Direct to the Customer

IT'S THAT TIME AGAIN. THE FIVE-YEAR, "Full-Content" agreements that most major US carriers signed with the major global distribution systems in 2006 are due to expire next year. In what is becoming a ritual of the contract cycle, airlines are letting the GDS companies know that they have some options.

In the past, once the carriers' posturing and negotiating succeeded in wringing some concessions out of the GDSs on segment fees, the dust settled and the basic business model remained unchanged. This time around, American Airlines has announced a bold new strategy: To have all volume that is not booked on its website go through its XML application programming interface. It would connect directly with the largest travel management companies that have huge IT resources and departments of their own. For most agencies, it would connect through third-party technology companies. And that would be a game-changer.

Airlines have invested heavily in their own websites, developing advanced functionality that does not flow well through the Edifact messaging pipeline that connects them with the GDSs. "It's a constraining factor," says Timothy O'Neil-Dunne, managing partner of the T2 Impact e-commerce and IT consultancy. "The Edifact pipe doesn't support advanced functionality. Everybody has tried to shoehorn things into this pipe and it gets dumbed down. Then the GDSs have to pedal like mad to rebuild it all on the other end."

Meanwhile, in the last two years the major US carriers have embraced merchandising, a catch-all term that covers fare families, attribute selling and a la carte pricinga concept that most travelers encountered for the first time with checked-bag fees and snacks for sale. Those sales techniques are displayed easily on a website. They do not fit in well with the standard GDS display.

To drive its point home, American, which declined requests to comment for this article, has said it eventually will cut the Edifact cord that links it to the GDSs. It has suggested that GDSs can continue to connect with it through its XML API. That's not an entirely new idea; GDSs have connected with low-cost carriers in Europe precisely that way.

Here We Go Again

If this has an aura of deja vu about it, there's a good reason: Seven years ago, Air Canada introduced its fare familiescategories that each offered a set of passenger entitlements. The lowest level, called Tango, was a stripped-down fare for a basic seat and 25% of the usual complement of miles. There were upsell and downsell optionsa fee for advance seat selection, a discount for not checking a bag (before checked-bag fees became the norm). A passenger could opt for Tango Plus to get advance seat selection and 100% miles, or for Latitude for full flexibility for changes or cancellations.

The GDSs had no way of differentiating Tango from Tango Plus or of alerting passengers to the "attributes" of each fare family. After three years of dissatisfaction with the GDS response, Air Canada yanked its Tango fares out of the systems. The resolution of the dispute gave rise to the "Air Canada clause" in the contracts that were signed in 2006: If a fare could not be displayed properly in a GDS, it could be withheld from the "full content" that carriers were obliged to provide to the systems. In the intervening four years, nearly every US carrier has developed some form of unbundled or rebundled fares or a la carte pricing. The GDS companies have worked to accommodate the phenomenon but have yet to come up with a solution that satisfies the airlines.

Too Much, Too Fast

The "pace and urgency with which airlines have gone charging in" to create new ancillary revenue streams have not helped, Amadeus CEO David Jones says. GDS executives say the lack of technical standards has led to a situation reminiscent of the carriers' independent development of electronic ticketing. E-tickets made their debut in 1995; the first interline version appeared in 2002. Jones says Amadeus has worked with ATPCO to develop a set of merchandising messaging standards that will be rolled out shortly. But the airlines aren't waiting.

Among the technology companies working with American is Farelogix, whose CEO, Jim Davidson, is a former president of Amadeus North America. Farelogix, along with G2 Switchworks and ITA Software, were touted variously as "GDS new entrants" or "alternative distribution systems" in 2005 on the eve of the last round of GDS negotiations. But once they had served their purposeconvincing GDS companies that carriers were serious about reducing distribution coststheir value to the airlines diminished. ITA turned to development of a passenger services system and G2 Switchworks sold its assets to Travelport.

But Farelogix stuck to its guns, quietly. Its inclusion in the "GDS new entrant" category was a bit of a misnomer. It was not reinventing the GDS wheel; rather, it was creating a hub from which travel management companies could link to a variety of sources of travel content.

Life Without Agents

In the Internet Age, a number of airlines have tried to do without travel agencies. Startup carriers envisioned a future of 100% online distribution. Legacy carriers tried to lure passengers away from agencies to their own websites with low fares, frequent-flyer mileage bonuses and other inducements. But corporations still prefer to manage their travel through companies that can negotiate on their behalf, enforce travel policies, provide VIP service to their C-level officers and perform other services that airlines can't deal withand, just as importantly, don't want to.

