The battle for India’s lucrative travel market among global distribution systems is not over yet — even if Travelport has won hands down with exclusive rights to distribute Air India’s domestic flights content in India.
For a split second, it appears that Travelport can sit pretty and command control of a vast market all on its own. Sabre announced at the start of the year that Air India had decided to withdraw from it. Amadeus had pulled out in December 2018 after Travelport’s win, awarded in October 2018 and fully implemented by January 1, 2020, which was just too much for it to swallow. So the grass was looking green for Travelport with neither Sabre nor Amadeus on the turf.
But Amadeus announced last week that it’s back in with Air India, even if it’s only with the airline’s international flights content, not domestic, which is now fully ensconced in Travelport. And while Sabre has failed to renew its contract, which expired at the end of 2019, the company said it is still engaging with Air India on a new agreement.
India is far too important for technology and distribution players to walk away. And the distribution weapon that Air India wields is symptomatic of a sick airline that oscillates between cost-cutting and generating revenue as it gasps for air to stay afloat, according to industry veterans interviewed by Skift.
A Dubious First
Air India made a dubious first in the annals of airline distribution by appointing Travelport the sole distributor of its domestic flights content in India in October 2018.
This is significant. Firstly, the domestic market in Asia is where most of the traffic is for airlines, except for the few like Singapore Airlines that have a tiny home base. Not only that, India’s domestic travel market is consistently the fastest growing of key markets tracked by the International Air Transport Association. In 2018, it expanded 18.5 percent over 2017 to 116 million passenger journeys.
Secondly, such a pact just isn’t done. For decades, Amadeus, Sabre, and Travelport have taken assertive stands in their contracts with airlines and have seldom, if ever, let a large airline do what Air India has done — provide less-than-full content.
But Travelport is desperate to reverse its market share losses and sees India as a means to this end, as Skift’s technology editor Sean O’Neill wrote in this article. Air India, on the other hand, is under heavy pressure to show it is either making revenue, or making savings. The government is now at an exasperation point to find a suitor for the airline.
“Air India’s politically driven merger with Indian Airlines [in 2007] has been a commercial disaster; their falling market share and deteriorating financials have left them in poor shape,” said Sunil Nanda, director of one of the region’s oldest travel agencies, GC Nanda & Sons, and vice chairman of the Society of IATA Passenger Agents in Hong Kong, where he is based.
“It is an established mantra that airlines require cost-efficient and widespread distribution. In a highly competitive market like aviation where travel agents still contribute the vast majority of passengers, airlines remain highly dependent on GDS [global distribution system]. Cutting back on participation suggests poor financial health and will likely exacerbate Air India’s difficulties. It is a short-term tactic to save costs,” added the industry veteran, who also has a track record in technology and distribution systems.
Travelport appears to have taken advantage of “a lack of flexibility” of the other two major players and crafted an airline-specific deal to address Air India’s particular needs, observed Nanda.
“Travelport appears to be saying, ‘We are open for business, let’s talk.’ With their recent privatization they are insulated from the pressures of the stock market that still apply to both Amadeus and Sabre. The stock market is notoriously capricious and reacts to short-term news. Whilst Amadeus and Sabre must consider how the stock market and institutional investors will react to their initiatives, Travelport is unshackled; it can focus on its business and run it in the manner that makes the best long-term business sense. The Air India deal reflects this flexibility and is a positive for both companies.”
Analysts estimate the exclusivity may generate roughly 5 percent of Travelport’s revenue this year.
At What Price?
But how does giving Travelport exclusivity to domestic content save money for Air India?
One theory is that as distribution companies charge airlines a fee per booking, Travelport could, for example, charge Air India a much smaller fee in return for the exclusivity.
But as a portion of the fee is shared with agents, Travelport could in turn reduce that share. More menacingly, it could undercut agents further over time, since it has the monopoly on Air India’s domestic flights.
“There’s no need for Travelport to pay high incentives anymore to agents because we don’t have a choice but to use that one GDS (global distribution system), as only it has the domestic flights content of Air India,” said an agent.
Gradually from November 2018, travel agents in India could no longer book Air India’s domestic flights, for example, Delhi to Mumbai, on Amadeus or Sabre, only on Travelport. As the deal covers only domestic, they could still book Air India’s international flights, say, Delhi to London, on any of the three competing distribution systems, while agents outside India could also continue to book Air India’s domestic and international content on all three (until December 4, 2018, when Amadeus left, that is). But as mentioned earlier, domestic is where most of the traffic is.
Asked by Skift if the exclusivity comes at the expense of agents, Travelport’s regional managing director for India and Sri Lanka, Martin Herbert, said: “We’re not able to disclose specific commercial terms. However, we do work with all stakeholders to ensure value for all parties — including on a case-by-case basis as appropriate.”
There are also concerns the move will disrupt the business. “Travel agents tend to have one preferred GDS. Imagine that an agency has trained all the staff to use one particular GDS (global distribution system), then, for this one airline you have to train staff again. So maybe you’d just book a different airline,” said a source.
That’s a gamble Air India takes in changing its strategy, in that although it can save costs, it can also lose business to other airlines.
But, on the other hand, this could swing more distribution system conversions to Travelport, which surely is part of its overall strategy to boost market share. “Agents using them for domestic bookings will likely use them for international flights as well, and this will help Travelport convert Sabre and Amadeus customers to Travelport,” said Nanda.
Why Amadeus Returns
That may be a reason why Amadeus is back, after pulling out in December 2018 when its contract with Air India was up. The company took Air India to court in early 2019 to review the fairness of the Travelport deal, a case that is still in process.
Besides, although Air India is seen as having gone to the dogs, it remains a dominant player.
