We are two months into Lufthansa’s €16 Distribution Cost Charge (DCC) for bookings made through global distribution systems (GDSs). So far, the evidence, both anecdotally and from leaked figures, suggests Lufthansa is losing business to rivals.
At the same time, although Lufthansa is gaining extra revenue through the new charge, its recently-renegotiated deals with the GDSs no longer include the full content agreements that trigger generous discounts. Another challenge for the carrier is that losing bookings from GDSs is particularly painful. The average ticket sold through GDSs is three times dearer than through other channels.
These complexities provide two important insights for corporate buyers about the DCC. First, it explains why Lufthansa introduced the charge now rather than waiting until it could offer a credible distribution alternative. Lufthansa was obliged to synchronise the DCC with its new contracts because the previous contracts included guarantees not to charge more through GDSs than other channels.
Second is that these same ‘most favoured nation’ commitments make it very hard for other airlines to copy the DCC until their GDS contracts also come up for renewal. So don’t expect a flood of copycat charges over the next few months. Conversely, don’t think it’s all over if nothing happens straight away. Lufthansa’s competitors could be waiting to pounce as soon as their current deals expire.
All this means other carriers must be offering up daily prayers of thanks to Lufthansa for taking on its pioneering role. They win both ways, because if Lufthansa loses a ton of business and climbs down, it will have dented profitability and damaged relationships. If, however, Lufthansa rides out the storm, the other carriers can eventually pile in, too, and gain a new revenue stream.
I have no idea whether Lufthansa will persist with DCC until other airlines follow suit, or if the pain of standing alone will prove too much. Distribution alternatives are on their way, but how long will it take them to gain critical mass?
My feeling is that the GDSs will once again emerge the winners, partly because they have heavy-duty, reliable technology, but partly because they always win. The GDSs’ contractual relationships with airlines and travel management companies define the entire managed-travel eco-system, making the GDSs supremely powerful and unshiftable.
They seem to have the smartest negotiators and lawyers, and they have tied airlines up in contractual knots, which will severely impede carriers’ ability to sell through other indirect channels once IATA’s New Distribution Capability is up and running.
So often it feels with the GDSs that it’s a case of: “Heads we win, tails you lose.”
HOTEL ANCILLARIES
In my 2016 Forecast feature for this issue of BBT, Carlson Wagonlit Travel UK boss Chris Bowen became the latest person to tell me hotels are adopting the ancillary fees strategy of airlines. I recently booked a hotel in Paris through its website and was offered the opportunity to purchase wine or chocolates for £14 each, or champagne for £40.
Other options included early check-in/late check-out at £36 each, which shows hotels have cleverly found a previously free benefit they can, to use that ugly phrase, ‘monetise’. It makes me wonder what ways to earn extra revenue they will dream up next?
How about an extra 50 quid for a room where you can reach the plug socket without being a professional contortionist, or another 20 quid for a bathroom where it takes under an hour to figure out how the shower works? Having a temperature option somewhere between ice cold and scalding hot would be another tenner, naturally.
Amon Cohen is a specialist business travel writer, conference moderator and media trainer