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Ancillaries Part 2: Understanding the Fuss Around It.
By Timothy O'Neil-Dunne
Wednesday, 25th August 2010
 
There are clearly a lot of forces lined up on the issue of ancillaries -

In part two of my piece on Ancillaries, I will try and make sense of the issues surrounding Ancillariesand for clarification purposes, I am discussing only airline-based products. However as every traveller knows – the ancillaries affect just about every travel product type.

It is a basic tenet that no travel supplier wants to have his product commoditized. In the really good old days when pricing was so obscured that you needed a human (aka a Travel Agent) to figure it out, you relied on that agent as your friend to help navigate the complexity of the airline pricing. Over time, of course, two factors changed. Travel Agents largely stopped being neutral. The Web made comparisons easy.

The incentives that crept into the agents' revenue stream turned them from independents into dependents, more dealers than consumer advocates. Airlines clearly hate transparency of pricing.

However the basic premise of the Web is that you can see everything you want. Thus there are a lot of conflicting forces in the marketplace. The airlines therefore had to redouble their efforts to make pricing as opaque as possible. They have gone to considerable lengths to make it so.

Ancillaries, as noted in Part 1, are not new. Add-ons have been a part of the travel product for eons. The Low Cost Carriers however brought a new element to the game. By essentially unbundling the airline ticket and allowing a consumer to buy a la carte, they showed that they could actually make money in the process.

It was a win win for everyone – well, nearly all.

The consumer benefited from the ability to buy lower priced products. But there are a whole cast of people who are clearly unhappy about this.

From most airlines – there is a rousing cheer. Finally it would appear the airlines have found a formula for them to make money. From those who have profited from the obscurity and complexity of pricing – particularly the legacy GDSs, there are howls of protest.

From the corner of consumer advocacy, there is a mixed response. Some feel that it is okay to separate the pricing particularly if it lowers the prices one can pay. There is no doubt that the LCC airlines have opened up travel in all parts of the world. On the other hand, they too hate the lack of pricing transparency.

Governments are none too happy with the notion of the difficulty in understanding the pricing and they feel there is a strong potential for if not consumer disservice, then at least consumer confusion. They too are also of mixed emotions as the benefits of the Low Cost Carrier competition in the market are often used as an example of how governmental reduction of regulatory control can stimulate markets.

In Europe where a code of CRS (GDS) conduct still exists, there are very clear guidelines as to what can or cannot be promoted and how. All airlines are in the main compliant. The penalties for failure to comply can be very punitive as some carriers have found to their cost. The issue is being hotly debated in the USA with new regulations pending. Asia in general has no common code of conduct for GDSs or airline pricing. Australia is a standout and has strict rules.

The overall difficulty that exists primarily covers the methods of booking and charging for Ancillaries. Many traditional airlines are clearly suffering as their complex legacy-based PSS (Passenger Reservation Systems) are not up to the task unlike the newer models such as New Skies from Navitaire that enables this functionality by melding website and back ends tightly together.

The ability to distribute these products through the intermediary channels – on and offline – are also stymied. In the main there are two obstacles.

The lack of GDS functionality in the traditional players and, more critically, an easy way to solve the collection of money. For example, IATA BSP (the vehicle for financial fulfillment of airline tickets via the neutral channel) has yet to put out a single BSP approval for the method of paying despite having defined the standard of EMDs quite some time ago.

Those who depend on the GDS – particularly corporate travel agents - support the position that there should be a common standard for Ancillaries.

While waiting for one to be developed, many airlines found they could not delay and for reasons not only of expediency but also product differentiation, they developed unique solutions.

The GDS players cried foul but still dragged their feet on the subject. The US airlines decided they could not wait any longer and formed a group called the Open Axis Group www.openaxisgroup.org much to the chagrin of the traditional airline and travel standards groups IATA www.iata.org and the Open Travel Alliance www.opentravel.org who is the official designated W3C standards body for XML.

Today the OAG teams have broadened to many parties across the globe and are growing all the time.

Several companies joined the airlines in this effort. ATPCo the leading worldwide clearing house for fares, ARC – the BSP for USA and advanced travel technology companies such as Datalex and LUTE Technologies.

The next generation PSS vendors such as Navitaire (who sells the PSS New Skies) and Radixx were also early adopters. The new age fare players such as Vayant and Everbread (who will be speaking at WIT) have also eagerly joined the new organization.

Eventually there will have to be an accommodation amongst the players but the proposed GDS standard being touted looks like it will be a tough one to sell. Ironically GDSs have been deploying unbundled pricing for years themselves. The basic segment fee charge is not but a component of what a GDS charges. Thus these players find themselves conflicted in their internal advocacy of unbundled pricing and their desire to force the airlines into a common model.

In my view, world peace will come. It has to. Ancillaries, as a product category, are here to stay. The Luddites who want to control or prevent it will be swept away. Look for Ancillaries Services and unbundled pricing to spread to other sectors and even different component paths of the travel supply and distribution chain.

In the end, it will be beneficial also for the consumer who will be able to choose from both bundled and unbundled pricing products. I firmly believe that smart players will figure out how to make comparison shopping work for the consumer. But make no mistake, this is a significant change in the make up of the airline product. And where airlines go – others follow.

Disclosure: Timothy O'Neil-Dunne is acting CTO of LUTE Technologies. He blogs at Professor Sabena: http://t2impact.blogspot.com

Note: Timothy O'Neil-Dunne will be speaking during WIT at a session on "Hot Air: Airlines, Alternatives & Ancillaries"

Timothy O'Neil-Dunne, CTO - Lute Technologies, Switzerland

Timothy O'Neil-Dunne serves as the lead for the Airline, Aviation and Airport Practice. Timothy has worked in aviation and travel distribution for more 30 years, including time with Worldspan and Microsoft/Expedia before founding T2Impact in 1998. He leads the group's efforts in the international arena, providing e-commerce services to travel and technology clients, and others involved in transaction processing oriented e-businesses.

Timothy was a founding management team member of the Expedia team where he headed the Ground Transportation and International portfolios. He was formerly Head of Technology for Worldspan where he managed all of the International Technology Services from product to infrastructure. Mr. O'Neil-Dunne is a published authority on Global Travel Distribution, a respected travel industry commentator, frequently writing in trade and consumer publications, and speaking at conferences worldwide. He is a permanent advisor to the World Economic Forum.


 Also featuring:

  • Peter Harbison, Executive Chairman, Centre for Asia Pacific Aviation (CAPA)
  • Marnix Fruitema, Senior Vice President, Asia Pacific, Air France KLM
  • Azran Osman Rani, CEO, AirAsia X
  • Assen Vassilev, VP Strategy and Business Development & Co-Founder, Everbread & Haystack
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