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]