probably use their power to demand compensation from the ‘offending’ airline. The end result? Rather like the removal of TMC commission the airlines will make a saving in one area only to find a corresponding cost in another. You see what they need to realise is you can only make a lasting saving by improving on the status quo not just changing it.
The first sign of life started 5/6 years ago when airlines like British Airways started charging TMCs fees for booking their lower promotional or short haul flights via the GDS. Their logic seemed to be that, as their profit margins were lower then so should their cost of sale. The point having been made most of those airlines then went to their top TMCs and found a way of giving most of the charges back. Meanwhile the GDS also went to the same all important TMCs and compensated them for the cost through their incentive agreements.
Are there GDS/TMC incentive agreements? Yes there are. Or certainly were and I am practically sure this has not changed in the last couple of years. You see, despite what you may read in the AA Distribution Blog the GDS are locked in a battle with not just the airlines but each other as they make sorties into others markets and buy themselves in. Alongside this all GDS want to be sure that they preserve their near monopoly over unbiased content within the business travel sector, and they are prepared to pay to do so.
These GDS incentives must drive the airlines mad. A key reason for taking commissions and some incentives away from TMCs was because those TMCs used the money to pay their own incentives to clients as well as subsidise necessary unprofitable transactions (rail, car etc.) elsewhere. Now they are dealing with the same thing with the GDS to whom they pay a very large fee only to see big chunks of it passed down the supply chain in incentives to win/keep business.
The problem is how they solve the problem. Like commissions and everything else whatever they do is going to have implications down the line. If you take something away from any intermediary the balance will be rectified somewhere else. Rather like pressing a balloon full of water and finding it bulges elsewhere to compensate for the displacement. The only way cost can be truly saved is if what is taken away does not need to be replaced and we are not quite there yet in travel however much the airlines wish it so.
There has been one major tremor which happened shortly before I retired. The not so shy and retiring Lufthansa decided to break the mould but only in their home market where they enjoyed an unusually dominant position. Much to the howls of GDS, TMCs, corporations et al they started making bookings more expensive if they were not transacted direct or through the certain GDS who had reduced their fees. They ‘enjoyed’ mixed fortunes and their success, or otherwise, depends on who you talk to. From what I saw they lost significant business in certain sectors, antagonised people who were once partners and ended up paying much back in different ways. Talk to them and I am sure they will say it was all wonderful!
As soon as I saw that American Airlines had introduced their own distribution blog I knew that something was going to happen. It is certainly a tremor and could possibly become a significant eruption. To do something like they are planning they had to have an outlet to put out their justifications and propaganda. It started relatively brightly but now anybody can see it for what it is.
From my observations the first rumble has come with AA removing the ability for Orbitz to issue their tickets. In a strange way it made me smile. After all it was not that long ago that airlines around the world seemed to see these OTAs as the answer to combat TMCs. They persuaded themselves that it was just what corporations wanted and expected vast volumes of business to transfer over to these new players. It simply did not, and will not happen for all sorts of good reasons. Now, having lovingly introduced and supported these OTAs they are trying to damage them. Rather like a female praying mantis with it’s mate Make love then eat it.
So. Back to our volcano. Is it going to erupt or not? I think it will but not immediately. Something has to happen as these airlines cannot go on paying this level of fees to the GDS indefinitely and there are now growing alternatives, however basic (and costly to others) they may be. Every other part of the supply chain has reinvented themselves so as to respond to enabling technology, new players and changing clients but not (that I can see) the GDS. They have to adjust prices and action new ways of making money just like the TMCs did. Staying as they are is not an option. Meanwhile they should brace themselves for some variations of the Lufthansa model.
To end with my volcano analogy I would say that there will be no big explosion but more a growing flow of lava that will cover and impact the rest of the chain. GDS cost will be taken away, or at least significantly reduced but will pop up again elsewhere until it finally rests with the customer and their employers. They won’t like it and will probably use their power to demand compensation from the ‘offending’ airline. The end result? Rather like the removal of TMC commission the airlines will make a saving in one area only to find a corresponding cost in another. You see what they need to realise is you can only make a lasting saving by improving on the status quo not just changing it.
Sabtu, 23 Oktober 2010
A Take on AA Distribution Issues
Isn’t the American Airlines distribution blog interesting? No I mean it without the slightest hint of sarcasm. Obviously it is a propoganda vehicle for getting their point across to all sectors of the market but it does make some good and credible (albeit biased) comment on this key issue.
I find the language they use fascinating as it mirrors their strategy at this particular moment in time. For example they are currently referring to TMCs as ‘Travel Agency Partners’ so one can assume that the very zigzag line that represents their TMC love/hate relationship must be on the ascendancy as they focus on those dastardly GDS. No point in having a go at TMCs and GDS at the same time.
The only downer I have on this blog is that it fails to identify or even pay any lip service to the broader issues and seems rather 'me' centric. What their corporate end customer’s true needs, objectives and arguments do not seem to get much coverage. Perhaps if they focussed more on these and put forward some proposed solutions for debate it might help both their cause and the industry they work in. Mind you this might become a double edged sword as their arguments would need to be compelling.They would also need to think outside their own box which they and most major airlines find far too vexing.
