In Romeo and Juliet, the nurse acts as a go-between. By passing on love notes she, in today’s jargon, facilitates the romance.
Initially, a global distribution system (GDS) felt equally valuable in its role as middleman, bringing together tens of thousands of airline seats and hotel beds into one reservation system. In the 1990s, when hotel inventory was integrated into airline computer reservation systems, the power of the new tool was formidable.
Yet a decade later, GDSes are under threat. Not only are customers bypassing agents and booking direct, but travel consultants are also using a variety of sources to find inventory when building an itinerary, says industry analyst Roman Zwolak from Ibis World. Added to this, the technology on which the major GDSes are based — known as mainframes — is hugely expensive, encouraging nimbler rivals to enter the market with new alternatives.
Through the recently approved merger of Galileo (known as Apollo in North America) and Worldspan into an as yet unnamed Travelport system, there are now only three major reservation systems, with Amadeus and Sabre completing the trio. Details are sketchy on their financial performance, not least since only Sabre is publicly owned. Travelport, for example, was formed in August 2006, when private equity firm Blackstone Group bought Galileo and online booking engine Orbitz from Cendant in a deal valued at $US4.3 billion ($4.9 billion). Since then, all reporting has ceased. Meanwhile Amadeus, previously owned by Air France, Iberia Airlines, Lufthansa, and Scandinavian Airlines, has been transformed into the anonymous sounding Amadeus IT Group since 1995.
But, based on incomplete data, the margins each make appear to be declining. Sabre made $US214.1 million net profit on $US2.1 billion revenue in 2002, or a ten per cent profit margin. By 2006, this figure had declined steadily to 5.5 per cent profit margin despite growing revenues. Last year Amadeus reported revenues of 2.7 billion euros, while Galileo claimed to be number two in the world, leading one to assume its revenues are in a similar ballpark.
The revenues are earned little by little. James Granter, Sabre head of marketing in Australia points to staggering figures: Sabre handles the largest number of transactions in the world, at an average rate of 19,000 transactions per second.
The reason for the GDSes’ dwindling profit margins is clear: people are cutting out the middleman. Airlines, who used to own the systems, have made their own inventories available direct to consumers, as agents are well aware. But worse for the GDSes is that airlines have also made the same fares available to agents, via trade websites. Furthermore, until recently, most low-cost airlines bypass the traditional GDSes in favour of less complex reservation systems.
Becoming relevant
This last aspect is the most worrying trend for the systems. GDSes compress thousands of fare rules, booking classes, interline agreements, codeshares and alliances details into a simple interface. Much of that is irrelevant for no-frills carriers, who are loathe to pass on the estimated $US8 per sector charges that most GDSes impose.
The reason for the charge is the technological challenge of crunching so much data is often painstaking. Much is automated, but too much still relies on writing application programming interfaces (APIs), essentially translators between different computer codes. Airlines now code their own data through a third party database called the Airline Tariff Publishing Company (ATPCo), which is plugged into each of the systems, and the GDSes are encouraging hotel chains to follow suit, in a bid to reduce costs.
The looming problem is relevancy. Consultants today are used to phoning wholesalers to check package deal availability, booking low-cost carriers via their own websites, contacting cruiselines via a variety of means, and calling up rail consolidators for train tickets. On top of this, specialist high-end consultants need to book Broadway shows and reserve restaurant tables to earn their service charges. So what would stop agents migrating all their content aggregation online?
There is some evidence that travel agencies are questioning the long-term reliance on GDSes, said Zwolak. He points to a recent deal signed by Galileo with Flight Centre. An 18 month extension to an existing contract. “Usually GDS deals are for three or five years. This could be a sign that Flight Centre is less certain about the role of a GDS than previously,” said Zwolak. Shelley Beasley, Galileo South Pacific managing director however, says the relationship with Flight Centre is a “long-term partnership” necessary to see a specific project through to the end.
Elsewhere in the world agents have let GDS contracts lapse and source product elsewhere, making money from providing the service. In short, the battle is for relevancy; relevant content, relevant deals and relevant technology.
Firstly, each of the GDSes recognise there are gaps in their offerings. Flight Centre managing director Graham Turner recently said his ideal technology partner would be one which could aggregate all inventory in one place, dovetail that information through payment into ticket issue and then build a traveller profile for follow-up. This would, in essence, prevent consultants from having to waste time researching outside of the GDS. This, too, is the aim of the GDSes. “We want to build a solution that reduces the number of touch points for agents,” Granter said.
