China opens market to international GDS

China has taken the first step in dismantling the country’s GDS monopoly by allowing some foreign airline distribution companies restricted access on the Mainland.

by CHIEF CORRESPONDENT, TOM BALLANTYNE  

March 1st 2014

Print Friendly

Major Global Distribution Systems (GDS) operators achieved a major breakthrough early this year when China announced it would allow them to operate on the Mainland from October 1, 2014. Read More »

'Access to the full domestic market would be the icing on the cake. That would be the ultimate aim'

Bart Tompkins Managing Director Amadeus China

The new rules for international GDS have broken up the monopoly long held by Mainland GDS, Travelsky. The Civil Aviation Administration of China (CAAC) regulation, which was decided in January and confirmed last month, permits foreign GDS to handle bookings for foreign airlines flying into and from China, as well as some bookings through a designated group of Mainland China travel agencies.

“We’re celebrating a significant milestone in China,” Amadeus China managing director, Bart Tompkins, told Orient Aviation from Beijing where he has been based since 2012. “China is going to be the world’s largest aviation travel marketplace. It’s one we’ve been looking to operate in for a long time.”

The development is a huge opportunity for industry. International traffic to and from China that is serviced by non-Chinese airlines accounts for only 5% of the total Chinese international and domestic market, but it still represents a huge revenue stream.

In 2012, the Mainland’s outbound travel market reported annual growth of 40% in transactions, or US$$15.5 billion. Last year, Chinese outbound travellers jumped about 17%, to 97 million, said China’s National Tourism Administration. Spending more than $100 billion annually on their trips abroad, Chinese international travelers have overtaken German and U.S. tourists as the world’s biggest spenders.

The CAAC completed 14 months of vetting before its announcement that GDS licences had been granted to Madrid-based Amadeus and Singapore’s Abacus. The policy change will allow the two GDS to directly handle sales of outbound air tickets on foreign airlines operating in China as well as hotel bookings and outbound travel services for a select number of Chinese tour agencies.

Until the decision was announced, any development of the Chinese market by foreign GDS was done in partnership with state-owned TravelSky.

But the new regulations have limits. Airlines based in China, including the big three, Air China, China Eastern and China Southern, must continue to distribute their travel products through TravelSky.

At press time, TravelSky had not commented on the policy change, but the CAAC’s decision was no surprise. Realizing some liberalization was coming, Travelsky is investing in a US$600 million facility in Beijing, due to be opened in 2016. It also is upgrading its technologies to prepare for increased competition, while continuing its relationships with international GDS.

These partnerships include a long-standing agreement with Amadeus, which provides TravelSky access to non-air content, including hotels, car rental companies, rail and cruise operators. The Mainland company also has reciprocal hotel content agreements with Sabre and its Asian subsidiary, Abacus International, a joint product development agreement focused on advanced passenger service systems technology for airlines worldwide with Travelport and hotel content agreement.

Tompkins said three main milestones apply to newly deregulated GDS business in China.

“The first one was the actual publication of the regulations. It outlined the principle under which international GDS like us could operate in China, albeit only for the first 5% of the market, international airlines.

The next big critical milestone was we managed to attract three [foreign] airlines. Now we have seven more airlines in the process of being applied for,” he said. Air France, KLM and Lufthansa are among the first international airlines to receive approval from the CAAC to use Amadeus technology in China. “That is a true first for the market and Amadeus,” said Tompkins.

One critical milestone remains: securing International Air Transport Association (IATA) billing and settlement plan (BSP) certification. Once obtained, international airlines and travel agents will be able to use the GDS to settle ticket payments.

Tompkins expects this final step in the process will be approved in the third quarter of this year. “Until we get BSP certification we won’t really see a huge ramp up in actual booking volumes and so on,” he said.

Robert Bailey, the president and chief executive of the Asia-Pacific’s own GDS, Abacus, said he was co-ordinating closely with China and some foreign airlines and tour agencies in launching services in the next 12 to 18 months.

Foreign airlines offering outbound services in China and Chinese tour agencies will have to apply for permits to deal with Abacus (or other GDS) directly. “It will be an important step in the process of the liberalisation, which still has some way to go. The mainland’s marketplace is so large that it can allow multiple players,” Bailey said. He added that Abacus will invest in China in technology and product solutions. Abacus shareholders include All Nippon Airways, Cathay Pacific Airways, Dragonair, China Airlines, EVA Airways and Singapore Airlines.

Sabre Holdings vice president and general manager for Sabre Travel Network in Asia, Hans Belle told Orient Aviation, the new regulations are the green light for which many airlines, agencies, suppliers and technology companies have been waiting.

 “We expect to see the industry evolve as new travel services become available. Sabre has a considerable presence in China as the technology partner to many Chinese carriers and partner to TravelSky for hotel content,” he said.

“We will work closely with our travel partners including Abacus, to bring new travel shopping, pricing, mobile and distribution capabilities that support China’s rapidly growing tourism industry, their prosperity and success.”

Kurt Ekert, chief commercial officer for U.S.-based GDS, Travelport, welcomed China’s “partial liberalization.” In a statement he said: “We’ve developed a number of significant strategic partnerships in the country. This news very much plays to our partnership approach. By working closely with CAAC and our partners, including TravelSky, we’ll plan how to heighten our investment and grow our business in line with the new policy.” Travelport recently announced full content agreements with Air China and China Southern.

GDS celebrations might be premature, suggested some analysts, and said the development represents little but “baby steps” in the opening up of airline distribution in China. By far the largest portion of the air travel business in the country remains domestic and that sector is still closed off to foreign GDS.

The big GDS agree, but argue the new regulations are far more than baby steps.

“I think baby steps is maybe too small a description. There are really three steps and two have been passed with one to go,” said Tompkins.

“When that third one happens, it is true that there will only be opening up of 5% of the market for international airlines, but the Chinese market is so huge even this opening is a big step. I wouldn’t quite call it baby steps because the sheer size of the marketplace is so big, that is really downplaying it I think.”

“Once we have BSP we will be operating with those travel agents that are approved in a fairly standard way. In terms of our freedom to operate in China fully, as we can everywhere else in the world, will depend on when the regulations are extended, and I assume they will be one day, to the domestic carriers.

“We don’t know when that next step will happen,” he added. “Access to the full domestic market would certainly be the icing on the cake. That’s the ultimate aim, but obviously the market is big even without that.”