Global Distribution Systems Retool for the Next Digital Revolution

Depending on who you ask, the global distribution systems that power the worldwide travel industry are either outdated dinosaurs or powerful technology companies that will continue to be relevant far into the future.

The reality, though, is that it all depends on where they go from here.

Amadeus, Sabre, and Travelport have each taken different paths in recent years, but one thing is for sure: Each player is iterating to ensure they remain firmly entrenched in the travel marketplace.

Executives from each company separately spoke to Skift Travel Tech Editor Sean O'Neill at the Skift Tech Forum in Santa Clara, California on Tuesday about the future of the sector and the tensions between the global distribution systems and their longtime partners. Here are the most important takeaways from interviews with leaders from each company.

In an always-on, mobile-first world, travel companies need near-instantaneous digital tools to help market and sell their products.

"They're really going after speed; how can I have instant?" said Decius Valmorbida, senior vice president of travel channels for Amadeus. "Why do I have a silo between airlines, rail, and hotel travelers? Personalization is the holy grail because loyalty has become an expensive enterprise. We need to build a system that caters to the needs of the travelers while catering to the needs of the providers."

Amadeus processes 20,000 queries per second, a similar speed to Google. Amadeus is also moving away from the legacy systems that have hamstrung the merchandising efforts of airlines and is transitioning toward more flexible cloud-based systems.

Not everyone is sold on the value of the global distribution systems, though. Independent hotels, for one, are hesitant to pony up the hefty 20 or 30 percent transaction fees. Low-cost carriers have also developed their own commercial strategies to avoid partnering with them so they can own complete control of their merchandising efforts.

"With low-cost airlines, there are elements with technology and distribution strategy," said Valmorbida. "How much do they want to participate in indirect distribution? The leading low-cost carriers have done their cycle of growth and are looking at new ways of growing. That means business travelers and becoming a feeder for long-haul [flights]. In that space, the GDS become the solution. You are not doing local distribution, you are doing global distribution."

The common refrain that airlines resent the relatively enormous margins the distribution companies post was explored as well. Costs should come down for travel providers, it figures, if distribution technology companies are making big money by selling someone else's products.

Valmorbida countered that most of the margin is invested back into the technology tools that airlines need to remain competitive since most have avoided developing their own advanced distribution and merchandising systems.

"You need to have a co-investment," he said. "[American Express Global Business Travel and Carlson Wagonlit Travel, for instance,] need to spend money to adapt their flows, if it is about money flows. When you get all these components, you expect someone to be investing for free. This means [Amadeus] needs to have a margin that allows me to invest in what an airline company would use. This is common in any tech company, they have high margins because a high volume of that money needs to go into tech."

He compared Amadeus' research and development strategy to those of major technology players like Microsoft.

Travelport's Bet on Financial Technology

Travelport, nominally the third-ranked player among the big three global distribution providers, has made a big bet on payments technology in recent years through its surging eNett division.

"The world is our oyster with eNett," said Gordon Wilson, CEO of Travelport. "It's solving a problem the industry has had for years: how agencies can make payments to travel suppliers. We're increasingly delivering payment and treasury services to our client base, buying travel includes paying for travel. In the B2B payments world, there aren't that many people in it and we believe we're number one in B2B payments across borders. It's not lost on me that [financial technology] is a hot sector, and valuations in [financial technology] are higher than valuations in travel."

Reading between the lines: If eNett is successful enough, a public spinoff or sale could help fund Travelport's growth going forward.

The entry of e-commerce companies and social media platforms into travel booking has been long anticipated across the industry, with Google looking to mainly rely on digital advertising to generate revenue from the sector. History has shown the difficulty technology companies face in entering the travel market.

The application programming interfaces (APIs) developed by Travelport will make it easier when companies like Amazon, LinkedIn, Instagram, and Alibaba decide to make a deeper dive into travel booking, according to Wilson. Access to rich content will be key when that day comes.

