A heated panel session at the IATA World Passenger Symposium in Abu Dhabi exposed the issues arising between GDSs; airlines and travel agents.
A rather heated panel session at the closing of the IATA World Passenger Symposium in Abu Dhabi which took place in October uncovered some of the issues arising between GDSs, airlines and travel agents — or what was described in the panel as the ‘Loveless triangle.’
Chairing the panel was Gary Doernhoerfer, general counsel, IATA who explained: “Tension exists because the airlines complain about cost and lack of innovation on the GDS side — the GDSs say, you don’t understand how I am selling your tickets and that I’m providing a whole slate of services you can’t get anywhere else.
Travel agents look at airlines and say, there’s no compensation for us and a growth in direct distribution. While airlines look at travel agents and say you’re a high cost distribution channel and I can do a lot without you. There is ongoing tug of war over whose customer is it really — the airlines or the travel agents?
Huge margins – small service?
Jim Callaghan, general counsel, Etihad Airways used the panel to launch an attack on GDS system for their “huge margins” which he said did not justify the service provided. Callaghan argued the current model was allowing GDS systems to cream off huge profits at the airlines’ expense.
“We can see the huge margins the GDSs are making —25.9% —whereas airlines are struggling to meet their costs. The huge size of the margin in this area should be a glowing beacon that something is wrong here, because in any other industry if you had those kind of margins you would not have the limited number of players that you have in this industry.
“If there was a possibility for alternative distribution models to make inroads into that market there wouldn’t be the size of that margin.”
Callaghan said airlines “appreciated the work travel agents do” but said it was crucial that more competition was introduced into the GDS sector, in order to lower the cost for airlines as well as increasing innovation in travel distribution.
“For a network carrier where you have connections and baggage issues it is a very complicated product and one that benefits from the travel agent being an active sales force, so we very much appreciate the work the travel agents do.
“Airlines have been putting a lot of effort into going direct but are still heavily reliant on the travel agents and therefore the GDSs. The issue is the intermediary between the airline and the travel agent. Even if there has been a migration to as much of an extent as possible to direct distribution — still to have these margins is a big problem,” he argued.
Callaghan described GDS systems as “one of the number of businesses the airlines created and were forced to spin-off to pay for their operating losses —these businesses have come back to bite us.”
Callaghan was highly critical of GDS contracts which “typically involve paying travel agents huge incentives to encourage them to make as many bookings as they can.
“I can’t tell you how many bookings ‘Mickey and Minnie Mouse’ made that they’ve never actually shown up for. The problem as an airline is that we’re paying fees but even worse is all the lost revenue when ‘Mickey and Minnie’ didn’t show up.”
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