Sabre Sees An ‘Inflection Point’ On Ancillaries Via Travel Management Companies

By | November 7, 2016

[UPDATE, Dec. 20, 2016: Commentary from witnesses during the US Airways v. Sabre court case addressed the challenges of selling US Airways’ Choice Seats via the Sabre GDS. This post has been updated to include some of those comments.]

Air Canada since September has been selling paid seats through Sabre. It began listing its branded fares there in April and now distributes its full content to Sabre subscribers. Once an enemy of the global distribution systems, Air Canada has traded in its maverick approach for real support of mainstream corporate travel channels.

According to Sabre vice president of travel product solutions Shelly Terry, Air Canada has added to the “critical mass” of content available in the GDS. The industry, she asserted, now is at “an inflection point” for ancillary airline sales through travel agencies.

All three primary GDS operators report growing interest among airlines in using new merchandizing capabilities. Ancillary sales volumes are rising. Sabre began selling American Airlines’ paid seats in February. Terry said two more prominent airlines will follow early next year. The International Air Transport Association’s New Distribution Capability promises to make all of this much easier for many in the industry.

Shelly Terry

Shelly Terry, Sabre vice president of travel product solutions

So far, corporate travel agencies have been either unable or unwilling to sell lots of add-on airline products and services through GDSs.

US Airways began selling its Choice Seats via Sabre during the first half of 2013. According to evidence produced in the ongoing US Airways v. Sabre trial, the airline sold 9,200 of the options through Sabre (before the start of the 24-hour check-in window). Contrast that with more than 1 million sold directly. During testimony last month, former US Airways distribution executive John Gustafson (now AA’s VP for digital channels) described Choice Seats sales in Sabre as a “robust failure.” Even agents, he said, would go to US Airways’ website to book the option for customers.

Why? Gustafson said that agents had to pay once for the fare and once for the seat. That it was a two-step process, he claimed, meant lower sales. He also admitted that US Airways had declined to offer intermediaries a commission.

Sabre laid the blame on US Airways for insisting on a process that didn’t use Airline Tariff Publishing Co. and Electronic Miscellaneous Document standards.

“They wanted to do it the same as their website,” said Sabre vice chairman Greg Webb during his testimony at the US Airways v. Sabre trial. “It doesn’t work that way for travel agencies. In a professional agency, you make the reservation and unless you’re traveling in an hour, it goes through quality control. Much of the time it gets re-shopped. There’s a quality assurance process. It’s put in a queue. At night, off peak, they book all those tickets at the same time. Until that time, we hold the inventory but it’s not ticketed yet. Or paid for. By midnight, the ticket went through and agencies hadn’t changed the QC … so the seats were sold as well. This wasn’t effective. The tech teams talked. We had spent a significant amount to get it implemented. We looked for ways to improve it. We needed the agencies involved — they had rules and agencies in some cases weren’t willing to spend.”

Webb said Sabre spent $3 million to enable the airline’s custom approach. It didn’t charge extra for the bookings.

In a taped deposition three years ago, American Express Global Business Travel exec Mike Qualantone said GBT had gone so far as to turn off the function for its corporate accounts.

The airline’s non-standard route, he said, led customers “to believe a seat was purchased but it wasn’t. Customers were showing up at the airport and finding they had no seat.”

According to IATA-funded research published in October 2015, agents still were more likely to book ancillary products through airline websites than GDSs. Allowing for multiple responses, the study found that 64 percent of about 240 responding corporate TMCs used airline websites. Forty-nine percent said they used GDSs. Forty-six percent said they called airlines directly and 22 percent used direct connections to airline res systems.

For fulfillment of ancillaries, Air Canada is among those airlines going with the Electronic Miscellaneous Document. Terry said corporate customers value EMD because it ties the ancillary purchase to the ticket, easing reporting. But she acknowledged that having a separate transaction for an optional service “does add an element of maybe additional complexity and work.”

EMDs haven’t exactly been going gangbusters. Speaking on The Company Dime’s Teleconference in September, ARC president and CEO Mike Premo described a slow trickle. “ARC agencies this year,” he said, “have only processed about $21 million in ancillary sales via the EMD process.” Even excluding bag fees, he noted, airlines are generating billions in ancillary revenue overall.

