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Call him “super skeptical.”
That’s essentially Travelport chief executive Gordon Wilson’s take on American Airline’s newest distribution effort, which includes the airline paying agents $2 per segment for tickets booked via its new path.
Late last week, the global distribution system CEO spoke with Skift about recent airline moves to create direct connections — moves that, at least in theory, run counter to the UK-based travel technology company’s core distribution business and relationships with travel agencies and corporations.
When answering analyst questions Thursday during Travelport’s second quarter earnings call and in speaking with Skift, Wilson essentially argued that American’s new system is in several ways redundant to what companies like his can already provide.
He also argued that it leaves gaps in service that could be avoided if agents continue to rely on Travelport’s offerings.
“There have always been different pipes in the industry,” Wilson said. “There were Edifact-based pipes and XML-pipes and now New Distribution Capability-based vertical pipes. What’s changing is what goes up and down the pipes.”
Wilson said: “There still needs to be something that integrates the pipes together in a way that makes sense for a travel agency, offline or online, for their workflows and the automation to be flexible to support complex client needs. But that piece is always ignored in the conversation airlines have about direct connections. And that piece is something that global distribution systems like Travelport do extraordinarily well, in addition to aggregation and shopping tools.”
Wilson said American Airlines’ quest ignores the fact that travel agencies don’t really have the resources to follow through.
“And nobody says how that part gets done in the new model, apart from some mysterious idea that travel agents are going to build that stuff themselves with their own IT resources — which they don’t seem to have,” Wilson said. “And why replace something that works pretty well? …That’s the bit I’m skeptical about.”
“The delivery of content through a new pipe as proposed doesn’t cause me any horror, concern, or dread at all. But I think the $2 incentive for agents to do all that and handle the pipe and content and then also take on all the automation, redo all their robotics, and redo all their mid-and-back-office systems, and redo all their reporting and inventory management systems, that’s the part I’m super skeptical about.”
Understanding the context
The long-prophesied threat of airlines bypassing the travel technology giants like Travelport was shot through with a bolt of electricity this summer thanks to American debuting a way for agents to connect directly with it.
In the early days of the global distribution systems, companies like Travelport and its larger rivals Amadeus and Sabre built and laid pipe that connected airlines with travel agencies. Let’s call these indirect connections “blue” pipes.
A decade ago, American was one of the first airlines to build direct connections that avoided those three middlemen. Let’s call these “yellow” pipes. Today 5 percent of all global tickets booked on American by travel agencies go through these pure, direct pipes.
Now American is rolling out a third option. Let’s call it the green pipe. (After all, yellow and blue make green.)
American wants hundreds of these new green pipes. It will compensate agencies who use it with what it calls the NDC Incentive Program (NDC stands for New Distribution Capability, referring to standards promoted by an airline lobbying group), at $2 per segment.
The new “green” pipe is mostly built and laid by American. But unlike the older direct connections (or “yellow” pipes), a part of this pipe built and passed through a third-party tech vendor.
Vendors who become so-called “Level 3 certified” by the airline-owned International Air Transport Association can help build American’s new “green” pipes. Farelogix is one of many vendors.
American’s Cory Garner, vice president of sales and distribution strategy, says Amadeus, Sabre, and Travelport could be, too, if they chose. The airline is inviting them to compete with Farelogix and similar vendors by creating their little pieces and connect into these green pipes. This would mean the companies wouldn’t get their typical booking fee of $1 to $3 per ticket from the airlines.
American’s Garner says that once Amadeus, Sabre, or Travelport gets to Level 3 and can participate, any of those company’s travel agency subscribers would have the option to participate in its $2 a segment incentive program. Alternatively, an agency can remain in a standard Amadeus, Sabre, or Travelport program and receive incentive payments from these companies — typically between $1 and $3 per ticket — while still accessing American’s different path.
The content and functionality would likely be the same in either case, Garner says.
Poignantly, as of today, neither Amadeus, Sabre, nor Travelport has a Level 3 connection with American. A caveat: Navitaire, a company Amadeus recently bought, does have it.
As a result, agencies using American’s new green pipe get access to functionality that the airline says agencies can’t, as of today, get otherwise through Amadeus, Sabre, or Travelport.
American says: “The global distribution systems [GDSs] contend that they have the capability to do bundles. We don’t dispute that. We have said that we are the first airline to make corporate and sub-corporate bundles available.”
American says it is not implying that the GDSs were the reason that such things were not possible before.
American points out that it does provide some functionality in its new pipe, such as letting agencies be alerted automatically when one of their ticketed passengers has boarded a flight for duty-of-care issues, and such as the “waivers and favors” arguments mentioned below, that the GDSs have not offered before because the airline has not offered them before.
But a couple of experts familiar with Amadeus, Sabre, and Travelport question that assertion. They say that no airline has come to the global distribution systems and sought to develop these niche requests, such as for C-suite custom offerings. (Travelport declined to talk about its commercial arrangements.)
Wilson says Travelport will be Level 3 ready by the end of the year. But he declined to say if it was talking with American about participating in its NDC Incentive Program. It is reasonable, though, to think that informational talks are happening.
Sabre says it is willing to work with American to offer the airline’s NDC Incentive Program, though it hasn’t specified a timetable. Amadeus had no immediate comment.
But what about those earlier, “yellow” direct connections?
Well, American has not paid agents $2 a segment for these tickets, and it does not plan to.
As agencies’ deals to use the “yellow” pipe with American expire, they’ll be given a choice to enter the new “green” pipe — American’s New Distribution Capability Incentive — or they can ask to renew their current deal (the “yellow” pipe). A third option is to revert back to the old (“blue”) technology used by Amadeus, Sabre, and Travelport.
