industry position paper

EU Travel Industry Position Paper

Travel Distribution: A Time to Build, Not Destroy

26 February 2007

Editor’s Note: This Industry Position Paper was peer-reviewed over a two-month period by some 150 business travel industry participants from Europe. The initiative was organized by Business Travel Coalition.

Introduction

Computer Reservations Systems (CRSs) such as Amadeus, Galileo, Sabre and Worldspan were created in the 1970's by several of the world's major airlines to aggregate airline schedules, pricing and inventory and provide this content to travel agencies for use with end customers.  Later, other travel services were included in the CRS databases.  Airlines and other suppliers pay CRSs booking fees for these services and in turn CRSs pay travel agencies financial incentives to help them organize this vast market.   For decades, CRSs have been invisibly but efficiently powering modern corporate travel programs.  

In the aftermath of US CRS deregulation, and after contentious negotiations among marketplace participants, a new set of distribution agreements were adopted in the US during 2006.  US airlines and CRSs entered into a set of 5 to 7 year contracts.   In return for access to full airfare content (including so-called web fares) and protection from future airline-imposed content surcharges, these US airline-CRS agreements secured lower CRS segment fees for airlines and a reduction in some travel agency incentives.  

In 2007, it is anticipated that British Airways and other major European airlines may endeavor to shift all or significant portions of CRS distribution costs to the end customer and to strategically use content accessibility as a lever to form more direct relationships with business travelers. This strategy, if left unchecked, could do significant harm to corporations that purchase large volumes of commercial air transportation services. (See Addendum: At Stake for Corporations.)   This harm would be profoundly felt in Europe, but it could have ripple effects all over the world. 

Competing Strategic Imperatives

Here is how structural tensions appear to be driving travel distribution. The strategic imperative for CRSs is to maintain comprehensive access to airline content and to charge suppliers distribution fees for access to their networks.   Access to robust content lies at the heart of their business model and is what attracts their customers. Without it, CRSs would be weakened. Similarly, CRSs do not want to make it easy for airlines to pursue strategies designed to pull consumers away from them, particularly highly valuable business travelers.

The strategic imperative for airlines is the opposite; they seek to use access to content as a lever to reduce fees to CRSs, to shift distribution costs to TMCs and corporations and to increase yields. While airlines generally recognize the value of the CRS channel in touching if not delivering high-yield business travelers, they are prepared to fragment content in order to attract a greater number of high-yield travelers to their websites.  On these airline.com sites,  they expect to save distribution costs and endeavor to control the passenger in a place where a lack of comparison shopping and corporate travel policy can lead to higher priced ticket sales.  

The strategic imperative for the corporate travel manager is maintaining the integrity of the corporate travel programme. The travel manager wants all the content aggregated into one system that's fully integrated into the back office, wants distribution to be efficient and affordable, seeks the ability to locate all traveling employees in the event of an emergency, and resists efforts by airlines to undermine corporate travel programs by restricting access to key inventory to airline websites only.  

Content Fragmentation and Cost of Access

Given the developing situation in Europe, there are three interrelated problems facing travel management companies and their corporate customers.

Risk Analysis

These problems have a common thread -- content fragmentation -- which means airfares are dispersed among a variety of distribution channels, e.g., direct airline solicitation of business travelers, airline websites and CRSs. Fragmentation, when it exists, undermines the credibility of a travel programme. When travelers see less expensive fares and enticements not available through airline websites, they tend to forsake their managed travel programmes and spend their time researching travel deals rather than engaging in productive work on behalf of their employers.

Moreover, this fragmentation creates inefficiencies, headaches and credibility challenges for travel managers. Fixing these problems, if they can be fixed, requires TMCs and corporations to deploy unnecessary and expensive workaround technologies and processes. Importantly, new content surcharges or access fees from agencies and airlines could add hundreds of thousands of pounds, euros and dollars in new costs for corporations. Content fragmentation could cost even more due to lack of access to the lowest fares and from new process complexities.

Corporate Customers’ Position

The distribution system reform process is underway in the UK as current CRSs contracts with British Airways come up for renewal at the end of February 2007. Many corporations could see their travel costs increase as a result of a new industry business model some airlines, beginning with British Airways, may seek to impose.

What's more, if content fragmentation were to be central to a new industry distribution model, then it would inevitably mean new levels of complexity, expensive workarounds and higher fares-paid by corporations. This would represent a completely unacceptable outcome for corporate travel managers.

The direction for distribution system reform in Europe will likely be determined the UK as a direct result of the outcome of negotiations between British Airways and the CRSs.

Corporate travel executives want airlines to be mindful of the industry’s position:

1. "Full content" is not negotiable - and it has to be "full," not “partial,” or any other definition that has holes in it that undermines corporate travel programmes. Full content must be available through the CRSs that automate these programmes.

2.  Corporations will resist paying airline surcharges for exercising their rights to choose an existing, efficient channel of distribution. Corporations already pay for distribution in the price of their tickets.

3.  Airline.com websites are absolutely not the answer for corporations. Exclusive content on such websites directly undermines the integrity of corporate travel programmes.

4. Corporations are the marketplace – airline distribution strategies that impact corporate travel programmes must be responsive to our needs.  

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Addendum

At Stake for Corporations

Consider the negative impacts to managed travel programmes resulting from content fragmentation strategies. (Note: The points below are not necessarily true for all corporate travel programs; potential financial impacts would differ greatly from one travel program to another.) 

o Higher programme costs. Without all fare options available to a TMC, in a single CRS environment, travelers may not always receive the lowest available fare options. Travelers who go outside an established program (i.e. do not purchase tickets from a preferred TMC or a preferred online TMC) risk purchasing fares without the benefit of comparison shopping, and they can weaken other opportunities for a corporation to benefit from strong airline contract fulfillment.

o New workaround costs. New costs associated with travel agents securing fare offerings from airline websites, then making changes by phone with the airline, followed by one-off billing, reconciliation and audit requirements will all result in higher transaction fees to some TMC customers. Likewise, many travel managers will have to spend extra time and money to capture and integrate purchasing data.

o Booking tool adoption issues. Progress with implementation and adoption of automated booking tools can be stymied when such tools cannot access all airfare content. This is not a new issue, but travelers will be even more reluctant to learn and use these tools if the perception is reinforced that better fares are available on the Internet than through their corporate travel programmes.

o Compromised traveler security. Corporations need to know where their travelers are and how to contact them in a time of crisis. Airlines that entice travelers out of managed travel programmes to airline websites for special promotions or web-only fares work against corporate best practice policies with regard to traveler security.

o Incomplete data. As content and shopping channels fragment, so do purchasing data and its quality and usefulness to prove airline contract fulfillment, or to negotiate new supplier agreements. It is true that a well-managed corporate T&E card program can provide supplemental data, but it is not yet an adequate solution.

o Travel program integrity. Airline strategies designed to circumvent the corporate travel department with individualized, customized airfare offerings only serve to undermine the perceived efficacy of managed travel programs among travelers.