Global distribution provider Amadeus has responded to growing demands from airlines to reduce booking fees by introducing a two-tier pricing structure based on "value" to the airline.
The move comes as the pricing power of global distribution systems (GDS) comes under growing pressure. Washington is relaxing restrictions on how airlines distribute content on GDS systems and Brussels is expected to follow suit with similar deregulation measures next year.
Mainline carriers have also been attracted by the ability of low-cost airlines to sell directly to passengers through the Internet, and are showing increased interest in GDS-bypass options.
The new Amadeus scheme, to be introduced this year, will offer airlines in Europe, North America, the Middle East and Africa a 5% discount for short-to medium-haul tickets booked in their home or "prime" market. However, they will have to pay an extra 5% in secondary markets, or for long-haul bookings. Carriers in Latin America and the Asia-Pacific region, where the dominance of travel agents is relatively unchallenged, will see no change in the price of standard bookings, but a 4% increase in premium fees.
Amadeus says the new structure is designed to link fees to the value of each individual booking for the airline. David Jones, executive vice-president commercial at Amadeus, describes the move as a "modest first step" and makes it clear that he wants to open up a dialogue with airlines on the issue. "It would not be appropriate to rush in with big changes," he says. He claims that the new structure will be revenue neutral, although most analysts see this as optimistic in a climate of pricing pressure.
Acknowledging that "the relationship with our partners is not as healthy as we would like it to be", Jones says that "pricing must more closely reflect value" going forward. "If I were an airline executive, I would be wanting big reductions. But Amadeus has to take account of all stakeholders - airlines, travel agents, shareholders and employees," he says.
Industry observers say the main beneficiaries of the Amadeus move will be customers with large volume bookings in their home markets, including British Airways, Finnair and the three Amadeus shareholders - Lufthansa, Air France and Iberia. However, carriers with significant long-haul bookings outside their prime market are likely to be less happy.
The Amadeus announcement follows Sabre's introduction of Direct Connect Availability (DCA), which gives discounts to airlines if they agree to offer travel agents all their content, including discount fares, for three years. The published discounts are 12.5%, although some believe that with extras such as marketing support the figure could be nearer 20% in some cases.
GDS providers Galileo and World-span have followed suit, with Galileo launching its preferred fare selector (PFS) in July, while Worldspan has struck a number of similar deals with US carriers.
Sabre says it will not charge travel agents for its services, and instead hopes to at least recoup the drop in revenue by increased bookings from travel agents; internal savings (through redundancies and new IT infrastructure); and new revenue streams such as the online travel site Travelocity and Getthere.com, the corporate self-booking engine.
Jones at Amadeus describes the agreements set up by the three US-based GDS providers as "a three-year truce". Sabre says the deals are "rolling contracts", designed to be renewed every three years.
Amadeus is also offering a reduced fee option for airlines to distribute low-fare content, aimed at both traditional and low-cost carriers. Jones says that this has "implications" for travel agents: "We cannot rule out that this could mean a reduction in incentive payments, or even the payment of a modest fee." However, he claims that Amadeus will be able to offer travel agents low-cost content at a lower rate than they pay now.
Meanwhile, from 2005 Amadeus will offer itemised pricing for some optional services, enabling airlines to choose items and pay for them individually.
Source: Airline Business
