Back in June, Lufthansa Group announced that any bookings made through a global distribution system (GDS) would have a 16 euro fee tacked on. At the time, I said it was a big mistake. Early results seem to show that Lufthansa is suffering from this decision, though there is some noise in those numbers. Lufthansa, for its part, strongly disagrees, at least publicly. Behind closed doors, I imagine it’s a different story.
It’s not a surprise to hear that an airline wants to reduce its dependence upon bookings in the GDS. After all, it’s not a cheap distribution channel to use. Every time a flight segment is booked, there’s a fee (even if it’s not ticketed), and those can add up quickly. Further, GDSs have been very slow to start selling travel the way the airlines want with merchandising of various ancillary options. I’d want to reduce my dependence on the GDS as well.
On the other hand, the revenue that comes in from GDS bookings can be very important. On the top end, you have corporate travel agencies. Big companies nearly always have travel agents manage their travel, and those are the most lucrative bookings an airline can get. Why don’t those agencies book directly? The tools just aren’t there yet to make it manageable. They need to compare options, have back-office functionality, and provide reporting. While true GDS competition is inevitable, nothing is ready for prime time.
On the other end of the spectrum, you have online travel agents like Expedia. They usually use the GDS as well, though some have started to incorporate direct connect technology to some extent. While the fares through these channels aren’t all that high, they’re crucial for helping to fill all those coach seats, especially during off-peak times. I can see an airline trying to lean harder on the Expedias of the world to try harder to bypass the GDS, but messing with corporates is probably suicidal at this point in time.
For that reason, I was surprised when Lufthansa said it would add a 16 euro fee to every booking made through a GDS. Corporates and agencies were livid, and that’s not revenue Lufthansa and its subsidiaries (Brussels, Austrian, Swiss) should want to jeopardize. The airlines offered a portal for travel agents to book directly, but that won’t interface seamlessly with agency back office systems. This seemed like a disaster waiting to happen, yet Lufthansa thought the time was right to play with fire.
The fee went into effect on September 1, and I immediately heard backlash. Some agencies began actively telling agents not to sell Lufthansa. I know of at least some who refused to sign up for the portal at all. This wasn’t sounding good, but talk is cheap. It’s the numbers that matter.
We have those numbers, thanks to a document showing a massive decrease in Lufthansa GDS bookings leaked to Tnooz. The headlines? Lufthansa Group bookings made in Europe were about flat year-over-year through August. But for the first two weeks of September? Bookings were down 16 percent.
Naturally, I assumed there was more to this number than meets the eye. But a further look at the data makes it pretty clear that Lufthansa is suffering. There are two things that could offset this drop. One is that travel agents might be shifting more to codeshare bookings on United for Transatlantic travel. Then the fee wouldn’t apply but Lufthansa would still get the revenue through its joint venture. And indeed while United bookings made in Europe had been down 6 percent year-over-year through August, they were up 12.8 percent year-over-year for the first two weeks of September.
Those United bookings are clearly some kind of offset to Lufthansa’s, but remember that we’re talking about bookings made in Europe here. United isn’t going to be all that big in the scheme of things, and of course, you can’t book United codeshares on most Lufthansa flights from Europe unless you’re heading back over the Pond anyway.
The other potential offset here is the Lufthansa portal. Had people simply shifted from the GDS and started booking directly instead? That’s Lufthansa’s wet dream, so I asked Lufthansa for comment on whether that was happening.
Currently there is no significant change of the overall booking situation within the Lufthansa Group. We are in line with the statements and forecasts given regarding the booking figures. If there have been non-official sales figures by a single GDS in the media, it is highly unprofessional to project them to describe the overall booking situation of LHG, even if you focus on all GDS sales. The first weeks of September were heavily influenced by a pilot’s strike action as well as other seasonal effects. We certainly will give the public detailed and reliable sales figures within our regular financial reporting.
Unprofessional, eh? Suuuuure. But there is an important point here.
The strike is certainly a wild card. Lufthansa’s pilots went on strike September 8 and 9, which would undoubtedly have an impact, but the strike was only announced on September 7. So presumably the first week of bookings wouldn’t have been hit very hard.
