20 December 2009

Legacy GDSs Promote Fragmented Pricing Schemes

The recent distribution arrangement between Travelport and British Airways should come as no shock to anyone. As widely reported several weeks ago – BA is determined to adjust its distribution mode – the UK airline has re-signed with Travelport. It is also reported to be near an agreement with Amadeus (who also hosts the British Carrier). Despite being somewhat battered in the recent downturn – the British Carrier is driving to a beat where it lowers its costs for distribution. So lets briefly examine what is has agreed to with Travelport and what it wants to get from the other GDS companies.

Based on the current 3rd quarter Travelport numbers its (TP) average revenue per segment it gets largely from the airlines is near to its record highs of $6.00 (actually $5.82). While there has been an unbundling of the GDS segment fee lets use this number as a way to illustrate the relative deal with BA.

With approximately 60% of its revenue coming from the home market of the British Isles (again rounded for the sake of this illustration) the arrangement with BA is that BA will charge an opt in fee of three pounds per segment. In Dollar terms this is $ 4.50 per segment, which means that BA has set a price of net $1.32 per segment it will pay for distribution. In Ticket terms that translates into $3.04 per ticket (using 2.3 segments per ticket an industry norm). BA is of course not the only airline to charge a home vs away market model. A few years ago Amadeus announced a home vs away market pricing scheme in an effort to stem opt in contracts. The differential it proposed was vastly different with a home market discount of approx 50 cents per segment. A far cry from BA’s $4.50 opt in charge.

However this is not all. BA in the UK home market uses the service of Lime Management to issue discounted tickets (typically the lowest yielding fares in the market) at a per ticket charge of 13 pounds. That translates into a fee (note this is paid by the agent) of $19.50. Given BA’s recent losses – the achievement of this revenue for its discounted tickets can and does have an impact on its bottom line.

British Airways is not alone. KLM is quietly introducing a 6 Euro ticketing fee via the legacy GDSs in January in many markets.

The push pull of the legacy GDSs and the network carriers on the issue of the fee continues to be a battle royal. The war is only in its early days. Many battles will be fought. The outcome however has a certain degree of inevitability about it.


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