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September 2022, Virtual
September 29 2022, Virtual
Will airlines go direct connect or not, asks industry veteran Mike Platt. Of course some will, but not completely, and many not at all for competitive, budgetary or capability reasons. Will all TMCs link direct to those that do? Definitely not. The customer ultimately will decide and they will have a choice… at a price.
Let’s get down to basics, shall we. Firstly, there is nothing wrong with the GDS model we have at present as far as the whole chain (excluding the supplier) is concerned. For the supplier, however, it is a frustrating cost of sale that they have failed to negotiate down sufficiently and one they are not willing to pay for any more. In simplistic terms they cannot see why they should pay to enable customers and intermediaries to have a ‘one-stop shop’, and besides it distances them from their customers.
So airlines like American have decided that it is time for a change in the model. A bit like Lufthansa did inEurope. Technology to enable this is perceived to be there now, so airlines have thrown down the challenge to the GDSs to negotiate or risk market attrition.
However, what they seem to have failed to grasp is that the rest of the supply chain may be either incapable or unwilling to embrace the direct connect model. Some have too much to lose and definitely little to gain by doing so.
The current dynamics and rationales are both fascinating and disturbing, and worth analysis. The market is enormous, with many players of various shapes and sizes. It is also bound up in a ‘cat’s cradle’ of payment incentives, global market variations and cultural ways of doing business. There are still places on the globe who are transacting business two steps behind what the so called driver markets discarded years ago.
The above does not appear to concern the main drivers of change like American and Lufthansa, but they need to remember that they aspire to be global entities yet seem to be applying their local majority market strategies on all of us. I am certain that in the current environment this will not work, but equally I am convinced they will be able to do it where they have critical mass. This means that the world will have to handle air transactions on a more complex multi-tier basis.
So I for one accept that direct connect is going to happen, in parallel with the current booking methodology. This means that one can either book direct or through someone else at an additional cost. Cost, of course is the operative word.
To book ‘direct’ you will either have to go straight through the airline or through a TMC who has a non GDS link. This will cost the TMC in money and resources as they will need to radically change their systems, which they will not do for free. The airlines will have to pay them instead of the GDS, although not so much. The corporations will also want their cut or at least compensation for the extra TMC cost.
I do not believe for one second that any volume spending corporation will decide to bypass the TMC because of this new model. What airlines choose not to understand is that a booking (and the cost of it) is not the be all and end all of travel management. In my days in travel management the actual booking itself was just the tip of the iceberg of travel management activity. Will corporations accept the fooling around of their programme just because an airline wants to save their own distribution costs?
To me it is logical that not all airlines are going to follow this path. It is also logical that some (i.e. American) will do so, but with a much smaller impact than they might hope for and then only in certain markets. I think others will watch them succeed or fail before rejecting it or taking into account the mistakes they make. It will become just another option which will bypass the GDS, give further power or income to the TMCs and pass a potentially higher tab on to the end user. What it will do is turn the big TMCs into mini GDSs, who will want incentivising while having greater control over airline share.
Finally, one needs to ask what the smaller and less endowed airlines and TMCs are going to do – those that do not have the capability or infrastructure to operate two different main booking methodologies. Sure as anything, they are not going to sit still. Neither are the GDSs. I suspect both will do all they can to bypass American and anyone else who tries it and invent alternative value add-ons.
As for the large TMCs, I expect them to eke out every competitive and financial advantage from the chaos that will ensue. They should be able to both have their cake and eat it, by managing the different options in different regions and using their superior technology. Mind you, they too are under a degree of pressure as they are less able than most to turn around to a mega supplier partner and say they won’t play. That could get very messy, so I am not surprised they are ‘working’ with American.
I will watch with interest, and a high degree of scepticism, what American might achieve. I wonder whether they will see the savings made from GDS-bypass fading away in TMC and corporate incentives and market share loss. Maybe they will remember that they used to get a higher yield using the other model. Who knows, but it will give everyone in the industry a wake-up call at least!
For more comments from Mike Platt, visit his blog: www.businesstravel.blogspot.com