industry analysis
Revolution In Canada?
Introduction
On August 15 Air Canada (AC) and Galileo (GAL) issued a Press Release regarding a new graphical display tool for TMCs to use to access AC inventory. (See link to the announcement at bottom.) For nearly a year and a half, since AC’s Tango-class fares were stripped from the GDSs without warning, the industry has been impatiently waiting for AC to return these fares to the industry’s repeatedly stated preferred distribution channel. In the meantime, AC introduced additional content available only on its website with its FlightPass product and so-called “derived” Latitude fares further impacting TMCs and corporate travel buyers’ ability to efficiently source AC’s full product line.
Unfortunately, the recent AC/GAL communication raised more questions than it answered and has left corporate travel managers scratching their heads about whether the cryptic AC/GAL announcement undermines rather than promotes efforts to regain efficient procurement of AC’s full product line. BTC published a preliminary analysis on August 16 (See link at bottom.), and sought additional input from GAL, AC, TMCs and corporate travel managers regarding this development. BTC subsequently provided GAL with a set of questions from industry participants related to full content, functionality and economics. The response from GAL and AC was not encouraging.
While AC would not respond to BTC’s requests for additional information, GAL, to its credit, did provide responses to some of the industry questions gathered and transmitted by BTC. (See link at bottom.) Unfortunately, GAL's answers do not clarify many of the key concerns that have been raised about the operation of this new program -- including the issues of functionality and cost, and the eventual impact to the remaining efficiencies that exist today for the majority AC product purchases which are still facilitated through GDSs.
The analysis that follows is provided to enable TMCs and corporate travel managers to understand the issues and raise the threshold questions with AC and GAL. Indeed, from what BTC can determine at this point, there are potentially profound industry-wide implications resulting from this AC/GAL agreement.
Background
After strong negative industry reaction to AC’s removal of Tango-class fares from the GDSs in 2006, AC promised TMCs and corporate travel managers that it would work toward a technology solution with GDSs to accommodate the unbundling and merchandizing requirements of AC’s new product and distribution strategies.
Based on public statements and information provided to BTC about the proposed functionality of this new AC/GAL desktop, it appears to offer an inadequate option for the customer at best, and may represent a threat to remaining efficiencies, potentially making it even more expensive to source AC products. Instead of efficient distribution through the customer’s preferred channel, early indications are that, at a minimum, the content AC has chosen to withhold from GDSs will simply be aggregated from the AC website.
The lack of clarity provided raises the specter that more, if not all AC inventory, could be withheld from the GDSs with access only available from the airline’s website reducing the new GAL desktop to little more than an aggregator tool. If true, this would be a suboptimal solution for corporate travel programs and could have enormous negative economic and service consequences; existing economic relationships could be undermined.
What’s more, there are the service issues when live bookings are housed in the airline website system. For example, itinerary changes, cancellations and upgrades will be handled by way of phone calls from TMCs or CTDs to AC. Importantly, there will be no interlining functionality. These services are modern travel distribution best-practices. Without them, corporate travel managers are going to be stuck with expensive workarounds. All the attendant inefficiencies and increased costs of such a proposed model as a long-term solution will directly impact TMCs and ultimately corporations – who in the end will have to pay more, for less service.
GAL’s responses were incomplete or silent on where the bookings will reside, i.e. in GAL or in AC’s system. GAL also seemed to imply that it would not pay incentives to TMCs for these bookings and completely avoided these important questions: What happens to the end-to-end economics of distribution? Does this new model change the core economic relationships among industry participants? Who is going to pay for this new distribution model? Silence on these core issues is not a good sign for our industry.
This proposed new offering may be an attempt to usher in as permanent a dramatically different economic and procurement model that serves AC’s interests. However, if this new model becomes the norm it could be extremely bad news for TMCs and corporations who will have to foot the bill and endure the service challenges. Extra costs and service fees will likely be charged for access to inefficient distribution services that are run from AC’s website. It is unclear what those costs and fees might be, because neither AC nor GAL is talking about them. It’s time for industry participants, both in Canada and around the world, to ask hard questions and keep asking them until they are satisfactorily answered. The integrity and efficiency of modern managed travel programs are at stake.
Analysis: What Really Could Be Going On?
