Sabre Commits To AA NDC Plan, Heralding Shift In Airline Distribution Economics

By | June 29, 2017

[UPDATE: June 29, 2017: Revises Travelport information.]

Timing on global distribution system readiness to hook up New Distribution Capability connections for full functionality remains a mystery. Sabre, for one, has committed to achieving that goal with American Airlines.

When GDSs do bring in the highest-level NDC functionality of, say, American Airlines, what will that mean for travel management companies that want to access it through GDSs? Experts are playing out the scenarios and imagining a different way to fund corporate travel distribution.

Everything is negotiable, but with AA’s $2 per-segment incentive as a starting point, one such way is that TMCs, rather than airlines, pay for GDS usage. That’s how AA sees it.

Then the traditional $1 to $3 per-segment incentive paid to agencies goes away. Agencies likely would pay GDSs more than $0.80 per segment, which is how much Expedia paid for booked segments in Sabre under this “wholesale” model as of several years ago.

The hitch in this comparison is that Expedia uses its own fare shopping capabilities. If agencies want to continue using GDS shopping, the fee would be higher. Search and shopping are resource-intensive for GDSs. If agencies source search capabilities elsewhere, they would also pay Google or another shopping provider (this costs about $0.035 per query). Then agents have to work in two places, or use desktop technology to bring the functions together.

Airlines on the low end pay GDSs close to $2 per segment, and on the high end around $10. For travel agencies, the GDS per-segment fee in the wholesale model would land somewhere in the low-to-mid single digits, offset at least partly by AA’s $2 incentive.

AdTrav Travel Management president and CEO Roger Hale

“The real question is not whether the $2 is enough,” said AdTrav Travel Management president and CEO Roger Hale. “The question is do you want to move to the wholesale model as a TMC? Do you want to take on that responsibility of negotiations? Definitely the math has to work out, but it’s also philosophical, taking that long-term view. It’s not so much about this price and this negotiation. It’s about the one in three to five years from now.”

AA said it’s willing to make content and incentive commitments through 2020 for TMCs that begin to ticket using NDC by the end of next year.

TMCs also would like some revenue for ancillary sales. The $2 incentive is “lower than our current model,” said Safe Harbors Business Travel president Jay Ellenby. “It would not make us whole on face value, but if we get compensated for selling ancillary services, that will certainly support the model.”

In its FAQ document related to the new NDC program, AA noted that it “does not currently offer incentive programs for paid seats.”

Other complications could arise for particular TMCs depending on their existing contracts. A TMC that just signed a five-year deal with a GDS firm may have received chunk of its incentives paid up front. What happens now?

‘Not Anywhere Close’

AA said its commitment to content parity applies only to partners, including GDSs, that have achieved Level 3 NDC certification with American. According to IATA, on an industry level Sabre and Travelport are at Level 1 as aggregators and Amadeus is “in progress.”

A Sabre statement indicated that, “based on American’s criteria,” Sabre would “include the Level 3 certification process as part of the development work to expand our current integration of their NDC-based API, beyond the NDC-compliant paid seats feature we already have (and were the first to deliver). Sabre is already engaged with American on this effort.”

Amadeus is piloting AA’s paid seats under a program announced in 2013. The GDS firm now is “working with American Airlines to determine the best path and a shared roadmap to implement their expanded NDC content in the Amadeus GDS,” according to Amadeus. With regard to IAG, an Amadeus official this month was quoted by Travolution as saying the requisite NDC coding could take up to 18 months after it begins in December.

A Travelport official said the company is “targeting Level 3 certification by the end of the year.” Asked specifically about Level 3 certification by AA rather than generally by IATA, the official wrote, “we will work closely with American to integrate their NDC content into our Travel Commerce Platform.”

Travelport is “not anywhere close” to a Level 3 connection, said Travel Management Partners senior vice president for industry and vendor relations Eddie Albertson. “For us, maybe the GDS route is most desirable but it’s not something that’s happening in the next few months.”

Connecting Directly Costs

Nor are direct connections easy to build. The scenario that calls for agencies to book through AA’s NDC pipe outside the GDS comes with plenty of unknowns. This would still offer them the $2 per-segment AA incentive, but of course like in the wholesale model would deliver no financial assistance by GDSs.

Marc Casto

Marc Casto
Casto Travel president and CEO

If agencies book directly with AA, costs associated with using the GDS don’t necessarily go away. Search or “scan” costs, for example, still can come into play “if we want to continue to comparison shop with AA specifically,” noted Casto Travel president and CEO Marc Casto.

If they do a lot of shopping but make more bookings off-GDS, that could make searching more expensive. It also could lead to shortfalls in current contractual commitments with GDS providers, which can put a further dent in incentive income.

Agencies need to store the travel itinerary record somewhere. Maybe car and hotel are booked in the GDS, but the AA piece isn’t. If they include info on that AA booking in a GDS record, a $3-plus passive segment charge may be levied. “That’s why we see more agencies storing data in alternate systems,” said Casto.

“I don’t know that every agency would” incur a GDS passive fee, said Atlas Travel & Technology Group president Lea Cahill. “Those that have engineers on staff and data storage behind them can put passive content in front of agents without relying on a true GDS passive segment.”

Cahill, however, noted a wide range in tech savvy among agencies attending AA’s NDC meeting last week.

Then there may be additional fees for aggregating new distribution pipes. AirGateway, Travelfusion and others like them charge a buck or two for their services.

Other associated costs would be attributed to tech staff, agent training and possibly productivity reductions. TMCs might have to enhance their data consolidation capabilities. If certain airlines don’t utilize ARC/BSP processes, someone may have to pay a card merchant fee.

“The airline business isn’t about trying to make us whole, nor should our business be reliant on segment income,” said Casto, more of an AA supporter than some.

For clients, all of these scenarios bring with them potential cost increases.

Additional info: A segment is a single flight leg. So a roundtrip with only nonstops has two segments. A roundtrip with connections both ways has four. The average number of segments per ticket in corporate travel is about 2.5.

Search costs already figure in to agency-GDS relationships as a subtraction from the incentives paid to TMCs. Another way to consider this is as a look-to-book ratio. The higher the searches (priced into traditional economics) relative to segment bookings (what drives revenue), the lower the value a given travel agency subscriber brings to the GDS. A Sabre document dated in 2010, surfaced during the US Airways v. Sabre trial, showed scan expenses per-booking by travel agency. A Sabre witness explained that this was a way Sabre assessed the profitability of each agency. Average per booking data processing cost for Expedia was on the low end at $0.20, followed by BCD Travel at $0.32, Egencia at $0.35, HRG at $0.44, American Express Global Business Travel at $0.48 and Carlson Wagonlit Travel at $0.52.

It’s not a ton of money, but in a new environment where scan charges are paid out of pocket rather than debited from incentives, TMCs may feel more compelled to increase their efficiency and improve their look-to-book ratios.

Related

Teleconference 8: NDC In Corporate Travel

NDC’s Upshot: Altered TMCs, Evolved Air Deals

Airline-GDS Negotiations Heat Up As Parties Try To Sway Lawsuit’s Outcome

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