Asia’s travel agents a lifeline for GDS?

Global Distribution Systems (GDS) are feeling the heat now that airlines are selling directly through their own platforms or via the International Air Transport Association’s (IATA) New Distribution Capability (NDC).

by DOMINIC LALK REPORTS FROM BEIJING  

October 1st 2016

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As transaction network operators for travel service providers and agencies, Global Distribution Systems (GDS) are facing obsolescence, but they are not giving in to the forecasts of doom. Read More » Instead, they are gearing for a fight to retain their business with every technological breakthrough in their arsenal.

In late September, GDS provider, Sabre, held the Travel Technology Exchange (TTX) in Beijing. More than 500 travel agent clients, airline and supplier representatives and members of the region’s travel industry were briefed on new technologies and changing industry perspectives in the sector.

There was a good reason behind the venue: “A lot of the 425,000 travel agency subscribers to Sabre’s global travel marketplace are selling travel to China today, and this includes many of our travel agency customers in the Asia-Pacific,” said the company’s senior vice president for the Asia-Pacific, Roshan Mendis.

He said an average of 500 bookings are made in the Asia-Pacific every second of every day at the moment, and the number is growing.

“We are redoubling our efforts at innovation,” Mendis said. He believed virtual reality (VR) is a worthy investment for tomorrow’s booking environment, in which GDS will continue to play its role in his view. “Imagine walking into an agency, unsure of what airline you want to fly with, and in which cabin. In the future, you just put on your VR headsets to experience the different cabins. This is particularly relevant for first and business class travel.”

Technology aside, Sabre and its GDS competitors, Amadeus and Travelport, know that there are approximately two trillion airfares on the market at any given moment. The savvy business traveller might whittle down the options by frequent flyer benefits or timeliness, but as the latest statistics suggest less experienced travellers in emerging markets like China and India may lose themselves in the labyrinthine fare structures and resort to indirect channels.

“On average, 67% of business and first class bookings come from indirect distribution, and yield from the indirect channel is on average 42% higher than the direct channel,” said Hazem Hussein, Executive Vice President (Airline Commercial) of Amadeus Asia Pacific. Hussein pointed out that GDSs were instrumental to an airline’s cost management. “The cost of each GDS transaction remains very low compared with other industries. Especially when you compare it with the direct online traffic acquisition costs per traveller.”

However, challenges and opportunities remain. “There’s a need to sell ancillaries better through the GDS,” said Mendis. But airlines accuse GDSs of a lack of vision, interest and execution when it comes to handling the burgeoning market of airline merchandising.

Ancillary sales among the top ten performers grew from $8.4 billion to $26 billion between 2008 to 2015, according to the 2016 CarTrawler Yearbook of Ancillary Revenue. United Airlines, American Airlines and Delta Air Lines came out on top at $6.2 billion, $ 4.7 billion and $3.8 billion, respectively.

Qantas Airways affiliate, Qantas Loyalty, ranked ninth worldwide, but was the regional champion at $1.2 billion. By per passenger spend, budget carriers sold the most ancillaries in 2016. U.S. airlines topped the list, largely because they charge their passengers for everything except the seat. Qantas ranked fifth followed by Korean Air and AirAsia X was eighth. China Eastern Airlines and China Southern Airlines lagged well behind at 3.7% and 0.6%, respectively, of total revenues from ancillary sales.

However, most of these transactions were handled by the airlines directly. The same report noted that in the Asia-Pacific, only Qantas and Virgin Australia engaged all three major GDSs for ancillaries. Most LCCs, including Cebu Pacific Air, Hong Kong Express and IndiGo Airlines, as well as legacy carrier Japan Airlines (JAL), chose to handle à la carte services exclusively through their own channels, at the expense of GDSs and their agency lifelines.

