Distribution Costs and Who Pays Them.
Business Travel Europe
Saturday, 10th February 2007
The current negotiations the GDSs are having with BA seem to be heading in the same direction as the talks they had last summer with the American airlines: towards an angry confrontation.

The story is familiar. BA, anxious as it has been for many years to cut its distribution costs, sees the GDS fees as the last obstacle to dismantle. Apparently, in the current talks, it wants Sabre, Galileo/Worldspan and Amadeus to halve these booking fees.

If we did that, say the GDSs, we would be out of business. It could pass some of a cut onto the TMCs and absorb the rest. But it could not pass on such a massive cut and nor would the TMCs and their corporate clients be likely to wear it if they tried.

But it is in this resulting stalemate over the BA's apparent non-negotiable demand, that a major difference is emerging from what happened in America last summer to what is happening in Europe now.

In the US, American Airlines threatened Sabre that it would withdraw its content from the GDS. Sabre's reply was in effect 'Go on...if you dare.' American didn't in the event and deals were subsequently reached between GDSs and all major US airlines.

In the UK, BA seems to be playing a far cleverer hand. Far from any threat to withdraw - which would obviously be a bluff - it is saying that it will stay on if there is no deal but add the entire GDS booking fee to the price if its ticket. Effectively, it is proposing to pass on its distribution costs to the TMCs which, no doubt, would pass them onto the corporates.

The deals signed in America were essentially opt-in agreements although the various GDSs give them their own names.
These are basically compromises in which the three parties, GDSs, airlines and TMCs all forfeit something but also all get something in return. For example, the GDS fees are reduced but they get full airline content, the airlines pay a reduced fee but get full content exposure while the TMCs lose some of the GDS booking incentive but get full content on one screen without the need to hunt around.

If the current talks fail and there is no opt-in agreement, it is likely that it would be replaced by the surcharge model which is very different.

"These are the arrangements when the talks go belly up," one source told BTE. "BA is saying that it will simply put up its fares booked through a GDS by the amount of the fee for the booking.

"So if a fare from London to New York is £400, BA would add £8 if it were booked through a GDS. Fares on its ba.com site would not be burdened with this surcharge."

When Sabre won its stand off with American last summer, it said at the time that it had needed the help of the big US corporates to do so.  

There seems little sign so far, according to BTE sources, that European corporates are aware of the direction in which the current talks are going or that they are ready to stand with the GDSs against BA or any other airline which adopts similar tactics (as they surely will if BA succeeds).  

There is also the muddying factor in Europe as to where, exactly the TMCs, stand. Officially, they want an opt-in deal with the GDS and the airlines. But such a deal would leave them with the dilemma of whether to pass on what might be a relatively small amount to their clients or absorb it themselves.

Passing it on would upset clients, especially if other TMCs decided to absorb it. But if the surcharge model went ahead, the TMCs would be faced with a far higher increase in charges which they would certainly pass on to clients and in doing so, blame it all on the airlines.

Games of poker, brinkmanship and bluff are invariably present in negotiations. The current talks seem well endowed with them all.

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