Live From the Masters - The True Cost of Distribution

A great panel...Tim Claydon -Jet Blue, Al Lenza- NWA, Dean Sivley -Cendant, John Stow- Sabre, Jeremy Wertheimer-ITA Software,

NWA- Al chided Sam about the $7.50 charge, he said that he would " like to have a bill for his NWA segments at that rate". He commented on $4 , or $5 as the cost.
Cendant - Costs should evolve (following on Sam Katz's themes)
Jet Blue - Out of the GDS completely - not willing to pay GDS pricing
Sabre - $9 range for DCA, Can't focus on simple transactions. If the simple transaction model works, we'll do it. I am worried about integrating it back into the system. Sabre will increase fees if all their left with is complex transactions
ITA- the cost of doing an incremental cost of doing an additional segment is minimal. The ITA software does complex itineraries.
Sabre - changing prices - international airlines is different than SWA. - The key is value based priced
NWA - 2/3 rds of network is competitive with LCCs and thus high GDS fees don't let us compete. The problem is more than price. Disputes like the one with Sabre and diputes are likely to come out. The value of G2 and ITA is an ability to avoid that.
Cendant - echoed value pricing. He rejected Alex's view of another layer
The discussion then shifted to a discussion of service and charge card fees.
NWA - our charge card fees were higher than our GDS fees
ITA - In the old world - the credit card was limited. In the new world direct settlement is needed.

Live from the Masters - Sam Katz

"Owning the Value Chain" - having the most value to you. Sam began by emphasizing the global aspect of travel echoing Trip's initial comments. He mentioned that one focus must be on the stability of provider (an obvious reference to the GNE startups) Goal is to take best practice from all Cendant entities. Strategy for Travelport / Orbitz, travelport serves more than 500 companies , Orbitz for Business . (so far this is stategy has not changed). The focus is on content (stressed importance of merchant hotels). Sam said "this is a economic discussion". Point to point $7.50 - $10.00. 40-60% of that is revenue share. The GDs retains $3 to $4 is kept for distribution. Unclear issues range of content, reporting, integration... Schedule based searching verses leisure type of searching not consistent in new GNE models. Cendant believes that they are best positioned to get LCCs.

My take is that Sam's had a clear message. The financial incentives are going away. The GDS will lower fees to compete by eliminating the financial assistance.

Live from the Masters Conference in DC- G2 Switchworks

First up Alex Zoghlin..."Myth Vs. Reality" What exactly is the "new" distribution model?"Alex began with Sam Gilliland quote saying the GNEs are a solution looking for a market, comparing it to H.M. Warner Bros. comment regarding talkies. He went on to compare quotes from Worldspan and Amex with comments about the birth of telephone or other "new" technology at the time. Alex believes that the "fracturalization" of supply is increasing not decreasing (I agree!). You need to what you need to do today and what is needed tomorrow. Tools today don't have all access to content. G2's "Super PNR" provides a single customer record to consolidate disparate content. Alex doesn't believe that there is a one stop solution. One monolithic company as a solution no longer works. Partnerships with TRX, universal client (green screen terminal) The key is to move to "touchless' transactions.
John Stowe from Sabre - countered saying that the "universal translator" is old technology. Alex then quoted lots of functionality that doesn't exist. John then said Getthere has automated refunds and exchanges. Cheryl Weldon form Worldspan chimed in characterizing G2 as another layer another component with additional costs. "Thank you for telling me what I offer". This has nothing to do with technology. The idea of a queue rejecting an e-ticket is foreign to G2.

Comments: This was a great start to the conference. Fireworks between G2, Sabre and Worldspan. Interesting positioning by Worldspan characterizing G2 as another layer that adds cost. Alex was light on specifics but gave the audience the impression there was a lot more functionality coming...

Strategic sourcing and travel distribution

In travel procurement terms, "Strategic Sourcing" has traditionally been defined as the standard bidding process for airline, car, hotel and travel agency services. With the dramatic changes emerging in travel distribution technology, strategic sourcing can take on new meaning. These changes reflect the urgent need of traditional airlines (AA,UA, DL) to lower distribution costs and the emergence of lower cost distribution technology. It is yet unclear if the old Alfred Kahn quote "Airline yield management means: you yield to my management" will still prevail in respect to airline influence over corporate purchasing behavior. The opportunity does exist to use this emerging technology to control sourcing by dictating how inventory is distributed. Will this new leverage be recognized? I believe this will only happen if C-Level executives take ownership over their travel procurement costs and act in innovative ways. This may prove to be problematic as travel expenses are generally not viewed as a strategic decision point by C-Level executives. Of course sourcing strategies will need to take into account the need for major airline to reduce their costs as many are in a survival mode. Which entity uses the new distribution technology as leverage will be interesting to watch...

NY Times Coverage

I was interviewed last week by Bob Tedeschi from the NY Times. The article appeared in today's issue and can be found here
http://www.nytimes.com/2005/01/31/technology/31ecom.html

It is significant that a general media publication such as the NY Times has recognized the changes in travel distribution as a news worthy. 2005 seems to be shaping up as a year of radical re-structuring in the travel industry.

