Why Changes in Airline Distribution Take So Long – A Look at What the Players Stand to Gain and Lose

Welcome back to the last post of Distribution Week here on The Cranky Flier. I know I’m getting really wonky here, and I apologize for that to my casual traveler readers. But this is something that really interests me, and I wanted to dig in deep. This post was the most difficult to write because trying to untangle the web of relationships is not easy. It got even more difficult when American and Travelport announced that some of these things will be implemented. If you missed the first two, see Part 1 which talks about the history of airline distribution followed by Part 2 which focuses on how some airlines want to sell tickets.

You’ve now seen the vision for how some airlines would like to sell tickets, but why hasn’t it happened yet? That’s the million dollar question. Ultimately, the relationships between all the different players are incredibly complex thanks to goofy business models and years of entwined history. It’s not easy for those things to change, but the shift is happening. Just yesterday, American and Travelport announced they had come to an agreement that will start them on the path to making this a reality. That’s a big deal, but it was just a matter of time before someone made the move. The potential benefit is there.

The funny thing is that it doesn’t seem like much has to change. The diagram I showed on Monday just needs a couple more lines (below), but it’s the nature of the connections that are so difficult to alter.

GDS Setup Proposed

I thought the most effective way to do this post would be to go through each group that has a stake in this thing to explain what this would mean for them and why they would or wouldn’t like it. This might help explain why we find ourselves still selling tickets the same old way. Let’s naturally start at the top, with the airlines…. (Grab some popcorn, we’ll be here for awhile.)

Airlines
The airlines have a huge reason for trying to change the way things work today; they want to sell more at a lower cost. An airline’s website does this quite well, and those channels are moving full steam ahead, but there’s no way full-service airlines will ever get everyone to buy directly from the website. So they need to find a way to do what they do on their website with third parties.

Could they file all their ancillary rules through the central fare clearinghouse and then let all the third parties use that data? Maybe, but I really doubt it. Each airline will create ancillary options differently and a very structured way of formatting this wouldn’t necessarily be a good plan. Even if it was, the process would still rely heavily on the Global Distribution Systems (GDSes) to do all the processing. That would not only give the GDSes more leverage in continuing to maintain their position, but it would prevent the airlines from personalizing offers as they’d like because they wouldn’t control what the customer was given.

That’s why airlines like this new way of selling, because it would let them handle the processing themselves. Effectively, what they present on their websites could be delivered to any third party channel that wanted to sell travel. It’s in XML format so it’s pliable and can be used in all kinds of ways by third parties. That would help reduce distribution costs by reducing the importance of the GDS (but not eliminating its relevance, as we’ll discuss below). It would also give much more control to the airline.

But how can they do this? Well, the plan that’s moving forward would have a standard set up by the International Air Transport Association (IATA) unimaginatively called “New Distribution Capability” (NDC). Despite all the scare tactics I’ve seen put out by opponents, I’ve yet to see anything that suggests NDC will be anything but a standard for allowing airlines to communicate their offers to third parties and then take bookings. It doesn’t say anything about the content itself – just provides a way for it to be sent back and forth. IATA just filed this with the Department of Transportation for approval, so you can read all 87 pages with the background and details if you’d like.

How would this reduce costs? Well, development work could be focused on one channel so that improvements would impact the website, travel agencies, and third parties. It would also give the airlines more bargaining power with the GDSes. Why? Because it’s really hard to create a GDS today, but if the GDS becomes more of an aggregator of various feeds from different airlines, then it would reduce some barriers to entry for competition and put price pressure on the GDSes. The airlines like that, but of course, the GDSes don’t. And that brings us to…

Global Distribution Systems
Outside of the airlines, the GDSes have the most at stake with these changes, and different GDSes have taken different approaches. Today, the GDS revenue model is kind of backwards, and that’s a quirk of history. Let’s compare it to an ice cream company called, say, Mr Whippy. Mr Whippy has several suppliers from which it buys the ingredients that go into making its ice cream. Once it has made the ice cream, it sells to third parties (supermarkets, etc) for a profit. Those third parties then sell to the end consumer. It’s pretty simple to understand.

