What does the scramble to find ways to avoid carriers’ GDS surcharges say for the TMC business model?
Last week we commented on HRG reaching an agreement to connect directly with British Airways and Iberia to avoid their planned GDS surcharge and reported that other TMCs would shortly be announcing “NDC agreements” which would mean that they too would avoid the Distribution Technology Charge which BA and Iberia announced at the beginning of the summer would be taking effect on 1 November.
Some other TMCs (American Express GBT, FCM and Key Travel in the UK) have now announced agreements; others are rumoured to be poised to do so.
The story, however, now is that although there is only one way now to attract the €9.50 fee, there is more than one way to avoid it, namely by booking through an intermediary, GDS or online booking tool, that has agreed to accommodate NDC distribution.
American Express is not using a direct connection and not avoiding the GDS but it is avoiding a fee.
Its statement said, “American Express GBT clients will now avoid the fee in return for the TMC agreeing ‘a multi-year deal to work with the airlines on future GDS distribution’ in line with airline association IATA’s new distribution technology (NDC) standard.
“The agreement applies to all GDS bookings, though each GDS is required to agree to the new arrangement with the airlines.
“Until now, one GDS has done so. British Airways, Iberia and American Express GBT remain in active dialogue with the others.
“American Express GBT, BA, Iberia and the GDSs will work together to evaluate how new distribution capabilities (NDC) could bring value to organisations using managed travel programmes.”
So the GDS is central to the Amex-BA-Iberia deal. But, at the time of writing, GDS does not mean unconditional GDS but instead a legally binding NDC-cooperative GDS. At the moment that appears to be only Amadeus.
The FCM deal with BA-Iberia means customers in the UK and Ireland will be exempt from the airlines’ new £8 surcharge per fare component on GDS bookings with effect from 1 November.
Marcus Eklund, global managing director of FCM Travel Solutions, said: “We will continue to work closely with our travel and technology partners to develop and invest in the future roadmap of airline distribution. Our approach has always been to flex with industry developments and the evolving needs of our clients. The ultimate goal is to ensure FCM delivers the widest most relevant choice of travel content to our clients whilst maximising cost savings and personalising the booking experience.”
This will undoubtedly potentially affect the complex money flows between customers, intermediaries and suppliers.
At present the GDSs earn fee income from suppliers in exchange for hosting and distributing their content. The GDS is the TMCs’ favourite method of distribution because it not only gives them access to content which they can book on behalf of their clients, for which they will receive a fee, but GDSs also pay TMCs an incentive in recognition of the sectors they book.
The BA/Iberia strategy includes the GDS, if the NDC condition is met, but what is understandably not being released into the public domain is the format of the financial agreement. Suppliers are under ongoing pressure from shareholders. The NDC model will no doubt help carrier revenues because it promotes and facilitates selling ancillaries at the time of booking. But, more importantly, supplier GDS fees might now be under pressure to fall given the context of longstanding supplier disquiet about the historically high level of those fees. Or it might not, given more revenue is likely to flow. But will the level of TMC incentives remain the same? Mmm.
In the current environment of TMCs’ determination to attract and retain corporate managed accounts, these are figures that all buyers should understand.
Therein lies the key to one element in the next round of your supply chain negotiations.