It is BTC’s concern that AC, which dominates the Canadian airline market, approached GAL and offered it a Faustian Choice. Under this worst-case scenario, AC may have indicated to GAL that GDSs are not part of its going-forward strategy; that an “aggregator model” where the agency pays is. The inefficiencies flowing from such a model would be shouldered by TMCs and their clients, not AC. If GAL could reinvent itself as an über aggregator in Canada, and lead this revolution, AC would do everything in its power to drive business to it. Perhaps GAL might have found this offer compelling, even at the expense of efficient and customer-centric distribution services.
BTC hopes its analysis is wrong because of the negative impact on the customer. It’s no secret that airlines want to shift 100% of their distribution cost to the customer (including merchant fees), despite the fact that the customer is already paying for distribution in the price of tickets. Corporate travel buyers have successfully pushed back against this model in the U.S. and Europe. However, had it succeeded there, TMCs and corporations would at least have been left with the efficient GDS channel. It’s one thing to shift the cost of distribution – it goes to a whole new level when the airline also seeks to force inefficiencies and service degradation on top of the shifted cost. The AC strategy appears to be based upon controlling the passenger and shifting the cost of distribution, and in the process burdening the managed travel industry with new levels of complexity and inefficiency.
If this AC/GAL model is what it appears to be, and if the marketplace accepts it as the norm, then the goal of regaining access to full airfare content in Canada through the channel of choice for TMCs and corporations will have been denied. This would only serve to highlight a root cause of problems in the Canadian marketplace for commercial air transportation services: lack of adequate airline competition levels. AC has demonstrated it believes it is in such a dominant market position that it can compel TMCs and corporate customers to deal only on AC’s terms. Indeed, AC may be attempting to dictate the workflow of TMCs, impairing their efficiency, and burdening the airline’s very best customers with new costs for less service.
Seeing the Press Release of this new offering come out – one would think this was something to celebrate. However, if this means losing all the remaining efficiency TMCs and corporate buyers had with AC, and if it means sending a message to all other carriers that the marketplace is willing to accept an inefficient aggregator model where agencies and corporations foot the bill for airline distribution – what’s to celebrate?
Strategic Concerns
Industry analysts and journalists will undoubtedly uncover whether this arrangement effectively allows AC to control and manipulate the GAL system to the detriment of competitor airlines in Canada, and to the ultimate disadvantage of consumers and corporations via higher airfares and surcharges. GAL never did indicate to BTC where the bookings will reside--in GAL or AC. By their silence on this question, one would naturally presume the bookings will reside on the AC website. Right now, the stated plans are for consumers to have the ability to comparison-shop AC and its competitors’ offerings.
However, what would stop AC, after some period of time driving customers to its website, from turning off the comparison shopping functionality thereby harming WestJet, Porter and other airlines? The GDSs would be irreparably damaged in the Canadian marketplace by then, and GAL would have become eviscerated into a mere conduit for implementing AC’s domination strategy. TMCs and corporate travel managers would be without effective recourse or alternatives. The industry has seen this scary movie before many times and knows for sure that it doesn’t have a Hollywood ending.
It’s also no secret that airlines in the U.S. and around the world are watching closely how the North American marketplace responds to AC’s distribution policies and programs. Most corporate travel managers do not have deal-breaking problems with an airline unbundling its products’ features and attributes, per se. However, AC committed to working in earnest with GDSs to collectively set standards and develop solutions that solved AC’s distribution challenges while protecting the interests of TMCs and corporate buyers of AC services.
AC has not followed through on these promises, and worse, seems intent on returning the industry to the travel management dark ages. The industry shouldn’t go back there without a fight – time and again, travel buyers have proven that when they demand better, they get better from airlines, GDSs and all suppliers. Now is not the time to capitulate to half-baked, unexplained solutions that threaten interests of all participants in the distribution chain.
TMCs and corporate travel managers must protect their interests and seriously engage this industry policy issue of strategic importance. Please ask the tough questions of all the GDSs and AC and consider joining in on a BTC Webcast on the Canadian marketplace. BTC will conduct the Webcast at 12pm (EDT) on September 11 to update the industry on the problems travel management companies and corporate travel managers are experiencing in Canada with airfare fragmentation and the associated expensive workarounds. Low-fare pioneer WestJet will also make a brief presentation and limited-time offer to corporate travel managers. To register for this free Webcast, visit http://www.AdvancedSurvey.com/default.asp?SurveyID=54361.
STORY LINKS