In the week when Expedia Group announced that its corporate customers in all European markets (including the UK and Switzerland) would avoid the €11 each way Distribution Surcharge levied on flights on Air France KLM group airlines that went into effect on April 1, it is interesting to look at the airline's recent annual report for 2017 and see how it compares to its competitors on selling and distribution costs.
Our chart below shows selling costs which include agency commissions, advertising and marketing and charges levied by the global distribution systems (GDSs). These costs make up around 4% of revenue and have nudged downwards in recent years. This may be because of the introduction of charges for bookings made via GDSs rather than through direct channels.
Lufthansa's 2017 results are the best in the airline's history. Total revenues were up 12.4% year on year and adjusted earnings were up by 69.7%.
CEO Carsten Spohr said, "Our endeavours of the past few years are paying off. Our modernisation has a sustainable impact. We have achieved the best result in the history of our company. 2017 was a very good year for our customers, our employees and our shareholders. Last year we were able to reduce costs again, while at the same time becoming the first — and the only — airline in Europe to be awarded a five-star rating. We are lowering our costs where this does not affect the customer, and are simultaneously further investing in our product and service quality."
Lufthansa introduced a Distribution Cost Charge (DCC) of €16 for non-GDS bookings in 2015, something which is currently being challenged by a number of travel agencies and their industry associations.
The airline group says it "intends to provide their customers with various other technical and commercial sales channels in the future, in addition to sales via the classic GDS, including direct connections to the Lufthansa Group systems".
IAG and Air France KLM have followed Lufthansa's lead in initiating charges for bookings made through GDSs.