Airline groups are attempting to rein in the distribution business of Amadeus, the travel technology giant. But the Madrid-based company said Friday that it is not feeling an impact — at least not yet.

During a first-quarter 2018 presentation to investors, Amadeus said it had seen no financial impact from the pushback by airlines against distribution companies, who are trying to get travel agents and online travel agencies to book directly with them.

“We need to manage this evolution very careful,” said CEO Luis Maroto of the new deals. But he said there had overall been “a positive outcome of the evolution of the different agreements that we have had with airlines.”

Amadeus reported its first-quarter 2018 earnings that showed modest, but steady growth.

Amadeus generated $644 million (€544 million) in earnings before interest, taxes, depreciation, and amortization. It also grew its revenue by 3.1 percent for the period, year-over-year, to about $1.47 billion, or €1.23 billion.

Taken together, that means that its profitability represented 44 percent of its revenue — a figure that has been consistent for countless quarters.

The comparable figure for airlines worldwide is profitability representing 8 percent of revenue. For large airline groups, it’s a bit higher, but still about half of Amadeus’s level.

Jealous of those margins, some airline groups have recently begun coaxing travel management companies and other corporate agencies to book directly via new technology systems, kicking the middlemen out of the distribution chain.

Amadeus is one of only a few airfare distribution companies in the world. It and its peers touch a majority of the airline tickets purchased worldwide every year, either when the tickets are searched for, sold, or fulfilled at airports.

Airlines dislike the fees they pay the middlemen, partly because they are jealous of the profits the companies earn.

In November 2017, Air France-KLM joined Lufthansa Group and International Airlines Group, IAG (parent group of British Airways and Iberia) in leveling surcharges on tickets booked via third-party platforms.

The direct booking movement by airlines, left unchecked, would mean that one out of every five airplane tickets booked in Amadeus’s distribution pipes would be subject to the new fees by the end of this year — up from zero a couple of years ago.

A New Model Shrouded in Secrecy

Since then, Amadeus and its peers have tried to undercut the effort. They’ve succeeded partway.

In March, 2018, Amadeus and its smaller rival Travelport signed a deal with Air France-KLM that enables distribution through so-called private channel deals.

Here’s how the private channels seem to work: Online and offline agencies that have a deal with the airline group can access the fares and inventory on Amadeus’s desktop reservation system without a surcharge on the tickets, which the airline group started to levy on third-party distributors from April 2018.

This deal is similar to the arrangement Amadeus and Travelport have had in place with IAG since the end of last year.

Sabre has not yet reached a deal with Air France-KLM, which means that tickets agencies have to pass along to travelers total prices that are several euros more expensive than agents using rival tech providers offer.

A Spotlight on Murky Deals

Neither Amadeus nor Travelport discloses the details of their airline contracts. They have acknowledged to research analysts that the content affected by the surcharges now has better pricing for Amadeus and Travelport than it did before back-room negotiations.

But it’s not known how much worse the economics are relative to before this latest distribution battle began.

Explaining the new models is tricky because there are several moving parts.

The volumes that go via the private channel that would otherwise face a surcharge require Amadeus and Travelport to pay lower amounts of incentives to travel agencies for booking these tickets than they do for booking traditional tickets. That compensates at least in part for Amadeus and Travelport also charging the airline a lower commission per ticket than it did before.

Given that the surcharge from Air France-KLM only began on April 1, it is still too early to tell the impact of the agreements on the distribution companies.

The first full-year data from Lufthansa, the pioneer in adding surcharges (namely, a 16 euro fee per ticket), revealed a 10 percent share movement of ticket volume from the three middlemen (Amadeus, Sabre, and Travelport) on average to direct.

There were no additional gains in the second year. It’s too soon to see if the share shift has resumed in 2018.

As for Amadeus, executives speaking with investors on an earnings call Friday only said there was no significant impact yet and that they were optimistic.

In theory, the more airline groups that pile on to surcharges, the more the share shift may accelerate.