Now think about the GDSes. They are in the business of selling airline tickets (and hotels, etc, but we’ll just focus on airlines). They don’t have seats to sell themselves, but instead they have suppliers, the airlines. But instead of paying the suppliers for the inventory, they make the airlines pay them for the right to be sold in the system. Airlines pay booking fees that can range from a couple bucks to a lot more for each flight segment. (Recently, it was revealed that American was paying Sabre $2.73 a segment, but when they got into a business dispute, Sabre jacked that up to an incredible $7.31 a segment.) For a typical roundtrip with 4 segments, that’s a lot of money.

What do they do with that money? They go and pay the third parties (travel agents) that sell their products. Goofy, right? But it’s because way back in the day, the airlines owned the GDSes. And as we know from the history on Monday, the airlines could get an upper hand by getting their systems into agencies. They could bias the results in their favor. And of course, they wouldn’t want to charge those agencies. Instead, since they had the agencies captive, they could charge the other airlines to play. They were making money even if the agent booked another airline. Brilliant!

But things are different today because the airlines no longer own the GDSes. Though the business has changed, the model never has. For airlines, that means they pay a lot of money for something that they don’t think is providing enough value now that technology is starting to open up new ways of selling.

The GDSes, however, realize that they still currently control a huge piece of the market. Airlines make a large percentage of their money on business travelers, and big businesses use GDSes (we’ll talk more about that later). Though it varies by geography, in the US, Sabre is the big boy with over half the market. Travelport is next with something in the 30 to 35 percent range. Amadeus has the rest of the market (less than 10 percent), though Amadeus is huge in other parts of the world.

Sabre seems to have taken a stance that its role is to, as described to me by Shelly Terry, VP of Airline Merchandising for Sabre, “ensure we’re meeting the needs of the agencies and corporate customers that utilize our system.” It’s not just that. There was talk about balance between the supplier and customer needs, but Sabre seems to think that this new plan by the airlines would tip the balance too far in favor of airlines and would harm agencies.

From what I can tell, that means Sabre wants to keep doing the processing itself instead of letting the airlines handle it, because the company thinks that will make it easier to compare offerings across airlines. It paints a picture of airlines withholding fares from travelers unless they fork over their personal information. As discussed Tuesday, that idea seems silly to me.

But for Sabre, it has a lot to gain by maintaining its position. As the market leader, it wants to keep what it has, but it realizes it can’t sit completely still. Sabre has moved to allow for merchandising in small steps, even using connections that have an XML feed and allow the airline to process the sale. But those are built as one-offs for specific ancillary services instead of addressing the entire merchandising/selling strategy for the airline. Those one-off connections can be very slow to set up (over a year to sell US Airways Choice Seats alone – just imagine the labor costs), and this method forces those ancillary fees to be separate from the fares themselves in the shopping experience, by design.

Sabre wants to keep fares sold the way they are today because it thinks that’s a better way to compare across airlines. As it suggests, this new proposal from the airlines is about “changing the way fares and pricing information is made available to consumers and travel agencies.” The disagreement is on whether that’s a good thing or a bad thing. And Sabre clearly thinks it’s bad.

Not all GDSes feel the way Sabre does. Travelport, for example, has introduced Agencia in Canada, and then just yesterday announced it would do something similar with American here in the US.

Travelport Agencia Fare Display

Agencia incorporates Air Canada’s direct connect content with traditional GDS content in a very user-friendly interface. Travelport does all the processing for the airlines in the GDS, but Air Canada handles processing for its bookings. You can see a nearly 11 minute video on the Travelport website. What’s even more amazing? I understand that agencies actually pay for Agencia. This flips the current model on its head and makes it closer to a more traditional business/supplier model.

