Airlines are flying in different directions in the distribution debate. Travelport's deal with Singapore Airlines offers a middle ground between Lufthansa's hardline approach and Air France's cuddlier one.
“Singapore Airlines’ KrisConnect program is the carrier’s NDC [new distribution capability] initiative and is designed to give agencies immediate access to the widest range of its fare products, including personalized content and the ability to offer customized products,” Kyle Moore, global head of product propositions at Travelport told Skift on Thursday. “As a leading NDC partner of Singapore Airlines, we are working closely with Singapore Airlines in its global rollout of KrisConnect.”
Travelport agents stay within the company’s Smartpoint reservation system to book Singapore’s special content after signing agreements.
“Our integration with Singapore Airlines NDC interface allows agents to seamlessly book KrisConnect NDC content alongside all other types of content supported by Travelport,” Moore said. “The end-to-end booking process is integrated into Smartpoint, meaning there are no new formats for agents to learn. For any questions about commission terms or other specific details, we do ask that agencies reach out to their account manager.”
In July, Singapore Airlines said it would coax travel agencies to use its new KrisConnect channel for tickets by adding a $12 surcharge for bookings made on classic agency reservation systems instead, as Skift reported.
“To facilitate agencies’ adoption of the program, we have worked with multiple tech partners, including global distribution systems [GDSs], such as the one you mentioned [Travelport], to make our program available on their platforms,” a Singapore Airlines spokesperson said. “Agents can sign up for the program and elect any of the SIA-certified tech partners to start transacting in the channel.”
The deal represents a concession by Travelport over its position a few years ago under previous management, when it insisted it wanted airlines to use its branded fares and rich content technology to deliver the improved selling method. Now they’re letting the airlines use their own technology.
Travelport is the first of the so-called global distribution systems to have signed a deal with Singapore for a workaround that enables its agents to stay within its platform and book the tickets without paying more.
Amadeus declined to comment. Sabre said it is prompting its agency partners to sign up and transact in the KrisConnect NDC channel if they want those fares.
Travelport’s Deal With Singapore Airlines May Become a Model
Some industry analysts were cautiously skeptical of the Travelport arrangement with Singapore Airlines.
“Travelport said it will access non-surcharged NDC content, but it’s not mentioning that it won’t get the traditional GDS fee from the airline,” said Jorge Díaz, founder and CEO of AirGateway, a Berlin-based aggregator of airline content for agencies. “I have to assume the airline inks a commercial agreement with the travel agency or other reseller, including private or publicly disclosed kickbacks, and then the agency selects and pays the technology partner of their choice, in this case, Travelport.”
Travelport hasn’t detailed its commercial arrangements with Singapore Airlines. Neither it nor its peers do as a matter of policy.
Does Travelport see the Singapore deal as a model?
“We believe NDC content agreements need to recognize the value provided by each party in the NDC booking process if they are to be effective and sustainable for airlines, global distribution systems, and the travel agent community,” said Moore of Travelport. “It’s likely we will see varying models evolve as this new technology begins to form part of the airlines’ distribution strategies.”
“While Covid-19 has resulted in some airlines slowing their market deployment of NDC, Singapore Airlines and others are progressing with their plans at pace,” Moore said. “Travelport has been actively progressing its NDC connections with a number of airlines. We have active pilots underway with a wide range of agents including online travel agencies, travel management companies, and consolidators, and we will continue to further the global rollout of this content for Singapore and our agency customers into the months ahead.”
Airlines are taking different attitudes towards their traditional partners for distributing tickets to agencies.
Lufthansa Group seemed to move farther from the tech companies by saying earlier this week it would hike its surcharge for tickets booked inside those companies’ classic reservation systems, as Skift reported.
Lufthansa Group told agents it had to pass along higher fees charged by the global distribution systems [GDSs]. Amadeus, Sabre, and Travelport are charging Lufthansa Group higher fees as a penalty because the airline is not providing all of its content to agents who use their systems and is saving some of it at better prices for agents who book direct. For context, Skift Research subscribers can read the report on the state of airline distribution.