Travelport's airline distribution products usually allow airlines to double the fare they'd charge direct to customers through upselling, said Wilson; its 263 airline partners account for 70 percent of the company's overall bookings,

Integrated rich content is only part of the emerging value proposition, though. Automated mobile tools to service travelers are the next step as the travel experience evolves.

"When we all travel as corporate travelers and want to change our itinerary, there are three questions: can I change it, how much does it cost, and then is the seat I want available on the flight," said Wilson. "All those things are being [automated]. When you do that you can lift a lot of costs out of the travel agency model. You're getting better customer service and you're doing it all through mobile apps."

This is a touchy subject for travel management companies, which tend to charge lucrative fees every time a traveler calls them for service. This is one major reason why the global distribution systems' biggest agency partners haven't moved quickly to innovate on the mobile service side. Nobody wants to cook the golden goose and throw their whole business model into chaos since service fees subsidize other aspects of the travel management business.

Wilson also bristled at the suggestion that companies like Travelport lag behind smaller, more technology-oriented travel distribution providers that have emerged in recent years.

"If you are leveling a criticism at the GDSs, that we are somehow dinosaurs, if we were not investing in advanced capabilities it would be a fair criticism," said Wilson. "We've invested $850 million, we're generating the highest ticket value for the airlines. If you ask airlines who has been the most flexible and innovative in terms of helping them to change the model, they'd probably say Travelport. A major airline executive told me a few weeks ago that they are ambivalent whether the booking comes [directly or through Travelport]."

The ability to double a fare through ancillaries and smart pricing, then, should be worth the 2 to 4 percent cut of a booking Travelport takes in return for its services.

Wilson said the company is currently working on integrating blockchain into its product set, particularly in the cross-border payments sector.

"You have a chance of embracing change or resisting it," said Wilson of blockchain. "We've got huge experience in the payments space, aggregating content, and managing itineraries. So this is a logical extension to what we do."

A private blockchain is an anathema to crypto enthusiasts, so it will be interesting to see if these methods take hold from established travel distribution companies.

Sabre's Long Road Back

Sabre has embarked on a turnaround project in recent years, following a period of stagnation where it refused to embrace the technological changes that have come to dominate travel distribution. It's now diving deep into hospitality merchandizing, although it lags behind its peers when it comes to airline distribution certification under the International Air Transport Association's new distribution capability standard.

"If you look at what airlines are trying to do, it's really serving their customers," said Sean Menke, CEO of Sabre. "The one word I didn't hear today was revenue generation. When you have that bounty on your head of driving revenue, you really have to be thinking hard. The vast majority of consumers are focused on the lowest fare."

Menke would know; he made his bones in the airline industry, serving as an executive at Air Canada when the company sued Sabre itself more than a decade ago for uncompetitive business practices like display bias. Today they are partners.

Menke noted that low-cost carrier seat share has grown from 5 percent to 30 percent over the last decade, and partnering with them will be crucial going forward.

He has led Sabre on a path more aligned with the needs of airlines and hotels, as opposed to the status quo endorsed by his predecessors. Sabre also recently revised how it operates to capitalize on its strengths.

"Why don't we help [airlines] if they want to sell on indirect channels?" asked Menke. "That's our job. If they want to sell through direct channels, as well, that's our job."

The opportunity, he noted, is there for Sabre. He said travel represents a $9 trillion marketplace when you consider all of the merchandising opportunities and break down the silos between different transport sectors.

The message: Sabre has learned its lesson about avoiding change, and is ready to forge ahead. With all three of the legacy global distribution systems now focused on meeting the needs of the marketplace instead of clamping down on innovation, both the companies and their partners can benefit. Unless, of course, travel providers develop their own technology solutions that fill the gaps underserved by their distribution partners.

"It's the tech providers that are going to make this happen, but we also have to walk [travel providers] forward through the things that are going to make [this evolution] happen," said Menke. "If people are going to stay in their corner and not engage in the marketplace, it's not going to happen. If you don't, you're going to find yourself in between. You need to have those conversations. Let's stop fighting over the pie that's out there. Let's grow the pie."