Travelport will do the same thing for American in the US with one big difference. It won’t force the desktop upon agents. The plan is to find a way to offer all these various options through the existing interface, though possibly in other ways as well. It is VERY early in this process, but I imagine we’ll hear more soon. I was recently invited to a conference in April to learn more about this and I’m hoping to attend. I will keep you posted if that comes together, naturally.

For Travelport, this is a great move. It’s a distant second in the US market, but by offering this, it will be able to provide a distinct benefit to agents that Sabre doesn’t want to offer today. Sabre has to be steaming. With Travelport offering to become an aggregator that puts direct connections right next to GDS options in one place, there is a real alternative to Sabre now. Though it’s too early to know, this announcement yesterday could be huge in terms of pushing distribution methods to change in the future.

Travel Agencies
We know GDSes seem to be split at best on this issue, but what about travel agencies? Again, it’s the same kind of thing. Many brick and mortar agencies rely on the revenues coming in from GDS incentive payments, so the thought of losing that is a scary one. The idea of having to actually pay for the content is even more harrowing. Of course, travel agents like the idea of having all this information so easily accessible. It makes the job much easier. But if you have to forego a lot of revenue, then it wouldn’t be worth the switch.

That’s why it really falls on to the airline to make sure the agencies are made whole. There has to be a reason for the agencies to take the plunge. And this is really why working with a GDS instead of trying to reinvent the model is so important for airlines. It’s why the Travelport/American announcement is such a big deal. If a GDS doesn’t want this to happen, it can cut off agency payments or start biasing airline displays (at least in the US) and that’s a really tough thing to overcome. But working with the GDS, that becomes a non-issue, especially if the new GDS agreement involves lower costs for the airlines in the process.

This goes for online travel agents as well. Priceline took the plunge and now works with American on a direct connect. How did it manage to do that? I would assume that American made it worth their while, but Priceline also has a ton of business that’s not air-related. I can only assume it was able to use its heft to avoid any serious loss. And now it can sell American’s Preferred seats while others can’t… yet. Though we know that’s changing.

Corporate Business
Often called “managed travel,” this is the bread and butter business for any airline. These are usually the high fare-paying road warriors that airlines love, but above those road warriors is a large organization, usually one that has staff overseeing the travel program which is often administered by an agency (called a Travel Management Company). So how the corporate folks feel about this should matter greatly. How do they feel? I had the chance to talk to two people who run the corporate travel groups of very large organizations. For them, there are really three things that matter most.

1) Security – For any business, security is important. But when it comes to travel, you’re freely passing around credit cards, birthdates, passport numbers, etc. No, there’s no social security number, but there is still a lot of sensitive information flowing. For any technology to even be considered, the security has to be there.

2) Data – Big businesses run travel departments on data. They need all kinds of data in a way that they can slice and dice it to make decisions on a broad level. So any solution must be able to provide that kind of data. The GDSes provide a great deal of data, and that’s why corporates like them. They can get all kinds of data. So if direct connect doesn’t provide that same level of data to the GDS or some other aggregator to give to the companies, then it’s not going to fly.

3) Discounts – Businesses negotiate corporate deals with the airlines, and that usually means discounts with extra perks. This kind of information needs to be easily accessible when booking regardless of the source. And all the discounts need to be in one place with access to all flights and fares. People aren’t going to hop around to various tools depending upon the airline.

You would think that credit cards would have found a way to extract the data and attach discounts to that number by now, right? But they don’t. So GDSes are still the best bet for these companies to do what they need to do. Could they benefit from direct connect? Yes. If the airlines started including all the ancillaries and provided robust tracking data for everything, it could be beneficial. Then again, with a lot of these corporate deals, the ancillaries aren’t purchased anyway because they are frequently negotiated as part of the overall agreement.

I definitely heard some skepticism about airlines being able to pull this together. After all, they do some things that make things more difficult for the corporates. For example, there are different merchant codes used by some airlines for various ancillaries. It makes pulling the data together tough. But with Travelport integrating the direct connect, that’s the best of both worlds.