“Had Lufthansa been seeking to reverse course on distribution, the pandemic and a government bailout would have provided the ideal face saving reason to do so,” said Felix Dannegger, managing partner, Oystin Partners, an airline consultancy based in Gräfelfing, Germany. “The fact that Lufthansa is increasing the fee in line with GDS cost increases seems to indicate that Lufthansa is convinced that its distribution strategy, including being out of full content, remains the right choice.”
Delta Air Lines’s top distribution boss said it was putting its development of the new distribution capability on pause, working instead with the traditional tech players on traditional terms.
Taking a different path, Air France-KLM and Amadeus agreed on September 10 to new commercial terms to make the airline group’s plane tickets available for travel agents to book through the Amadeus travel platform via the more modern forms of selling by charging a smaller surcharge. Unlike in the Singapore Airlines deal, Air France-KLM is handing over the technical work to Amadeus to generate the new offers.
“When I look at the Travelport and Singapore Airlines announcement and the Air France-KLM and Amadeus announcements, I would expect to see equivalent announcements between those airlines and the other GDSes prior to the new distribution models going live, in order to steer clear of content and fare parity conflicts with the GDS,” Dannegger said.
The Pandemic Causes Upheaval
Covid has forced airlines to rethink everything, including reevaluating how they work with distribution technology partners.
Broadly speaking, full-service carriers have been concerned with how much it costs and how flexible is the technology when working with Amadeus, Sabre, and Travelport. Airlines have this year renewed their focus on costs and channel flexibility.
“Carriers contemplating moving away from full content deals with Amadeus, Sabre, and Travelport pre-Covid were often looking at very significant revenue risks associated with GDS cost recovery mechanisms, such as surcharging,” said Dannegger of Oystin Partners.
“Now due to Covid, all worst case revenue risk scenarios have already materialized and then some,” Dannegger said. “As a consequence, dealing with the loss of full content discounts may seem less daunting, especially when combined with an increased willingness of passengers to purchase directly from the airline.”
“If airlines continue eliminating pricing and revenue management complexity, as was just witnessed with the elimination of change fees at many carriers, and if leisure traffic does indeed recover more quickly than business traffic, this could further increase direct channel acceleration at the expense of intermediated travel distribution,” Dannegger said.
Heated Airline Distribution Debate
Not everyone easily embraced the new deals.
“I absolutely understand that legacy GDS distribution providers need to both plug their content gaps and update their commercial models,” said Jeff Klee, CEO of Amtrav, the parent company of CheapAir. “But I think that efforts like this [Air France-KLM deal with Amadeus] that try to conflate the two have already set us back years in terms of NDC adoption.”
“The way this deal has been presented in the press, it sounds like Amadeus, in order to preserve the status quo on fees, is giving Air France the ability to add surcharges and pick and choose which Amadeus subscribers it wants to work with full content and functionality,” Klee said. “I’m probably not qualified to judge, but I will anyway…This strikes me as a catastrophic error in judgment.”
What’s Driving the Recent Changes
Some analysts offered context for the move by Singapore Airlines and other carriers. Until now, it has been the large airline groups that have underwritten the cost for the complicated tech distribution system that agencies benefit from, and they baked the expense into their fare, several analysts said.
“With the unbundling of fares into fare and ancillaries, it is about time that the IT costs get unbundled, too,” said Roland Heller, CEO of TIK Systems, a Thai-based software developer, and the former CEO of Mercator Asia.
A few industry skeptics said that airlines had hyped their new distribution efforts over the last few years, talking about how much better the new way is with rich content and personalized offers.
“The reality is that, for most airlines, NDC is an empty shell,” said Georges Sans, vice president of strategic partnerships, Europe, for CTW, a consultancy.
“If you look at Air France-KLM’s push, it still doesn’t have a full range of ancillary content available via NDC, regardless of how the agencies access it,” Sans said. “That undermines the content’s usefulness to travel buyers, yet the airline is adding a fee to access this content. What a weird strategy.”
Other analysts were more charitable about the attempt to innovate in distribution.