If corporate travel management companies become more accustomed to booking direct, then booking directly with the airline will seem like less of an anomaly and more like accepted business practice.

This fight has been painful though. Lufthansa Group paid $605 million in fees to the technology middlemen in 2017 — a 23 percent jump over its pre-surcharge level, as noted first by The Company Dime. Why? Because when Lufthansa began surcharging, the middlemen required that the airline group pay higher commissions per tickets booked.

Lufthansa Group did not break out how much it earned from surcharges. It appeared from first-quarter 2018 and full-year 2017 earnings reports that it generated enough money to roughly cover the added commission and technology costs of its effort. But it remains unclear.

The company buried the amounts in various items in its financial reports. For now, investment analysts covering the airline group are attributing no significant loss or gain.

The painful short-term costs are why the private channel effort is significant.

Lufthansa is irritated that middlemen are using private channel deals to undermine the direct distribution effort. Neither IAG nor Air France-KLM is charging as much in surcharges as it is. And they are cutting deals that blunt the blow in costs for selected travel management companies that qualify for discounts merely for being large, such as American Express Global Business Travel, BCD Travel, and Expedia-backed Egencia.

To thwart things, Lufthansa is uniquely putting unique content in its direct distribution channel that it doesn’t make available to the technology middlemen. In other words, agencies wanting to book some fares — often the cheapest ones — need to book direct.

Free-for-All?

If things weren’t complicated enough, online travel agencies might now want to get special deals, too.

A mobile-first online travel agency, Hopper, began this week to sell fares that airlines file “privately” via the technology middlemen. This is different from the private channel.

The airlines distribute the private fares in two paths: direct, and via the middlemen.

When the airlines use the middlemen, they only show the fares to Hopper’s computers via the middlemen’s tech system.

While nothing in distribution is ever truly new, this model has been the exception.

Nearly all of the tickets sold via the reservation systems of Amadeus, Sabre, and Travelport have been distributed as part of “full-content agreements.” These agreements have meant, among other things, that airlines promise to make available the fares they offer at any direct point of sale in the world also via the reservation systems the three companies provide to travel agencies.

This arrangement assured agents that they were always seeing everything that was out there and could promise their traveler clients the best deal.

This world order is now fraying. While airlines have sometimes allowed only some travel management companies access to some inventory via the platforms, this was exceedingly rare.

The Hopper effort suggests that private, unique content via certain points of sale might become a new standard.

Adding to the complexity is that Hopper is also sourcing some of these fares that are unique through direct technological connections with the airlines.

A Hopper spokesperson said that, as far as she knows, this is the first time airlines have sent an online travel agency deals that are unique, meaning not offered to other agencies.

These deals are not opaque, as in what Priceline.com used to widely offer, where the fares could only be sold as long as the consumer didn’t know until after purchasing which airline they would fly on.

Lufthansa, for its part, appears to be playing hardball with other players. In Google’s consumer-facing price-comparison search, Google often, though not consistently, only displays Lufthansa fares and inventory on routes where Lufthansa offers a direct connection with no surcharge on tickets. Industry experts assume the way the fares are displayed is part of a commercial arrangement that disadvantages third-party distributors.

In theory, if it is no longer required to offer all of its fares via the middlemen, it could create direct connections with price-comparison services like Google, Kayak, and Skyscanner to offer unique fares — or unique fares depending on the consumer, such as if the consumer is looking for last-minute tickets on their mobile device.

One imagines that many other online travel agencies and travel management companies will be calling up airlines to try to get their versions of private deals and private channels soon.

It seems like 2018 is shaping up to be the year of private distribution.

Catch Decius Valmorbida, Senior Vice President, Travel Channels for Amadeus, along with the CEOs of rivals Travelport and Sabre at the June 12 Skift Tech Forum in Silicon Valley.

Photo Credit: Amadeus CEO Luis Maroto in his office at the Madrid headquarters in 2016. The company reported its first-quarter 2018 earnings on Friday. Amadeus