Sabre CEO Menke Explains The Private Channel

Sabre CEO Sean Menke confirmed what many suspected. The IAG private channel option for travel agencies caught up in reworked economics between airlines and GDSs is about foregoing GDS incentives.

Parent of British Airways and Iberia, IAG created “two buckets for the agency community,” Menke explained during the Wednesday Bernstein Technology Summit. He called them the “haves and have-nots.”

The “haves” avoid IAG’s GDS surcharge and perhaps one day will access content available only in the private channel. What they won’t have, though, is “an incentive from the GDS,” Menke said. If GDSs sign up, they get a lower fee from the airline. So the costs have come down for the airline as it relates to transactions that flow through the GDS. They will determine how much they want to pay the agency.”

Sabre Corp. president and CEO Sean Menke

Menke said the new Amadeus-IAG arrangement, first reported here, marked the first time a GDS and large airline struck a deal dictating “who can be in what channel.” This is a break from the bilateral full-content deals between GDSs and airlines that guaranteed to all agency subscribers access to an airline’s complete set of fares and inventory.

IAG has not moved to withhold certain content from the traditional GDS channel, but because previous full-content deals with Amadeus, Sabre and Travelport expired, it is free to do so. Like Lufthansa, it added a surcharge to GDS bookings. Air France will follow with a similar fee come April. Meanwhile, IAG now also can create new kinds of product packages and pricing for certain channels but not others. (The same goes for Lufthansa and Air France-KLM.)

The result of all this, Menke said, is a “bifurcation of agencies.” Travelport CEO Gordon Wilson talked about this notion last week, as well.

Each agency must decide for itself what’s acceptable. Menke said it’s tough for them to determine how much to invest in technology solutions supporting evolving airline distribution strategies “when they don’t know where the economics are going to land going forward.”

Potentially also in play is compensation from airlines when agencies help generate incremental revenue. The industry has discussed the issue for years, but Menke said it hadn’t settled on a model dictating the incentives for parties upselling into a higher-tier branded fare or selling ancillary products.

Regarding bag fees and seat assignments, for example, “why would an agency want to book that if they’re not being compensated for it?” Menke asked. “It does add to the workflow.” Without an associated compensation structure, he added, the penetration of ancillary sales in the indirect channel will be slow.

“There are carriers moving towards it,” he said. “If I move you from middle seat to the aisle seat — be it through an app from Carlson or through an airline — that’s a benefit. But there has to be that economic alignment as well.”

Author: David Jonas

David Jonas in 2006 co-founded business media firm ProMedia.travel after ten years as a journalist with Business Travel News. David rejoined BTN in 2010 as executive editor when its parent company acquired ProMedia, and in 2014 co-created The Company Dime. David has a bachelor's degree in communications from Cornell University.