Let me try and give you an example. In the last of their blogs I read on ‘The Beat’ they were trying to say that TMCs choice of GDS was predictable and closely linked to their original owning airline. This is a far too simple assumption and somewhat dated. TMCs choose GDSs for much broader reasons than that although, in the past, there is more credibility in that argument. Now it is more a matter finance, other non air products, trained staff availability, support, global reach, and yes, full content and fares. The GDS have exploited their broader strengths in the markets they were dominant in to maintain that position. They provide things like broader choice, comparison and ancillaries that airlines don't.
Corporates demand that their TMC is kitted out with a booking engine that can provide a total regional and global focussed product for all services including that continental train or local hotel. The TMC responds by searching for a system that meets as many of those demands as possible and then bolts on any extras through their own technology. Preferably a one-stop shop covering as many core products as possible. Not just American Airlines bookings. They need to do this cost effectively and as seamlessly as possible.
What the corporate and their TMCs do not want is to find airlines who cherry pick what fares they put on which GDS thus depriving their travellers from the best prices, availability and choice. Any airline who does this is basically saying that they alone will decide which booking system you will use. Even worse some then impose fee penalties on those TMCs and corporates who have the effrontery not to comply.
So the distribution battle is getting hotter. AA in their blog, are now talking about a test of ‘global’ reach with the GDS. It reminds me of a ‘dare’ game I enjoyed with my friends in the playground all those years ago. I cannot see much benefit for the customer while these two forces slug it out and I am not sure either would come out without a very bloody nose.
Meanwhile what is the TMC doing? Are they just sitting their in a ring side seat or in the corner of their favourite with a towel and gum-shield. No, they cannot afford to do either and you will find the bigger ones are already building alternatives. Their issue is that direct links with numerous different suppliers (there are hundreds, perhaps thousands of them) is a poor but increasingly necessary option to the current few well chosen interfaces, but they need to do it.
One very likely scenario for the future will be the further development and release of these mega multi linked TMC platforms. Sounds familiar? Yes, such an entity is currently called a ‘GDS’.What will that do? It will enable TMCs to put (or deny) whatever content they want in front of whoever they want to see it. It will give them power. It will enable them to go to suppliers and negotiate deals and incentives.Deja vu?
So by trying to destroy one type of GDS the airlines will be creating other, possibly stronger ones. The same way they found removing TMC commissions meant they had to charge lower prices. Good luck to them. I suspect they will need it!
I find the language they use fascinating as it mirrors their strategy at this particular moment in time. For example they are currently referring to TMCs as ‘Travel Agency Partners’ so one can assume that the very zigzag line that represents their TMC love/hate relationship must be on the ascendancy as they focus on those dastardly GDS. No point in having a go at TMCs and GDS at the same time.
The only downer I have on this blog is that it fails to identify or even pay any lip service to the broader issues and seems rather 'me' centric. What their corporate end customer’s true needs, objectives and arguments do not seem to get much coverage. Perhaps if they focussed more on these and put forward some proposed solutions for debate it might help both their cause and the industry they work in. Mind you this might become a double edged sword as their arguments would need to be compelling.They would also need to think outside their own box which they and most major airlines find far too vexing.
Let me try and give you an example. In the last of their blogs I read on ‘The Beat’ they were trying to say that TMCs choice of GDS was predictable and closely linked to their original owning airline. This is a far too simple assumption and somewhat dated. TMCs choose GDSs for much broader reasons than that although, in the past, there is more credibility in that argument. Now it is more a matter finance, other non air products, trained staff availability, support, global reach, and yes, full content and fares. The GDS have exploited their broader strengths in the markets they were dominant in to maintain that position. They provide things like broader choice, comparison and ancillaries that airlines don't.
Corporates demand that their TMC is kitted out with a booking engine that can provide a total regional and global focussed product for all services including that continental train or local hotel. The TMC responds by searching for a system that meets as many of those demands as possible and then bolts on any extras through their own technology. Preferably a one-stop shop covering as many core products as possible. Not just American Airlines bookings. They need to do this cost effectively and as seamlessly as possible.
What the corporate and their TMCs do not want is to find airlines who cherry pick what fares they put on which GDS thus depriving their travellers from the best prices, availability and choice. Any airline who does this is basically saying that they alone will decide which booking system you will use. Even worse some then impose fee penalties on those TMCs and corporates who have the effrontery not to comply.
So the distribution battle is getting hotter. AA in their blog, are now talking about a test of ‘global’ reach with the GDS. It reminds me of a ‘dare’ game I enjoyed with my friends in the playground all those years ago. I cannot see much benefit for the customer while these two forces slug it out and I am not sure either would come out without a very bloody nose.
Meanwhile what is the TMC doing? Are they just sitting their in a ring side seat or in the corner of their favourite with a towel and gum-shield. No, they cannot afford to do either and you will find the bigger ones are already building alternatives. Their issue is that direct links with numerous different suppliers (there are hundreds, perhaps thousands of them) is a poor but increasingly necessary option to the current few well chosen interfaces, but they need to do it.
One very likely scenario for the future will be the further development and release of these mega multi linked TMC platforms. Sounds familiar? Yes, such an entity is currently called a ‘GDS’.What will that do? It will enable TMCs to put (or deny) whatever content they want in front of whoever they want to see it. It will give them power. It will enable them to go to suppliers and negotiate deals and incentives.Deja vu?
So by trying to destroy one type of GDS the airlines will be creating other, possibly stronger ones. The same way they found removing TMC commissions meant they had to charge lower prices. Good luck to them. I suspect they will need it!
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