Travelers
Last but not least, we have the traveler. Travelers don’t currently receive incentives from anyone, so they should be the easiest to sway with new technology. Ultimately, it’s the traveler who may stand to benefit the most here. A clean interface that allows people to truly compare apples to apples by knowing how much each ancillary option costs (if at all, depending upon status) would be a huge leap forward. And getting offers tailored to a traveler’s need is helpful if done right. Naturally, just because the airlines put the direct connect out there, however, doesn’t mean it gets to the traveler. That only happens on airline-controlled channels.

As we’ve seen with Priceline, this can be done by third parties today. Even with limited funcionality, what Priceline has done is good for travelers, and benefits will only increase as more features are rolled out. Tech work is definitely a hurdle. IATA’s NDC has yet to roll out and then there will be development work required. But the barriers will continue to fall in time. Something that the airlines want which also benefits most of the stakeholders isn’t going to fail. I just wish things didn’t move so slowly in this industry. But after this week, you probably have a better understanding of why that’s the case.

23 Responses to Why Changes in Airline Distribution Take So Long – A Look at What the Players Stand to Gain and Lose

  1. Kevin says:

    Great series, so much content and so much to think about. Nice work.

    I work for one of those large corporate customers. Because of our size we have discounts with American, Delta, United, Southwest and US Airways in the US (any many more worldwide). I am assuming that that all of the data aspects you describe is not going to be possible without the GDSes.
    We book through a dedicated travel portal, but frankly it sucks (it is from a major player you mention). Up until recently for one of the 5 approved carriers we could not reserve seats (name withheld to protect the guilty)!
    Most of the features that you see on the airline websites are not available, but it is rarely important because as you say it is not approved to use anyway.

    • CF says:

      Kevin – Well, it should be possible to get data in other ways, but it’s not there yet. As I briefly mentioned, you would think the credit card companies would be on top of this. Just imagine if you had a corporate card, and it captured all the travel data no matter where you booked? And if your corporate discount was tied to that card, people could book anywhere they want and still get it. But that hasn’t happened.

      Often it does come down to data for big companies and that means partnering with agencies that don’t necessarily have the best product for travelers. But they specialize in data, and that’s what the corporates feed on. So even if the GDSes get the underlying data as Travelport is going to do with American, your interface might not be updated to actually display it. That’s on the agency.

  2. Seems one website with all this would be better then old school GDS systems. But to have one website would have the big brother fall back of one company controling it all.

    But if each GDS used a website and with come standard industry formats, it would see the information could be presented better and things change faster then trying to reprograms decades old GDS systems.

  3. Ron says:

    Cranky, you neglected to mention one player, who is probably the biggest customer of air travel in the U.S. and also plays several other key roles: the U.S. Government. How do they figure into the mess?

    • David M says:

      The government falls under the “Corporate Business” category in Cranky’s breakdown. They have negotiated fares in the form of the City Pair Program and they have their own web-based booking portals (E-Gov Travel Service and Defense Travel Service) that ultimately book through a GDS.

    • CF says:

      Ron – Well, the government figures in from a purchasing travel perspective similar to how David describes. But the government also fits in from a regulatory perspective. Sabre has been pushing hard for the government to require that airlines file ancillary fee data in a database so that GDSes can all have it. That’s still a fight being had today. The spin is pretty thick on that one, so it remains to be seen if the government will make the mistake of requiring it.

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  5. JayB says:

    Not surprised to hear you say this was the most difficult of these related posts to write. Be assured, it was the most difficult to read.

    As you point out, it is difficult to try to untangle the web of relationships. You probably do it as good as anyone to explain all this. But, do I, a potential customer of the airline industry, really care? Not really. Relationships exist in just about every industry, but do we discuss it, care about it as much as we seemingly do with the airline industry? I don’t think so.

