Since American Airlines told delegates to the Computerized Airline Sales and Marketing Association conference in October that it plans to move all indirect volume to direct connections, industry observers have wondered what such a world would look like and how it would change relationships among airlines, travel agencies, GDSs and customers.
Jim Davidson, chief executive officer of Farelogix, shed some light on the issue during the recent PhoCusWright conference in Orlando. "It's not about eliminating the GDS channel," he said. "It's not about either/or."
Rather, he said, it's about satisfying airlines' desires to take control of their pricing and how their offers to consumers are presented.
And depending on how far airlines want to take their retailing independence, direct connections could be a game-changer for airline distribution. Farelogix is involved in the building of XML connections between American Airlines and other entities, which include large corporate travel agencies -- those that have the means to build their own front ends -- and GDSs. In theory, that would enable airlines to cut the Edifact cord to the GDSs.
Davidson stressed that Farelogix' role is strictly that of a technology provider; it is not involved in the reshaping of the various relationships. Davidson did not address the project in his keynote address at the conference. Rather, he spoke of "lethargic technology" and an industry that is "unmotivated to embrace change."
He noted that corporate travel managers fear airline merchandising, in part because "we are focusing too much time on the bits and bytes of it rather than the meat of it."
The industry has two challenges, he said: The airlines need to figure out how to present a solid value proposition, and they need technical processes to all the transactions to take place.
He likened the traditional display of airline products to cereal boxes that have been turned sideways on the store shelf, obscuring the differentiation that cereal makers have taken pains to display on the fronts of the boxes. Davidson predicted that by the next PhoCusWright conference, "the technological shift in distribution applications will have already occurred. The merchandising opportunity is so large that demand will come from all sides of our supply chain." He said some elements in the travel industry have overcomplicated the technological side of merchandising, pushing for standards and trying to slow the inevitable change. "It's really not that difficult." It requires only three steps, he said: Creating and pricing the offer; displaying and selling it, and settlement. He suggested that not all offers would necessarily be made available to every channel; the mobile channel, for example, might be the preferred sales channel for post-purchase merchandising offers.
Later, Davidson told TTU that direct connections between airlines and distributors would invite new pricing models to replace the traditional segment fees.
The tension that merchandising and ancillary revenues have created in the corporate travel community could be eased by negotiating with the airline for a defined package of amenities, he said.
Online travel agencies are among the entities that would be offered direct connections with airlines, but Expedia Inc. chief executive Dara Khosrowshahi seemed less than enthusiastic. Asked by PhoCusWright chief executive Philip Wolf whether Expedia would accept an invitation to connect directly with airlines and become a retailer of ancillary products, Khosrowshahi said,
"We're not a connectivity player. Our technology resources are pretty dear, and I don't thing direct-connecting to an airline adds any value. The GDSs have done a good job of collecting airline content."
Wolf pressed the issue: What if an airline's Web site does a better job of merchandising than a GDS? How would Expedia would respond if an airline expressed a preference for a direct connection?
Khosrowshahi said Expedia will try to figure out how to get the ancillary products into its marketplace. "You don't need to have a connectivity path for every activity," he said.