As you know, I was in Dublin last week for the CAPA Airlines in Transition conference. But it was Travelport that brought me out to the conference (paid for flights and hotel) because they rolled out their new Merchandising Platform the night before. What the heck is a merchandising platform and why should you care? Well, the most immediate benefit is the ability to compare and then book easyJet and legacy airlines side by side. But this is just the beginning.

Last month, I wrote my series about why airline distribution takes so long to change. At the time, I mentioned that American had signed a deal with the Global Distribution System (GDS) Travelport that would allow it to sell tickets the way it does on its website. This deal would allow travel agents and potentially consumers to buy fare bundles in an intuitive way, add baggage, choose preferred seats, and more. It would also allow American to give pricing based on elite status, if you provided your frequent flier number. (It would know you had a free bag, for example.)

But that was just an announcement and nothing had been put into practice. And while it still isn’t in practice with American yet, we now have a real live example of how this can work with easyJet.

Above you’ll find a screenshot of a graphical travel agent desktop. It may not look like much, but the fact that you can now see easyJet side by side with other airlines is a big deal. In fact, it’s a big deal for a few different reasons.

easyJet Can Be Compared
First of all, agents can now readily see how easyJet compares without having to go outside the GDS into a separate system. That in itself is a big victory for people who want to look at all options. And why would easyJet want that? Because it wants a piece of the higher dollar corporate bookings that are going to come through these systems. It now has a much better chance of selling to business travelers.

easyJet is in a GDS
You might not think this is a big deal, but a lot of low cost carriers don’t use systems that can readily interface with GDSes. They may have non-traditional ways to do it, like through an API, but GDSes haven’t really worked that way when it comes to selling tickets. When Travelport made a decision to start working with non-traditional methods, it opened up opportunities for airlines like easyJet to get in the GDS without having to make a significant IT investment.

easyJet can Sell Ancillaries
One of the big reasons that easyJet is in the GDS is that Travelport has decided to let airlines sell ancillaries and has inserted this into the selling process directly. In the shopping screen, you can see multiple fares types. In easyJet’s case, it’s both regular and flexi fares. You can also buy a bag on easyJet, or you can pay for a seat assignment, priority boarding, etc. Of course it’s not just easyJet here. Other airlines do it as well. For those who are familiar with a travel agent “green screen” (the text-based, old-school method for selling tickets), this is how it looks with Alitalia’s ancillary options:

This isn’t what a regular consumer would see, but to a travel agent, this is a beautiful sight. The ability to sell everything in one place will make life so much easier.

easyJet Can Do This in a Cost Effective Way
Admittedly, I don’t know if this is true. Nobody will ever talk about commercial agreements unless they have to in court. But I can’t imagine a scenario where easyJet gets hit with some insanely high booking fee and still decides to go forward with this. Sure, I can imagine that with the legacy carriers here. They’re already in the system, so they really want to try to sell ancillary services. But for easyJet, it had to be a compelling business model or the airline wouldn’t have considered it. Right? (If not, then I fear for the airline’s survival.)

But this goes beyond even just being allowed to sell ancillary services. This platform will also allow airlines to include all kinds of information in the booking process that will help agents to sell those ancillary services. Here’s a mockup of what’s to come:

Even from a green screen, you can easily find what is included in a fare bundle. Or if you see a seat map, you can see exactly what the seat looks like. Basically, Travelport has created a big database that can be maintained by the airlines with branding and product detail. Considering that most airlines sell the bulk of their tickets (outside of direct sales) via a couple of GDSes, it would be in the airlines interest to keep these up to date.

In the end, the way Travelport spins this is that the company will work with any airline in any way that airline wants. Does one airline want to keep connecting in the legacy format used by many airlines today? No problem. Does another airline want to use an API? Fine. Does an airline want to do a hybrid of the two depending upon what’s being sold? Go for it. Travelport is going to become an aggregator of all these options.

But will this translate into the customer experience outside of travel agents? It could. After all, Travelport powers Orbitz, among others. So if the information is in Travelport’s system, it makes it easier for Orbitz to sell. This doesn’t mean, however, that you’ll find easyJet flights on Orbitz today. Just because it’s technically possible doesn’t mean that the airline wants to do it. After all, easyJet isn’t going to find many of those high-dollar corporate travelers on Orbitz. But that doesn’t mean other airlines won’t jump at the chance to participate, if the price is right.

