Monday, March 26, 2007

From: Jack Keady : e-mail of 23 January, 2007

In referencing the document that follows his query : Note – following the headline, only the second paragraph of the advisory document is quoted[1]
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Richard - in plain terms, how are the big GDS's planning to screw the consumer? -- jk

Business Travel Collation European Advisory : 23 January, 2007
Sweeping New Airline Distribution Changes Would Imperil Travel Management

Based upon BTC sources and research, some airlines in Europe are planning to unveil proposals to shift distribution costs swiftly and surely to end customers and fragment content in the near term, and completely marginalize trusted players in business travel distribution in the longer term. What's more, these airlines have done minimal outreach to the industry and to business travelers to explain their intended moves. Indications are that new programmes will be announced with little or no discussion and with little or no lead time. Unless the industry demands its seat at the table soon, these unilateral reforms will become a dangerous reality.



Eastman's "Off-the-Wall Comment(s)"© …

Jack … In my view, BTC is a very invigorating participant in the business travel sector of aviation; but unfortunately, in this particular aspect <<>>, its members appear to be living in a world of the past.

In times past, the airlines owned the distribution systems; as did all major manufacturers during the Industrial Age (i.e., the 1900’s for the most part). In the beginning, the airlines owned the distribution systems because it was the only way to efficiently and effectively distribute their product (i.e. seats between A and B). Over time, the airlines begin to use their distribution tools for competitive advantage … initially, against their direct competitors … and ultimately … against indirect competitors (i.e. airlines that did not have like distribution solutions). CRS rules were created in the mid 80’s and early 90’s to effectively neutralize or negate these competitive advantages.

Subsequently, the ubiquitous natures of the Internet begin to impact the vendor-controlled nature of the distribution system in the early to mid 1990’s. The distribution channels begin to disintegrate as consolidators and tour wholesalers offered their distressed inventory in the “open market” made available by Internet. Ultimately the airlines found that they could not be in both the “airline seat” AND “digital transaction” businesses at the same time – and the airlines begin divesting themselves of the digital transaction side of their businesses.

BTC leadership is comprised of long-time big-budget corporate travel managers … products of the vendor-controlled distribution era. They derived all of their experience and skills finding ways to use their “bulk buying” power base for their personal (and sometimes, corporate) benefit(s).

As demand-driven Internet distribution evolved and continues to evolve … these former travel “power brokers” begin … and continue … to lose their power and control. More importantly, they do not seem to understand what is happening in travel distribution arena; most likely because they have no past experience upon which to draw reference.

To answer your question directly … the GDSs are not planning to screw anybody.

In fact, with the exception of Sabre, the other traditional U.S. GDSs are unlikely to survive another 10 years! They are, individually and collectively, fighting for their very lives! Last month’s OTWC discusses how the merger/acquisition of Worldspan by Galileo/Travelport is a defensive tactic … two “falling-behind” giants seeking to combine assets to lower costs through consolidating back-office work processes. Both are losing market share and customer base. How the heck do companies losing money intentionally “screw” the customers upon which their very existence is dependent?

Sabre SOLD its airline inventory hosting software base to EDS … in order to fund a NEW contemporary Internet-based distribution technology platform. It has been five years developing this product … and that product is now coming online. But if the other U.S. GDSs are fighting for survival, who is Sabre competing with? Not Worldspan. Not Galileo. Not even Amadeus (more on that below). No … Sabre is competing with Expedia! It’s Expedia that has evolved into what is effectively a GDS power-broker in the travel distribution sector.

Amadeus is not a threat to Sabre (or Expedia) because about the same time Sabre started building their interactive distribution platform, Amadeus identified and moved down a very different strategic path. Because of the strong European base (in ownership, retail outlets, government control, and most importantly, culture) … when Amadeus came to recognize the power of Internet, it reverted back to its inventory hosting origins – and built (and continues to build) an Internet compatible inventory hosting platform! Amadeus build its core to serve the vendor airlines (i.e. one world and subsequently, Star Alliance). Amadeus has created a platform that can offer airline product through any Internet portal or venue that the VENDOR wants to participate in.

Thus, Amadeus reverted to inventory hosting/management … while Sabre moved to embrace the manifestations of a knowledge-driven Internet world of distribution integration.

Galileo/Travelport (who also owns Orbitz … a fading star) and Worldspan (who originally controlled Expedia’s access to the airlines but is now involved in embittered legal battles with Expedia and others as it desperately tries to hold onto its Internet switching business) have become also-rans in the travel distribution paradigm.

The past is gone! The vendor-controlled distribution channel King is dead. Long live the NEW King! That new King is demand-driven abilities to respond to buyers coming from an infinite number of digital sources.

