The relationship between airlines and GDS platforms is a tenuous one. Airlines love the GDSen for the ability to sell more tickets but hate them for the higher distribution costs those tickets carry. Plus the GDS platforms are spectacularly limited in their ability to sell the ancillary add-ons that airlines depend on for profit. Airlines pushed for travel agencies to work with them directly, avoiding the GDS intermediaries and the associated costs; some agencies resisted, in part due to the integration costs of building those direct links. Over the past three years airlines responded by slowly adding “Distribution Cost Charge” fees to tickets sold via the GDS platforms.
Lufthansa Group led the charge in 2015. It stood alone for some time but eventually International Airlines Group (parent of British Airways and Iberia) joined its ranks, as did Etihad Airways, Aegean Airlines, Aer Lingus (also owned by IAG but still setting many policies independently) and the Air France/KLM Group. That last one is particularly interesting as now an exception exists. It turns out there is room for negotiation in all of these policies.
Maybe we could skip the fees??
The GDS distribution fee for the AF/KL group took effect on 1 April 2018. Just a couple days later Amadeus announced a deal allowing its travel agency partners to avoid that surcharge:
The private channel agreement means that Amadeus travel seller customers which have a private channel deal with Air France-KLM will be able to access content through Amadeus’ global distribution system without the additional surcharge, which started to be levied from 1st April 2018.
Essentially the agency still has to negotiate with AF/KL to get the correct fee structure but they can also still use the GDS feed rather than building out a direct connect solution. Undoubtedly there are financial considerations at play in those private channel deals but the ability to keep the GDS as the data source is a significant money saver for the travel agencies.
Beyond the fees: Ancillaries!
The new deal also includes a agreement for New Distribution Capability (“NDC”) content distribution. Or at least it should eventually. Short-term the waived fees are significant but the NDC agreement likely matters more long-term.
In parallel, we have agreed with Air France-KLM to cooperate towards making the airline group’s NDC content available through the Amadeus travel platform. This sets the framework for a sustainable, long‐term solution to distribute NDC content to Amadeus’ travel seller customers.
The NDC content is where the airlines truly shine in their ancillary sales performance. It allows the dynamic bundling of unbundled components and targeted marketing of goods and services to specific passengers rather than generic up-sale offers. It is a holy grail of sorts, but it does not really work with the GDS platforms today. That is changing, albeit slowly, like many things in the aviation world. Deals like this one help to move the efforts forward, even if the real results remain years in the future.
Read More: Can Lufthansa Break the GDS Model??
On the pricing and fares side the NDC shift appears to heavily favor airlines over passengers. But there are some consumer benefits as well. As the airlines increase their push of NDC content into the GDS platforms additional rich content (i.e. marketing photos and videos) is exposed to the consumer. The deal announced in February between Amadeus and Routehappy (now a part of ATPCO) is one example of this content becoming more accessible. The rich content does not necessarily depend on NDC but it benefits from the discrete product component attributes.