At least on the shopping and booking side, the newer generation of GDS-supplied agency desktops is meant to improve ancillary sales.

Terry explained that agents using the Sabre Red Workspace, when booking Air Canada for example, see all the Preferred Seats information. They see which ones require an additional payment and which already qualify based on fare type purchased, and the characteristics of those seats. “The experience of what you get for what you pay is very much enhanced but actually the workflow itself has not changed,” Terry said.

Speaking last week during Sabre’s third-quarter earnings conference call, outgoing CEO Tom Klein said “hundreds” of agencies are beta testing the latest Sabre Red Workspace, which is due out next year.

“The bulk” of ancillary sales, Klein said, “come from things that are either bought at the airport (mostly bags) or things going through the direct channel (mostly seats) or the sale of miles, which in our view isn’t a new ancillary sale.” He said airlines “have more or less saturated the direct channel” with those ancillaries. “Our conversations with airlines validated that they want to sell more through the intermediated channel. That’s a technology issue and a product mix issue and a sales compensation issue.”

Compensation is a big rub. A March 2012 internal US Airways email presented at the trial indicated American Express and Carlson Wagonlit Travel told the carrier “they need to monetize or [it’s] not worth the effort or time in the booking process to pursue” paid seats.

According to the October 2015 IATA study, agencies’ preferred compensation model for selling ancillaries is airline-paid commissions. Sixty-three percent of responding corporate TMCs said as much. That was followed by airline-paid transaction fees (23 percent), traveler-paid fees (9 percent) and GDS-paid fees (6 percent).

Egencia in March began selling bag checks online through Amadeus for customers of 14 European airlines. Amadeus director of managed travel Arlene Coyle this summer said other TMCs were “still struggling with the business model.”

“We do have ancillaries sold today through other TMCs — it’s more ad hoc,” Coyle said. “You won’t read about majors using ancillary services from Amadeus. It’s not a strategy. It is more a response to clients. Selling an ancillary service is a production issue for TMCs. If you solve production and economics, there’s no reason we should not see massive adoption.”

Sabre’s Terry said conversations along those lines between airlines, agencies and corporate customers are underway. “There are mid- and back-office processes where, quite frankly, agencies have to make adjustments and make sure there is a value proposition to make changes necessary to drive transactions,” she said. “Bookings are happening on branded fares and ancillaries today. We are delivering millions of dollars in revenue through the Sabre marketplace and there is a lot of room to grow.”

She also alluded to corporate policies that may not provide for reimbursement on optional add-ons. Sabre attorneys during the trial pointed out the same, suggesting those dampened the uptake of US Airways Choice Seats purchases in the GDS.

Meanwhile, according to the IATA study, there has been “extensive frustration and unhappiness across the travel agency community toward the various distribution channels they use to book” branded fares and ancillaries.

Two-thirds of TMC respondents indicated they used airline websites to sell branded fares. Forty percent said they used GDSs.

GDSs, corporate booking tools and airlines have made progress since that study. For example, now that Air Canada lists its branded fares in Sabre, it means distributors connected to the GDS through Sabre’s APIs also access them. That includes online travel agencies and corporate booking tools. Each would have to complete an implementation. Asked if GetThere now is displaying Air Canada’s branded fares and paid seats, an official did not have an answer by press time.

Additional information: Unlike AA’s paid seats in Sabre, which use AA’s XML-based API, Air Canada’s paid seats and branded fares get to Sabre via traditional fare-filing mechanisms provided by the Airline Tariff Publishing Company.

The IATA-funded 2015 study was conducted by WTAAA, T2Impact and Atmosphere Research Group. It surveyed 1,034 travel agency executives — 23 percent from corporate TMCs — primarily in Australia, Brazil, Canada, India, New Zealand, South Africa and the United States. Among TMC respondents, 62 percent indicated that NDC would open up access to a more complete set of airline fares and products. Forty-two percent said using a single screen for all products would be a top benefit of NDC’s role in selling ancillaries.

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