ANALYSIS: Another storm brews in airline distribution battleground

Washington DC
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The International Air Transport Association (IATA) took another step in recent weeks towards a new airline distribution initiative it is spearheading, sparking off a chorus of dissenting voices among different players in the industry.

The airline distribution industry is no stranger to controversy, going by the lawsuits that airlines and global distribution systems (GDSs) have filed against one another in recent years, with each party accusing the other of anti-competitive behaviour.

Now with the IATA promising to kick off pilots in 2013 of the new distribution initiative it is championing, called the New Distribution Capability (NDC), GDSs and travel agents alike have renewed their cries of concern against the project.

First endorsed by the IATA board in 2011, the NDC aims to deliver open XML standards, enabling airlines selling through travel agents using GDSs to customise their products for customers. Currently, about 60% of air travel is sold using GDSs, says IATA.

"The travel offer is put together outside the airline by third parties. The customer is anonymous to the carrier until the transaction occurs. Thus it is impossible for the airline to tailor its offer to the customer via the indirect channel," said IATA's director general Tony Tyler on the current system at the World Passenger Symposium in Abu Dhabi on 16 October.

"They [airlines] are developing products and services, such as special meals, expedited boarding, roomier seats and access to airport lounges. But at the end of the day, the travel agent sees only codes - F, J, Y and their various derivatives. There is no way to tell if your 'J' product is a flat bed or an economy class seat with an empty seat beside it."

Upon passing the foundation standard for the NDC on 18 October, IATA says it requires volunteers among airlines, travel agents and GDSs to join pilots for the NDC in 2013, as it works to tweak the system before industry implementation.

Getting travel agents and GDSs in on the act, however, could be an uphill task, if recent reactions by these groups are anything to go by.

GDSs Sabre and Travelport have been outspoken against the NDC, which they say did not take into account feedback from them. Travelport says that much of the NDC "appears only conceptual in nature, based on high level principles that do not necessarily incorporate the input of all the critical components of the travel value chain from supplier to travel agent to consumer".

Sabre has highlights potential privacy concerns. Sabre Travel Network's senior vice president of marketing Chris Kroeger says that under the NDC envisioned by IATA, travellers will be required to divulge personal information like age and marital status in order to view customised offerings by airlines. "It creates some data privacy issues," says Kroeger, adding that travellers will also be less able to compare fares across the board with the NDC.

Both Travelport and Sabre have reiterated that they already have various commercial agreements with airline customers to sell their ancillary products, such as premium seating and bag fees. Sabre's Kroeger says that Sabre has "made it very clear" that it will not charge airline customers more to sell ancillary products.

However, airlines remain cautious, especially in a current environment of volatile fuel costs and broader economic concerns. Airlines have repeatedly said they are paying too much for GDS services, a sentiment reiterated by Tyler in Abu Dhabi. Saying that the NDC will "encourage market entry in the distribution space, which will stimulate competition", he adds: "Airlines spend $7 billion per year on GDS fees. It is not news that we are very concerned about this cost - which is greater than the industry profits this year."

In response to accusations of pricey GDS fees, Simon Gros, chairman of the Travel Technology Association, said at a 18 October panel on airline ancillary fees in Washington DC that GDS fees cost only "2% of any airfare", a level that is "cost-efficient" for any airline. Gros is also vice-president of government affairs at Travelport.

Airline complaints over costly GDS fees have erupted into lawsuits filed by airlines and GDSs against one another as airlines seek to contain these costs. American Airlines, which has sued both Sabre and Travelport, has said that the two GDSs hold control over 90% of bookings made by US-based travel agencies. It had wanted to deal with travel agents through its own direct connect system, a move that GDSs counter as anti-competitive.

While American might have taken a more combative approach, other airlines like low-cost carrier Spirit Airlines are still studying what it will take to sell ancillary products through GDSs. It is now in talks with Sabre to study how the GDS can sell its ancillary fees besides its core fare offerings. "It is not as simple as people make it sound... We are trying to understand it right now," says Spirit's chief marketing officer Barry Biffle.

It is not clear yet if IATA's envisioned NDC will effectively address distribution cost concerns raised by airlines, but it is apparent for now that the association will face some formidable opposition from some players in the industry when it comes to full-scale implementation of the project.

Besides the GDSs, several trade associations have expressed concerns over the NDC, with many accusing the IATA of not including them in discussions. In a strongly-worded statement, the American Society of Travel Agents (ASTA) and Business Travel Coalition (BTC) disputed claims by IATA that it had collaborated with the travel industry on the NDC.

ASTA's chief executive Nina Meyer said the group was rebuffed when it asked for details to participate in an IATA working group on the NDC in Montreal in late November. "IATA did express a willingness to meet separately with ASTA, but that is far from the full collaboration and openness that IATA is trumpeting," she said.

BTC chairman Kevin Mitchell said: "IATA only welcomes individual travel agents or travel managers who are largely prevented from speaking up for fear of retaliation on their businesses or airline contracts."

Both the ASTA and BTC took issue with the IATA's claim that travel agents could not customise air travel for passengers using GDS technology, saying that IATA unfairly blame travel agents for airlines' commoditisation of their product.

"It is airlines that have set prices since deregulation and entered into commoditised code share agreements, not travel agents. Agents sell what the airlines offer," said the two travel organisations in a joint statement.

In response to the ASTA and BTC, an IATA spokesman says the association had reached out to both organisations by sending a team to their tradeshow in Los Angeles in September.

He adds that two global associations for travel agents, the United Federation of Travel Agents' Associations and the World Travel Agents Associations Alliance, had attended the meeting in Abu Dhabi and that IATA had invited the technical teams of the associations' "key members" to participate.

"We will continue to collaborate with individual travel agents and their associations in this important project," says the IATA spokesman.

Whether IATA eventually wins the full support of key players in the airline distribution industry to implement the NDC is still anyone's guess. But for now, the project could potentially widen the rifts in an industry already strewn with discord.