OAG Travel News

Several airline executives delivering news of first-quarter losses in the past week have waxed philosophic on shifting distribution costs to the intermediaries that sell their products. Though some airlines singled out online agency or global distribution system relationships as potential cost-reduction avenues, they largely hailed the value of corporate travel management companies.

Though he noted, "maybe I'm dreaming here," American Airlines CEO Gerard Arpey last week envisioned a future "where those folks who are the intermediary between us and our customer have to pay for access to our product rather than us paying them to distribute our product." Arpey called that shift a "long-term vision," rather than a near-term reality.

Delta Air Lines during its earnings call this week sounded similar notes, as CEO Richard Anderson said, "I just think over time the industry has to evolve more to the model of other industries, where people pay us for our content rather than us paying them to take our content."

Anderson noted the pay-for-content model likely could apply to the online travel agencies, while "the large travel management firms provide a pretty valuable service to our corporate customers." As such, Anderson said those corporate travel management companies have "a long-term role to play for large corporations in terms of managing their total travel and keeping up with their employees around the world, but the GDS costs will continue to decline and ultimately the online travel agencies should pay for the content the way they do for hotels."

United Airlines John Tague echoed sentiments on the value of large TMCs, noting they "are performing a service that we really can't step in and perform, and one that our most profitable corporate customers have determined is of significant value to them."

United's tune was different last summer, when it disbanded a preferred supplier arrangement with Carlson Wagonlit Travel (BTNonline, Aug. 11, 2008), only to reinstate the relationship after enduring weeks of CWT actions to shift volume to other carriers, according to some sources.

United during a first-quarter earnings call this week said it had achieved a 36 percent year-over-year decline in distribution costs, and areas like commissions paid in international markets are ripe for further trimming.

Addressing an analyst question regarding online travel agency distribution costs, Tague said, "We're a few years out in being able to renegotiate those contracts, and we did make progress last time, but we clearly see an opportunity to further improve the economics there."

Still, Tague noted the current demand environment is not one in which to reduce distribution costs. "If we're constantly terrorized by excess capacity, chances of improving the economics around these key cost components of the business are not very high. I think when you look at OTAs, they tend to offer less value-add to our most profitable customers."

Continental Airlines president Jeff Smisek during the carrier's first-quarter earnings call today struck more conciliatory tones on third-party distributors, noting, "These are difficult economic times, and I'm always reminded of the powerful benefit of our travel partners as we work through this. Whether you talk to our corporate customers who, from the travel management side, find a lot of value in that service to people who want to shop for fares, we're very focused on letting people buy the way they want to buy, and making sure we're good partners and our content is available to people who look for our fares."

Travelport GDS senior vice president Flo Lugli today told BTN there are no signs of a shift in GDS dynamics with carriers.

"Our most recent airline agreements have been entirely consistent with the traditional airline model," Lugli said, noting recent deals including Travelport GDS's full-content agreement with Air France-KLM, announced this week. "Those deals clearly demonstrate that we continue to deliver value to airlines. I think if you really talk to them, when they're not just presenting to a bunch of investors, they would probably agree. That said, we're open to evaluating new and different ways to deliver value to our airline partners."

Source: www.btnonline.com