In the Tnooz article, Lufthansa bookings were down only 12.9 percent for the first week. Still a hefty drop but not as bad as strike-affected week 2. But look at other European carriers. Air France GDS bookings were down 2.7 percent year-over-year through August but then were up 5.1 percent in week 1 in September. British Airways went from down 0.7 percent to being up 6.1 percent. SAS went from down 3.8 percent to being up 6.7 percent. The worst airline ever, Alitalia, went from being up 0.1 percent to being up 6.7 percent. Air Berlin went from being down 4 percent to being up 0.6 percent. Read the article for more, including some great charts showing route-specific booking shifts.
Clearly codeshare and portal bookings along with the strike impact are going to reduce the extent of the damage Lufthansa is feeling. But seeing the other airlines see such pronounced jumps in their own bookings means Lufthansa has to be feeling pain here. Maybe it will dull with time, or maybe Lufthansa will finally give up. My guess is we won’t really know more until we see the next earnings announcement.
[Original travel agent photo via Shutterstock]
I’ve been an airline sales manager for a European airline, and I certainly wouldn’t want to be one for Lufthansa now.
Lufthansa knows that an agent of any size must use a GDS as the accounting system is tied to it.
I run a small business, and my ink charges seem excessively high. Plus I print out alot for or on behalf of my clients. Do I add an ink surcharge? Some expenses are simply a cost of doing business.
Just like Delta did many years ago with agent commissions, LH is holding this out there to see if it sticks, hoping others will jump on the bandwagon.
But unlike Delta at the time of commission cuts, LH is facing tough times with their labor unions. And their European brethren are too. These repetitive strikes are doing nothing but p*ss*ng of the corporate
So this time around, unlike during the DL cuts, the agent movement away from LH may just work, because they are seeking to throw a wrench into a time tested method of agents handling client travel effectively.
If LH, and their bretheren, seek not only to disrupt an executive’s travel with strikes, but also want to mess with a travel management system that works, both agents and clients will just vote with their feet.
And this time around it just may work because those strikes aren’t going away.
Was it ever said how LH came up with 16 Euros? If they paid a lower amount to the GDS systems before, they should have started with that amount first to see how it went. At least that they could have said that’s what they are charged so they are just passing it back to the travelers. Some people might have understood it.
Things will die down in time over this. It was in the news so much so on peoples mind, but humans tend to forget todays ‘big issue’ when the next ‘big issue’ comes along. Besides, 16 Euros is not a big deal compared to strikes at the airline. So people should be thinking about that instead of 16 Euros or about 17-18 US Dollars.
18 bucks is 18 bucks. A corporate agent usually has to document when a traveler turns down a lower fair offered. If the client has LH/Star as a preferred vendor this could strain the relationship and kill contract negotiations.
This is obscene. The corporate / GDS based community has been abused by the airlines for years. We used to be partners with the airlines and now we are treated as a liability. Times and business models change and I realize GDS based sales are expensive to LH et al. The saddest part is I used to have an account that had LH as the preferred carrier. The Senator Desk and our sales rep were wonderful in dealing with situations that needed fixing. I was on a first name bases with the Senator Desk. It made my life comparatively easy. I booked millions of dollars of predominantly J, F and Amex two for one D class inventory. I gave them high yield pax and they took care of me. LH seams like they are having a crisis of identity. Get classy again LH!
I’m sure the US big 3 will find some way to blame all of this on the Middle East airlines.
That’s above my pay grade, but I know enough to know that LH has shot itself in the foot. No longer ‘corporate,’ just me and I use a T. agent. They usually follow direction about metal and code-shares for pond x-ings but sometimes screw it up. (Too many more times and I’ll move to Cranky.) Code -hare or not, I won’t fly UAL’s x-pond anything and like LH’s J+seat when the price is right. Adding Eu16.cutting comm rates etc. is stupid and I agree that it is hurting them. In theory, I could book all on my own, but an agent does a better job, with or without GDSs and for God’s sake, a seat sold is a a SOLD SEAT. Make it more difficult and more expensive for everyone and we’ll just find other metal.
And as for the intra-European services, they are usually worse that U.S. domestic; a flexible schedule and no rush usually dictates First Class Rail, as usually less costly, far more comfortable and I know the system well enough to be comfortable. It is actually fun!
Yes, I agree, LH goofed. Those in Smarty Pants should remember that they are NOT the only x-ponders with a great, J+ soft product.