BTN Europe presents an overview of business travel and MICE predictions for this year
BBT met up with Christian Schindler for a briefing on Lufthansa Group’s decision to add a €16 fee to all bookings made on GDSs, which will apply from September 1.
Why has Lufthansa decided to impose the Distribution Cost Charge (DCC)?
The cost of distribution on the GDSs is much higher than other channels. We need to put it on an equal footing, and cover the difference in cost to those other channels.
Technology is very important today, and the pace of advancement is incredible, it’s an exponential evolution.
The GDSs are stuck in an IT environment of the 1970s, there hasn't been much in the way of developing new options and opportunities. But we see other providers coming up in the market, shaking up the industry.We see it already happening in the airline industry; take Easyjet and Ryanair – they have approximately 150 million passengers a year in Europe booking directly on websites. The passengers get a personalised service and it’s a very cheap cost for the airlines.
Another important piece for us is having freedom of what we sell where.
British Airways has taken a rather different approach, as part of an NDC pilot opening up its flight data to third party IT developers, including the GDSs….
We welcome BA’s announcement, it is following in our footsteps. BA is working on options with NDC – it is all about offering personalised content to end consumer. We are also open to working with GDSs, third parties – and anyone who comes up with solutions to connect and offer personalised services of NDC standard.
Are you discriminating against the GDSs?
No – we are currently selling 70 per cent of our tickets on the GDSs, this business is vital for us and we don’t want to change that. But cost and technology both need to move – technology up, and cost down. And TMCs are particularly important to us, they add value to the chain – both TMCs and the GDSs have an important role to play in the future.
We’re open to all, and we’re talking to all – and we are working with the GDS companies, for example on our NDC pilot.
Why not include the fee in your fares?
Because we want to make it transparent, it's not our price as such, our own cost - it's that of a third-party supplier that’s creating massive cost to us. So we make it transparent by saying this charge applies to bookings on this channel.
Are you concerned about the risk of TMCs looking at ways to switch-sell to other airlines?
There is of course a risk, but it’s not a major risk. Why? Because we have a very good product – if you think about total price of product, €16 is a minor bit of this. Look at our premium economy product, it’s rated as the best in the world; for an £800 long-haul fare, if you pay €16 by booking through a TMC, does this make a big difference?
But it’s the short-haul fares where this will make a significant difference
On the short-haul side it depends on frequency, connectivity – we have the biggest network in Europe, all connecting within our group. There are so many options, it’s not only about price.
So how can corporates and their TMCs get the fares they want without paying the DCC?
Our agent website offers TMCs all the prices that they have on the GDS, fares that you cannot book as a direct customer on the B2C website, and all the services you need; they can upgrade, change and cancel tickets. And corporates can get their fares directly on the .com – we’ve seen this happening, a lot of corporates have already moved to booking directly on the website, because of the content they get. The third option is Direct Connect – connecting with online booking tools and TMC back-office systems.
How did you arrive at the figure of €16?We took overall costs worldwide on all tickets and fares, and compared those of the 70 per cent sold via GDS with the other 30 per cent. And to ensure a neutral stance, we hired an external auditor to analyse and verify our data, and that’s how the €16 figure came up. My personal feeling is that it seems a high figure, because it’s a ticket-based fee, whereas a lot of fees in the market are segment-based.
Why now? And why move first? You could have watched and waited for another airline to make the first move…
We’re aware this is a bold move. But it’s not the first in the industry; the LCCs (low-cost carriers) are doing it already. So transparency today on the GDSs is non-existent, because there are LCC prices not available on the GDS.
The time was right, for various reasons. One was the launch of our branded fares: we offer three options for European economy fares, from basic – air miles, snack and drink, non-refundable and no hold luggage – to a fully flexible, refundable fare. The consumer asked for this, it’s simple and saves time. Because of these we had to renew our GDS contracts and the charges are even higher.
The old classic fare systems don’t match this type of demand. It’s about technology and personalisation – we’re working on a lot of projects around providing personalised content and NDC. It’s time for a change.
Read industry response to Lufthansa’s announcement