Are yesterday’s GDS central reservation systems the best hope for consumers in the future?

by Charlie Leocha on August 17, 2011

Semi-Automated Business EnvironmentAirlines are in a battle to change the way you purchase tickets. Frankly, they hate the free market and price competition. Airlines don’t want passengers comparing prices among airlines. After the Internet disaster (from their point of view) that allowed passengers to compare prices easily, the airlines want to get their marketing power back.

Airlines want to return not only to the days when travelers had to call each individual airline to find prices and then compare prices, they want even to make it difficult for travel agents to easily compare prices. That would push price transparency back more than three decades.

Airlines battle against multi-airline competition
Let’s look at the lay of the land. Wherever there are multiple airlines flying in and out of cities, the prices are lower. That’s because of competition. The airlines have been excellent at limiting competition initially by forming hubs and most recently, by mergers. What was once a strong airline system across the USA with almost a dozen airlines competing, has been reduced to 5 major carriers — American, Delta, Southwest, United, US Airways — and a handful of smaller airlines.

Internationally, the verdict is worse. Three airline alliances, each armed with antitrust immunity, now control something like 80 percent of all international airline traffic. It cannot be good for consumers in the long run, especially should these three groups begin to carve up the world with their own profits in mind.

Already the major hubs on Europe are in the grip of the alliances. Frankfurt is firmly planted with United and Lufthansa. London Heathrow is in the hands of British/Iberia and American Airlines. Paris and Amsterdam are controlled by Air France/KLM and Delta.

Airlines battle against price comparisons
Now, in Congress and with the Department of Transportation (DOT) the airlines want to put another nail in the consumer price transparency coffin. They want to keep hiding their ancillary fees under the guise that these fees allow them to create distinct markets for their product.

Already, travelers must go to each individual airline to figure out the different baggage fees they must pay. Now the airlines, led by American Airlines, are trying to foist a “direct connect” product on the industry. The offer is simple. Work directly with us without the ability to easily compare prices and we will offer you better deals.

Ironically, the same airlines that claim they will lower consumer prices if the central reservation fees are reduced are the ones who hoarded the taxes that the FAA didn’t collect. The same airlines that eliminated travel agent commissions, now want to promise travel agents a better deal if they embrace “direct connect.” Of course, anything is better than nothing, which is what the airlines are providing travel agents today.

Hopefully, the DOT is carefully watching these developments and will insist on a method of direct comparison of prices for consumers when it comes to airfare purchases. Left to their own devices, airlines have demonstrated time and time again that they will work against customer good, the good of the nation and attempt to line their own corporate coffers.

Today’s system of strong computer reservation systems that span all airlines and serve all travel agents and, hence, all consumers, are becoming the airline passengers’ best friend. These massive computer networks are the only way that virtually every passenger can have the ability to compare prices before purchasing tickets.

Left up to the airlines, only a handful of airlines would control the skies and there would be no easy way to make airfare price comparisons.

Photo Credit: Smithsonian, National Museum of American History

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  • Anonymous

    Once again I was sucked in by a headline which promised a vibrant discussion of GDSs in the modern environment.  Instead what was presented were the same old tired arguments about price comparison. 

  • Ski2CO

    You left out that GDSs are expensive.  And in a high-oil environment where everyone shops based on price, the airlines are looking for ways to save money, since they can’t raise fares without cutting further into demand.

    It’s clear that you don’t understand the reasons for a hub/spoke route structure, or the benefit of airline alliances for the customer.

  • Charles Leocha

    @Ski2CO Obviously I am missing something. Please show me how building their own system will save the airlines money in the short run. Maybe in a perfect world, there would be savings someday in the future, but that is not certain. Plus consumers will not be able to compare prices across airlines.

    Distribution for airlines is around 1 percent these days. I don’t know many operations with those kinds of low distribution rates. GDS rates as a percent of ticket costs have been dropping for the last decade.

    I did not deal with a hub and spoke route structure. Where does that enter the equation. We are discussing competition. As for airline line alliances, there are far more negatives in terms of competition and higher prices for consumers than there are benefits of sharing lounges and frequent flier miles.

    You are sounding like an airline shill.

  • Tony A.

    Shopping largely based on price works if there is a MEANINGFUL difference in fares between airlines. I agree with Charlie that after both the USA and EU anti-trust waivers,  fares for airline alliances have began to look almost exactly alike and are higher. What’s  worse, flight schedules are being streamlined within alliances lowering overall capacity and thus effectively increasing fares.

