Strategic Meetings Summit London, 26 September,
September 29 2022, Kimpton Fitzroy London
Friday 30 September 2022, JW Marriott Grosvenor
I AM SITTING WITH A TIN hat strapped firmly on my head as I start to write this column because whether you are a buyer, travel management company (TMC), global distribution system (GDS) or airline, there will no doubt be something to annoy you in what I am about to say.
Here goes anyway ...
I have spent quite a lot of time recently looking at the issue of fare unbundling and the threat by American Airlines to bypass GDSs when selling not only ancillary fees (checked baggage, meals etc) but also the base air fare. And the more I think about it, the more I think that something will eventually have to give in the economics which underpin the whole of corporate travel, not just the relationship between airlines and GDSs.
Let me explain what I mean. As things stand today, a TMC cannot - with very rare exceptions - use a GDS to book a checked bag or any other unbundled item on a traditional airline.
The good news is the GDSs have worked with airline owned institutions, such as the Airline Tariff Publishing Company and IATA, to find solutions. The two main possibilities are optional service codes, which allow carriers to file ancillary fees in the same way as their base fares; and electronic miscellaneous documents, the accountable equivalent of an electronic ticket for ancillary items, which make it possible to produce management information at the back end.
The bad news is that so far only a handful of carriers have adopted these standards. Tellingly, there seem to be few objections to the technology. Instead, the problems concern cost and control. Some carriers seem wary of the costs involved in adapting their systems to these new standards, and a few, most publicly American Airlines, say they want to assume control of how they package fares and ancillary items.
I interviewed HRG chief executive David Radcliffe recently and I thought he described the stand-off between GDSs and airlines very well when he said: "The GDSs are the most efficient way to distribute but they are not the most cost-effective for airlines." He is certainly right about the first part as far as corporate clients are concerned. There is no doubt that a GDS-based solution for distributing ancillary items would be by far the most efficient for them, but the value of this solution for the airlines is less certain. On that basis, as some voices in the US have suggested, is it time clients started to pay directly for GDS usage, since they benefit the most?
In fact, taking this thought a stage further, are corporate clients generally paying the right price for the value they receive from the distribution chain? The same could be asked of what they pay their TMCs. Some procurement people who buy travel are assessed on how low they can beat down the TMC transaction fee, but this can prove a false economy.
Apart from the fact that paying peanuts may produce monkeys incapable of finding the best overall prices for their customer, the small print of a TMC contract may mean the lowest transaction fee is not the cheapest deal overall. What, for example, if one TMC charges for looking without booking, but another does not?
Most TMCs operate on only the smallest of margins, and if a client secures a fee below the apparent level of profitability, it will likely come back to haunt them one way or another.
There is, of course, a more direct connection between the AA/GDS stand-off story and TMC transaction fees. Airlines are driven nuts by a big chunk of the fees they pay GDSs being used to incentivise TMCs, a payment with no intrinsic value to support it. But remember those incentives are often exactly what help subsidise TMCs' fees to clients at marginal or even unprofitable levels. If they stopped, fees would rise even higher.
I imagine few buyers would welcome that, and even fewer would welcome effectively having to pay the GDS, even for an extremely useful service such as transparent booking and tracking of ancillary fees. One airline which has tried charging a fee for GDS bookings is easyJet, but recently it has said it is reviewing that fee because it is leading to a low take-up.
The easyJet experience suggests TMCs and their clients may hold the upper hand for now, but I believe that the money-flows within corporate travel distribution remain in a right old mess. I guess most of us knew that, but maybe the AA Direct Connect strategy in the US will finally bring matters to a head.
I was most amused by a recent survey suggesting travel managers will leave hotels out of their preferred programmes if they don't include a gym. I well remember a hotelier telling me he installed a gym at great cost for exactly this reason and then almost no one used it.
Saying one thing and doing another is a recurring theme when it comes to exercise for business travellers, and there is no finer an exponent of hypocrisy in this respect than myself. Many is the article I have bashed out about keeping fit in your hotel room lifting nothing more than the Gideon's Bible from your bedside table drawer, but needless to say I have never tried these exercises myself.
I am reminded of an American Express survey some years ago of how business travellers unwind during a trip. Americans did indeed enjoy going to the gym - 55 per cent of them - but I hardly need tell you which national group of travellers - all 90 per cent of us - preferred what was euphemistically described as 'socialising'. Speaking of which, that's enough writing for one day: I'm off to do my patriotic duty by indulging in a little 'socialising' at the Horsepond Inn.