By N Gunalan in Singapore
The power base of global distribution systems (GDS) in the Asia-Pacific remains firm, unlike in Europe and the USA, but carriers are seeking cost savings and better-value services
"It's expensive but if you need it, what solutions do you have?" asks Peter Weisner, vice-president marketing at Bangkok Airways. He is referring to the necessity of distributing via travel agents and the global distribution systems (GDSs) for Asia-Pacific carriers. But this form of distribution is more than simply a necessary evil.
"Asia has rule-bound market fares and layers of consolidators, wholesalers and sub-agents intertwined in strong personal relationships with their customers, making it hard for the new-generation distribution platforms to gain traction in Asia," says Don Birch, chief executive of Abacus, the Asia-Pacific's leading GDS backed by Sabre and several of the region's prominent carriers. "The diversity of markets means there is not, with only a couple of exceptions, a critical mass to drive high volumes."
The complexity and diversity of Asia and the distribution challenges within its business environment have given the GDSs operating there a unique role and, more importantly, time for them to evolve as partners, unlike in Europe and the USA where they are consistently defending themselves from being tagged as dinosaurs.
In the Asia-Pacific, the big three GDSs - Abacus, Amadeus and Travelport - are working towards partnerships with airlines that are more mutually beneficial. Besides their distribution function, they have been busy working out what airlines want them to do and what they can bring to the supplier relationship.
Travel agents dominate
Traditional agencies still account for the majority of travel sales in Asia, despite the growth of airlines going direct to their customers. "We believe that the outlook for the GDS-airline relationship remains bright as travel agencies will continue to be the key intermediary for leisure and corporate air travel in Asia," says Birch. "An increasing number of low-cost carriers and indeed all online agencies work with GDSs because they offer a vital link for airlines into marginal markets and hard-to-reach travel agency locations," he says.
"It is hard for the new-generation distribution platforms to gain traction in Asia" Don Birch, chief executive, Abacus
Timothy O'Neil-Dunne, managing partner of travel consultancy T2Impact, says that in India online travel agencies such as ClearTrip and Makemytrip are enjoying strong growth, whereas their counterparts in the USA seem to be past their prime value. "With massive growth of the low-cost model it would be natural to assume that GDSs and online agencies would not be very useful. On the contrary, the new generation of home grown agencies has proved to be critical to the success of the low-cost and regular airlines.
"This is because they have proved better at customer aggregation than individual players. This is not a guarantee for the future, but as long as it remains difficult to reach the consumer, they are doing a bang-up job," he believes.
The region is "an opportunity market with interesting dynamics", says Travelport's managing director Asia-Pacific Brad Holman. "Service requirements are still high in Asia, and internet and credit cards have not reached the levels of penetration seen elsewhere - that's where GDSs certainly come into play."
In the Asia-Pacific, access to the international market and the corporate sector can only be achieved through the GDSs. This is even more critical when it comes to huge air travel markets, which are just coming into maturity, such as in Indonesia and China.
According to TravelSky, China's GDS, the country's airlines carried over 166 million passengers in 2006 - up 14% over the previous year. It is a market international carriers would find impossible to penetrate without travel agents and GDSs. That is why China's largest airline group, China Southern Airlines, has joined SkyTeam. Alliance membership gives it an alternative distribution route. Without this channel, its international growth risks being limited by China's highly regulated single-GDS market.
"The TravelSky GDS has to integrate its system through China Southern with all members in the SkyTeam alliance. That includes coding all flights in English selling tickets on our website and through other members' websites in English - it's unheard of in China," says China Southern.
"It will have a dramatic impact on how we sell our tickets and how others sell us through the TravelSky network. We will see significant growth in business around the globe - other GDSs that were not really connected with China before now have the entire China Southern network of over 600 routes in more than 60 countries," the carrier says.
Asia-Pacific airlines acknowledge the importance of GDSs as their distribution partners but distribution costs have been rising steadily. The concern remains even though some GDSs have brought in value-based pricing where airlines are charged less for home market bookings than for non-home market bookings.
Some GDSs have also taken steps to prevent travel content fragmentation by offering airlines short- to medium-term pricing agreements. But as Prithpal Singh, a Singapore-based aviation analyst and founder of Executive Jets Asia, points out, GDS costs have come down "fairly drastically" to about 25-30% of what they were when they had an "iron grip".
The right channel mix
"The fees are reaching a point where what airlines are prepared to pay is very close to how much GDSs can come down to - they are close to a meeting point. Moreover, GDSs have also become more cost-efficient and are keeping themselves relevant. The value of GDSs is still tremendous and airlines still need them," believes Singh.
"No one will expect their supplier to cut costs just because the vendor asks - that's not realistic" Stéhane Pingaud, Amadeus
Like everyone else in the travel value chain, airlines are constantly searching for the right mix across various distribution channels, as new channels come and go, each with their promises of great savings. "We are reviewing our performance with GDSs to try to find solutions to cost escalation by working with them," says Weisner of Bangkok Airways. "We want to achieve a win-win situation."