    No amount of fancy meta-search engines would work to lower fares if there is less competition among airlines. And, anyone who is really aware of how the distribution systems work should know that GDS and any meta-search engine are layers on top of or above fares *and* rules published in ATPCO (or SITA), *AND*  (close to real time) seat inventory information from the airline’s own inventory system. In other words, the GDS will find both the fare and the seat that any of these meta-search sites can find (unless the meta-search engine is accessing some private fares database). It is also worth mentioning that many of the meta-search engines rely on some GDS companies to provide seat availability data.

    Charlie indirectly broaches the concept of participation and the level of access of participation. Normally and historically, airlines and the GDS agree on a full content participation – meaning the airline promises to make all its fares accessible to the GDS company. Contrast this with participation on a meta-search site. I bet you won’t find an airline’s offering in a search site if it wasn’t paying a pay-for-click fee. So in a sense, meta search sites have limited flights and fares if airlines do not bother to participate in their pay-for-click schemes.

    I also want to add that there is a difference with quality of information between a GDS and a typical meta search engine. GDS can provide last seat availability – so that you can be assured that the airline will “guarantee” available space if you see it on GDS. On the other hand, many meta-search engines use “cached” seat availability information – meaning it may be offering you a fare based on a seat they THOUGHT was available and then WASN’T after you press click to select (after which only did they bother to VALIDATE their offering).

    The same is true for PRICING. The GDS stands by their autopricing features. In other words, the GDS guarantees that the price they compute is accurate and is what will be charged to the form of payment once ticketed. Meta-search engines can’t guarantee any accuracy in pricing.

    To be fair, not all airlines (especially low cost carriers, LCCs) do not participate in GDS. So that presents a huge problem for those who want to use only GDS for a number of point-to-point origin and destinations handled by LCCs. Note that there are some European-based fare search sites that say they have spiders that scrape fare data from both LCC sites or their agents. But the level of service of these sites are quite limited. Many do not allow you to put the number of passengers and they cannot handle multiple city or open-jaw trips. Some are downright dangerous since they will sell split (multiple) tickets for the journey without making it clear to the buyer that they lose EC261 and other protection when they do so.

    Finally, the biggest issue for consumers is that most of them do not know how to use a GDS even if they were given free access to one. That’s the role designated to a travel agent. But since the travel agent does not get airline commissions, then they have to charge a booking fee. So in the end of the day, the consumer has 2 options – (a) use the airline’s SELF SERVICE web-based vending machine, or (b) pay a travel agent to do some work (assuming they know of a good one).

  • Tony A.

    Correction (typo) – I meant to say NOT ALL AIRLINES PARTICIPATE IN GDS.

  • Bodega

    Today’s system of strong computer reservation systems that span all airlines and serve all travel agents and, hence, all consumers, are becoming the airline passengers’ best friend. These massive computer networks are the only way that virtually every passenger can have the ability to compare prices before purchasing tickets.
    **********************************************************************************************
    It has been that way for decades.  The internet for air travel is not the consumers best friend, I can guarantee it. 

  • Terry

    IF when Delta had lowered the travel agent commission – travel agents would have had the business sense and guts to stop selling Delta (at that time travel agents were selling over 80% of all airline tickets) – it would have been impossible for Delta to service their customers – phone lines would have been a disaster and online booking systems were not yet available. In just a few DAYS, Delta would have been back at the travel agents ON THEIR KNEES begging travel agents to take them back and maybe even at a higher commission – and things would be different today.  You can lay this all at the travel agent’s feet.

    When travel agents lost all commission, the GDS’s started charging airlines more money per segment and then turned around and passed this additional money through to the travel agents.  Think the airlines were ticked?  They had a right to be.

    Technology now allows airlines to go directly to the public with their own product.

    Yes, consumers are required to check with many airlines to get the best deal – just as they must check with many car dealers to get the best deal, many realtors to get the best deal, different health insurance companies to get the best deal, – I could go on and on. 

    Why are the ailrines different?  Why?  When I go into a retail store is there a law that requires the salesman to offer me the lowest price?  Think about it.  Why should the airlines be treated differently. 

    Constantly telling the consumer they are getting screwed is not the way to be a tru consumer advocate.  Being a consumer advocate means telling the truth and by always blaming the airlines means you can’t be always telling the truth.

  • AirlineEmployee

    Yeah, like the airlines didn’t see this coming — what did they expect ? - Once again they created a monster they cannot feed.  They all want to tout great customer service yet each and every customer and travel agent have to fend for themselves – chase their tails to literally “hunt down” the best deals – by the time they call or contact the airline for help, information or correction of their own errors, it’s too late; you’re simply a number in line behind thousands of others.   Good luck. 

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