Many of us with children have faced the ques- tion: “Why do I have to wear a seat belt?” Most people use them, of course, because there’s no great alternative for keeping you
alive in the event of a serious collision. Even though seat belts
use very old technology, are downright confining by design
and aren’t particularly in step
with modern fashion, they
do what they’re designed to
do efficiently and affordably.
And, frankly, there aren’t any
better alternatives for that.
Over the years, we’ve
heard airlines ask a very different question: “Why do I
have to pay for distribution?”
But the answer is surprisingly similar to the reason for
wearing seat belts: There’s no
great alternative. While global distribution systems use old
technology—by Digital Age standards—and their interfaces
aren’t quite as attractive as airline websites—yet—they still do
what they’re designed to do efficiently and affordably.
Lufthansa Group recently announced that on Sept. 1 it
would begin adding a € 16 surcharge to all tickets booked by
travel agents using global distribution systems. The “
distributions cost charge” forces corporate customers to make a
choice between higher fares and lower service.
Lufthansa argues that the rate disparity among booking
channels is justified because costs for using GDSs are several times higher than for other booking methods, such as
airline’s online portals. The idea of an agency portal is not a
new phenomenon. Many airlines have them today, but few
bookings go through them. There’s a reason for that.
What Lufthansa didn’t mention is that agency portals:
• Are not designed to manage high transaction volumes
generated by large TMCs.
• Do not offer comparison shopping on competing airlines.
• Lack technical integration with mid- and back-office systems that let companies keep travelers safe, track expenses
and influence in-trip buying decisions.
• Cut down travel agent efficiency and productivity, which
drives up costs for travel buyers.
Over the years, I’ve been audience to a lot of negotiations
between airlines and GDSs. Recently, airlines have negotiated
very favorable terms with the GDSs, resulting in savings for the
carriers. Leading up to Lufthansa’s DCC announcement, all
indications pointed to the two sides reaching a mutual agree-
ment over distribution. There was no indication that negotia-
tions were not proceeding or that tension was brewing.
Because there’s no reason to think that an airline should
expect to distribute its products without any cost, Lufthansa’s
recent gambit seems more
of a tactic for increasing
lagging direct distribution.
Its strategy seems to rest in
shifting distribution costs to
It’s worth noting that had
Lufthansa chosen to negotiate a full-content agreement, its costs for content
would be less. Its € 16 surcharge is based on estimated average distribution
costs before full-content-agreement discounts are applied.
Lufthansa could have negotiated for those full-content
discounts but chose not to. Because business trips average
fewer segments than leisure trips, the corporate share of distribution should be less than leisure, not more.
Keep in mind that alternative distribution methods aren’t
free. Building out airline websites, keeping website content
updated, investing in agent portals and investing in direct
connect technology all come with significant capital expenditures or resource costs.
Moreover, direct connects require airlines to provide a
special set of programming instructions called an application programming interface. To date, Lufthansa hasn’t made
any APIs available. Even if it did, it’s hard to understand
how the industry would benefit from a major change in the
current distribution model—given that the GDSs already
provide the most efficient and integrated TMC booking
channel in place today.
Given the history of negotiations between airlines and
GDSs, it’s impossible to know whether Lufthansa is using
DCC as a negotiation tool or really intends to fully implement its DCC without providing viable options for corporate
travel programs that don’t want to give up the many benefits
provided by TMCs and online booking tools using the GDS.
It seems like a good time for us all to fasten our seat belts.
Rose Stratford is BCD Travel executive vice president of
global supplier relations and strategic sourcing.