HRG tests the service
HRG, a travel management company with 14,000 employees, has agreed to be one of American’s first customers to use the service. HRG plans to roll it out over the next year-and-a-half.
HRG appears to be an example of an agency that seems to think the risks and costs of American’s new program are worth the potential rewards.
As context, HRG has been saying repeatedly that it is eager to move to embrace distribution technologies from other vendors outside of what companies like Amadeus, Sabre, and Travelport have traditionally offered.
In May, HRG said it would begin accepting direct connections to British Airways, via that airline’s version of New Distribution Capability-powered content.
Wilson of Travelport shrugged off this example. “I listened to one of HRG’s recent earnings calls where executives talked about NDC and how they think the new technology will enable them to deliver more value to their customers. And I respect that.”
“HRG has already invested into its corporate booking tool that could support that,” he says.
“But at some point, virtually everything that HRG does in the back end has part of the work on any given NDC-based transaction still ending up in the global distribution system somewhere. It’s through the GDS that enables the work to take place in the back. And I don’t see that changing markedly.”
“I can see them successfully integrating with American. But for the back-end stuff, I don’t see how that all works.”
American claims that its new tool offers functionality that can’t be gained by agents using Travelport’s, Amadeus’s, or Sabre’s current systems because those three companies aren’t technically ready to handle it.
Among those benefits: Corporate flyers on American are often allowed to break a lot of the ticketing rules about things like last-minute cancellations that are denied to ordinary consumers buying restricted leisure tickets.
Garner of American has said that the workflow for agencies to process such changes — grouped under the phrase “waivers and favors” — has been cumbersome.
He has said that American’s new tools streamline the “waivers and favors” process for agents. That gives its path (the “green” pipe) an edge over the legacy one (the “blue” pipe) offered by Amadeus, Sabre, and Travelport — unless those companies actively participate in its program.
Wilson said he knows Garner and respects him and doesn’t want to quibble with statements heard second-hand.
But he said he disagreed with the idea that Travelport isn’t technically ready to handle waivers and favors.
He points out that Travelport’s “Rich Content and Branding” offering is now live and in use by more than 225 airlines, which he says is four times as many as Travelport’s nearest rival. He was seemingly referencing Amadeus.
This Travelport offering lets agents book all sorts of ancillary products in their reservations desktop without having to visit airline dot com websites.
Wilson said, “Waivers and favors are basically about airlines breaking their own rules. Any airline that has that capability for making rule-breaking easier for agents and wants to make it available to us through an API or some other source, Travelport can do it today.”
“But this is where robotics come in. You want to automate these processes. As an agency, you want a machine to make a judgment to recognize, ‘Hey, this is Gordon Wilson, he’s spent X number of dollars with us, and as a valuable customer we’ll let him break this rule.'”
“Once the airlines make that capability available, we will be more than happy to write the code to make it available to our agency community. If American wants to offer that specific functionality [for waivers and favors], we can do that today.”
Over the years, Travelport has built other customizations that airlines have requested for designated company travelers to buy or receive benefits such as free transfers, priority boarding, lounge access, and extra baggage allowances.
Reacting to Wilson’s comments, American stated:
“American Airlines is not saying that Sabre, Travelport, and Amadeus are unable to handle the new content and functionality that American is making available. We are saying that American is making content and functionality available that no airline has ever made available before. We believe the GDSs could consume the new content and functionality and we want to work with them to make that happen.”
Will Other Airlines Follow American?
Much depends on whether other airlines copy American’s effort. The forecast for that is hazy. No other U.S. airline has announced an intention to pursue the same path. But British Airways and Lufthansa have developed similar “green” pipes to what American is offering.
Last week, Delta’s Frank Hull, managing director of sales development, was quoted in the Company Dime saying, “It’s really about the revenue side. Our strategy is to lean into the global distribution systems and have the ability to provide rich content, so it flows into the GDSs as it does today. It is not about going around that or creating a disincentive.”
In July, Delta renewed a multi-year contract with Travelport.
During the investor call, Wilson was asked about International Airlines Group, parent company of British Airways and Iberia, and its plan to start tacking on surcharges on tickets booked through the legacy middlemen channel as of November.
Wilson was asked if he expected a negative impact on Travelport, given that the company has the highest market share among the global distribution systems in the UK.
“Not at this stage,” Wilson said. He said IAG’s New Distribution Capability has limited functionality.
“As of the first of November, they’ll be adding a surcharge. Obviously, that will change the compact we’ve had for several years now whereby there are services we do which we don’t charge for in exchange for full content, so if BA doesn’t offer the full content to us, some of the compact will change also. We’re sorting out the details.”
When covering his company’s overall financials, though, Wilson sounded an upbeat and optimistic tone. The 4,000-employee business saw its revenue rise just one percent in the second quarter to $612 million. Net income swung to $34.3 million from a $14.4 million loss a year earlier, largely due to an increase in operating income and reduced interest costs.
Unlike Sabre, Travelport wasn’t thrown off course in the second quarter by the financial difficulties of Air Berlin and Alitalia. In July, Travelport signed a renewal of its distribution agreement with Delta Air Lines, which the Travelport expects will enable it to sustain its growth forecasts.
Travelport’s strongest market regionally was Asia Pacific, despite having lost a contract with Flight Centre to Sabre. The Asian growth was owed in particular to an increased adoption rate of its tools by regional online travel agencies, the company said.
For more context, see our special report, “Channel Shock: The Future of Travel Distribution”