So will Airlines go Direct Connect or not?

Of course some will, but not completely and many will not at all for competitive, budgetary or capability reasons. Will all TMCs link direct to those that do? Definitely not. The customer ultimately will decide and they will have a choice… at a price.

Let’s get down to basics shall we? Firstly there is nothing wrong with the GDS model we have at present as far as the whole chain (excluding the supplier) is concerned. For the supplier it is a frustrating cost of sale that they have failed to negotiate down sufficiently and one they are not willing to pay for any more. In simplistic terms they cannot see why they should pay to enable customers and intermediaries to have a ‘one stop shop’ and besides it distances them from their customers.

So airlines like American have decided that it is time for a change in model. A bit like Lufthansa did in Europe. Enabling technology capability is perceived to be there now so they have thrown down the challenge to the GDSs of negotiating or risk market attrition. However what they seem to have failed to grasp is that maybe the rest of the supply chain is either not capable or unwilling to embrace the direct connect model. Some have too much to lose and definitely little to gain by doing so.

The current dynamics and rationales are both fascinating and disturbing and worth analysis. The market is enormous and with many players in various shapes and sizes. It is also bound up in a ‘cats cradle’ of payment incentives, global market variations and cultural ways of doing business. There are still places on the globe who are transacting business two steps back from what the so called driver markets discarded years ago.

The above does not appear to concern the main drivers of change like American and Lufthansa but they need to remember that they aspire to be global entities yet seem to be applying their local majority market strategies on ultimately all of us. I am certain that, in the current environment this will not work but equally convinced they will be able to do it where they have critical mass. So this means that the world will have to handle air transactions on a more complex multi-tier basis.

So I for one accept that it is going to happen in parallel with the current booking methodology. This means that one can either book direct or through someone else at an additional cost. Cost, of course is the operative word. To book ‘direct’ you will either have to go straight through the airline or through a TMC who has a non GDS link. This will cost the TMC in money and resource as they will need to radically change their systems and they will not do it for free. The airlines will have to pay them instead of the GDS although not so much. The corporations will also want their cut or at least compensation for extra TMC cost.

I do not believe for one second that any volume spending corporation will decide to bypass the TMC because of this new model. What airlines choose not to understand is that a booking (and the cost of it) is not the be all and end all of travel management. In my days in travel management the actual booking itself was just the tip of the iceberg of travel management activity. Will corporations accept the fooling around of their programme just because an airline wants to save their own distribution costs?

To me it is logical that not all airlines are going to follow this path. It is also logical that some (i.e. American) will do so but with a much smaller impact than they might hope for and then only in certain market areas. I think others will watch them succeed or fail before rejecting it or taking into account the mistakes they make. It will become just another option which will bypass the GDS, give further power/income to the TMC and pass a potentially higher tab to the end user. I have said it before but what it will do is turn the big TMCs into mini GDS who will want incentivising while having greater control over airline share.

Finally one needs to ask what the smaller and less endowed airlines and TMCs are going to do. Those that do not have the capability or infrastructure to operate two different main booking methodologies. Sure as anything, they are not going to sit still.
Neither is the GDS. I suspect both will do all they can to bypass American and anyone else who tries it and invent alternative value adds.

As for the large TMCs I expect them to eke out every competitive and financial advantage out of the chaos that will ensue. They should be able to both have their cake and eat it by managing the different options in different regions and using their superior technology. Mind you they too are under a degree of pressure as they are less able than most to turn around to a mega supplier partner and say they won’t play. That could get very messy so I am not surprised they are ‘working’ with American.

I will watch with interest and a high degree of scepticism over what American might achieve. I wonder whether they will see the savings made from GDS bypass fading away in TMC and corporate incentives and market share loss. Maybe they will remember that they used to get a higher yield using the other model. Who knows, but it will give everyone in the industry a wake-up call at least!

COMMENT

I still don't think we've even scratched the surface of how bad direct connect will be for airlines, tmcs and customers Martin

The Beat Live? Boy What a Blast

I have just been reading the agenda and speaker list and boy what a blast I would have if I were there! No folks, this is not an advertorial for this event, more a recognition that at last somebody in the travel world is getting together some smart guys to air critical issues. I hope they do not let us and themselves down by blowing the opportunity to sidetrack posturing and ‘company speak’ to thrash out some alternative arguments.

My time for speaking at such events has diminished either by the lack of an own company to provide travel logistics or concerns about just how forthright I have become since shedding company policy shackles. Either way it reduces wear and tear on my heart and liver but sometimes, rather like my scruffy old jeans, I miss them like this one.

I then started asking myself why I am so het up about not attending yet another industry conference. What would be the one question I would ask if I was there? What would I press speakers about? Why do I think it is so darn important? How much would I lose at the Blackjack table?! Before moving on I thought I would scribble down a few thoughts on the topic I would bring up if I had made it to Las Vegas. You never know, somebody might use part of my thinking within their own contribution.

I would ask airlines to explain the practicalities of how they make their strategic commercial/distribution decisions. Within that who the decision makers are? Who within their organisational management do they interface with (i.e. sales, marketing etc)? Do they factor in the impact and needs of their corporate customers and, if so how and through what channels? Do they consult the corporate customer and who/how?

I would want to know about their policies and priorities. Are their decision makers fully market aware? Do they think they need to be? Does their organisation feel any duty of care to the industry they work in or do they simply focus on their own needs and expect the supply chain to adjust with their changes?

I still find it extraordinary that after all this time even people of my years do not really truly know who makes the key decisions in the air supplier sector. Experience has made me pretty certain it is nobody less than twice removed from customer interface. In fact I am pretty certain that most sales divisions are low enough in the company pecking order not to have much input. If they are being honest they are mainly left to pick up the strategic pieces.

It does not need a brain surgeon to get to the point I am trying to make which is that I believe this market is supplier and not customer driven. This was (perhaps) OK in the past when the industry was heavily regulated but surely not now. Not only do they want to have their cake and eat it but they want somebody to wash up after them…for nothing!

The point of the question is to explore if there is any better way of receiving and giving true consultation between corporations, their TMCs and their supplier partners. I know it is a competitive world out there but surely there is a better modus operandi than the current system of making decisions without true understanding. You only have to look at some of the arguments coming out from AA regarding distribution to see that they either do not understand their customers wishes or choose to ignore them.

Anyway, to those that are going to ‘The Beat Live’ have a blast from me and get some answers!