Wednesday, May 02, 2007

Pegasus, Wizcom and the attempted rise of GDS New Entrants (GNEs)

You don't need me to tell you that Pegasus bought Wizcom. If you do, here is BTOnline's report and here is the Internet Travel News Report. You also don't need me to tell you that this means that a supposedly fiercely competitive two horse race is now a co-operative ride in the country. Where there was once two mechanisms for a hotel connecting to the GDS' without going direct. There is now only one. I have been thinking about the angle to put on this. My natural (and historic) angle is to focus on the Travelport elements. To link all of this to my commentary around Cendant becoming Travelport becoming Blackstone and being sold off (see this index).

Instead I see it as a good opportunity to talk about the GNE vs GDS debate. Again you probably don't need me to say that GNE stands for GDS New Entrant. For years it was thought that it was not possible to replicate the infrastructure of the big GDS' - most of which was borne from years of tech investment in airline rez systems. GDS' are some of the biggest and most complicated computers on the planet making the tech side extra-ordinarily expensive. On the revenue side, the business model and therefore the "rivers of gold" like profits is under threat. So (the thinking went) surely there this no way to build a new in GDS or GDS like product in a profitable/sustainable way.

In the last year or so, the GNE's have emerged - led by G2 Switchworks and ITA Software - trying use different forms of connectivity (APIs, xml and other web forms) to provide the same/similar connectivity services of the GDS without the huge infrastructure cost. As they are starting from scratch they are trying different (read cheaper and less complicated) business models than the "I charge you, then give lots to the agent" model of the GDS.

Let's assume that this new model gets traction. Combine this with the enormous power of other non-GDS channels to agents for hotel access and bookings such as wholesaler web platforms, meta-search and plain old Internet sites with xml connections everywhere and in-house dynamic packaging and it could mean that the effect of Pegaus having the main key to the GDS door will be lessened over time.

This is a big assumption to make for now as the GNE model's success is by no means guaranteed. There is not even certainty yet whether they will be able to grow out of the North American market. I have more to learn about it to comment further. If you have some inside knowledge about the GNE market please post a comment. If you work in the sector send me an email and we can organise an interview. For a little more background their is an interesting piece (video and pdf) here with reps from Worldspan, Accenture and G2.

1 comment:

Ian Rhodes said...

The GNE's are going to have to offer agencies more for the same dollar to get any volume. Otherwise why would a major agency switch from an GDS that pays them to a GNE that they have to pay? Assuming a US carrier is paying a GDS $3 a segment and that GDS is paying only $1 inducement to the agency, on a connecting flight that's $4 in revenue for the agency vs. a $1/ticket cost to the GNE, a $5 loss in revenue.

GNE's were used as leverage by US airlines along with deregulation to get better deals from the GDS's. Now that the deals are locked up the airlines aren't spending much time talking about ITA's GDS system and ITA is focusing their new product dev efforts on their airline hosting product.

G2 Switchworks offers a lot of impressive post-booking automation but those functions happen an order of magnitude less often than bookings. So unless the agency is extremely cost-inefficient at handling schedule changes and exchanges and gets a very high volume of them, it will be really hard to justify the $5/ticket revenue loss.