LCCs are an easy “vernacular” to use, Hans Belle, Sabre vice-president and general manager for the Asia-Pacific told Orient Aviation, but challenges remain with respect to LCC-GDS collaboration. “Once you scratch the surface, LCC is a whole bunch of things. It’s nearly all hybrid. Hybridization carries a whole lot of different attributes that you try to play to. Trying to make sure that they understand our full offering, the value of the GDS, (and) the value of the travel agency community is important,” he said.

Airlines have complained about not getting value for money from the GDS providers, claiming they are not training their agents to use the ancillaries for upselling. Conversely GDS providers and agents are up in arms about ancillaries being exempted from the commission that airlines pay. The spat between airlines and GDS providers reached its climax in June 2015, when the Lufthansa Group, fed up with fee hikes and complacency, announced it was imposing an additional charge of €16 when booking through a GDS rather than their own systems, arguing that the costs of using external systems was several times higher than that of their own.

Emirates Airline Group announced it is developing its own digital retailing platform. Speaking at last month’s Aviation Festival in London, Emirates president, Sir Tim Clark, said “there are too many parasites” taking value from airlines to support their own business models. “I have been banging the drum about the way we are an industry constrained by the legacy distribution systems,” Clark declared, and added he was “not satisfied that the GDS systems of distribution on offer are fit for purpose for the next five or ten years, particularly in light of what has been going on in the digital world”.

Speaking to Orient Aviation at the TTX in Beijing, All Nippon Airways (ANA) vice-president for marketing planning, Kikuo Watanabe, took a softer approach. As the ANA man in charge of GDSs, Watanabe said his carrier continued to rely on the aggregators and that only 20% of its international bookings are made through the airline’s direct channels.

“Japanese customers are accustomed to using travel agencies,” Watanabe said, singling out older travellers who preferred organized group and package trips. “As long as travel agencies exist, GDS companies such as Sabre are inevitable,” Watanabe said, but added “of course we’d like to ask the GDS to moderate their pricing”.

It has been a brave new world for GDS ever since IATA premiered its NDC in 2012. Initially, GDSs fretted that the NDC Standard would render them obsolete altogether. While most of their concerns are being addressed, industry players are still divided about its implementation.

“We are still trying to fully understand NDC,” Watanabe said. He said initially NDC was directed at airlines, but now IATA has begun to involve GDSs. The ANA executive said the airline has yet to adopt the NDC Standard. “We like to watch and see; the typical Japanese approach of see the other carriers and learn from their mistakes,” he laughed. He said it would be good if IATA dispatched NDC experts to individual carriers to educate them on the Standard and facilitate implementation.

In a nutshell, the NDC Standard lays out the grammar for a common electronic language between airlines and travel agents. Anyone can acquire and use the Standard, and GDS providers can also communicate with one another in NDC Standard-compliant, XML-based data transmissions.

The radical development is marketed by IATA as a modernisation of 40-year-old data exchange standards for ticket distribution developed before the Internet was invented. IATA believes the NDC enables innovation in travel technology solutions and apps by giving GDSs ammunition to drive sales.

NDC is contentious. Some airlines feel short-changed by GDS providers and claim that they are not training their own travel agents to use airline ancillary products to upsell to passengers.GDS providers and agents retort that ancillaries do not attract commissions from airlines.

“From Sabre’s perspective, we aren’t waiting on IATA NDC to deliver merchandising solutions to airlines,” said Kathy Morgan, Sabre’s director of airline products, who added the firm has been enabling airlines to sell their products in new and different ways through both direct and indirect channels for many years, and would continue to utilize emerging technologies in a way that benefits everyone in the travel ecosystem.

While these GDS innovation drives will surely benefit the end customer, there is a palpable tension between their commercial goals and IATA’s well-grounded aim to create a consistent environment where airlines will be able to uniformly distribute the entirety of their product portfolio, including ancillaries, across all channels that are direct or otherwise.

But then again, IATA is aware NDC isn’t a perfect solution. As Tony Tyler, former IATA director-general, put it, “NDC will never finish. We have set up standards for the development of distribution through the indirect channel and other ways which will now presumably carry on until someone else betters it.”