17 May 2007

GDS 3.1 - The model evolves

The news that Southwest is going back into Galileo will probably send shockwaves around the globe. But as the smoke clears we can start to evaluate some of the realities of the situation.

GDS need new content to remain relevant. They face attack from all sides: Falling Yields, bypass, deregulation, consolidation, etc etc. Over the last 5 years according to figures from ASTA, Travel Agents in the USA have lowered their use of GDS from effectively 100% down to just over 80%. This fall is likely to accelerate as the GNEs come online and as the incentive payments dip. At the same time US agents have increasingly started to use Supplier direct websites. That Gordian knot seems to have been broken and the fragmentation trend continues.

At T2 we believe that this is a natural evolution. We believe that the fundamental forces are going to continue to drive diversity in the GDS – definitely we see that there will be less homogenization of the GDS players.

Southwest is interesting at this juncture. You may ask why did they choose Travelport/Galileo now and what was their rationale. We believe that the deal has been in the works for some time. There were some not inconsiderable technical hurdles to overcome but the writing on the wall has been there for quite some time. SHHHHH don’t say anything to anyone but Southwest is beginning to reach Saturation with the current model. For the past 6 months or so – Southwest has been sounding more and more like a network carrier. In reality it is reaching the HVC – Hybrid Value Carrier model we have been predicting for some time. With the true LCC model just about played out for Southwest – there is no where else to go but – well up. Thus they need to expand their distribution and their model. Thus Galileo fits nicely. Why? They are already available in Sabre but Galileo represents a black hole. Thus the opportunity to reach the #2 corporate agency booking system makes perfect sense. Don’t be surprised if the work does not stop here. Look for GNEs to appear soon with that capability. SWABiz has not been a massive success and the efforts behind it seem to have been somewhat half hearted. The final catalyst has probably been two key factors – both competitive in nature. Firstly the US domestic market is already showing signs of weakness. Just last week WN reported having to revisit its projections for 2008. Secondly jetBlue has shown a remarkable uptick in sales as a result of going back into the GDS. WN cannot afford to ignore these facts.

But why not Amadeus? Simple – Amadeus in the USA is a Leisure system- that is well handled by the direct website. However herein lies a message for the other Hybrid Value Carriers. In other markets HVCs are now eyeing the situation of saturation or at least parity with network carriers and looking for ways to be fully competitive. I think the floodgates could open when Easyjet and Air Berlin look back at being in the GDS. But here is some hope for Amadeus North America – since it has none of the “evil” OTAs on its system here – it may just be OK for Southwest. And Worldspan? By the time the system is ready WSP will be owned by Travelport so the issue is somewhat moot – at least commercially.



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