Back in the bottle: what happened to GDS new entrants?

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Three years ago a rash of new technologies emerged offering the chance for airlines to end their reliance on pricey Global Distribution Systems. Bold enough to be dubbed Genies, they haven't replaced the GDSs. Where are they now?

It seemed too good to be true: a new technology that promised it would allow carriers to land a mighty blow in their battle with the GDSs for lower selling fees. At the same time, the technology would offer direct access to customers, bypassing booking through the old-fashioned GDS route.

The new players even gained the name GNEs for Global distribution systems New Entrants, a moniker that was pronounced "Genies". They held the promise that they were indeed genies, not unleashed from a bottle but from a computer. The hype was that they would abolish the dependence of carriers on old technology and end the GDS oligopoly and even replace them.

They didn't. In just three years, both of the major new entrants, G2 Switchworks and ITA Software, have changed strategic direction. Now they are choosing to focus on new areas, and are unlikely to supplant, surpass or replace the GDSs.

Henry Harteveldt, Forrester Research senior analyst, says of the GNEs: "They may turn out to be the snake-oil salesmen of the early 21st century. One airline executive said to me recently, 'we've spent a lot on them but what do we have to show for it?' He's right. There's no visible traction with the new entrants." Harteveldt says the new entrants gained market presence in large part because they came to the fore as airlines and the GDSs prepared for their first contract renegotiations since they were deregulated in the USA in 2004.

Their role was largely one of providing the airlines with leverage. "Even though they have very smart people and it would be a mistake to underestimate their creativity, as the economics of the GDSs become more attractive, one wonders more about the upper limits of what these alternatives can do," says Harteveldt.

Both G2 and ITA suggest that the phrase GNEs and the high hopes that surrounded their emergence in August 2004 were not of their making. Ellen Lee, G2 co-founder and vice-president, says: "I think we got caught up in the airline/GDS negotiation posturing, and from an airline perspective that worked as they reaped good savings from the GDSs in 2006, thanks, in part, to our existence." The Chicago-based company grabbed the headlines mainly because its chief founder, Alex Zoghlin, was considered a revolutionary. Zoghlin was the brains behind Orbitz, the airline-backed internet sales site that was later sold to Travelport, the owner of the Galileo GDS.

Today both G2 and ITA, with impressive backers and substantial investment behind them, are morphing into behind-the-scenes technology providers that promise much for carriers, but in different ways to bypassing the GDSs. G2 is backed by nine US airline partners, including Northwest, United and US Airways, which pre-paid large sums to G2. ITA is an independent technology firm based in Cambridge, Massachusetts. It won $100 million in venture capital backing in January 2006.

G2 has shifted from its GDS bypass focus to providing travel agencies with what Lee calls end-on-end solutions. It has made deep inroads into the travel agent network with programs that allow rapid booking, booking revisions and payment on a travel agent's desktop, without reliance on the GDS.

Corporate clients
G2 has clients like corporate giant Carlson Wagonlit, powers an airfares-only reservations engine for smaller retail and home-based agencies and has a back-office and customer service contract with Priceline, a major US internet travel-sales site. G2's airline partners and newer customers like AirTran Airways also distribute through G2 into corporate travel accounts through contracts.

To Lee, the game is still one of leverage, not between airlines and the GDSs, but between the GDSs and travel agencies. She says: "One thing that agencies should have learned in 2006 is that tying yourself to a single distribution channel is risky. Multi-channel solutions not only manage business risk, but shift the balance of power from the GDS to the agency." Lee says that a dispute last year over added fees on most GDS bookings showed the risks of dependence on a single channel.

ITA has shifted its focus as well, says chief commercial officer Gianni Marostica, to "a more holistic approach to serving airlines". It is moving beyond the services a GDS would provide to a larger effort to build the basic IT backbone an airline needs.

Its most ambitious project is to design and install a hosting system for Air Canada. This is a fundamental shift away from building a distribution system, according to ITA. The project is not a booking engine as much as it is "a brain within Air Canada", which has relied for decades on a version of the old BABS reservations system developed by a British Airways predecessor.

Air Canada's unbundled approach to fares, in which multiple attributes of a single fare are displayed and priced, outpaced the ability of the traditional GDS to process these more complex transactions, says Air Canada's vice-president sales and product distribution Marc Rosenberg. The airline's chairman Robert Milton hopes the new platform will be up and running within a year.

But GNEs may still have a role to play, at least in the USA, when the next round of GDS contract negotiations comes around in three years. Some, such as Travis Christ, vice-president for sales and marketing at US Airways, urge carriers to continue to support the GNEs in advance of the next round. That tug of war will not be as simple next time, warns Nawal Taneja, chairman of the aviation department at Ohio State University: "The GNEs may have helped the airlines with their leverage, but they also gave the GDSs plenty of time to get to their next generation and be able to do many of the things that they couldn't do, such as refunds, repricing and so on when the GNEs started out." Over this time, the carriers have recognised that the GDSs have advanced and have moved into what Taneja calls "GDS-New Generation".

The GDSs, while boasting of their move away from much-derided mainframe technology, have accepted that they will be part of the mix and no longer the masters of their universe. David Gross, senior vice-president of distribution for Sabre, suggests that airlines will "start moving to the middle in some kind of hybrid model where there is direct distribution and there is indirect distribution".

Northwest chief executive Doug Steenland says: "We are about offering our customers choices, so you'll see us giving customers the choice of making reservations and getting flight information in as many ways as we can and as many ways as they want."