Now we just have to hope that Travelport is willing to make the price right for airlines to participate in any form. I would think easyJet got a great deal. As a successful airline not using the GDS today, it has more leverage than a legacy airline that relies on GDS bookings. And of course, American’s agreement came with the end of litigation between the two companies. But what will be see with other airlines? With any luck, we’ll see widespread adoption.

If we do, it sounds like airlines can get up and running quickly. I was told that if an airline is actively engaged in the process, it can be online within 3 months. But when I said, “Great, so I can expect to see American up by July?,” I didn’t exactly get a response.

Assuming airlines really do start participating, Travelport is about to get a lot more useful.

This has been a heavy week talking about how airlines sell tickets, so for the topic of the week, let’s turn it lighter. What do you want to see when it comes to buying a plane ticket? What do you hate and what do you like about the current process? What would be your ideal way to buy tickets?

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.
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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.

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.

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.

It’s Distribution Week here on The Cranky Flier. Yesterday I wrote a brief history of how airlines sell tickets. Today it’s time to talk about how they’d like to sell them. Then Thursday we’ll look at why this is so slow to take shape.
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Airline tickets have been sold pretty much the same way for years, but with changes in both the way tickets are sold (fees) and the technology out there, you’d think it would change more quickly. But really the last big innovation was the price matrix showing stops and prices by airline that came out more than a decade ago, and that’s not even that helpful anymore. I spoke with Cory Garner at American about the airline’s future strategy, but American is not alone here. Airlines have all been trying to come up with better ways to sell tickets. This particular vision would impact people who buy directly from the airline or through a travel agent (corporate/retail/online), but the way it would be presented could vary from channel to channel. Today we’ll focus on what it might look like if you bought through an online travel agent (OTA) just to make it easier to explain.

When you buy tickets today through an OTA, you get a one-size-fits-all price that is based on the basic ticket price and the schedule at hand. Oh sure, you can sort but you can’t really compare the true value of what you’re getting with one airline to that of another without some serious manual legwork. Here is the kind of view you probably expect today:

Considering how fees play into the equation today, that is an obsolete way of looking at things. What’s more, each person has different preferences and those aren’t part of this comparison process at all. This is why when I asked fee-king Spirit Airlines CEO Ben Baldanza about his sales through online travel agents (OTA), he said that the airline had about 25 percent of sales and 100 percent of complaints through OTAs. That’s because when you buy on Spirit’s website, you know that there are carry on fees, seat fees, etc, before you give your credit card. You don’t know that through online travel agents today.

This becomes even more complex because depending upon the status you have with the airline, you might be entitled to different things. And today that isn’t incorporated into third party systems so travelers lose out. The same thing happens with traditional and corporate travel agents. Some think the answer is to have the government force the airlines to file all their fee data through the central fare filing clearinghouse so the Global Distribution Systems (GDSes) that power the OTAs can have everything available. That doesn’t make sense to me since it should be up to the airlines to decide how much information to provide to each partner that sells travel. And besides, the airlines are working on something different anyway that would make this less important.

Today when you go to an OTA, it’s the GDS that’s doing the heavy lifting. As described in yesterday’s post, the GDSes take the fare and schedule information and then compare it to availability to push out offers to you directly or to your travel agent. But what some airlines like American would rather do is change where that processing occurs. They want to get the request from the GDS or even directly from the travel agent using something usually called “direct connect.” Regardless of where the request comes from, it would come in and the airline would do the processing, sending back options.

The airline likes this for a few reasons. If the frequent flier information is provided, then the airline can use the preferences in the account to tailor results or make a special offer to you, the traveler. If what’s presented is more attractive than what you see today, you’re more likely to go with that airline. Second, it also allows the airline to offer prices that are hopefully matched better to the demand that’s out there. In the long run, airlines could make small incremental pricing changes instead of using the “bucket” system they use today. And as a final, and large, benefit, this would reduce costs for the airline.

Let’s take a walk through this so you can see what I mean.

