The Lufthansa Group's airlines — Lufthansa, Austrian, Brussels and Swiss — this week announced that any booking involving use of a GDS would incur a surcharge of €16. It has done what other traditional carriers have been wanting to do for years, namely challenge the hegemony of the GDS as a method of distribution.
It is a brave move but it is not revolutionary. It is only addressing a longstanding issue — high distribution costs — in the context of a new world of alternative methods of distribution. Critics could argue that the group's poor financial performance and outlook (not helped by the spectre of potentially massive compensation payments to the families of those onboard Germanwings flight 9525) has prompted this.
Perhaps. But the reality is that for years it is something carriers have discussed and been waiting in private in hope that a brave, big boy (industry observers had long suspected that it would be British Airways) would make the first move. IATA's NDC has been the latest additional distribution element that has made this initiative easier. The Lufthansa Group's recent agreement with Sabre and Amadeus to pay higher fees in exchange for not releasing full content has made it possible.
By way of background, GDSs are an outgrowth of the computer reservation systems designed by airlines to sell their tickets. Until recently airlines were the principal owners of these distribution systems. In fact Air France-KLM divested itself of some of its Amadeus holdings only a few months ago. Lufthansa raised almost half a billion dollars for its pension fund by selling some of its holding in Amadeus late last year.
However, as the chart below shows, despite changes in ownership and advances and expansion of distribution, the business model remains the same. Suppliers pay the GDS for the privilege of their content being available for bookings via this model and travel management companies receive incentive payments in direct relation to the volume of business they put through the GDS.
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GDSs are an income stream for TMCs and a cost for suppliers.
And it is a cost that is breaking their backs. Lufthansa says it will not levy this surcharge on corporates who book via their website (negotiated rates will be recognised) or TMCs that book via the dedicated agency portal.
It is not our place to know the details of the commercials and whether the Lufthansa carriers will be better or worse off when they have paid the GDSs higher fees on some bookings but escaped fees on others.
However, it is our responsibility to point out where the new tussle will be.
TMCs highlight the benefit of having booking data all in one place so there could be no additional fees for corporates using self-booking tools so long as the content in the self-booking tool is either via the direct agency portal or the website. This is not likely to be the case today although there is nothing in theory to prevent this being the case in the future.
So for TMCs this might be just a choice between booking via the GDS and paying the surcharge but retaining the incentive or making use of the agency portal.
But corporates are in a different position. From September (when the new Lufthansa structure becomes effective) if you book via an agency you may be asked to pay a surcharge on any Lufthansa group air bookings. If you have a self-booking tool, now is the time to check which platform the content for Lufthansa, Austrian, Brussels and Swiss is on and whether a direct feed is possible.
TMCs and their corporate clients have a lot of talking and thinking to do.