Some of the traits of the demand-driven paradigm are that buyers share in the cost of obtaining the information they seek. After all, who pays for your access to the Internet? Who bought the software that lets you access the Internet? In the past, those were all costs and processes and software provided by, originally, the airlines themselves … and subsequently, the vendor-controlled channel intermediary GDSs,

Another trait of demand-driven distribution is that anybody from anywhere with access to the Internet and/or digital intermediaries packaging or serving the travel industry – can demand and expect to get the “package” and/or “price” and/or “service(s)” that they are willing to pay for. Anybody from anyplace at any time. The vendor-controlled model of the past mandated access through agents … agents that were certified by vendor-owned intermediaries; agents compensated by the vendors; agents that steered buyer decisions; agents that only worked at certain hours and on certain days, etc., etc., etc. That’s not “anybody from anyplace at anytime.”

Now consider this almost emotionally dire warning from BTC … << … some airlines in Europe are planning to unveil proposals to shift distribution costs swiftly and surely to end customers and fragment content in the near term … >>. Isn’t that just exactly what I just described is already happening throughout the travel distribution model?

European carriers are leading the charge at the moment because Amadeus reverted to become a vendor-hosting platform with the tools that serve all of these demand-driven expectations.

Concurrently, for whatever it counts, Sabre has evolved a platform that will allow it to compete at the buyer end by enabling buyers to cost-effectively access whatever fragmented content they seek, can find relevant to their need, and/or do NOT want to pay for or use! Sabre’s new platform is directly competitive with Expedia’s; and even their revenue models are beginning to look similar.

But the key driver is fragmentation! The ability to access and/or provide whatever element of a travel package the buyer seeks and/or is willing/able to pay for! Fragmented content is what interactive packaging is all about. Fragments, when viewed from another perspective, are nothing other than components. Components are at the core of interactive packaging; assembling in real time the various components that a buyer seeks in his particular travel package. It is toward interactive component packaging that both Sabre and Expedia are headed – just as Amadeus has built the platform to respond to those component or fragmented interactive demands of buyers.

This is NOT a new concept to readers of OTWCs! OTWC has been identifying this trend and elements thereof, for the better part of five years. It became very obvious when the newly independent GDSs entities begin to structure their distinct strategies as they were weaned from airline controls. Amadeus and Sabre’s strategies seem to have worked … while Galileo (now Travelport) and Worldspan, although having intermittent spurts, have fallen behind. But back to the BTC issue.

In my view, BTC seems to be creating a hullabaloo about the inevitable. BTC travel managers are, in fact, threatened by fragmentation because it does change their cost base – and more importantly, dilutes their brokering power with the vendors! These corporate travel managers are losing power as a result.

A year ago, there was a furor over changes to the U.S. GDS regulations. Now, the EU appears to be about to emulate, in their own way, similar changes. The advisory is attempting to “rally the European travel mangers” under the guise of fear.

But it is really fear of the unknown … fear of change … fear of loss of power. These fears are not unlike the fears that Unions advocate when confronted with changes brought about by technology or other cost-saving innovation.

Unfortunately, BTC and the corporate travel managers are fighting the inevitable … like agents trying to stave off e-tickets or Internet booking solutions. BTC and this group of travel managers would be better off spending their monies in building the tools and the business structures that will enable them to take advantage of the fractionalization and re-structuring of the travel distribution process now well under way.

Examples abound, including … Air Canada’s restructuring both its product offerings and its distribution channels when the traditional channels could not accommodate the new Air Canada pricing (another thorn in the side of BTC) … Expedia’s decision to not offer American Airline products through the Worldspan channel because those product offerings were incomplete or incurred costs to Expedia’s buyers that were greater than the buyers could get through other channels and/or expected to pay … JetBlue’s recent decision to integrate selected cruise product offerings on its web site to enable buyers to get air/cruise pricings not available elsewhere; a classic example of fractionalized components being integrated to enhance specific value.
Fractionalized travel product and packaging is the trend of the future … and it is essential that both vendors and intermediaries evolve the tools to deal with and varied demands and expectation of buyers. In the process of this transition, the traditional power structures of buying and selling will be re-constituted. Travel agents, corporate or leisure, are not going to go away – but their role of controlling transactions and channeling business as a function of the vendor- controlled distribution structure is now on a very short leash! People and businesses in those roles need to very quickly reassess their futures! The clock is now ticking!


[1] Many european based OTWC readers will have received this document on 23 January. My copy is available on request; or a copy can be requested from BTC by e-mailing mitchel@businesstravelcoalitian.com. The advisory is not yet posted on the BTC web site, but a .pdf document entitled “Rumblings in Brussels” seems to address the BTC concern and can be retrieved at http://businesstravelcoalition.com/statements/144.html

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