Fights between airlines and reservation systems are as old as time. Global Distribution Systems (GDSes) have held the upper hand for years, and because of that, they charge the airlines a lot of money for every booking. Airlines, consequently, are always looking for ways to bring costs down by taking bookings directly. (For those want to know more, you can read my distribution series.) Lufthansa Group and its airlines (besides Lufthansa itself, this includes Austrian, Brussels, and Swiss) have decided to hit hard by slapping a fee of 16 euros on every ticket issued in a GDS starting in September. That may sound smart, but it brings a lot of collateral damage with it. This may make sense in the future, but for now it’s a big mistake. Let’s hope this is just posturing.
Lufthansa Group announced the change on June 2 in a very typically dry and bland release entitled “Lufthansa redirects commercial strategy.” (If you fell asleep just while reading the headline, my apologies.) Let me summarize it in plain-speak.
“The GDSes charge us too much. So now we’re going to punish those who use GDSes by slapping on a 16 euro fee to every ticket.”
The problem here is that while the beef is with the GDSes, the punishment hits others just as hard if not harder. Anyone who books through an online travel agent will now pay 16 euros more. It’s really Lufthansa that suffers the most in that scenario because in a comparison shopping world, Lufthansa is going to now look more expensive. People aren’t going to go to Lufthansa.com to see if it’s cheaper. They’re just going to fly someone else. But hey, if Lufthansa doesn’t think it needs that lower-fare traffic to fill up the back of its airplanes, then fine.
But what about all those actual travel agents, especially those that handle corporate and high-end leisure travel? Those are high dollar bookings that are highly desirable. And for better or for worse, travel agents use these distributions systems because there aren’t any better alternatives… yet. Technology is slowly getting there, but it’s not there today.
In the release, Lufthansa had the nerve to say that Lufthansa corporate deals can be booked directly at LH.com. That implies cutting out the corporate agent. Even if the corporate agent does book it, it won’t feed into the agency’s back office systems so it’s going to be a mess for the agencies and the companies.
The same goes for Lufthansa’s online agency portal, which I believe is either new or going to be nearly-relaunched. Sure agencies can go book there if they want, but it’s a huge pain in the butt. First of all, agents are going to have to remember to subtract 16 euros from any price they see in the GDS, since that’s still where they’ll do their comparison shopping. (That’ll be a lot of fun for people who don’t book in euros.) Then they’ll have to go to the portal and book. And since the booking likely won’t go into the back office systems, there will be a bunch more work to be done. In addition, those bookings that require multiple airlines won’t be possible on the portal, presumably. It’s going to result in fewer bookings for Lufthansa.
In short, this is going to piss off some of the airline’s best customers (and the people who issue tickets for the airline’s best customers). It’s probably also going to make United and Air Canada mad since those airlines share revenue with Lufthansa Group airlines over the Atlantic. This is going to hurt their business as well.
That’s why we can only hope that this is truly posturing. Most interestingly, the announcement was made on June 2 but it doesn’t go into effect until September 1. So that gives Lufthansa Group time to extract concessions from the big three GDSes out there, Amadeus, Sabre, and Travelport, before putting it into place.
Eventually, there will come a time where the airlines hold more power in this relationship, a time when alternatives for reaching agencies will be functional and viable. But we aren’t there yet. Right now, Lufthansa Group is just too early to market with this. And because of that, it’s playing with fire.
[Original middle finger photo via Shutterstock]