Sam, Sam, the Businessman
Meet Sam. Sam is a Chicago-based small business traveler who books his own travel. He flies enough to have Gold status on United and American. Sam likes to book his travel through an OTA because he can store all his personal information there. Let’s say that both United and American have successfully implemented their direct connect options either with this OTA or with the GDS that the OTA uses. The upshot is that the OTA can show fares and options on all airlines, some via the direct connect and some through traditional channels.

So, Sam wants to take one of his usual trips to LA and he goes to his OTA to check on options. If Sam doesn’t log in, then it will just spit out the generic pricing that is made available for everyone. This pricing will be current at the time its offered and it will come directly from the airline. Sam will still see a bunch of flight options in front of him. Then when Sam clicks on each option, he’ll be able to see a menu of which ancillary services are being offered and he can pick and choose the ones he wants. He’ll just pay once when he checks out.

But where it gets more interesting is when Sam logs in. This OTA stores his frequent flier information for him, at his request, so when it sends out for pricing information, it will provide that frequent flier number to United and American. They will see that and return the offers that apply to him. So if he pulls up the flight on American, it will show he gets a free bag because of his status with the airline. There’s no more guessing about what applies and what doesn’t.

The airline can do more than that as well. If it wants, it can offer Sam a discount because it knows that he’s been loyal in the past but hasn’t flown lately. The airline might have him flagged as someone who may be at risk of moving more of his flying to United, so American could sweeten the deal with an offer. Maybe they’ll offer him a free lounge pass. It could be anything that the marketing group dreams up that the OTA is willing to display, but only if Sam logs in first and decides to share this information before searching. It might look something like this:

Naturally, there are a lot of objections to this kind of process. I heard an earful of them from a GDS itself, Sabre, when we had a call about this subject. Clearly Sabre isn’t a fan of this plan, but we’ll talk about that tomorrow. So let’s go though some of the more common objections.

What’s Bad About This?

1) It’s creepy if airlines know too much about me – In general, I agree with that statement. I hate when websites use cookies to collect data without my permission and then use it to market to me. But in this case, it would only come from information that you provide directly to the airline. You might not even be using the airline website, so they would only be able to use the information that you’re allowing the OTA to share. If they can use that information to get me what they know I want, it’ll save time and it could save money.

2) The airline will make me log in to get fares – I heard this objection from none other than Sabre itself in a recent call. I simply can’t imagine this happening. An airline would be suicidal if it required people to log in before giving any fares. People will flee quickly. Instead, the airline really just needs to have base pricing and then it can adjust if people log in. Which brings us to…

3) If an airline knows I’m loyal, they’ll just charge me more if I log in – This is a scary thought, I agree. But it would again be suicide for an airline to play this way. Why? Because people aren’t stupid and they’ll find out very quickly if an airline is penalizing people who log in. (Remember when it was thought Delta was playing that game?) When that happens, nobody will log in anymore and the airline will have screwed itself. I’m not saying it can’t happen, but if it does, it will end in disaster for the airline.

4) Fares already change quickly enough, this will be worse – That’s another of my concerns, and the one that I’m least confident will be addressed. Buying a plane ticket is a big investment, and so it’s not something that you’ll just jump on right when you see the price. Today, travel agents can hold reservations, though fares are never guaranteed until purchase. Still, the expectation is that it usually won’t change in an hour if you have the seats on hold. (That’s not always the case, but usually.) So in this new system, if the airlines are free from any sort of constraints limiting fare changes, then you could never pin anything down until you finally purchased. That is extremely unfriendly for travelers. I would hope that airlines would allow you to lock a fare for a short time, just so you can confirm things. But that’s a business decision that will have to be made if this ever goes into effect.

Personally, as long as an adequate solution can be found for number 4, I’d love to see a system like this, even if I don’t think this kind of dynamic pricing will be ready anytime in the near future. But much of the rest of it is ready today. This system, however, can’t exist in a vacuum. And that’s why it takes so long for it to happen. The plan is to discuss why it’s not happening more quickly on Thursday.

