ANALYSIS: Airlines and GDSs fight over future of distribution

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A further deterioration of the often grudging relationship between airlines and the global distribution system (GDS) providers has taken place, with airline industry group IATA pushing forward plans for a pilot scheme to overturn the current GDS model.

The resultant travel industry backlash against IATA's New Distribution Capability places further strain on a traditionally uneasy relationship. GDSs and travel agents say they were excluded from discussions about its development and claim there has been a lack of transparency over the pilot scheme.

Differences between the airlines and GDSs have also recently manifested themselves in an anti-trust dispute involving American Airlines and GDS provider Sabre. Settled out of court at the end of October, it resulted in a multi-year extension of American's distribution agreement with Sabre's GDS plus a monetary payment to the airline.

The dispute centred on American's request for GDSs to implement improved technology that would enable the sale of additional merchandising. For its part, Sabre claimed it was being pressured into implementing technology that makes it easier for travel agents to bypass its systems.

American has even gone as far as developing its own direct connect distribution system, which offers travel agents a direct link into its host reservation system - a move that GDSs say is anti-competitive.

While many airlines feel that the GDSs are hindering their efforts to sell ancillary revenues, not everybody has been as combative as American in tackling the issue.

Speaking at October's APG World Connect airline distribution conference in Monaco, Chris Phillips, managing director distribution strategy for Delta Air Lines, says he feels that "the GDSs haven't been able to deliver the functionality that the marketplace deserves". He adds that Delta's multichannel approach lets "consumers decide what's right" for them, with airline tickets being sold at the same price via GDSs as through its own internet site. Phillips says that Delta's new website - to be launched in a few months - will be "the next big thing" in distribution, offering improved functionality and personalisation.

He says Delta will continue to develop direct distribution agreements with hotel chains as well as offering full car-hire, hotel and flight packages to its customers. While he say that hotel room sales on Delta's website offer much bigger margins than those offered by seat sales, he says the biggest benefit is serving the needs of Delta's customers.

Yet while Phillips says the website will be able to deliver a "complex bundle of options the GDSs haven't enabled for their customers", in turn increasing yield, he says that personalisation will mainly be a tool to attract leisure customers to the airline's website. He envisages that corporate customers will continue to use GDSs due to their "highly managed travel policies that require the skill and expertise of a travel agent".

Richard Burgess, managing director of APG UK, says IATA and the airlines feel that consumers do not always get complete access to the information available from GDS models. He adds that airlines often feel frustrated that their websites have functionality that the GDSs and legacy distribution tools lack.

"What IATA is pushing for at present is to get some product differentiation into the GDS models. The fact is that in many cases all you see of airlines from the GDS side is a list of schedules and codes," he says. Customers purchasing tickets through the GDSs are "effectively choosing their tickets more on the time of departure and arrival and the price that's on the screen, rather than the product that may be available on-board," he says.

Ultimately, however, Burgess says the airlines know they cannot work without the GDSs.

Also speaking to Flightglobal at APG World Connect, Pierre Jeanniot, chief executive of consulting, management and investment company Jinmag and former director general of IATA, says he does not see GDSs losing their relevance to airline distribution.

"Obviously they're still an extremely essential service...I see them simply evolving with different kinds of products," he says.

Jeanniot adds that from his perspective "the airlines have always had a love/hate relationship with the GDSs in the sense that they are expensive channels of distribution...and they are very powerful and you can't avoid them".

He also says that the "new distribution standards IATA is working on are theoretical at this point". Though some travel agents have already reacted by "saying they weren't part of it...and accusing IATA of lacking transparency", Jeanniot says such complaints "are not unusual" and that "the whole industry has worked together and will continue to find ways to do so".

While sales of airline tickets via mobiles have been much anticipated, Jeanniot insists that the technology has yet to make an impact on airline distribution. However, he believes a breakthrough is not far away.

"The number of people using smart phones and tablets is increasing exponentially. I think it's going to move quite rapidly in the next year or two," he says.

Air Namibia's general manager of commercial services, Xavier Masule, adds that mobile technology could be the key to expanding distribution and increasing direct sales across Africa in particular. Despite increasing internet availability on the continent, a lack of credit card ownership has so far impeded online ticket sales. Mobile payment solutions being developed by banks could significantly impact distribution in Namibia, says Masule, which could also affect the distribution model across Africa.