Air Transport World

A delicate balance.(IT-DISTRIBUTION)(airlines)

THE MAJOR US AIRLINES AND THE global distribution system companies believe that a sort of equilibrium has been achieved with the latest round of participating carrier agreements, but the era of good feeling may not last as long as the contracts. In general, both sides got what they wanted: The airlines got lower segment fees and the GDSs got guarantees of full content, a critical issue for their subscribers, for the life of the five- to seven-year agreements.

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The subscribers, particularly the travel management companies that serve corporate America, got the short end of the stick: They had to "opt in" to full-content programs by agreeing to reductions in productivity inducements formerly paid to them by the GDSs as an incentive to use their systems. Those inducements had been a thorn in the side of airlines for more than a decade.

"Even the GDS companies recognized that we had to transition away from the old model, where the user gets paid and the supplier gets charged," says American Airlines MD-Sales Planning and Analysis Charlie Sultan. "We made some pretty good progress in transitioning to a deregulated world where both will benefit."

Continental Airlines MD-Distribution Planning and E-commerce John Slater agrees. "On balance, we're pretty happy with where we ended up," he says. "There were key things that we wanted to accomplish. Onshore rates were a big issue because the fare structure has compressed pretty rapidly. We needed to be competitive with low-cost carriers, but we were laden with heavy costs. It was important to get the net effective rate down in order to compete."

Peter von Moltke, senior VP of the airline business group at Amadeus North America, believes there has been a much-needed shift in the balance of power. "Several years ago, the airlines were using the GNEs [so-called GDS new entrants such as G2 Switch Works, ITA Software and Farelogix] as a stick to beat us over the head. Frankly, we deserved it for not listening to them." The new round of agreements came after many months of "very intense and complicated negotiations with many moving parts," he says. "The GDSs and airlines fought long and hard, and there were many standoffs that required going past the 11th hour and 59th second."

For awhile, he says, it looked as if the world of airline distribution was about to change dramatically, with some carriers pulling out of some systems altogether. …

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