Welcome to “Distribution Week” here on The Cranky Flier. Today I’m looking at a brief history of how airlines sell their tickets, aka distribution. Tomorrow I’ll look at how the airlines want to sell tickets in the future. Then on Thursday I’ll wrap it up with a look at the hurdles the airlines face in making this a reality.
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A couple weeks ago I wrote about the new Farelogix interface and promised I’d follow up soon with why you can’t use that today. But as I started digging in, I found that this issue was far more complex than even I thought it would be and I’ve been looking into this for quite some time. I’ve talked to airlines, Global Distribution Systems (GDSes), corporate travel managers, and more, and now I’m wrestling with the tough task of trying to boil this down into something coherent. As Cory Garner at American Airlines said, this is the kind of stuff a grad student will write a thesis on.

The problem is that there are a lot of different players in airline distribution and there are some very old, goofy business models that have created incentives to stifle innovation. Let’s start with this basic snapshot of how airlines sell tickets today.

The funny thing is that this model doesn’t have to actually change much for the airlines to do what they want to do. It’s the responsibility of each player that needs some tweaking to support the kind of innovation airlines would like to see. One thing is clear: you can’t stop innovation if it’s good for the end user. That’s the beauty of disruption. But when you’re a big player with a lot of clout, you can slow it down. In the end, you lose if you play that game, and I think that all players involved are going to realize that sooner or later. But we aren’t there yet, so it’s quite the slog.

Naturally, it’s hard to predict the future, but there are airlines out there that have a strong vision of how they’d like to sell tickets someday. And that’s where I’m going to take this tale tomorrow. But first, we need to look at how we got to where we are today.

A Brief History of Airline Distribution
A long, long time ago in a galaxy far, far away, airlines did everything by hand. You would call the airline or a travel agent for a reservation. They might not have been able to confirm immediately because they had to go to find the file where that flight availability was written down and then check off a seat for you. Pricing was fixed by the government, so it was never an issue of what the price would be – just if there were seats available.

As things got more complex, the airlines began working on a computerized reservation system (CRS). The first was American’s Sabre system and that was a huge leap forward because the airline could instantly look up availability from throughout its network. But soon American realized that if it could roll out its computers in a network to travel agents, then it could make millions. American knew that it would have to display all airline flights or it wouldn’t be compelling enough for agents to bother, but it could put its flights at the top of the list (using what today they call “bias”) and sell more seats, stealing share from other airlines. United did the same with its Apollo system and the race was on. Eventually bias was outlawed, though today it is legal in the US even though it’s banned in many other places around the world.

When deregulation occurred in 1978, airfares became much more complex and the CRS became necessary not just for availability but for performing these complicated calculations. The system that was in place back then is effectively the same that’s in place today. Fares were filed with a third party group called ATPCO while schedules were filed elsewhere. These fares were filed in specific “buckets” of availability. If there was a seat made available by the airline in the required bucket, that fare could be sold.

So the CRS (which morphed into a Global Distribution System – GDS), took the schedules and fare information from those relatively static sources and then sent a real-time request to the airline for bucket availability. Bringing those three pieces together, the GDS could calculate and push out all offers. The travel agent could make a decision and then book a flight with the GDS. When that happened, the GDS would send the booking back to the airline electronically. It’s quite an impressive system considering it was built before the internet.

Originally, regular travel agents were the only GDS users outside of the airlines. Travelers either had to call airlines or travel agents to book a flight. But then the internet magically appeared (or something like that). And online travel agents (OTAs) were set up to show the results from the GDS directly to travelers online. People could book directly, or so they thought. In reality, the same GDS processing was still happening behind the scenes – it just removed the human intermediary. For the GDSes, this was like a cash register. Every time anything was booked, the GDSes collected several dollars per flight segment from the airlines. It plowed some of that back into the OTAs to make sure they didn’t think about jumping ship to another system. They were able to mint money.

Of course, the airlines themselves built their own websites early, and have now succeeded in pushing a big chunk of their sales to those sites. These allow the airlines to bypass the GDSes and sell direct, and that has given the airlines some leverage at getting fees reduced. Throughout the 2000s, as airlines started changing the way they sold tickets from just “price and schedule” to include ancillary options, the websites became the only vehicles that could adequately support that. But it’s not just about having ancillary options displayed. It’s now about being able to know more about the traveler so airlines can tailor the offers they provide. If this sounds scary, it’s not a surprise. But it really is a good thing, and I say this as someone who certainly has concerns about privacy.

Tomorrow, I’m going to get into the details of how airlines would like to sell tickets and why it’s good.