    I, like many, want to travel on the airlines. I want to get the service I want at the lowest price. I define the service I want by looking at what’s being offered. I choose a price based on what I see is available. And, very importantly, after I’ve done all this, I don’t want to be left feeling like I was sucker.

    Establishing what is a basic, and a good basic airline service is becoming too difficult for the average traveler to understand. Do I get this? Do I get that? Is this included? Of course, the airlines can offer service anyway they want. But, when it is becoming so confusing to the average traveler, you might want to try to simplify all this.

    Establishing what is the best price for that service, and the alternative prices for services at other times, is also too difficult for the average traveler to determine. And, having to rely on a travel agent to facilitate the purchase seems so unnecessary when greater simplicity would suffice.

    I’m looking to the day when a fare is coded by a single letter, say “Y.” There won’t be “V” “T” “L” and 22 other coded fare. ONE!

    I’m not going to tell you what to price a “Y” seat, but ladies and gentelmen, this is the fare, at this moment, for that class of service, on that airline, on that day, on that flight. Yes, it might change in a minute, but where did the airlines ever come up with the idea that fares have to vary SO much, one day to the next, one flight to the next, minute-by-minute. IT DRIVES US CUSTOMERS NUTS!

    Of course, there will be corporate contracts with negotiated fares. The US Government has the biggest contract of all, although the airlines often think this is hardly what might be called negotiated. And, why can’t I call an airline and negotiate my fare? “Hey, I see Southwest is offering a $129 fare to SFO. Care to lower your $159 fare for me on this trip?”

    And please, after I’ve weighed all the options, make the sales process easy. Have many people never fly simply because they don’t know how to buy the ticket? A lot, I bet!

    Maybe, the elimination of antitrust immunity to this industry would drive the industry to simplify. Maybe if air travel regulation were stripped from DOT and placed with FTC, like other types of commerce, things would be simpler. Relationships might still be there but without all the immunity there is now.

    Holding my breath, as usual.

    • Airlines (in general) don’t have antitrust immunity. There are a few specific markets that they do have this, but that is the exception rather than the rule.

    • David M says:

      These new direct connect options that better expose ancillary services should help you feel less like a sucker. By exposing the ancillary services and their costs, you’re better aware up front of what your options are. And if airlines know who you are, they can customize things based on status (free checked bags, for example).

      Cranky’s part 2 article from Tuesday had a great example of this. He had a quote from the CEO of Spirit Airlines, stating that while 25% of their bookings come through online travel agencies, 100% of their complaints come from the customers who book through OTAs. If you go to Spirit’s web site, you’ll see there’s a link to a page with all the fees right at the very top. And if you know about Spirit in the first place to go to their site, there’s a good chance you know what kind of operation they run.

      Compare this to booking through an OTA, where you’ll see Spirit right next to all the other airlines. In fact, here’s a screenshot of the matrix from a quick search I did on Orbitz for a SAN-DFW trip: http://tinypic.com/r/200yz3o/6

      This is the thought process I’d see going through the average traveller’s mind: “Oh look, Spirit is only $5 more than US Airways. Spirit is nonstop, but with US Airways I’d have to make a stop. I’ll pay $5 more to go nonstop. I haven’t heard of Spirit before, but they’re over a hundred bucks less than American.” Based on the information you see, why wouldn’t you book Spirit? The traveller doesn’t find out until later that they have to pay extra for a seat assignment and carry-on bag, both of which would be free on AA or US. The result is people who feel taken advantage of (“suckers”) and complain.

      If Orbitz had better access to ancillary fee and passenger details, they could more adequately expose that information.