Consequently, corporate America's travelers remain in the care of travel management companies and any airline that wants to tap into that market has found it necessary to participate in the traditional GDS channel. GDSs come under a lot of criticism for their 50-year-old technology and lack of nimbleness, but they have remained the standard tool of TMCs.

What has kept them in that hallowed spot over the years is the anxiety that "fragmented content" produces among TMCs, whose managers want everything booked through one channel for maximum efficiency. As one longtime executive of a TMC notes, many agents don't like having to manage their business outside the GDS. Imagine booking a traveler's trip one week in a GDS, online the next, then back in the GDS the following week, he says. The traveler calls to make a change and the staff doesn't know where to look. "It gets confusing and looks unprofessional," he says.

Sparking Change

Farelogix is tackling the problem with a new platform called Sprk (pronounced spark) that acts as a gateway to multiple sources of content. It aims to address a number of issues posed by fragmented content. Perhaps most important, it creates an integrated passenger name record that pulls in trip information regardless of where it was bookedonline, through a direct connection or in a GDS. Through incorporation of another Farelogix product called FLX Commando, it allows agents to use the familiar cryptic codes of the GDS green screen if they prefer. (So near and dear is this issue to the hearts of agents that GDSs have created graphic user interfaces that emulate green screens.)

Davidson stresses that Farelogix is purely a technology provider; it is not involved in the business arrangements between suppliers and users. That is where the airline-GDS relationship has gone wrong, he says. "The equation has shifted away from the lower-cost path of distribution to taking control of pricing," he says. "The airlines no longer want to put that into someone else's hands." He believes the convergence of technology with the trend toward merchandising and the quest for ancillary revenues will spawn new types of relationships between airlines and corporate travel management companies.

The unbundling of fares has created difficulties for corporations: When a bag is checked, the fee is paid separately from the fare, for example. With fees proliferating for a number of services, everything from advance seat selection to pillows and blankets, companies are having a hard time figuring out the true cost of air travel. American's passenger revenue for 2009 totaled $17 billion; its ancillary revenues added up to $2.3 billion. That represents a lot of revenue that cannot be tracked easily.

"Corporations want to pay in advance for some of these things," Davidson says. "They want to negotiate a package of services." A company whose travelers must carry collateral materials to trade shows might want to negotiate up front for fares that include checked-bag fees, for example. Such scenarios open the door for travel agencies to participate in the merchandising trend, O'Neil-Dunne says: "Quite a few travel agencies own the airport parking concessions in their home towns. An agent might decide to bundle parking with the airfare, and he might do it for one airline but not the other."

The first two agencies participating in pilots of Sprk already are looking at ways to capitalize on the liberation of airfares from the one-size-fits-all format of the GDSs. Uwe Zobel, chief information officer of Berlin-based AERTicket, one of Europe's largest consolidators and travel agencies, says his company is considering widening the window for ticketing time limits. AERTicket is using Sprk in conjunction with a content aggregator developed by Lute Technologies, a Swiss company. United Airlines has given AERTicket its blessing so long as the practice is limited to the Lute environment, he says.

The owner of the other participating agency, Boulevard Travel in Calgary, Alberta, points out other benefits of direct connections for both sides. "There are no debit memos for errors," Kevin Murphy says. GDS ticket-exchange systems are not foolproof, and when they generate errors they set off a tedious chain of events that require a lot of airline and agency time and resources to sort out. The problem is so significant that if clients request a significant number of changes in Air Canada transactions, Boulevard moves them to the Air Canada website, he says. "We pull up the file, hit 'change' and the airline does the calculations and figures out the taxes."

Murphy also sees a real opportunity to shift group business to carriers that offer direct connections. One of Boulevard's divisions deals exclusively with sports groups, which is labor-intensive and tricky. "If you do a group transaction through a GDS, you have to prepay with a vMPD [virtual multipurpose document]. When you get all the names [of travelers], you do an exchange or refund for each ticket, and there might be 50 tickets. With a direct connection, you pay for it once, get confirmation for 50 TBA names, then put in the names."

Having to do exchanges is "a huge debit memo concern," Murphy says. In addition, the credit card is sometimes hit twice. Given the risks, he believes a group client would rather deal with an airline that has name flexibility. The new era of direct connections could lead to a true business partnership with carriers, unlike the agent status of old, he says. "If we save them money and are taking advantage of their entire brand and product suite, and if we are helping our partner, we strengthen our relationship," he says.