Sabre CEO Menke Explains The Private Channel

By | November 10, 2017

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.”

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2 thoughts on “Sabre CEO Menke Explains The Private Channel

  1. Timothy O'Neil-Dunne

    There is a basic reality here. The economic and commercial power of the airlines to dictate terms has now come full circle. The “not so smart for the airlines” FCA” – Full Content Agreements will go away. Private channel like so many terms and items in the airline world creates complexity. Complexity adds cost. Ultimately the passenger will pay the associated “tax”. What is needed is a totally new set of thinking with regard to the way that Airline product is sold. We need a proper digital selling platform not the current crop of “lipstick” based solutions. All 3 GDSs have proclaimed that NDC will be expensive for them to implement. Of course – but comparatively speaking compared to how much money they have saved by NOT investing over the years – it is but a small amount. Now the failure to truly innovate is coming home and its not just roosting its running around and causing havoc. Calling a spade a spade here – NDC is but a technical standard. It has its faults and its obstacles but they pale in comparison with the challenges of the 1950s Telex based core GDS architectures that will cost so much to replace. What was always obvious to all but the very blinkered – that the value of NDC was two fold.
    1. It enables all forms of airline differentiated product to be available for distribution
    2. It enables a whole new world of distribution and partnership opportunities for the customer to have available to them rather than the narrow GDS based channels that have traditionally existed.
    But is there a price to be paid for this “freedom”. There will always be a price and a piper to be paid. The days of the ubiquitous access to the universal airline content is now effectively over. Some will morn, some will not. My company built a truly modern digital selling platform to take advantage of the seismic shift in airlines and their market presence. We are focused on product powered brands. This represents a completely different way to have the airlines engage the customer or more appropriately the other way round – the customer to engage with the airline. it is a more honest and I would say truthful way to engage.. Is this better? Only time will tell. I personally believe that the consumer is smart enough to make her own decisions and accept the consequences thereof. The GDSs have lost their role of industry “nanny”. And so they should. Now we can get on with the business of meeting the needs of the customer while transferring the battle not intra industry but against the real risks facing the airline supply chain – namely the big customer channels/market spaces. That is going to be a bigger battle because these players are no longer as simplistic (dare I say stupid) as the existing players have been. You have been warned.
    Cheers

    Timothy

    Reply

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