Finding a Middle Ground

The noise around alternate distribution is getting louder. The United Airlines meeting last week has triggered a new urgency to look at new distribution alternatives, but many TMCs face significant challenges in this march toward GDS bypass. There are a number of issues this trend has surfaced:
(1) One crucial question is whether these new platforms from ITA Software, G2Switchworks and Farelogix can provide the same productivity achieved through current GDS script enabled "green screens". TMCs cannot afford to add new costs to their operations by embracing point and click interfaces that traditional agents may reject. I have been involved with many travel agent point of sale (POS) projects over the years and I have found that customization is generally required to meet specific agency requirements.
(2) Even with the $5 payment offered by UA and others, the loss of GDS revenue to TMCs could significantly impact their bottom line.
A more realistic view is a gradual adoption of these tools, targeting specific corporate accounts and agents.
One point not raised by the UA meeting is the need for TMCs to embrace multi-source content that includes multi-GDS connectivity. The impact of deregulation is just beginning to be felt and even those agencies that reject UA's offer will need to insure that their agents are accessing total content. Given current market uncertainties, the ability for a TMC to access all four GDSs may become a real business need in the very near term.

The Changing Face of Travel Distribution

This week, United Airlines is holding a summit entitled "Letting the GNE Out of the Bottle." (GNE is entities acronym for GDS New Entrants). Corporate buyers, TMCs and solution providers have been invited to UA's headquarters to discuss alternative distribution. This meeting demonstrates how serious the major carriers are about lowering distribution costs. ITA software and G2Switchworks are among the vendors presenting their distribution vision. By the nature of the attendees it is clear that UA recognizes that both the corporate buyer and their TMC must participate in an alternate GDS platform. For those corporations that have embraced self-booking, this move to alternate distribution will be easier as tools such as Outtask's Cliqbook are hooked into the new pipes provided by G2, ITA and others. The key issue that remains is support of non GDS bookings. Here the recurrent theme of a "super PNR" has relevance. For TMCs who continue to support their corporations using GDS "green screen" technology, embracing an alernative distribution platform will be challenging. Given the dire economic realtities of the major U.S. carriers this meeting signals a major trend that will have momentum in 2005.

Ten Predictions for 2005

Given the new year and turbulent changes already announced in 2005 (e.g. Delta's fare simplification), I thought it would be a good time to publish my top ten 10 predictions for 2005 in the world of travel technology:
1) GDS bypass becomes a viable option - Multiple travel conferences this year have alternate GDS players front and center. I believe that 2005 will see the first sign of real GDS bypass with at least one major carrier moving to an alternate GDS platform
2) Dynamic Packaging functionality improves and grows - As I reported in my published report on Dynamic Packaging (see traveltechnology.com for more details) Dynamic Packaging interfaces are at an infancy. Look to 2005 for increased use of personalization and other CRM techniques to enhance the customer value of dynamic packages. Customers will also be able to redeem miles as part of dynamic packaging product in 2005
3) Wireless travel applications become a reality - With the consolidation of the telecom sector and the growth of 3G networks, travel applications will be promoted by suppliers as a way to provide a "virtual concierge" for their best clients. These apps will likely be take the form of branded content published to the frequent traveler based on their location and permission (opt-in)
4) Online Travel Agencies (OTAs) will continue to expand globally through acquisition of regional agencies. This will include Expedia Corporate Travel buying key assets in Europe
5) Fare restructuring leads to the elimination of many corporate discount programs. The traditional carriers will look long and hard at all corporate agreements and cancel those that have not performed and where corporate volume is not sufficient to warrant a discount. Corporate buyers must embrace systems that allow them to control how their purchases are distributed (different GDS, alternate GDS, direct connect) to regain leverage with air suppliers
6) Second tier travel management firms (TMCs) will continue to find it hard to compete against the mega-agencies and ITMCs. Unless these TMCs embrace new technology platforms their long term survival is in jeopardy
7) The buzz around meta-Web search will begin to fizzle. There are two critical problems with meta-search. (1) the inability for the supplier reservations systems to withstand the hits from major portals such as Yahoo! or AOL. (2) The business relationships may not be in place to capture total content (e.g. low cost carriers (LCCs) such as Southwest). Without total content and the ability to manage capacity, meta search version 1.0 may prove to be more hype than substance. I do believe that meta-search does have value but must be done using a different architecture that reduces the strain on the supplier reservation systems.
8) Online travel takes off in Europe. The growth of online travel in Europe will be significant impacting all sectors of the industry including corporate travel.
9) The corporate travel industry will see further movement towards an integrated online solution rather than a stand alone booking tool. Independent corporate tool providers will partner with fulfillment services to provide an integrated solution to the corporate market and compete with the ITMCs
10) Weblogs will start to have an impact on the travel industry. Currently, the industry depends on news via media outlets (BTN, Travel Weekly) or research firms (PhoCusWright, Forrester). These organizations will continue to provide essential market sizing and analysis, but Weblogs will begin to play a role in how information is disseminated throughout the industry

Be careful what you ask for.....

The recent fare simplification initiated by Delta Airlines and matched by American and others signals a new chapter in corporate travel management. For years carriers have complained about the ineffectiveness of many corporate discount programs. Trade organizations such as ACTE and NBTA have endorsed the concept of fare simplification. Now that we are seeing the first signs of widespread changes in fare stuctures, many corporate travel managers may find their negotiating leverage evaporating. It is essential that corporate travel managers recognize the new game in town: controlling supplier distribution channels. Technology is emerging that will support a corporation's ability to dictate a specific channel for their travel purchasing (e.g. GDS, GDS alternatives, Direct Links, etc...). Managers must keep abreast of these new technologies in order to regain leverage with airline suppliers.