What’s missing?
At present, however, GDSes manage air content and hotels well, rental cars reasonably well, but fall down elsewhere. For example, Amadeus contains 490 airlines, representing 95 per cent of the world’s scheduled airline seats, around 75,280 hotel properties, 22 car rental companies in 36,000 pick-up points but only 17 cruise lines.
If you look at rail, the situation is similarly sketchy. For example, Eurostar is available through GDSes in Europe, but not elsewhere. Excursions and ground transfers are virtually non-existent outside North America and packaged tour wholesalers do not load their content in wholesale.
Some of the problems are technical: it is hard to write APIs for much of the content and smaller operators do not have real-time systems to build the system onto. But equally there is a commercial reluctance to provide content to GDSes in some quarters, out of fear of losing direct sales, a source within one of the systems recently told Travel Weekly. “We have to explain to them that it’s another channel to market, not a threat to their business.”
But the gaps are being filled. Getting cruise inventory into the mix is the “top priority for 2008,” Beasley said. Similarly, Amadeus is understood to be on the verge of signing up serious rail content and Sabre will expand its Live Connect package tour wholesaler content to Australia in 2008. Spa treatments, sightseeing trips and experience days are also in line to be integrated into GDSes.
The technological barrier comes from largely mainframe based computer system architecture. It is very robust, but very expensive and laborious to maintain. At present the multiplicity of client-specific discount terms and fixed corporate fare rules is too complex for purely web-based systems, but if, as many analysts predict, airlines file simplified corporate fare by rules into APTCo (called category 25) and move away from net fares (category 35), suddenly web technology looks feasible.
See no evil, hear no evil
The GDSes are not blind to this threat. Each has developed web-based front ends to their systems. Most agents still prefer blue screen, Granter said, but as internet children Generation Y take over, they won’t want to mess around inputting codes when they can point and click.
Equally, despite initial legal resistance in the US from travel agents against Orbitz, Travelport’s direct-to-consumer website, GDSes are in the perfect position to provide content for online travel agencies. Amadeus powers sites including ebookers, Expedia and Opodo. Galileo recently signed a renewed contract with Webjet and powers ebookers.com elsewhere in the world and through Worldspan has a formidable online presence with Priceline and Orbitz. In this regard, Sabre — which started life out as the pioneering Semi-Automated Business Research Environment — has fallen behind, although many of its airline websites also offer hotels from the system.
Of more immediate concern for the GDSes is expanding their technology through the various parts of an agent’s workflow. Terms like “mid-office” and “back-office” are being thrown at franchisees of major chains referring to the dull but important administration that goes on in a typical agency. “If we can aid productivity, that’s our aim,” said Amadeus’s managing director for the Pacific, Tim Russell.
The shift is away from having a reservation system on the desktop, an accounts package, a billing program and a customer database all separate, he explains. “In the days of high staff turnover, you also need to automate as much of the task as possible, to relieve re-hiring tension,” he added.
Sabre claims its Client Base customer resource management system is the largest of its kind, with 35,000 travel agents using it. Added to personal name record data, consultants add details such as children’s age, travel desires and marital status.
Another part of the IT chain the GDSes are moving into is airline reservations. This may sound illogical, since they already do this, but in a ground-breaking deal Amadeus recently scored a coup in winning an outsourcing contract from Qantas Airways for its computer reservation system. In essence, this is the bit before the fares are loaded into a GDS, and it gives Amadeus a huge slice of the Australian market, regardless of whichever system the agent uses to fulfil the itinerary, said Damien Leonard, Amadeus general manager for sales and marketing.
Perhaps most telling of the state of the market, for Zwolak, is the consolidation taking place. Aside from the merger between Worldspan and Galileo, each of the GDSes has bought smaller rivals and suppliers of niche technology. Part of this is strategic, to bolster each one’s technology skill set, but part of its an aim to reduce costs at a time of reducing margins, said Zwolak. “Consolidation is a way to boost revenue, reduce overheads, increase geographical presence and use technology to reduce costs,” he said.
Less romantic than the role of matchmaker for the star-crossed lovers, deal makers and brokers are essential middlemen in any buyer and seller relationship, said US economics professor John Rust in his study on competitive exchange. The key is to do it more efficiently than your rival. With that in mind, the death of the GDS is not likely any time soon.