      The varying airfares problem is a whole different issue. Airfares really don’t fluctuate as much as you think they do. The problem is that there are a lot of them to begin with, with lots of different rules. Your booking engine (whether going through the airline’s site, an online travel agency, or a traditional travel agent with a GDS terminal) takes in your search query and figures out which fares apply to you (if a particular fare requires traveling on Tuesday and you ask for a flight on Thursday, that fare won’t be considered). The airlines limit the number of seats available at each fare (this is not much different than things like Black Friday sales where only 100 of a particular item is available at the deeply discounted advertised price, and where the different letters Y, K, L, Q, etc., come in), and different flights on different days will run out of seats available at each fare. It’s not that airlines make the 8am flight more expensive than the 10am flight on a particular day, it’s that the 8am flight has already run out of the cheaper seats). And if you do a search a few hours later and fares have gone up, its not likely that the airline changed the fares on you; instead its more likely that other people bought those cheaper seats in the meantime. Of course it’s a bit more complex and involved than that (airlines can and do adjust the number of seats available at various fares as time passes, for example, but again they’re just adjusting availability and not constantly going in and changing prices), but hopefully that gives you a general idea of whats going on. Pricing and availability is really a topic for its own post or series of posts, and for all I know as I haven’t looked, Cranky might have already done one.

      • JayB says:

        Thanks, David.

        Cranky has done something on just about everything of interest here, and done it better than anyone else I’ve seen.

        My concerns do center on pricing, and availability of a seat at a price. There was a time when a potential customer could research all the carriers’s fares, make sure he/she met every term and condition applicable to a particular fare, and assuming there was a seat on the particular flight, got the fare. Now, that’s not the case. Trying to meet every term and condition of any fare is basically useless when the airline can simply say the “bucket” of inventory for that fare is shut.

        Let’s make it simpler, fairer to the potential customer. Let me see what price was last sold, what price the airline wants for the seat I’m asking about, what price I’m willing to pay, and see if we can come to an agreement, right there, that very instant we are in communication. Directly with the airline; through an intermediary, whatever.

        Sorry, there I go again.

        • CF says:

          JayB – Yeah, I realize this one went pretty wonky, but I still wanted to write the post. For some travelers, I bet this will be of interest. But I bet that pool of people is much smaller than for my normal posts.

          The issue of fares and buckets is probably one I’ve written about before, but maybe it’s time to write about it again. The way the systems were originally built incorporate that fare/bucket method into selling tickets. Now the airlines would love to get away from it if they could. But they want to get away from it because it would let them vary fares more frequently all along the demand curve instead of through just a handful of buckets. So that wouldn’t solve your problem.

          I think it’s important to realize that most people don’t start by looking at a fare display, and they don’t know what bucket they’re booking in. They simply want to see the fares on each flight at any given time.

  6. CF have any of the newer startups in the travel distribution business (i.e. Hipmunk) mentioned any thoughts about moving closer to being a full reseller? Right now they forward customers over to the airlines to book, but it’d be a cleaner experience for the customer to have people just book at one site.

    The big thing is moving the data to XML allows smaller disruptive competitors to emerge. We owe the VoIP telecom provider growth to Level 3 and other CLECs reselling services to other smaller innovative companies, opening this up allows a better spot for smaller companies to interconnect with carriers

    • CF says:

      Nick – Yep, Kayak will let you book directly on Air Canada using the airline’s XML pipe. Just go punch in a Canadian city on Kayak and you’ll see an option on Kayak. Unfortunately, it still doesn’t show you the various fare bundles that Air Canada offers. So it needs to be better.

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  8. Jim says:

    Cranky, thanks for an excellent post. This is the type of post that I really enjoy reading, because it provides insights you can’t get anywhere else.

    While I agree with much of your analysis, I have to disagree with the claim that there?s no way full-service airlines will ever get everyone to buy directly from the website. Many people used to say that about all airlines, until Southwest came in and proved them wrong. In many small countries with only one or two major airlines, almost everyone buys direct, both leisure and business customers. The US airline industry is rapidly consolidating, so the main reason to use an agent (to compare prices) is less relevant. Add the emergence of metasearch engines, and the increasing willingness of all but the largest companies to allow employees to book their own travel, and you have a huge increase in direct bookings.

