A dozen Middle East and North African carriers will slash their distribution costs by combining their purchasing power
The deal with global distribution system provider Amadeus, which will see 12 Arab Air Carriers Organisation members establishing 10-year agreements with the GDS, is aimed at reducing distribution costs in their home markets. "Our members will have an increased benefit of at least 50%," says Abdul Wahab Teffaha, secretary general of the Arab Air Carriers Organisation.
Teffaha, who led the negotiations on behalf of AACO, says the deal is a natural coming together of existing GDS agreements with Travelport (originally Galileo) and Amadeus, each with seven carriers, into one. The move is also an extension of AACO's involvement in helping its members with joint purchasing of services and goods, which has been going on for years in areas like fuel and ground handling.
"We have reached our objective of a very economical distribution and to maintain excellent relationships with the travel agents, as well as retaining our flexibility in the direct channels," says Teffaha.
Over the next six months, each carrier will sign contracts with Amadeus under AACO's umbrella deal. The deal is the largest Amadeus has ever done with a group of carriers, and is a "milestone" for the company, says Fernando Cuesta, head of Amadeus Middle East & Africa. Others can join, with talks underway with Emirates, Lebanon's Middle East Airlines and Royal Jordanian Airlines.
In each country, the carrier and Amadeus will create either a joint venture, or Amadeus will establish its own subsidiary, to serve the travel agency market. Although it is a complex structure, in essence both models will feature a jointly agreed profit and loss statement "to use the strength of both parties to maximise the market return and share the profit", says Cuesta. AACO's Teffaha estimates the booking revenues from these ventures will be worth some $200 million a year.
Effectively, Amadeus is becoming the preferred GDS franchise partner for the carriers in their home markets, with the national carriers acting as the representative for Amadeus in that market. They become responsible locally for marketing and servicing the GDS business.
The strong influence Arab carriers have over their home markets means these arrangements significantly boost GDS market share, which explains the tough battle between Amadeus, Sabre and Travelport for the AACO deal. Amadeus, which has been building market share since its 2000 deal with seven AACO carriers (see table), will seek to overtake Travelport.
"These deals give proven results," says Cuesta, with its market share growing to over 80% in some of the Arab countries where it already had such arrangements. Teffaha says the market size of the carriers under the umbrella deal so far represents 66% of total bookings made in the Arab world.
While disappointed to lose out, Travelport is seeing a move away from what it calls the "third party" distribution model, where the local carrier acts virtually as a general sales agent for the GDS. This is partly because fewer airlines are interested in the GDS business, and "because we wanted to put in place a different model where we had more direct control of the relationship with the travel agents", says Bryan Conway, managing director Europe, Middle East & Africa, Travelport GDS.
Travelport's contract with six AACO carriers goes back to 1991. "Those agents have been using Galileo for 17 years and there is a loyalty to the product. We are not anticipating a market dip," says Conway. "It's not like a Galileo tap being turned off and an Amadeus one being turned on."
Carriers in the deal
Travelport will establish its own operations in several countries to continue competing hard in these markets, says Conway. After the AACO contract finishes, Travelport will only be represented by airlines in a few of its markets, such as Austria, Greece and some African countries, making up just 10% of its business.
While the AACO deal is focused on home markets, Arab carriers will continue to have full content distribution deals with all GDSs for their international bookings. However, it seems inevitable that a "turf war" for these home markets will break out over the coming years as Amadeus seeks to establish a strong foothold in the Arab world and Travelport builds up its own independent businesses.
In other distribution news, Travelport has become the second GDS after Sabre to agree full content deals with Lufthansa and Swiss until the end of 2011 which waive the surcharges initially proposed by these carriers. Amadeus, the main GDS in Germany with over 80% of the market, says it is still in talks with Lufthansa.
So far a total of 12 carriers have said they will enter AACO's GDS pact
Low-cost carriers are turning to the once-scorned GDSs as their business models change: flightglobal.com/lccgds
Source: Airline Business