It has taken many years, and the moves have been fraught with conflict, but major airlines are slowly adding fees for consumers and travel managers when they book flights through global distribution systems and travel agencies.

That put Amadeus executives on the defensive Friday in talking to investment analysts during a third-quarter earnings call.

They faced many questions about Air France-KLM announcing hours earlier that it will copy the moves of Lufthansa and International Airlines Group, parent of British Airways, and add fee on sales made through third-party distribution channels like Amadeus and its rivals Sabre and Travelport.

After Air France adds its charge of an unspecified amount in April 2018, three major European airline groups will be actively engaged in trying to drive more direct bookings, and charging more for bookings made outside their channels.

That new reality means that 20 percent of all the plane tickets Amadeus processes worldwide would be for flights on three airline groups that have introduced surcharges for tickets booked through its channel, and so would be cheaper if booked directly instead of through Amadeus.

Contract terms are not public, but it seems all-but-certain that Amadeus will try to penalize airlines for their surcharges, analysts said.

Because of these expected penalties, Amadeus, Sabre, and Travelport could receive higher fees on the tickets that consumers and agencies continue to book through them because the airlines have allegedly breached their promise of providing the same content through them as they sell through their own channels.

That would presumably be subject to litigation if things get rough.

Executives only responded by saying they will release updated guidance on their financials for the coming year at a later time.

The tech giant — the largest of the world’s three ticket distribution middlemen — is likely to use that impending cost increase in its negotiations to try to persuade airlines to use its new custom solutions for driving direct bookings instead.

Amadeus insisted it already has the superior technical skill to custom-build similar connections “at industrial scale” compared to the smaller technology vendors, such as Travelfusion and Farelogix, or airline in-house systems that carriers are now favoring.

Air France-KLM’s distribution agreement with Amadeus is up for renewal next year, according to a Morgan Stanley report.

An unknown is the airlines’ own negotiations with the largest travel management companies.

Last month, Amadeus was instrumental in negotiations with several travel management companies that appeared to undermine IAG’s surcharge effort.

British Airways agreed to let at least some franchise partners of American Express Global Business Travel, Carlson Wagonlit, and HRG (a division of Hogg Robinson Group) avoid paying its surcharges on bookings made through Amadeus and its partners in complex, private deals, according to The Company Dime.

Travel management companies, especially smaller and mid-size ones, are reluctant to lose the incentive payments that come with bookings through the third-parties like Amadeus and fear their business processes will face rising costs to cope with parallel workflows for direct and indirect bookings.

Game of Catchup

Amadeus is playing a bit of catchup with other vendors in bringing its systems up to the standards that airlines prefer to use, some experts said. But by next spring, Amadeus expects to be “level 3” certified as an aggregator to use New Distribution Capability  standards issued by the the International Air Transport Association, its executives said.

IAG and Lufthansa are using technologies based on this standard for their direct bookings. Air France-KLM is not yet certified at Level 3 but expects to be there by next spring.

Amadeus announced last month with Air Canada, long a champion of new distribution models. Canada’s largest carrier decided to move from its 30-year-old, built-in-house reservation system to the Altéa Suite offered by Amadeus, and also to sign up for a full suite of other Amadeus products.  Air Canada renewed its Amadeus distribution agreement without any surcharges.

The largest airline groups remain eager to generate momentum among other carriers to adopt en masse a broadly agreed upon a set of technical standards and related commercial practices that they believe would give the airlines as a group an upper hand in negotiations with distributors like Amadeus, according to some analysts.

Amadeus CFO Ana de Pro said it is hard to know airline intentions. “We do believe the airlines are trying to provide better services to their passengers and travel agencies. Whether their objective is to force agencies to use NDC or to give better service is not up to Amadeus to judge.”

For his part, Luis Maroto, CEO of Amadeus, echoed the comments he made to us in May by saying that he did not expect a sharp drop in its distribution business because the company is used to adapting to ever-changing ways of selling and commercial models.

Steady Growth

In the third quarter, Amadeus saw its revenue increase 8.9 percent, year-on-year, to $4.3 billion (€3.7 billion).

Its reported profit grew 12.6 percent to $285 million for the third quarter compared to the same period a year earlier.

Earlier this year, Amadeus had a global outage of its reservation platform that caused delays and cancellations for many airline partners with disruptions to airports, airlines, and agencies.

Executives said the outage was “very unfortunate” but that it had nothing to do with the technological resiliency of its system to scale up by adding new customers, such as Southwest Airlines this year. The company increased the number of passengers boarded in the third quarter by 19.4 percent, to 1.2 billion, compared to the year-ago period.

The company said, “The incident was related to our internal infrastructure. It was triggered by an issue in a faulty switch during network maintenance.”

In October the company marked Amadeus’s 30th birthday since airlines founded it as a global distribution system. Perhaps ironically it celebrated the occasion by defending itself against criticism by airlines and touting its expansion into other lines of business.

Photo Credit: Air France-KLM will follow the likes of Lufthansa and British Airways in adding a surcharge on sales made through global distribution systems like Amadeus. Air France-KLM