    • CF says:

      Jim – I’m afraid I still have to disagree. For leisure travelers it can be easier to push to an airline website, but it’s not going to happen for big business. These websites aren’t flexible enough for the managed travel companies, and they can’t aggregate data across airlines. Businesses need a central place to manage everything, and that’s why Southwest has begun limited participation in the GDSes just so it can tap further into the business travel market.

    • MeanMeosh says:

      Have to agree with Cranky on this one. Even if all but the largest companies move to a “self service” travel system, those largest companies (my former employer included) hold a ton of influence because of the volume of business they do. We were strictly prohibited from booking our own air tickets, even if the price at say AA.com was less than what was offered on our travel portal. I don’t see this changing anytime soon, for the sole reason that forcing bookings through a single source gives HR the ability to more effectively monitor travel patterns and keep costs under control. You would largely lose that ability if you allowed employees to do it on their own, from whatever source they preferred.

      Cranky, just an FYI, my former employer used to allow us to book via WN, but it was a rather clunky process. They didn’t participate in our GDS-based travel portal, so you had to manually go to the “SWABiz” portal and use the company’s account number to book travel under their contracted rates. It was a royal PITA, because any travel you booked on SWABiz couldn’t be changed on southwest.com. You had to remember to access the company-dedicated SWABiz site, which could be a problem if you couldn’t get your computer connected to the internet to use the link on our travel portal, or didn’t have the account number handy to try and log in manually through your phone.

  9. David L says:

    RE: Mr. Whippy comparison. I continue to see these comparisons and they are not apples to apples. The supermarket pays Mr. Whippy $x. The supermarket then charges the customer $2x (actually any multiple they want, although Mr. Whippy will suggest the price it should be sold at). With the airlines, the 3rd party reseller doesn’t actually ever buy the airline seat, all they can do is sell it for the airline at $x (with no discount or markup – although some backend incentives do exist). Also the 3rd party can’t sell the seat to Bob, then have Bob give it to his sister (Bob can however give his bucket of ice cream to anybody he wants, or even sell at a higher price if it happened to be a Twinkie). When i buy ice cream at the supermarket, I have no idea what it cost the supermarket – not the same with the airline ticket.

    • CF says:

      David L – See below…

      With the airlines, the 3rd party reseller doesn?t actually ever buy the airline seat, all they can do is sell it for the airline at $x (with no discount or markup

      It’s true that very rarely does a reseller buy a seat, but it is not true that they can’t sell without a discount or markup. We see an increasing number of what are called bulk or net fares, where the base rate is offered and the agencies can mark them up and resell as they see fit, with some guidelines. There are also agency fees which are added on to any ticket. It’s the same thing as marking up the price of a ticket, but it’s just broken out instead of baked in.

      But you’re also making a very broad assumption about final price to consumer outside the airlines. Just look at Apple as an example of how the basic model works. They set the final price to the consumer. Profits are taken by each company along the way but the end price is fixed.

      Also the 3rd party can?t sell the seat to Bob, then have Bob give it to his sister (Bob can however give his bucket of ice cream to anybody he wants, or even sell at a higher price if it happened to be a Twinkie).

      It’s true that there is no aftermarket with most airlines (some exceptions), but I don’t see what that has to do with this comparison. Do you think there’s really an aftermarket for ice cream? And what is the benefit to the intermediaries in the aftermaket anyway?

      When i buy ice cream at the supermarket, I have no idea what it cost the supermarket ? not the same with the airline ticket.

      That’s not true either. Agencies have a variety of agreements with airlines to take commissions when we’re talking about published fares. So you don’t know if the agency was able to pocket 5%, 20%, or nothing. The actual mechanism for sharing revenue with the agency may be different than with a supermarket, but the end result is the same.

  10. Dlt says:

    It looks to me that you got paid by the airlines, a lot of a** kissing! Airlines are building monopoly!

  11. Cpt says:

    Do you guys really think that airlines will lower their fare if they get rid of GDS?
    They don’t care about passengers. Why should they.

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