“In financial year 2017/18, Air India carried 20.9 million, still a significant number by any measure,” said Nanda. “It’s also important to keep in mind that the long-term fundamentals supporting Indian market growth are strong. The country’s middle class as well as its population overall is growing. This will drive travel demand. India is one of the world’s fastest-growing business travel markets. And the government is putting significant investment into aviation infrastructure and not just in main metros but beyond into small regional cities.
“As such Air India is a significant airline on the global stag, and it is important for the GDS (global distribution systems) to have access to the content of this airline for its agency customer base.”
What’s more, Jet Airways has been grounded since early last year, while Indigo, the fastest-growing Indian carrier, is a sister of InterGlobe Technology Quotient — the official distributor of Travelport in India. Thus, even when Amadeus have signed up other Indian carriers including Vistara and SpiceJet after leaving Air India in December 2018, it did not have the two most dominant players in the market.
As well, there’s airline technology at stake, not just distribution technology.
According to Nanda, SITA, Air India’s passenger service system provider, has announced it is retiring from this business in 2022. “So Air India will have to move somewhere. It will have to look at Amadeus or Sabre. Given the complexities of the RFP (request for proposal) and negotiating process for passenger service systems today, Air India would benefit from the expertise of global specialists like T2RL (that help airlines procure such solutions).”
Travelport evidently also wants to increase its airline technology business. Its new chief operating officer, John Elieson, announced today, was president and CEO of Radixx international, a company that provides technology solutions to the airline industry and was recently acquired by Sabre.
But an insider told Skift that be that as it may, the biggest reason why Amadeus is back in with Air India is that it sees a tiny window of opening, as things could change following Travelport’s privatization under its new owners, and “there’s potential to build up the relationship again.” The source said Air India is now “desperate to show that it is in a growth mode, as it’s up for sale, after its desperation to cut costs in 2018.”
However, Air India’s deal with Travelport is “airtight,” the source said.
Asked by Skift about the change of heart, Amadeus spokesperson in Asia-Pacific did allude to the move as being a “stepping stone,” although he won’t say to where.
“We are hopeful that, following our discussions with the airline, this new agreement represents a significant stepping stone for an extended, long-term relationship between both companies,” he said.
“India is undergoing rapid digital transformation, and the situation of the Indian travel market over the last year has been particularly volatile and difficult for airlines and travel sellers. Amadeus is committed to supporting the travel industry and, in particular, our airlines and travel seller customers. This new agreement with Air India will allow Amadeus agencies worldwide (to) access the full range of Air India’s content and travel sellers in India to use the Amadeus system to book international travel,” said the spokesperson.
An Amadeus statement also quoted Meenakshi Malik, Air India’s commercial director, alluding to a “growth strategy” and a “new journey” with the distribution company.
“We are pleased to renew our relationship with Amadeus to support our growth strategy globally and hope that this is the first step in our new journey together. We look forward to working closer with Amadeus to support agencies and travelers in the future,” Malik said.
Skift reached out to Malik for comments but she did not respond.
Amadeus spokesperson won’t divulge the commercial terms of its new agreement with Air India but said “it’s nothing out of the ordinary.”
Asked what sort of damage Amadeus suffered in the 13 months it was out of Air India, its spokesperson maintained the impact was minimal. Amadeus’ bookings in Asia-Pacific, minus India, grew 3.2 percent in the first nine months of 2019, over the same period in 2018, he pointed out.
The opportunity cost however is its Asia-Pacific growth could have been higher had Amadeus come to an agreement with Air India instead of pulling out.
Air India’s Malik did not respond to Skift’s query about how effective the change of strategy has been since its implementation in November 2018. But a Travelport statement quoted her as saying the airline “has already seen growth of 22 percent in operational profit” and “cut down cost by around Rs. 300 crore ($42 million)” since it began changing its distribution strategy.
“Malik also projected a saving of “Rs. 3,200 crore ($451 million) in five years,” Travelport’s statement said.
Asked how it helped Air India achieve those results, Travelport’s Herbert said, “The specifics around how those figures are derived are best left addressed by Air India.”
“That said,” Herbert added, “fundamentally what we’re delivering to Air India is a combination of, one, advanced technology to help drive bookings with our leading merchandising solution, Travelport Rich Content and Branding, that helps agents efficiently upsell and add-sell for a better mix of high-value fares and, two, scale advantages, enabled by our leading position in India with our extensive agency partner network.
“We’re confident these factors are bringing significant value to Air India as it looks to boost sales domestically and globally, and implement its turnaround strategy.”
Is Travelport worried about Amadeus being back in Air India books?
“We reached our own commercial agreement with Air India in full expectation that it would be working with other distribution channels, including other GDS (global distribution systems),” said Herbert. “While we’ve watched the developments of the past one and a half years with interest, we’ve nevertheless been focused throughout on fulfilling our own obligations and supporting Air India on its objectives — and ensuring we do so without disruption to Air India’s agencies and customers.”
Why is Sabre Out?
Sabre’s contract with Air India was expiring at the end of 2019, hence it found itself in the same position as Amadeus over a year ago of having to negotiate new terms with the airline. A note it sent to its agents said it had worked with Air India for the better part of 2019 on a new contract.
“Regrettably, after extensive negotiations and having agreed on terms in late October, Air India has requested new terms that we cannot accept,” it said.
A Sabre spokesperson for Asia-Pacific told Skift the terms it offered, and that Air India had tentatively agreed to, “were competitive and market-appropriate,” but declined to say more.
A source speculated, “Clearly, Air India is seeking significant cost-savings from Sabre.”
Sabre is continuing to pursue an agreement with Air India, said its spokesperson. “While the current contract has expired, we value our relationship with Air India and want to keep distributing their content under agreeable terms. Ultimately, the decision lies with Air India,” she said.
And so Air India’s distribution dance continues, its winners and losers are far from a foregone conclusion.