April 13 - One-Off Direct-Connects: “Simply more efficient and cost effective” for whom?


By Paul M. Ruden and Kevin P. Mitchell

As one American Airlines executive recently noted, global distribution systems (GDSs) are aggregators of direct-connects. Typically, over 90% of air bookings through a GDS are on a carrier with which the GDS has a direct connection -- either at the time of sale, or in most cases, at the time of actual availability.  This vast marketplace of aggregated content, sourced primarily through direct connections to supplier systems, is the result of many years and billions in investments.

There should be no mystique surrounding direct-connects. We continue to be baffled by the incessant and near-trancelike incantation of XML by Jim Davidson of Farelogix and others. GDSs are deploying XML now. For example, all GDSs support easyJet with the XML protocol for both tickets and ancillaries, including their Speedy Boarding service as well as for checked bags.Let’s not confuse a programming language with a business model.

Efficiency for the agency or corporate travel manager comes in the form of aggregated content within preferred workflows (1) enabling cross-shopping to make the most informed purchase decision, (2) enabling the application of travel policy during shopping and booking and (3) enabling data aggregation and reporting for program management.

Efficiency for an airline comes in the form of being able to make their product available to hundreds of thousands of agency points of sale around the world, to hundreds of thousands of high yield corporate desktops, to 10s of millions of consumers through travel agencies. Efficiency comes from being able to get their product on the shelf through all these points of sale in order to most efficiently fill up their aircraft. Or, being able to open and close inventory buckets and adjust pricing in real time across these points of sale. And finally, efficiency is derived from being able to receive consolidated data reporting on sales performance through all these points of sale.

Indeed, existing business models must be challenged and evolve. And that is certainly true in the world of travel procurement. Corporate managed travel programs have evolved to incorporate strategic procurement discipline – and as a result corporations have invested significantly in designing programs and implementing technology -- encompassing all phases of supply and demand management -- to achieve maximum return on investment. Technology providers, including GDS companies, have in turn evolved to meet these needs.

On the supplier side, airlines are increasingly looking to deploy new “merchandising” initiatives in the form of unbundling and re-bundling. This poses significant challenges to established procurement practices, and the key players involved are evolving to meet this challenge. GDSs are already supporting ancillary services and branded fares (a form of bundling) within an aggregated and efficient workflow.  And with the pending launch of new industry standard methods of filing ancillary fees through ATPCO, the foundation will be set to enable broader and more rapid deployment of airline ancillary service initiatives. In fact, many of the systems to enable that comparison shopping and travel management, leveraging the industry standards, are already in place or poised for imminent release.

A direct connection is simply that – a direct connection to a supplier. It’s not a way of doing business.  As a way of doing business – a supplier can choose to make its full product/service portfolio available in an efficient manner through the channels in which it chooses to participate.  Or a supplier can withhold products/services from the aggregated marketplaces where travelers like to shop – and instead attempt to force travel intermediaries and high-yield corporate travel departments to incur added costs, inefficiencies and service degradation through a one-off approach to procuring that supplier’s products and services.

The latter “way to do business” is certainly not a more cost efficient, cost effective way for intermediaries and travel managers to procure travel.  And to the extent any supplier believes it would realize any cost benefits from such an approach (incrementally improving in an area that costs 2.5% to even below 1% of the product value if looking at the higher fares paid by business travelers) – many industry observers would likely conclude that the revenue impact to the supplier, in terms of foregone sales or price/economic concessions required to incent intermediaries/buyers to adopt a more costly procurement process, would far outweigh any such cost savings – resulting in a lose-lose scenario.

Major and far-reaching changes to airline business models, occurring in real time, will have significant impacts on all participants in the supply chain. Corporations that buy billions of dollars in air transportation services, and that keep the lights on at airlines’ headquarters, and the travel management companies that service them, are making their consumer preferences known when it comes to how they want to buy these services. Forward-thinking airlines are listening to what we have to say; some carriers have come to realize that to secure more high-yield business travelers, they must respect the modern procurement and travel management practices of their best customers.

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