“If we’re honest about NDC, most of the initial implementations are lateral moves that don’t convey a ton of tangible benefits to the travelers,” Klee said. “They’re important, though, because they pave the way to eventually be able to deliver new capabilities that will benefit airlines, travelers, and intermediaries. But to get there, those intermediaries will need to supply a lot of hard work and creativity — a tougher ask if a financial hit is part of the package.”
“If I were a GDS, I’d accept that lower margins are inevitable but try to compensate by broadening, not shrinking, the booking base,” Klee said. “I’d offer big fee reductions, especially for low-value tickets, in exchange for limits on the reasons why an airline can elect not to distribute through individual subscribers.”
Some critics argued the real driver has been money, with a goal of shifting technology costs to agencies.
“Airlines should be honest that the surcharges they’re now adding are nothing else than the unbundling of the tech services and distribution cost,” Heller said. “It offers full transparency, which is a good thing.”
With the unbundling, the airlines have more flexibility in managing the fares and letting agents compare apples with apples when looking at network carriers versus low-cost-carriers.
Other experts were had a different take.
“The so-called GDS pass-through model, as per the recent Amadeus-Air France/KLM deal, appears as the most favorable model for the airline industry,” said Igor Marchal, a Paris-based consultant in travel distribution.
“From a functional standpoint, it preserves the benefits of GDS infrastructural sturdiness and efficiency, it enables distributors to keep their usual workflows and service airfare bookings at no extra cost, it paves the way for NDC airlines to control and enhance their offering, showcase their intrinsic value versus low-cost carriers, and better address personalization drivers to foster loyalty,” Marchal said.
“From a financial standpoint, airlines are clear winners of deals like the one Amadeus did, with significantly reduced – if not waived – GDS channel costs,” Marchal said. “GDSs incurred massive costs for becoming ‘NDC-friendly’, but in return salvaged their airline distribution business, and can continue to scale it. Their severely degraded airline fees are partly compensated by new GDS fees charged this time to online travel agencies and travel management companies.”
Travel management companies and online travel agencies are impacted by unforeseen airfare sourcing costs, Marchal said, referring to the fees the global distribution systems charge them to access NDC content through them.
Airlines hope to shift the cost burden from themselves to agencies, analysts said. Agencies won’t like it because many have little margin today. So agencies will have to pass it along to travelers.
“In the meantime, airlines should be clear in their messages about the distribution surcharges,” Heller said. “They should say it’s basically a charge to pay for the old distribution model while using some of that money to subsidize building a new model.”
Lufthansa’s Bold Approach
Not everyone is a fan of how airlines are attempting this effort.
“Lufthansa’s approach is quite radical in deciding recently to increase its current surcharge to travel agencies if they book using GDSs,” Sans said. “What a clear decision to completely deny the travel agencies’ contribution in terms of sales and, worse, what a clear decision to not support agencies as a distribution network during these difficult times.”
Supporters of Lufthansa saw things otherwise.
“What in my opinion is happening between the airlines pushing hard on NDC and the GDSs, with some exceptions, is that full-service carriers are simply imitating the low-cost-carrier distribution model,” said Díaz of AirGateway.
Ryanair and other low-cost carriers are able to subsidize their airfares through aggressive upselling of ancillaries and the cross-selling of other products such as lodging or car rental. This is the reason why the likes of Ryanair fiercely resist being sold through any third-party provider like Amadeus, Sabre, or Travelport. Such cross-selling is possible through the global distribution systems, but the technical flexibility is less right now and much of the revenue benefit right now doesn’t go back to the airline.
“The full-service carriers, with our without NDC, are heading toward having two airline-owned distribution channels: their consumer website and their agency-facing API data feed intended for business-to-business distribution through all kind of partners, including GDSs, non-GDS aggregators like us, corporate booking tools, online travel agencies, metasearch sites, and even the more tech-savvy travel management companies,” Díaz said.
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Photo credit: A Singapore Airlines Airbus A380-800. Travelport agencies will be able to book new content from Singapore Airlines without paying a new surcharge or having to leave its reservation systems. Singapore Airlines