Weisner says the GDSs recognise they simply cannot increase their fees without providing a certain level of service. "For us, GDSs are a very important distribution tool. We have a huge domestic market but we need the network to attract a lot of foreigners - a lot of our bookings are made overseas," he adds.
India's Jet Airways sees the GDSs as the distribution arm of the products they sell. "These are two sides of the coin," said V Raja, Jet's vice-president Asia-Pacific. "Our relationship with the GDSs is bright and has strengthened. The process of adding value to what we're doing is a constant effort. We expect the GDSs to be not just distributors, but also to help us in packaging," he says. Raja adds that as airlines in the Asia-Pacific become more mature, they have become better in negotiating with the GDSs.
Asia's low-cost carriers are also joining the game. AirAsia became the first to sign with a GDS last year with its deal with Travelport/Galileo. Kathleen Tan, AirAsia's executive vice-president commercial, says: "Being low cost has always been religious for us. I told them [the GDSs], if you want our business, you have to meet our focus on volume."
Using Galileo's Flight Integrator tool enables AirAsia to have its inventory and its full range of fares, including periodic promotional fares, and Galileo's wide range of products available to travel agents. Going onto the GDS was a well thought-out strategy - it enabled the carrier to venture into new markets where it is not represented and enhance its branding. For example, destinations in countries like Cambodia, China and Indonesia pose payment challenges, hence the need for agents.
"We are spreading our wings," says Tan. AirAsia has six hubs. Many travel agents still prefer to book via the traditional GDS route, ignoring AirAsia. "So they are now compelled to buy AirAsia and the only way is through the GDSs because they won't go through the web. The GDS has brought a 40% increase in new agents who would not have tapped us. Big agents who didn't want to come to us before now want to talk," she says. AirAsia has also signed with Abacus.
Taking the GDS route has helped AirAsia break into the corporate market and to travel the long-haul route with its new long-haul venture AirAsia X. Jetstar-branded airlines have also chosen Abacus to maximise their regional distribution. "Airlines need to look at ways to do business smarter, and making our seat inventory accessible through a GDS will translate to more passengers and increased revenue for our airline," says Chong Phit Lian, chief executive of Jetstar Asia. Other low-cost carriers on Abacus include Indonesia's Adam Air, Lion Air and PT Batavia and Cebu Pacific of the Philippines.
The value chain
Building value has been the recent mantra of GDSs in the face of supplier pressures. Amadeus says that in any vendor relationship it is not cost reduction but cost effectiveness that is crucial. "No one will expect their supplier to say I will cut costs just because the vendor asks - that's not realistic," says its head of distribution marketing Stéphane Pingaud, who has been driving the value-based pricing concept at Amadeus.
"Airlines must feel that what they are paying for is the service they are expecting," he says. "GDSs in general have not been that good at demonstrating that value."
He says Amadeus is committed to developing the GDS channel from an airline's perspective. A recent analysis of the revenue per segment Amadeus generates on behalf of its participating airlines showed that it averaged $226 (June-October 2006). For the Asia-Pacific it was higher, at $308. "Other GDSs have become travel retailers, but I'm going to invest in the GDS channel so that airlines can achieve the level of cost effectiveness they expect from that channel," he says.
GDSs on a mission
Global distribution systems (GDS) are busy reinventing themselves to stay relevant as a distribution partner for airlines.
Amadeus says it is working on brand awareness as a way to deliver cost effectiveness. Head of distribution marketing Stéphane Pingaud says airlines are not always able to present their product to travel agents in the way they want. The GDSs are helping, he says. For example, the scheduled fare information seen by agents not only displays fares, but could add that the traveller gets a lie-flat bed in business class as well. "Airlines are expecting higher levels of control and to be able to define the way agents market their products," says Pingaud.
Abu Dhabi-based Etihad Airways brought in Amadeus Availability Management to allow the carrier to decide what inventory to release to which sales outlet. Ali Saleh, vice-president distribution and alliances of Etihad, says: "These tools allow us to optimise our revenues in two ways: by encouraging more sales through our most productive travel agencies via the provision of increased availability and by better monitoring non-compliance of our distribution policy."
Pingaud says: "All these will make the channel more cost effective - you either compete on price or on a combination of price and quality of service and that's the direction Amadeus wants to take."
Brad Holman, managing director Asia-Pacific of Travelport, says its mission is to provide the best possible content to agents and give wider distribution to carriers. "We're developing new tools that are aimed at low-cost carriers getting their content to the [agent's] desktop, and for full-service carriers it's about looking at opportunities for broader distribution around the globe," he says.
The message from the GDSs in the face of airline demands for cuts in distribution costs is that they should look at the whole sales and marketing picture. "As airlines continue to scrutinise the cost profile of the GDSs, our focus is to ensure that we build value for our partners more than other distribution alternatives," says Don Birch of Abacus. "The suite of solutions for our airline and travel agent partners that Abacus offers seeks to grow their distribution and yields, increase productivity and achieve cost efficiencies in the way they distribute and sell travel."
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