The excitement over new distribution alternatives has died down, but they have gained significant ground in the battle for the airline distribution dollar
The third way – the new alternatives that threatened to uproot the world of distribution – may have become less of a rhetorical phenomenon but more of an established business reality.
The two most prominent, if not disruptive, new entrants – G2 SwitchWorks, which exploded onto the scene in April 2005 as a “change agent” or game changer, and its older rival and sometime colleague, ITA Software – have now, in the words of one airline executive, Continental’s John Slater, become “an important part of the mix”.
Both players have won backing from the world’s largest strategic airline grouping, the Star Alliance, a major endorsement that takes them far beyond simply the bargaining tools that airlines had initially engaged to gain leverage with traditional distribution technologies. Slater, Continental’s managing director for distribution planning and e-commerce, says the Houston-based carrier uses ITA’s shopping software, QPX, and was also one of the initial airline backers of G2 just a year ago.
In that year, the rhetoric has indeed changed: Star has begun calling them not GNEs for Global New Entrants but ACAPS or Alternative Content Access Platforms. Rivals, perhaps dismissively, have called them “limited distribution options”, perhaps in an attempt to tar them with same brush that some network airlines use in referring to low-cost carriers as “limited service providers”. Slater compares the challenge of G2 and ITA to “legacy” booking systems with the threat that the new low-cost carriers present to other “legacy” carriers.
But whatever the name, whatever the acronym, however exaggerated the headlines were a year ago, these players are not about to go away.
Star vice-president commercial, Horst Findeisen, does not expect that deals with the alternative systems mean the end of traditional Global Distribution System (GDS) relationships. “We see a co-existence of legacy distribution channels and new distribution channels and the airline’s own websites and call centres,” he says. But the mix of how much each of them is used will change. There are key differentiators between the alternatives and the traditional, he says. “Today, GDSs are commoditising airlines; a seat is a seat is a seat. And that is not so.”
Customer relationship
Findeisen and other Star executives think out loud about the possibility of using these new systems for ancillary sales as airlines “unbundle” or customise their basic product, the reservation, using the web fluency of the new system for extras like selling upgrades, handling passenger stand-by requests or, eventually, making customised “selling-up” offers once the reservation is linked to frequent flyer records. There are other possibilities, including paid seat-preferences and using the ACAPs for marketing material.
All these demonstrate a potential for a dynamic – and lucrative – customer relationship. G2’s founder, Alex Zoghlin, says that the new systems may also address other costs, such as credit card fees. “We see ourselves as a technology provider to drive down total costs in the distribution chain.” Star says that the contracts with G2 and ITA are initially focused on the US market, but Findeisen sees global relationships between most Star members and both providers. Ellen Lee, G2’s vice-president business development says the first market outside the US for its service will be Canada with Europe following by year-end.
G2 has backing from six US carriers – American, Continental, Delta, Northwest, US Airways, and United – but not all of them are using it. It has some 50 travel agency customers in active use, with varying degrees of adaptation, as is the case with ITA, whose older products already have widespread adaptation with airlines, agencies and with websites, including Orbitz. ITA is contemplating expansion in Asia, which is also possible with G2 since venture capital funding includes Norwest Venture Partners, which has invested in travel distribution in India.
G2’s product, unlike that of the GDSs, requires no long-term binding commitment, but, like the GDSs, offers incentive payments. At ITA, work on a direct competitor to the G2 booking system was given a jump start by the record-setting $100 million in venture funding that ITA Software won in January. One of the investors, Michael Moritz, a partner at noted Silicon Valley hi-tech venture capital firm Sequoia Capital, said: “Most airlines still depend on software and systems developed before Woodstock. The only airlines that will prosper in the future are those that embrace fresher technology and the Internet to strip cost from the industry.”
But ITA and G2 Switchworks face a longer-term challenge: travel agencies have long been reluctant to use multiple systems to search fares and availability and to perform bookings. That challenge may be as much cultural as technological, says PhoCusWright analyst Norm Rose of Traveltech Consulting. “The debate should not be framed around GDS verses GNEs,” says Rose. “Instead the issue concerns the point at which travel content is aggregated. And they will co-exist.” ■
DAVID FIELD / WASHINGTON
Source: Airline Business