What this means is that major carriers will choose from a broad menu of distribution options. "One thing we learned is not to be dependent on one or another single channel, or on one or another GDS," says Chris Cochran, manager of distribution strategy at Delta Air Lines. "We'll support the GNEs, or the alternatives, and we'll also work with the other players that make it easier to distribute through travel agents and so on. If someone doesn't like one flavour, or one technology, then we'll find a flavour they do like."

The flavours that Cochran speaks of are part of a larger menu, in which multiple new technologies serve as intermediaries between the airline and the travel agent, between the airline and the agency, and between the consumer and corporate travel customer. This can be achieved through combinations such as using GDSs for some sales, using direct connects for others and letting travel agents use emerging technologies more than before so they can customise the airline offering.

This menu is possible only because of a shift away from reliance on the GDSs. Richard Clarke, director of consultancy Travel Technology Research, says that because the GDSs are no longer the sole aggregator of airfares and availability, the crucial need going forward is for technologies that allow airlines to get their fares and seats to sellers through multiple channels.

Because the airlines now can mix and match and create their own menus, some IT producers see their role as providing an easy platform on which the carrier can switch back and forth from one distribution channel to another. Some IT providers have made this easy, making switching a key feature of their larger technology platforms. They don't dismiss the potential of the GNEs, but say their technology's goal is to make the choice among distribution channels an easy one.

For instance, Lufthansa Systems and Unisys are jointly developing the Future Airline Core Environment (FACE), which consists of various modules to manage most airline functions.

The system's distribution function is one part of the set, and its independence from relying on one or another distribution technology is an important part of its proposition. Lufthansa Systems senior vice-president Anselm Eggert says that "many airlines are very reluctant to give their core inventory to a single provider like a GDS, so we are GDS-independent".

Mike McNamara, Unisys Global Transportation vice-president, adds that the FACE product does not replace the GDS. In fact, it does not touch either the reservation or the distribution functions it merely makes an interface. By making the airline distribution-neutral, "it can give the carrier the ability to switch between different distribution channels. This gives the airline power to tell the GDS that it can use which supplier it wishes." One of the first customers for FACE is the UK's bmi, which should begin using it next year.

Travelport's Flo Lugli, senior vice-president of airline solutions, says its goal "is to provide maximum flexibility to the airline" with its aiRES reservations IT platform. Travelport may have both Orbitz and Galileo under its wing, but aiRES is independent, she says. The platform has had a difficult birth having gained a bloody nose on news of delays to its installation at Canada's WestJet, but Lugli insists that these are due to the "ways WestJet changed its business model". Installations at planned start-ups Virgin America and the UAE's RAK Airways are running to plan, she adds.

Until aiRES is ready, WestJet will continue to use a system designed by Navitaire, a pioneer in building links between reservations systems and low-fares carriers. Accenture-owned Navitaire also develops large hosting systems. It represents another alternative, a step short of placing an airline's reliance on a completely new IT platform.

Navitaire managing director John Dabkowski says he sees airlines "selectively building direct connections where the volume or the business case warrants, and using connections that bypass the GDS network for both performance, content and cost reasons. Since the cost to build and maintain these connections is greatly reduced using interfaces, this is a more feasible alternative than in the past. They can experiment with less cost and risk."

Changes in airline business models have been opportunities as well as challenges for new technologies, as is the case for Irish firm Datalex. Chief executive Cormac Whelan explains that Aer Lingus, a major customer, transformed itself from a legacy carrier to a low-cost player in part by moving about 70% of its bookings from the GDS to its own site through the web-based Datalex Travel Distribution Platform. This takes fares from the industry clearing house, ATPCO, and puts them directly onto the airline's website.

Traditional technology
Airlines using new technology have to be able to continue to use traditional means too, as is the case with United, for which Datalex has built a booking engine that uses other new technology, in this case fares-shopping from ITA, as well as GDS technology, in this case from Galileo. "The difficulty of working with other systems is nowhere near what some people imagine," says Whelan. "As long as you have scalability, you can do that and also be able to handle the future needs, such as fees for seat selection and other new sources of ancillary revenue."

A still-sceptical Harteveldt reserves judgement here. "If IT providers can truly succeed in offering a new type of hosting, that could let the airlines use them as a cost-savings tool and as leverage against another service that the GDSs offer - but that still hasn't been proven." Harteveldt says just as the GNEs fell short of their initial promise, other distribution providers will have to show restraint in what they claim.

If there really is a Genie that can magically make it easy to for an airline to get its product to market, for now it's still in the bottle.

Air Canada goes it alone
Air Canada's decision to go it alone on a new hosting system and choose a developer with reservations and distribution expertise highlights the difficulties in creating a single technology that can serve many carriers.

Air Canada was, after all, one of the three Star Alliance members, along with Lufthansa and United , which pushed for an alliance-wide technology platform and alternative reservations and distribution system. But Star says: "Recent changes in the distribution landscape have delayed the implementation of alternative distribution solutions." Star designated both of the GNEs, G2 and ITA, as preferred providers to its Alternative Content Access Platform (ACAP) in June 2005, and in 2006 added Lufthansa Systems. But since then a number of Star carriers have signed new GDS agreements at lower rates.

As a result, the ACAP providers "changed their business models", says Star. Even though the project may have ended up achieving few of its ambitious goals, the alliance will continue to work with new content access providers "outside of North America".